NAMIBIA’S INVESTMENT RECORD
1990 – OFF TO A GOOD START
BY STEVE GALLOWAY
FORMER EXECUTIVE DIRECTOR OF NAMIBIA INVESTMENT CENTRE AND INVESTMENT BANKER
Independent Namibia did not waste much time in setting the scene for foreign direct investment in this new country in 1990. The Constitution created the platform for investment and the Foreign Investment Act was one of the first major pieces of legislation adopted by the new Parliament.
The Act provides for a competitive, investor-friendly environment in which foreign investors are treated equally with local investors. In addition, foreign investors can be awarded Status Investment Certificates to ensure favourable remittance and provide additional safeguards and benefits.
This early enabling legislation got Namibia out of the starting blocks quickly, the first Status Investment Certificate being awarded to Novanam for their major fisheries investment in Luderitz, announced on 21 March, 1990. They have since made substantial investments in Walvis Bay too and remain a stalwart of the demersal fisheries sector.
The new Namibia began to attract significant investments across various sectors of the economy. Fears of nationalisation and of radical policy shifts subsided as a very modern and balanced Constitution, devised by a conciliatory and pragmatic government, built confidence in a new nation.
An early investment conference was followed by a land conference in 1991 and a mining investment conference in 1993. The pre-independence concerns of multinational divestiture, especially in the mining sector, were soon allayed.
Domestic investors too took comfort from the Government’s accommodating approach and soon committed to expansion of the local economy. Local brands invested increasingly in retail, engineering and construction, fishing, tourism, manufacturing, agriculture, financial services, logistics and trade to build what soon became a vibrant and medium-high growth economy. Government became a strong investor in infrastructure, social-, health- and educational services and in redressing the imbalances of the past.
Namibia was squarely on the investor map for enabling policy and welcoming attitude, and built some strong competitive advantages in resources and infrastructure sectors. The small sizes of the economy and local market, and the relatively cumbersome regulatory environment inherited, were constraints to investment. While Namibia has provided a peaceful and relatively predictable environment “Ease of Doing Business” has never been a competitive advantage, notably not against countries which have adopted strong reform agendas, albeit off low bases in some cases.
Economic diplomacy became the key theme for Namibia when Hidipo Hamutenya became trade minister in 1993 and commercial councillors were placed at foreign embassies to embed this model. Major trade and investment drives were launched in successful Asian economies with slow take-up initially but more traction in the second and third decades of independence. The large but footloose Ramatex Malaysian garment manufacturer was soon to be overtaken by significant Indian (Vedanta) and large, long-dated Chinese investments in mining and infrastructure and a flurry of construction and trading interests.
President Hage Geingob has taken economic diplomacy to a new level and has hosted a number of trade and investment open-houses in the USA, UK, and South Africa and mobilised hundreds of investors to attend the Invest Namibia Conference in Windhoek in early November 2016. This renewed momentum created needs to be followed through with practical project facilitation, match-making and honest investor support and monitoring. The proof of the pudding will be in the translation of promises and MOUs to tangible investments creating jobs, earnings and contributions to development and to the fiscus.
THE POTENTIAL OF THE “GREEN” AND “BLUE” ECONOMIES.
Namibia has developed strong competitive advantages in its “green economy” through prioritisation of the environment and its unique eco-systems. It is here that we can attract substantially more responsible investors, local and foreign.
The “blue economy” of fisheries, logistics, processing, offshore services and responsible offshore mining, can also add a new dimension to the Namibian economy, if maximised in a regional context.
Integrated thinking and socially responsible investment can take the Namibian nation to a new level of investment and growth for all.
CELEBRATING INVESTMENT SUCCESSES SINCE INDEPENDENCE
Mining, the back-bone of the pre-independence economy, continued to attract major investment in the new Namibia, even despite the Global Financial Crisis and the subsequent resources slump globally. Namibia is possibly the single example of a mining sector which has weathered the storm almost unscathed. But will the centre hold?
“DIAMONDS ARE A NATION’S BEST FRIEND”
Since the discovery of diamonds near Luderitz in 1908, these shiny gems have been a major pillar of the economy. In 1994 Namdeb was created as a 50/50 equity partnership between DeBeers and the Namibian government, a partnership which has continued to deliver a win-win, and which was subsequently expanded to include Debmarine Namibia’s sea operations. Investments of several billion Namibian dollars haves ensured that Debmarine remains the global leader of sea mining and the largest contributor, by far, to the fiscus. Several other investors in the diamond mining sector have had, at best, partial success.
Government policies have achieved success in stimulating local value addition in establishing local cutting capacity for the equivalent of 10% of rough diamond production. The jury is still out on the recent creation of a state entity, Namdia, to add further value for Namibia by establishing alternative sales channels for 15% of Namibia’s rough diamond production.
SKORPION ZINC/NAMZINC- MINING COMPANY OR EPZ, OR BOTH?
The processing innovation of an entrepreneurial company, Reunion Mining, led to the development of the Skorpion Zinc mine and refinery, commissioned by Anglo Base Metals in 2004, now owned by Vedanta. As it nears the end of its mine-life it seems likely that the refinery will be expanded to accommodate zinc concentrates from Vedanta’s Northern Cape deposits. The successful expansion of the world-class Namibian SX-EW refinery could finally justify the award of EPZ status given to Namzinc in 2004, and queried by many.
