Capital Allocations in the Namibian Financial Sector

By Arney Tjaronda
Financial analyst at High Economic Intelligence.

Namibia’s financial sector plays a vital role in pooling private capital to invest in national development. The government’s efforts to provide borrowing options such as treasury bills, bonds and other securities to unlisted private sector investment companies helps to reduce currency mismatches, systemic risks, microeconomic and fiscal risks.

They also provide sustainable financing in sectors related to employment and economic growth. Our so-called “experts” claim that capital markets are illiquid due to poor quality unlisted investments, when this is an overstatement that requires evidence. Or maybe they are those “experts” who only use knowledge based on assumptions, but let me stop there.

Capital allocation in the financial industry can be understood as the decision-making process to answer questions such as where and how CEOs spend earnings from the company’s balance sheet in year-end financial statements. . In most cases, these expenditures should be used to maximize efficiency and shareholder return in the value creation process.

Before making this decision, investors look at what is known as the capital allocation line, which is a graph created by investors to measure the risk of these assets. There are three types of finance capital to hit the base and they are; equity, debt and specialty. The circulation of allocated capital from an investment vehicle contributes to economic growth and market efficiency. A popular belief among industry experts is that an “effective secondary market helps investors distinguish good investments from bad ones through a mechanism like Tobin’s Q”, as stated by Jeffrey Wurgler (1999). Good and bad investments are analyzed collectively by domestic activities in each respective sector.

In accounting, they say you’re at least a year behind, so according to NAMFISA’s annual report (2021), which analyzed unlisted investment managers’ assets under management, by sector, as of December 31, 2020, is essential when viewed from an investment perspective.

The chart you see gives you, as an investor, a good idea of ​​which sector is taking the biggest slice of the ‘pie’, which ultimately also means there is frequent engagement in the activity. economic. There are three main sectors in which CEOs allocate their capital. In chronological order, that is; Manufacturing industry, renewable energy and agriculture and agriculture. Major players such as Hanagala Group, Eos Capital, Eljota Investment Managers and Baobab Growth Fund inhabit this space. So it always makes sense to “follow the herd” due to the displayed presence of an active market to gain market share. for you.

Namibia’s largest funder for many unlisted investment companies is the Government Institution Pension Fund (GIPF) under the provisions of Regulation 13 of the Pension Funds Act in Namibia. Billions of Namibian dollars flow into these companies every year, as they manage capital and allocate it to sectors where growth is imminent relative to the rest.

However, looking at the market on the ground, there is no growth in equity financing in MSMEs in Namibia, despite the efforts made by the GIPF. Perhaps the “expert” criticized at the beginning is right, perhaps the question is not that of the allocation of capital in the financial sector, but that of the quality of unlisted investments.

Finally, as the famous familiar says, “It’s not over until (or until) the fat lady sings.” So let’s wait and watch the financial sector. Perhaps growth will still prevail in due time.

James V. Hayes