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Foreign debt repayments reduce net foreign direct investment

Foreign debt repayments reduce net foreign direct investment

By Eloise du Plessis
PSG Namibia’s Head of Research.

Following a dismal 2019 marred by a local recession, lower foreign direct investment worldwide, and global trade tensions, Namibia again struggled to attract foreign direct investment inflows in 2020 amid the Covid-19 pandemic.

Looking at the latest figures, net foreign direct investment deteriorated from a tiny net inflow of N$2 million in the second quarter of 2020 to a net outflow of N$92 million in third quarter of 2020 which the Bank of Namibia (ascribes to foreign debt repayments by enterprises in the mining sector

Namibia’s net foreign direct investment has fallen steadily since a peak of N$1.05 billion in 2012 eventually turning negative in 2019 as global commodity prices and domestic growth turned lower since this period. During the same period, the real GDP growth rate fell from a peak of 6.1% in 2016 to a low of 0.4% in 2019.

This period was also associated with reduced emerging market sentiment and a slowdown in foreign direct investment flows globally. The Namibian government scored some own goals in this time, in terms of several mooted investor unfriendly policies (which have since been shelved but created policy uncertainty at the time).

Looking ahead, commodity prices are expected to recover in the medium term, which will boost the profitability of mining investments. Mining companies have expressed interest in bringing old copper and uranium mines back to life and are also exploring opportunities in so called battery minerals (such as lithium and graphite) as well as oil and natural gas.

Furthermore, the government is expected to pull its socks up on the policy front to attract the desperately needed foreign direct investment to revitalise the economy. In future, the government aims to auction prospecting licences and to improve the transparency of the bidding process for mining and fishing licenses to strengthen anti corruption efforts.

There is currently a moratorium on all mineral rights applications until 17 August 2021 to allow the Ministry of Mines and Energy to realign its licensing process with international best practices, which does not affect current mining operations.

We estimate that the Covid 19 pandemic’s blow to investor confidence will result in net foreign direct investment divestment of N$149.8 million in 2020 before a modest return to net inflows of N$101.3 million this year.

Improved commodity prices and government policies should bode well for investments in exploitable opportunities in the mining, energy, and transport industries in the medium term.


 

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