Deciding not to decide to prevent more FIMA flip-flops from NAMFISA
By Josef Kefas Sheehama.
The challenges and complexities posed by the introduction of the Financial Institutions and Markets Act (FIMA) underline the need for a thorough consultative process with all stakeholders to manage expectations about what can be achieved and to prepare for effective implementation.
The basic principles are needed to design an effective and flexible regulatory mechanism that is capable of dealing with financial innovations. The FIMA (Oshifima in Oshiwambo meaning porridge), is very near but not exactly the same meaning. It is almost the same pronunciation by deleting “Oshi”.
It better to consult with affected parties before you make decisions. In our highly connected society today, few persons are rarely expert in enough to make decisions without having to consult those who will be affected. Remember, deciding not to decide until more information is available is also a decision. Before such sweeping changes are brought about through the Bill, there has to be an understanding of the purpose for such changes and whether these are indeed in the interest of affected parties and financial stability. It has to go through a lot of discussion and dialogue.
Technically speaking, FIMA is a good initiative. Domestic investment is one of the most important economic processes for economic growth of the country and the main engine of the economic cycle. The reason given for the objection to FIMA was as usual, lack of consultation. This seemingly indecisive posture of NAMFISA makes people think that they are not serious in their governance.
More seriously, it portrays NAMFISA as living in the past. Living in the past in the sense that they still believe that they are operating under the old dispensation where, because they are the governing body, they didn’t need public consultation and other stakeholders when they want to come out with reforms. A serious governing body will not always come out with a reform and then withdraw it because what should have been done initially was not done at all.
If we want to continue with our lack of consultation and engagement, the flip-flop will become the order of the day and nothing can get done. To ensure that the market has adequate time to adapt to and comply with the new requirements, the regulations and rules that will give substance to the Act should only become fully operational following a transitional period.
Furthermore, NAMFISA needs to understand that in our democracy, every citizen has the right to express his or her views. The appropriate goal of regulation is to enhance, not undermine, societal well-being. In other words, regulation should do more good than harm. Without a counterfactual, it is impossible to know what a more disciplined regulatory environment would have meant for economic growth and well-being.
However, evidence suggests that a smarter regulatory approach targeted at problems that cannot be solved by other means could have enormous benefits for current and future generations. The 75% vs 25% can increase inequality. NAMFISA further should understand the effects of economic psychology. The retirement of the baby boomers will only exacerbate this problem. The only solution for reducing the ratio, other than painful tax increases or benefit decreases, is the faster economic growth that regulatory reform can bring.
The Namibian retirement savings industry faces several challenges, including a poor savings culture, people retiring with insufficient savings and a financial dependence on children, parents or state. This starves the economy of the capital it needs to invest and grow, compounding the problem. Improving retirement savings is necessary for individuals and for society. People are also living longer so retirement savings need to last longer than before.
By offering a retirement solution that rewards healthy living, and investing earlier and for longer, retirement funds should be able to help close this gap. Behavioural economics have shown that people will save if they see the benefits of saving and are helped practically to make good decisions that are easily implemented.
For this reason, FIMA is a good concept which will alleviate the consequence of not saving sufficiently for retirement and the negative impact it has on family wealth creation. Parents who do not save enough for retirement become dependent on their children. These children, called the sandwich generation, carry the double financial burden of providing for their children and their parents.
Retirement funds also provide an important economic stimulus. Moody’s recently downgraded Namibia’s long-term issuer and senior unsecured ratings to B1 from Ba3. This means that Namibia will find it harder to source or attract capital from foreign investors and due to the higher perceived risk from Moody’s, borrowing costs are likely to increase. Therefore, NAMFISA proposed to reform FIMA to source funding within the country.
The fact that savings are one of the main pillars for economic growth is unquestionable. Accumulated savings can be consider as the source of capital stock which plays a crucial role in creating investment, production, and employment. And all these activities eventually enhance overall economic growth. Investment contributes to growth in aggregate wealth it cannot increase without an increase in the amount of savings. Thus, savings perform a major role in providing the national capacity for investment and production, which ultimately determines economic growth. If national savings are too low to drive investment, it poses a serious constraint to sustainable and persistent economic growth.
Recommendation and Conclusion:
NAMFISA, it’s never too later to start over. FIMA is a brilliant initiative from an economic perspective but in designing the communication plan, it will be important to look at it from the affected party’s point of view. It will be necessary to find out what the objections are and address any burning issues to create a healthy environment for all stakeholders. For effectiveness, it will be necessary to ensure that all affected parties are involved right from the initial stages. During such discussions, NAMFISA must create an atmosphere that will encourage every affected person to freely participate and communicate his or her ideas or feelings.
In order to overcome resistance to participation, NAMFISA will have to communicate its ideas as frequently as possible to all participants. In addition, it will be necessary to reward stakeholders for involvement in the process.
Without effective public consultation, it does not matter how good retirement benefits are. Any obstacles to the stakeholder’s consultation must be dealt with and efforts should be made to ensure that they do not derail the process of putting the plan into action.