LANGER HEINRICH URANIUM-SETTING NEW RECORDS
Paladin stumbled upon the Acclaim Uranium EPL over the previously discovered Langer Heinrich deposit in 2004, bought the company for a song, and proceeded to develop Namibia’s second uranium mine in record time both in a Namibian and global context. This was possibly the first large mining project to access significant local funding for mine development through a consortium of local and international banks.
Langer Heinrich has recently seen investment to 25% shareholding by China National Nuclear Corporation, and a second investment of 24% is being advanced.
HUSAB- “THE ONE WHICH OTHERS LEFT BEHIND”
Australian and UK juniors, West Africa Gold Exploration, and Kalahari Minerals did extensive, mainly base metals exploration in Namibia from 2005 onwards. When the uranium price ticked up in 2006/7 they applied to include uranium in their “Rossing South” EPLs. The rest is history, with the discovery of the world class Husab deposit in 2008, just 6 km from Rossing in an area explored by various companies in the 1970s and 80s.
Restructuring of the companies and inclusion of the uranium licences under Swakop Uranium (Extract Resources) was followed by an intensive exploration phase in which Extract invested more than N$ 1bn over three years to Definitive Feasibility stage. China Guandong Nuclear Power Company purchased the operations in early 2012 and is on track for first production early in 2017 from what will be the world’s second largest uranium producer at 15m lbs per annum at full production. The total investment will be in excess of N$ 40bn, Namibia’s biggest-ever investment.
OHORONGO CEMENT, DRIVING NAMIBIA’S INDUSTRIALISATION
The epitome of Namibia’s “Growth at Home Strategy”, Namibia’s only cement factory produces more than the country’s total needs, to the highest global quality and environmental standards. German cement producer Schwenk and its European and South African funders invested more than N$ 34bn into this state-of- the- art plant 20 km north of Otavi. The Development Bank of Namibia took up just under 10% of the equity at an early stage and RMB has subsequently re-financed a significant portion of the foreign debt. In addition to these financial contributions from “home” sources, all the resources inputs to the plant are Namibian
OTJIKOTO GOLD, A NEW WORLD-CLASS MINE
After the discovery of gold 40km south of Otavi by Anglovaal geologists in 1997 it took a while and four successive mineral rights owners to realise the full potential of the deposit. Canadian junior, B2Gold took over in 2012 and wasted no time in accelerating the development of the N$ 3bn-plus Otjikoto mine, more than tripling Namibia’s gold production. Despite the relatively modest grades, Otjikoto is currently the lowest cost gold producer in the world and Namibia’s second largest foreign exchange generator.
DUNDEE- A TRUE EPZ INVESTOR
Dundee Precious Metals, another Canadian company, has shown great confidence in Namibia. After purchasing Namibia Custom Smelters from Weatherly in 2010, Dundee has significantly upgraded the smelter and has built a sulphuric acid plant which supplies acid to Rössing Uranium. Dundee has invested more than N$ 3bn in Namibia and plans to expand the plant further to accommodate further imports of copper concentrates from mines around the world.
BUT WILL THE CENTRE HOLD?
Not only has the mining industry seen investments in excess of N$ 60 bn over the past 8 years, since the Global Financial Crisis and resources down-turn, the sector has continued to contribute the lion’s share to the fiscus and to lead Corporate Social Investment(CSI) across Namibia’s social and environmental economies. Mining punches way above its weight in GDP-, export earnings-, infrastructure spend and CSI contributions.
Continued depressed commodity prices have had an impact and will weigh on Namibia’s over-reliance on mining going forward. Uranium prices are of particular concern and could have a significant fall-out for the Namibian economy if prices do not recover in the short-medium term.
Any attempts to increase government-take from mining or to artificially tilt the sector towards unrealistic local ownership or value addition will result in reduced outputs and declining contributions to the economy.
Government has carried the bulk of infrastructure investments, building on a solid base inherited at Independence. Namibia does well in infrastructure rankings, in some categories the best on the continent. The solutions going forward, however, are to be found in mobilising greater private funding both directly and through Public Private Partnerships (PPPs).
A growing back-log of infrastructure policy measures and overdue projects in energy, water, transport and in land and social infrastructure delivery need to be addressed collaboratively, with urgency, if Namibia is to retain its competitive rankings.
The Telecoms sector has perhaps led the way in opening up to private investors. MTC, the first mobile operator, was established by Swedish interests, Telia and Swedfund as a 49/51 partnership with government. In 2004 Government purchased the 49% shareholding, subsequently selling a 34% interest to Portugal Telecom as the new technical partner. This has always been a very successful operation, enjoying monopolistic or at least market-dominance benefits. It has returned handsome returns to government in the form of taxes and dividends and a sizeable capital gain in the sale of the 34% shareholding.
