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Tilman Friedrich’s Benchmarks Jan/Feb 2015

Tilman Friedrich is a qualified chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. Tilman is co-founder, shareholder and managing director of RFS, retired chairperson, now trustee, of the Benchmark Retirement Fund.

Oil, local equities and the Rand
The graph below shows a surprisingly high correlation between the Allshare index and the spot oil price in Rand barring the times when there was a rapid change in the oil price, such as over the last few months, where the Allshare index responds more cautiously.
One may thus rationally conclude that what is happening to the oil price will have a major impact on local equities and the Rand if it becomes a longer term trend. The question is – will it become a longer term trend? An indicator for this becoming a longer term trend is the demand/ supply situation. It would not become a longer term trend if the previous price levels were driven by the demand/ supply situation rather than speculative trading.
What can one expect the oil price to be?
The graph reflecting oil prices shows a long term increasing trend in the oil price and a few steep and rather rapid changes where we believe these were the result of speculative trading rather than any fundamentals. Without speculative trading the peaks would be reflective realistic price levels, else one would expect a more slowly increasing line that will be somewhere between the peaks and the troughs.
The next graph provides an interesting picture of the demand/supply balance of oil. At first sight one might conclude the gap between demand and supply is rapidly opening up. However looking more closely at the demand line one notices that an annual peak demand occurs in the 4th quarter whereafter the demand drops off significantly for 2 quarters only to move up again in a pretty consistent fashion. If one were to extend a straight line from the latest 3 demand peaks, one will conclude that demand should be pretty close to supply again by the end of 2015.
The question then is, what is a realistic price of oil? Rationally one would argue that if supply and demand is about in balance the price should be cost based. Following US CPI starting in January 1987 at US$16 per barrel, the price should now be around US$35 per barrel. From this one can conclude that the current level of the oil price is realistic in the context of production cost and, in fact, provides for some premium for the steady increase in demand and production costs over this period. We therefore believe that without a renewed speculative bubble, we should see current oil prices representing the new normal.
How will the oil price impact our economy and the investor?
The drop from US$135 per barrel in June 2014 to under US$50 at the time of writing aggregates to a drop of roughly US$3 trillion per annum, which is equivalent to roughly 4% of global GDP. Oil producers previously raked in these money flows produced by the global consumer and concentrated them in the hands of a few oil producers and market intermediaries. Most of this money avalanche traded hands in US$ and much of it was invested in emerging markets.  Commodity exporting countries like SA and Namibia have been hit hard by the decline in commodity prices, mainly as the result of the decline in demand by the Chinese. The decline in the cost of fuel should be a welcome ‘windfall’ to these countries. To put this ‘windfall’ into a Namibian perspective, we assume that Namibia’s oil consumption should be approximately the same as SA’s, and the world’s for that matter, relative to the respective GDP (SA consumes 25 million litres per day). On this basis Namibia would consume just over 6 million barrels per annum and is now saving on its fuel bill something in the region of N$17 million per day or roughly N$6 billion per annum which represents nearly 4% of our GDP.
Imagine what this could mean for the government’s finances.
Magnus Heystek, investment strategist of SA Brenthurst Wealth recently suggested that the SA Government should use this opportunity to raise the fuel levy by one Rand per litre. Of course whatever the government passes on to the man in the street will make a noticeable impact on his spending power. This in turn should be positive for the economy and company profits.
Our investment view remains unchanged
As a local investor in this scenario, we have already seen equities decline in this process of adjustment and we are likely to experience more of this volatility. This is not the time to panic and worsen one’s woes by selling out of the market or by switching from local to offshore assets, but one should rather hold one’s investment position as any adjustment to it may just be at the wrong time.  With the expected upswing in consumer sentiment and the global economy, one should see the demand for consumer goods and hence commodities increase again.  Local sectors and shares driven by foreign investors, such as consumer goods and consumer services should now be switched for those shunned by them, primarily basic materials. Although we expect the local consumer to be impacted negatively as interest rates will drift upwards, lower fuel prices are likely to dampen the impact. From a macro-economic perspective the weakening Rand should advantage Rand hedge shares, exporters and manufacturers locally. With the prospect of interest rates increasing, we believe that fixed interest investments as an asset class should generally be avoided.

About The Author

Following reverse listing, public can now acquire shareholding in Paratus Namibia


20 February 2020, Windhoek, Namibia: Paratus Namibia Holdings (PNH) was founded as Nimbus Infrastructure Limited (“Nimbus”), Namibia’s first Capital Pool Company listed on the Namibian Stock Exchange (“NSX”).

Although targeting an initial capital raising of N$300 million, Nimbus nonetheless managed to secure funding to the value of N$98 million through its CPC listing. With a mandate to invest in ICT infrastructure in sub-Sahara Africa, it concluded management agreements with financial partner Cirrus and technology partner, Paratus Telecommunications (Pty) Ltd (“Paratus Namibia”).

Paratus Namibia Managing Director, Andrew Hall

Its first investment was placed in Paratus Namibia, a fully licensed communications operator in Namibia under regulation of the Communications Regulatory Authority of Namibia (CRAN). Nimbus has since been able to increase its capital asset base to close to N$500 million over the past two years.

In order to streamline further investment and to avoid duplicating potential ICT projects in the market between Nimbus and Paratus Namibia, it was decided to consolidate the operations.

Publishing various circulars to shareholders, Nimbus took up a 100% shareholding stake in Paratus Namibia in 2019 and proceeded to apply to have its name changed to Paratus Namibia Holdings with a consolidated board structure to ensure streamlined operations between the capital holdings and the operational arm of the business.

This transaction was approved by the Competitions Commission as well as CRAN, following all the relevant regulatory approvals as well as the necessary requirements in terms of corporate governance structures.

Paratus Namibia has evolved as a fully comprehensive communications operator in Namibia and operates as the head office of the Paratus Group in Africa. Paratus has established a pan-African footprint with operations in six African countries, being: Angola, Botswana, Mozambique, Namibia, South Africa and Zambia.

The group has achieved many successes over the years of which more recently includes the building of the Trans-Kalahari Fibre (TKF) project, which connects from the West Africa Cable System (WACS) eastward through Namibia to Botswana and onward to Johannesburg. The TKF also extends northward through Zambia to connect to Dar es Salaam in Tanzania, which made Paratus the first operator to connect the west and east coast of Africa under one Autonomous System Number (ASN).

This means that Paratus is now “exporting” internet capacity to landlocked countries such as Zambia, Botswana, the DRC with more countries to be targeted, and through its extensive African network, Paratus is well-positioned to expand the network even further into emerging ICT territories.

PNH as a fully-listed entity on the NSX, is therefore now the 100% shareholder of Paratus Namibia thereby becoming a public company. PNH is ready to invest in the future of the ICT environment in Namibia. The public is therefore invited and welcome to acquire shares in Paratus Namibia Holdings by speaking to a local stockbroker registered with the NSX. The future is bright, and the opportunities are endless.