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Namibian Asset Requirements - Has the Namibian Asset Requirement

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					Namibian Asset Requirement
    Costs and Benefits
Two separate issues:
• Namibian Asset Requirement
• What type of Stock Exchange does
  Namibia need?
   Reasons for Namibian Asset
         Requirement

• Prudential requirements
• To support the development of the NSX
• To promote economic growth and
  employment
     Prudential Requirements?

• Namibia is part of SACU and CMA
• Namibia’s political and economic risks are
  tightly linked to those of RSA
• Stocks of dual listed RSA companies are not
  less risky because they are booked through
  the NSX
• Prudential requirements should not
  distinguish between Namibian and other CMA
  assets, but instead be based on asset class
  compositions and international ratings
     Did it help to develop the NSX?
• A place where Namibian businesses can get
  money at reasonable costs?
• A place where investors earn on average a
  return that is higher than the return of a bank
  deposit?
• A place where trade reflects information?
• A place that contributes through effective
  financial intermediation to more growth and
  employment?
     The NSX does not work for local
      companies in current set-up!

• Number of de-listings outweigh new listings
• There is hardly any trade in local shares
• The local share index has de-linked from the
  overall index
• No success stories! Those companies that still
  operate profitably could have raised the
  money elsewhere (FNB, M&Z)
• Many investors in local shares have burned
  their fingers
  Economic Growth and Employment?


• Keeping Namibian money in Namibia to foster
  growth and create employment through lower
  interest rates?
• Keeping Namibian money in Namibia to foster
  growth and create employment through lower
  cost of equity finance?
26%

               South African Average Prime Rate
24%
               Namibian Average Prime rate

22%


20%


18%


16%


14%


12%
  Jan-93   Jan-94    Jan-95     Jan-96       Jan-97   Jan-98   Jan-99   Jan-00   Jan-01
    Cost of equity has been too low to attract voluntary investment

  API    CIC     FNK GDR MAZ NAS             NBS NCT NHT NMC NMF PNB SRM

                             14.6%                                                        17.0%


                 4.7%                                                     6.1%
                                             3.7%


                                     -1.3%
                                                    -5.3%


                                                                                 -15.8%


                                                                 -25.7%
        -29.6%          -29.3%
                                                            -32.6%
-34.9%
Annual compound returns (initial listing until 31 Dec. 2001)
Ln( (Price31Dec2001+Dividends) / IPO Price)Years
              Summary
• Namibian Asset Requirement is more a
  risk than a prudential requirement
• NSX does not perform its economic role
  (for local companies)
• There is hardly any economic value in
  trading dual listed shares
• Namibian Asset Requirement has failed
  to boost economic growth
   What are the economic costs?
• The question is not whether a restriction in
  asset choice is bad for investors
• The question is: How bad is it?
• The government or arbitrary regulations
  cannot make better investment decisions in
  the long run than professional asset
  managers
18


16


14


12


10


 8


 6

                              South African Assets
 4
                              Namibia Assets
 2


 0
     t1   t2   t3   t4   t5             t6           t7
         Comparing Asset Classes
       Return on           Return on RSA
       Namibian bond       bond
1998   15%                 10%

1999   15%                 10%

2000   15%                 10%

2001   15%                 10%

2002   15%                 10%
Average 15%                10%
          Return on   Return on   Return on
          Namibian    RSA bond    stock x
          bond

1998      15%         10%         0%
1999      15%         10%         5%
2000      15%         10%         25%
2001      15%         10%         30%
2002      15%         10%         5%
Average   15%         10%         13%
    Annual return   Annual      Return on
    on Namibian     return on   stock x
    bond            RSA bond
1998 15%            10%
1999 15%            10%
2000 15%                        25%
2001 15%                        30%
2002 15%            10%
    15%                     17%
12
          Index A        Index B
10

 8

 6

 4

 2

 0
     t1     t2      t3    t4       t5
12
          Stock A1        Stock A2
10

 8

 6

 4

 2

 0
     t1     t2       t3     t4       t5
12    Stock B1        Stock B2
      Stock B3        Stock B4
      Stock B5        Stock B6
10

 8

 6

 4

 2

 0
     t1          t2       t3     t4   t5
Estimation Procedures
Average Performance of Namibian Asset Managers
minus
Average Performance of South African Asset Managers
Namibian Portfolio Performance of Namibian asset managers
minus
Overall Portfolio Performance of Namibian asset managers
Returns of Namibian assets of Namibian asset managers
minus
Returns of RSA assets of RSA asset managers
GIPF’s returns on Namibian assets
minus
GIPF’s returns on South African assets
Asset Classes: Estimate not based on 35% of the portfolio but on the
share that is made up of primary listings, cash held in Namibia and
Namibian government bonds.
      Annual Return Namibia Bonds          Annual Return SA Bonds
      Annual Return Cash Namibia           Annual Return Cash SA
35%

30%

25%

20%

15%

10%

5%

0%
          1997          1998        1999          2000             2001
      Returns on Cash: SA minus Namibia          Returns on Bonds: SA minus Namibia
4%
                                              3.59%


3%



2%                                                                          1.75%
                                      1.44%               1.36%
      1.32%                                                       1.24%

1%
                      0.50%


0%
        1997             1998             1999               2000              2001

-1%

                                                                                 -1.21%

-2%
Estimated costs in N$million for Namibian pension funds between 1997 and 2001
through Namibian asset requirement based on 35% of pension fund assets

                    Average Performance                        Returns of Namibian
                     of Namibian Asset                          assets of Namibian
                      Managers minus      Namibian Portfolio      asset managers
                    Average Performance   Performance minus    minus Returns of RSA
                      of South African     Overall Portfolio    assets of RSA asset   Asset Class
    GIPF Estimate     Asset Managers         Performance             managers         Comparison


                          -235.67

                                                                     -549.77           -545.36
      -645.41

                                               -989.51
Estimated annual costs through Namibian asset requirement in N$million for Namibian
contractual savings (35% of 22 billion) based on average returns for 1997 to 2001

                 Average Performance                        Returns of Namibian
                  of Namibian Asset                          assets of Namibian
                   Managers minus      Namibian Portfolio      asset managers
                 Average Performance   Performance minus    minus Returns of RSA
                   of South African     Overall Portfolio    assets of RSA asset   Asset Class
 GIPF Estimate     Asset Managers         Performance             managers         Comparison



                       -96.59

                                                                  -178.01           -159.10



   -329.79
                                            -360.12
               Conclusion

• Access to a stock exchange is and will
  remain important for the economic
  development of Namibia
• NSX does currently not fulfil its economic
  role
• The Namibian Asset requirement brings
  hardly any economic benefits for Namibia,
  and that at a very high price
Let’s try something else!

				
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