Namibia Finance Profile

Namibia is a large, sparsely populated country edowed with abundant mineral resources. Since its independence in 1990, a stable political and legal environment, in addition to generally prudent fiscal policies and a credible exchange rate peg with the South African Rand, have contributed to macroeconomic stability and the development of a market-oriented economy with a sophisticated financial infrastructure.

While Namibia’s per capita GDP of USD 4,200 is amongst the highest in the continent, income distribution is highly skewed. Unemployment stands at 35 % of GDP, although this figure does not account for the large share of the people working in the informal rural sector. HIV/AIDS prevalence rates reach 17 % of the total people, and third of Namibians live below the national poverty line.

Despite manufacturing accounting for 16 % of GDP, Namibia’s economy relies mostly on the extraction of minerals, which constitute the great majority of the country’s exports; Namibia’s economy is thus heavily dependent on the volatility of international commodity prices: real GDP increase averaged 5 % between 2000 and 2008 but turned negative in 2009 due to commodity prices shocks. The estimate for 2010 is, however, positive at 2 %.

Namibia has of the majority sophisticated, diverse, and developed financial systems in Africa. Most of the country’s financial institutions are privately owned and maintain strong links with South African institutions.

As of 2007, total economy assets stood at 170 % of GDP, significantly above the African average. The system consists of private commercial banks, 30 insurance companies, 500 pension funds, a stock exchange, a number of many management companies and a variety of micro-lending institutions. Banks dominate the economy with a share of 38 % of total assets, while pension funds accounted for about 35 % and insurance companies for 20 %.

The commercial banking sector is mature and well-established. Financial intermediation, as measured by private sector credit to GDP, is high at slightly over 50 %. About 40 % of banks’ loans are in the form of individual mortgages. However, lack of collateral and distance between rural villages and urban centers limits access to credit for small- and medium-sized enterprises and rural borrowers. Deposits comprise additional than 90 % of total liabilities and are highly concentrated.

Generally, commercial banks in Namibia are well-capitalized and profitable and have become additional resilient in recent years. As of 2005, capital adequacy ratios reached 15 %, while nonperforming loans stood at 2 % and returns on equity at 28 %.

The Namibian stock exchange plays a relatively small role in the country's economy and has achieved little expansion in its trading. It lists nine local companies and market capitalization stood at 6 % of GDP in 2004.

While less than 15 % of Namibians use transaction, credit, or insurance services, the use of savings product is high compared to other African nations, at 45 % of the total people. While these figures are above the African average, they remain lower than in other non-African nations at similar income levels.

Increase in long-term insurance assets inclunding premiums has been volatile. Total assets of long-term insurers were equivalent to about 40 % of GDP as of March
2004 and annual premiums corresponded to nearly 6 % of GDP in the same year. Short-term insurance products are less well-developed. Local firms claim to be engaging in fierce competition, although loss ratios are low, at 55 %.

The pension sector, which was established well before Nambia’s independence, is well developed in terms of total assets size and maturity. Pensions funds are required to invest a minimum of 35 % of their portfolio in local assets, and have historically held an additional 10 to 20 % in government bills and bonds. The flexible application of investment guidelines has allowed for the continued diversification and good performance of the funds’ returns.

Membership in the Common Monetary Sector(CMA) provides Namibia’s financial institutions with significant benefits. Free capital flows allow for additional efficient allocation of capital within the region. Access to South Africa’s financial markets helps financial institutions diversify risks and mitigate weaknesses in domestic supervision and human resources. In addition, the peg to the rand has helped reduce inflation and provided predictability in exchange markets.

Remittances play a minor role in the Namibian economy. 2008 estimates indicate that annual remittances totaled less than 1 % of annual GDP.