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News Blog

A collection of longer form stories, submitted, sourced, or written by our team, that would not make sense to cover in a traditional broadcast news format, but which we wanted to share with you anyway.

(please note that views and opinions expressed on this page do not necessarily reflect those of Radiowave).

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Iono - Behind the Bulletins

A Belt-Tightening Budget

By Suta Kavari - An Investment Strategist at Capricorn Asset Management, which is an affiliate of Bank Windhoek Holdings.
Finance Minister Calle Schlettwein will be counting his lucky stars that he does not find himself in Pravin Gordhan’s shoes this week.  His South African counterpart is tasked with the gargantuan task of rescuing South Africa from the brink of the economic abyss it is faced with.
But that’s not to say that we don’t have challenges of our own.  Minister Schlettwein will have to guide the economy through the current uncertainty in global markets, falling commodities prices, weak global demand for commodities, the devastating effects of the continued drought, as well as the precarious fiscal position amid the squeeze on the government’s coffers.
We don’t expect an austerity budget, but we do expect some fiscal consolidation in light of falling tax revenue receipts and an uncertain outlook.
Domestic growth forecast were revised lower by both the IMF and the Bank of Namibia, and we expect the Fiscus to align their projections accordingly.  There will be concerns ringing about the potential impact of lower growth on tax receipts. 
We don’t expect any major tax increases, but we do expect modest tax proposals.  Any increases in taxes would have to be approached with caution. 
We expect the much talked about (and now largely muted) Solidarity tax to take the form a sort of ‘wealth tax’ adjustment.  This might take the form of an increase in the marginal tax rate of the relatively affluent Namibians.
Due to Government’s poverty fighting resolve, we don’t expect to see any VAT increase.  Low income earners are usually hardest hit by VAT increases.  Furthermore, it will have an adverse impact on personal consumption especially in this low growth environment.  
Company taxes, which are the most sensitive to business cycles, will most likely be spared. 
We could also see substantially higher sin tax increases, higher than the normal inflation adjustments. 
The lower global oil prices could also afford the Minister some leeway in hiking the fuel levy.  But we are of the view that the hike would be modest, due to the fact that the weaker currency has eroded some of the benefits of lower global oil prices.
Given the projected pressure on revenue, particular attention will have to be given to the expenditure budget.
We don’t expect substantial cuts to expenditure, particularly the Government’s wage bill.  But expenditure will most likely be capped, with savings emanating from the operational budget.  Measures announced during the Medium Term Budget Review to control expenditure will be introduced, adding to additional savings.
We expect to see cuts to the budget allocations for overtime, furniture and the Government’s vehicle fleet.
Government’s debt dynamics have deteriorated somewhat since last year’s budget.  But while the debt-to-GDP ratio remains relatively healthy, it is the increase in debt servicing cost that is of particular concern.
The increase in yields on Government debt over the past few months has effectively increased Government’s interest rates.  Coupled with higher inflation expectations and a depreciating Namibia dollar, increasing debt servicing costs do not bode well for the pesky twin deficits.
While Government should always be cognisant of the threat of a ratings downgrade, the threat is not as emanate as it is in South Africa.
All in all, we expect Calle Schlettwein to announce broad measures aimed at boosting revenue collection, and provide an update on the progress of establishing a semi-autonomous revenue service.  We also expect the Minister to expand on the public private partnership initiatives. 
One of the major challenges faced by the Minister of Finance is, undoubtedly, the adverse effects of the drought.  It will take a fine balancing act to find funds for all the Nation’s pressing needs.

Understanding South Africa's credit rating and its effects on the Namibian investor

