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Iono - Behind the Bulletins

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.

Ministerial Performance Agreements In Detail

Anne: Shortly after taking office President Hage Geingob instructed every single minister to set up a performance agreement detailing what each ministry will be tackling and completeing during their term of office. There were a few delays in getting the documents finalised, but they have finally been made public. They are valid from 1st October 2015 to 31st March 2016.


Taken from The Namibian newspaper website.


Urban and rural development minister: Sophia Shaningwa
• Provide the leadership needed to deliver affordable housing for Namibians especially those in the ultra low-income brackets.
• Accelerate the delivery of serviced urban land for 14 regional councils and 54 local authorities.
• Ensure improved service delivery by sub-national governments and traditional authorities. 
• Improve living conditions in rural communities.
• Ensure that public officers in the ministry suspected of engaging in corrupt practices step aside to pave the way for independent investigation.
• Institute measures aimed at developing participation governance institutions and improving access to essential services at sub-national levels.
• Develop a policy and institutional framework for effective and integrated urban and regional planning and development.
Poverty eradication minister: Zephania Kameeta
• Develop a national blueprint on poverty eradication and social welfare to be approved and endorsed by Cabinet on 31 March 2016. 
• Pledge to upgrade food security for the vulnerable people in Namibia by finalising the policy on food banks and ensure the construction and functioning of food banks at identified sites.
• Empower the poor so that they break out of the cycle of abject poverty and are able to meaningfully participate and contribute to the economic growth of the country.
• Take necessary measures to pave the way for independent investigations for staff members suspected of taking part in corrupt acts.
Higher education minister: Itah Kandjii-Murangi 
• Put in place aggressive measures for Namibian vocational and technical higher education institutions to produce technical and high level skilled human resources to drive the economy.
• Develop a national innovation system to produce scientific technological and social innovations as well a innovative processes that will drive economic growth. 
Land reform minister: Utoni Nujoma
• Acquire 188 000 hectares of land for resettlement purposes.
• Have 94 previously disadvantage landless Namibians resettled and have the number of 373 leasehold land registered with 40 090 customary land rights registered as well.
•Ensure land acquisition, redistribution and resettlement.
Finance minister: Calle Schlettwein
• Ensure that an annual target of total debt stock of not more than 32% of Gross Domestic Product is achieved, thus maintain economic stability.
• Improve GDP growth rates by 5,5% and have a consistently low inflation rate of less than 10% in order to give room for rising economic growth.
• Improve foreign reserves by ensuring an annual target of three months import cover.
Prime Minister: Saara Kuugongelwa
• Make sure that compliance with the Affirmative Action Act is increased by 80% and that there is improvement in the recruitment process. 
• Have about 9 300 public servants trained through institutions such as Nipam, thereby enhancing efficiency and service delivery.
• The natural disaster risk management plan will be reviewed and a strategy will be developed to reduce the impact of disasters.
Gender minister: Doreen Sioka 
• Tackle gender-based violence by sensitising 3 996 men and boys annually and reaching over 202 000 community members.
• Improve enrollment of children from rural and urban communities in early childhood development centres by 37 000 annually.
• Have about 8 000 disadvantaged women supported with skills development annually.
Health minister: Bernard Haufiku
• Provide leadership and stewardship and ensure that people have access to healthcare irrespective of their social or economic status.
• Ensure that resources allocated to the ministry by government and by other sources are used efficiently for effective service delivery that people desire and deserve, while avoiding unnecessary wastage.
• Reduce mortality and mobility especially maternal and infant mortality.
• Carry out infrastructure development and maintenance.
• Work on human resources development and utilisation as well as strengthening the human resource base.
• Make adequate pharmaceutical and related medical supplies available.
• Ensure effective coordination between all stakeholders.
• Improve health service delivery, planning and management. 
• Rationalise and improve supply chain management in the procurement of pharmaceutical and medical supplies. 
• Ensure effective and efficient management of disabilities and rehabilitation services.
• Ensure a unified health professions legislation. 
• Establish food and traditional medicine standards. Put an effective standard feedback mechanism in place to ensure efficiency and value for money. 
• Improve physical infrastructure at health centres and district hospitals such as Katima Mulilo, Engela, Outapi and Opuwo hospitals. 
• Ensure the availability of a new staff establishment. Have responsive infrastructure in place and implemented. 
• Have facilities adequately equipped with required human resources in terms of quality and quantity.
• Have transparent and competitive procurement practices implemented. 
Presidential Affairs Minster: Frans Kapofi
• To ensure that the President has at his disposal adequate political, economical and administrative support in order to carry out his responsibility of governing the country effectively.
•Advise the President on national socio-economic issues emanating from offices, ministries, agencies, traditional authorities and from the private sector. 
• Facilitate interactions with different stakeholders at national level and those with an impact on the country's development.
Attorney general: Sacky Shanghala
• Improve the quality of legal advisory opinions and arrange specialised and continuous training for lawyers.
• Ensure that sufficient research materials are available and also that enough lawyers are at hand for rendering legal opinions. 
• Arrange specialised and continuous programmes for lawyers while also reducing the number of days within which opinions are submitted to the AG to 20 days.
Fisheries minister: Bernhardt Esau 
• Ensure that aquatic resources are managed judiciously and for the benefit of present and future generations. 
• To make certain that Total Allowance Catch reports are submitted and endorsed by Cabinet annually.
• Ensure the sustainable exploitation of aquatic resources is maintained and that Namibia retains its competitive advantage in the production and marketing of all commercially exploited living marine resources.
• Meet an annual target of 2% increase in volume of export and ensure that fish products are available for local people. 
• Increase revenue by ensuring timely revenue collection by 90%.
Education minister Katrina: Hanse-Himarwa 
• Reduce the dropout rate of pupils at schools by 1% a year and also ensure that there is an improvement in completion rates.
• Increase enrollment rates of children at pre-primary level thereby improving readiness of learners for primary schools by 95%.
• Ensure adequate funding for construction and rehabilitation and equipping of education facilities by 55%.
• Complete10 capital projects in a year while also similarly increasing the number of classrooms by 280.
Environment and tourism minister: Pohamba Shifeta 
• Provide a solid and exciting foundation for contributing to sustainable development of the nation.
• Achieve an annual target of 17,5% contribution to the GDP by the tourism sector.
• Achieve a 21,3% contribution to total employment by the tourism industry. 
• Oversee the development, maintenance and implementation of a framework to the capacity of the ministry to improve monitor compliance with the provisions of the environmental. 
• Have 288 environmental impact assessments processed, five conservancies supported and 10 conservancies and 11 park management plans implemented.
• Improve the annual target for the Waterberg, Naute Dam and Daan Viljoen Parks.
• Put an anti-poaching strategy in place and submit it to Cabinet.
• Train 20 people per year in selected fields in tourism. 
• Create 199 jobs annually.
• Initiate trophy hunting pilot phases by February 2016.
• Ensure Online processing and issuing of trophy hunting permits.