A second cellular operator, with 39% interest by Norwegian group Telecom Management Partner (TMP) in Powercom, operating as Cell One and then Leo, did not have the same success as the first-mover, MTC. In 2009 the company was bought by Telecelglobe, part of Egypt’s Orascom Group, a deal funded by two South African banks. A subsequent deal with the banks saw Telecom Namibia take over Leo and brand it as TN Mobile, now fully state-owned.
The Energy Sector has seen significant investor interest over the past decade. While the larger energy generation projects (Kudu Gas, Xaris, Arandis Power) have generated more promise than delivery by foreign investors to date, the Renewable Energy sector has begun to yield results. French investors, through Innosun, have implemented two 5MW PV plants and a Swiss investor two 5MW plants for Cenored through Hopsol. A number of additional 5 to 37 MW PV plants involving several foreign investors of various origins are currently being advanced with Namibian partners. Several medium to large wind generation projects are also being advanced in the south of Namibia, while invader-bush generation projects are being formulated for the central-north of the country.
A large energy financing gap of as much as N$ 20-30bn over the next 4-5 years will need to be closed through private funding and via PPP arrangements. In order to do this the energy policy framework needs to be brought up to date, to international best practice and finalised. This could unlock significant foreign and local investment, and the resultant energy-infrastructure will restore Namibia’s currently declining competitiveness in access to electricity.
The water sector has historically been the preserve of government but has seen one substantial investment by French government-owned Areva in a USD 200m desalination plant to supply its own Trekkopje uranium mine. When the mine development was aborted this plant became available to supply other off-takers subject to government approvals. An offer to sell the plant to government was recently declined and upcoming tenders were announced. Several tenders have already been held for private interests to deliver desalinated water, none of which have been awarded to date. Considerable potential exists for delivery of competitive water provision under various PPP models involving foreign expertise and equity and local and international funding, given an appropriate regulatory and policy framework.
The transport sector has also been dominated by state-owned interests, especially the road, rail and port segments. Self-imposed sovereign debt ceilings and fiscal consolidation necessitate that government opens up the sector to private funding and PPPs. Considerable foreign and local interest exists to upgrade and operate some of these transport modes under the appropriate policy framework.
HOW OTHERS SEE US- WHAT CAN WE DO BETTER?
Namibia has done itself proud as a young adult nation entering its second quarter century. We have done much better than many in the neighbourhood and even globally. We have been recognised as above average, having grown the economy steadily since Independence and at just under 6% annually for the period 2010- 2015. At the same time we have redressed some of the extreme imbalances of the past. We have also attracted significant foreign investment to certain sectors and have provided confidence to local businesses to invest across all sectors of the economy. This translates into further confidence by foreign investors and stimulates partnerships.
Of late there has been serious concern expressed regarding recent policy statements, frameworks and legislation which is seen to be restrictive, discretionary and over-prescriptive. These concerns relate specifically to the NEEEF Bill, the Investment Promotion Act and to subjective conditionality around licencing, particularly resource licencing. While there is appreciation for the historical context of poverty, inequality and skewed participation in the economy, successful transformation economies teach us that the way out of this is through pro-investment, pro-growth policies and shared vision. Public Private Partnerships are the only way, involving local and foreign investors and a level playing field.
When inviting foreign, and for that matter local investors, to the game we must remember that we compete on a global field and there are those nations competing for investments that appear more hungry- ready to reform, simplify and transform faster. Some come off much lower bases and have some way to go to match the stability, predictability and favourable “climate” that Namibia has ensured for 26 years.
What we should consider, however, is that we are a small economy with a small market, with reasonable resources and with social-, equity- and educational backlogs, and some real disadvantages associated with these factors. We have theoretical access to much bigger markets, but our competitiveness rankings, some of which pertain to cross-border factors as well as local efficiencies, have slipped over the past five years as others have reformed faster.
The most influential comparators include the various World Economic Forum’s and World Bank reports as well as several “Doing Business” comparisons. While Namibia ranks reasonably well in most competitiveness rankings, there has been deterioration in rankings over the past five years. The “Doing Business” r eports are of greater concern, with factors such as “starting a business”, “number of procedures and time to start a business”, ”getting electricity”, “trading across borders”, ”innovation”, “labour issues” and “education issues” being highlighted as vulnerabilities which are not improving. The over-complex processes in the recently approved Investment Promotion Act will create new barriers unless significantly refined.
Our critical mining sector competitiveness, as reflected by the Fraser Institute rankings, has oscillated between 25th globally (1st in Africa 2014), currently down to 37th globally (4th in Africa), and has been as low as 69th(10th in Africa). This is a perception index based on a survey of mining companies and is greatly influenced by policy pronouncements, even those which are not implemented. Uncertainty around recent NEEEF pronouncements, “additional conditions” on mineral licencing and processes around the Investment Promotion Act, have already influenced the rating negatively.
The overall competitiveness, while still good in a regional and African context, has shifted sideways and downwards in various parameters. The noble objectives for competitiveness as outlined in Namibia’s national development plans and quantified in the Harambee Prosperity Plan are achievable. Namibia could indeed be the most competitive economy in SADC in five years if we all “Harambee” and pull together, in the same direction, leaving no-one out. “Enterprise Namibia” needs to rise to this challenge.