Below is a press release issued this morning that neatly explains credit ratings and the effect they have on the 'man on the street' that was written by Fouché Brand, Executive Officer: Private Clients at Capricorn Asset Management and is definitely worth a read:
Just as people and businesses have a credit rating at the bank, so too do countries. Countries are rated by independent credit rating agencies such as Moody’s, Fitch and Standard & Poor’s.
The purpose of credit ratings is simply to assist investors to make informed investment decisions.
When credit rating agencies evaluate a country they look at the possibility that the country, or its government, will be able to repay its debt. Countries or governments often issue debt instruments such as bonds and treasury bills and investors want to know if this government will be able to repay the debt on the day it expires.
This becomes even more interesting since companies, just like countries, also receive credit ratings, but a company’s credit rating can never be better than that of the country in which it is based. Thus, if a country has a low credit rating it follows that companies in that country will also receive a low credit rating score.
If you have a low credit rating, investors will be hesitant to invest in your company due to the uncertainty whether they will get their money back or not. If they are willing to invest with you, they will expect a much higher rate of return to compensate for the risk that the company may not be able to repay its debt. The established principle of the higher the risk, the higher the rate of return therefore applies.
So, why all the recent fuss surrounding South Africa’s credit ratings and its possible downgrade?
South Africa is on the brink of being downgraded in June this year. This won’t be just an ordinary downgrading. If South Africa is downgraded one more level, the country will reach “junk” status. This means that the ability and also South Africa’s willingness to repay their debt will at best be viewed with suspicion.
What will be the impact of a downgrade? Simply put the interest rate at which the South African government and companies lend will dramatically increase. Interest rates will also rise for the man on the street. This can lead to an increase in bad debts, insolvencies and even bankruptcies.
Another aspect is that a capital flight will occur. Investors are in many cases prohibited from investing in countries with a junk status credit rating and as a consequence will have to disinvest from South Africa.
The outflow of capital will over the short term drastically weaken the Rand which will have a knock-on effect with higher inflation and interest rates. Over the long term it will naturally have an immensely negative impact on the South African economy.
How likely is such a downgrade? If you look at economists’ expectations there is a substantial chance that our neighbour will be downgraded. However, our expectation is that the downgrade will not take place in June this year, but may be at a later stage. It all depends on the market and politics in South Africa.
Therefore you should be on the lookout for a possible downgrade and stay abreast of what is transpiring in South Africa, since it can have the effect that your choices as a Namibian investor could drastically change.

Delinking From The Rand Not That Beneficial - Ipumpu Shiimi

Taken from The Namibian - Chamwe Kaira
Delinking from the South African rand will not be in Namibia's best interest, central bank governor Ipumpu Shiimi has said.
Speaking in an interview, he said Namibia continues to benefit from this arrangement and breaking the link between the two currencies will not be in the best interest of the country. 
Shiimi said the developments affecting the rand would have affected the Namibia dollar more or less in the same way, if the Namibia dollar was delinked. Namibia is paid over N$200 million per annum by South Africa as part of the currency arrangement. 
The rand was trading at 16,44 versus the US dollar early yesterday, according to Reuters data. Previously, the rand had hit a new low against the US dollar, to almost R18. Namibia imports the majority of its goods from South Africa.
“We understand the concerns about the weakening of the rand. What is however important to note is that the main driving force behind the weakening of the rand is the strengthening of the US dollar on account of improvements in the US economy,” said Shiimi. 
He said all emerging market currencies are affected by this development, and as such the rand is not alone. 
“Of late some political developments in SA contributed to the weakening of the rand, but we believe these will start to fade away in the foreseeable future.”
He emphasised that Namibia will only leave the Common Monetary Area (CMA) if the arrangement is no longer beneficial to the country. 
“We have not seen a situation that warrants such a decision. In fact, the direction in the Southern African Development Community is to pursue a deeper regional integration. Of course it will be irresponsible of Namibia not to have plan B which could be rolled out if Plan A is not longer effective,” he said. 
On the other hand, he said a weak rand means exporters are earning more money in the domestic currency. “This could mean more foreign exchange and also more government revenue from exporters.”
The central bank is projecting the economy to grow at a slow pace of 4,3% in 2016 compared to 5,4% in 2015. In 2014, the GDP growth was 6,3%. Shiimi believes despite the slowdown, the growth is respectable. 
The main risks include a reversal of growth in advanced countries, a more-than expected decline in China's economy, worsening conditions in other emerging market countries, weaker growth in South Africa and Angola and drought at home. 
“This means revenue for the private sector and government as well as domestic economic activities will still increase, although at a slower pace compared to 2014. It also means some additional employment opportunities will still be created, but the number of new jobs could be fewer compared to the new opportunities created in 2014. Overall, it means we should remain positive because the Namibian economy is still growing, but we need to work harder to increase the growth of the economy to the level of 7% envisaged in NDP4 for us to reduce unemployment and poverty in line with the national agenda,” he said. 
Shiimi said although prices of some basic goods and services will increase because of the drought Inflation is projected to remain far below 10% in the foreseeable future. Inflation averaged 3,4% in 2015. 
“Namibians are however advised not to load themselves with debt which they cannot afford.”
The central bank will make a monetary policy decision next month. The repo rate currently stands at 6,5%.
“The decision on interest rates will be data dependent. If Namibians continue to take up too much debt and use it to buy unproductive luxury imports, the monetary policy committee may not have a choice but to raise interest rates,” he said. 
He said the mining output is still expected to increase, despite a weaker diamond sector because of additional output coming from Husab and B2Gold. 
The expected rise in growth next year is on account of these two mines ramping up their production to reach full capacity. At full production, Husab output will increase Namibia's total uranium product, such that the country will be the third-largest producer globally and B2Gold production will more than double the current gold production, he added.