Investment Rating Opens Doors for FDI

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By Wezi Tjaronda WINDHOEK THE investment grade ratings of “BBB” – awarded to Namibia last week will open doors for the country to attract significant Foreign Direct Investment (FDI) of larger quantities, for longer periods and at lower interest rates. Before the ratings, according to Bank Windhoek, those investing in Namibia estimated the risk and added exorbitant premiums on the return they required. “This will now be something of the past and evidently the premiums paid on Namibia long-term bonds have already dropped considerably since the release of the Namibia Country Rating,” said Tertius Liebenberg, Bank Windhoek’s Head of Treasury. The London based Fitch Ratings last week assigned Namibia an investment credit grade “BBB”, which economists say is an excellent rating. Namibia is the third country in Southern Africa to be accorded the ratings. The other two are South Africa and Botswana. Fitch is a London-based ratings company that specialises in ratings worldwide at the request of a particular country. This rating was done in September this year. And for the first time, according to Bank Windhoek, international investors can accurately assess the amount of risk they expose themselves to when investing in Namibia and compare it with other investment opportunities in the world. Besides the normal financial performance of a country or an institution, the credit ratings are also determined by political stability, growth prospects, domestic and world economic trends A business and economic consultant Rainer Ritter yesterday said if a country has an investment grading, it is easier for it to borrow from external funds. “It means that investments or banks from which Namibia wants to borrow funds would have less problems,” said Ritter. Going for a rating shows that a country is transparent, added Ritter, who also reiterated that Namibia would now be able to attract FDI because of the rating. Fitch said recently that the ratings underpinned a stable policy environment and sound macro economic fundamentals. Namibia has a low public and external debt burden, which are at 34 percent of Gross Domestic Product. This GDP at the end of 2004/5 is slightly below the “BBB” rating category median 36 percent. It is also characterised by high domestic savings and current account surpluses as well as macro economic stability and relatively robust growth. The agency said Namibia has an abundance of mineral resources, which it says have been well managed. Apart from this, it also indicates that Namibia is politically stable, which supports the ratings. Other rating strengths for Namibia are fiscal deficits that are financed by domestic debt issuance only, which shot up at independence from zero to 28 percent of GDP in 2004/5. This, it says has facilitated the development of a capital market. As a member of the Common Monetary Union with South Africa, Swaziland and Lesotho, it is expected that Namibia will continue to sustain low interest and inflation rates. Its growth performance is good, with an average of 5.4 percent over the past three years and 4 percent over the past 10 years. It is also underpinned by value addition enhancing investment and expansion of natural resources output, said the organisation. However, it notes that the economy is dominated by the primary sector, which accounts for 20 percent of GDP and 60 percent of exports (of which 40 percent are diamonds) and government services. This limited diversification is a weakness at the investment grade level, it added. Meanwhile, the Global Credit Ratings Co (GCR) has released long and short-term domestic currency ratings for Bank Windhoek as AA and A1 plus. In addition to this, the bank has been awarded long term regional South African Rand dominated ratings of A minus and A2 respectively. The ratings show the bank’s established position in Namibia’s banking industry. “The bank is well capitalised and asset quality is sound,” the CGR said, adding that “high asset quality has been maintained despite rapid advanced growth, while provisioning is conservative with a negative net non performing loan ration maintained”. The regional ratings reflect the country’s strong sovereign risk characteristics by regional standards, which are not unduly out of line with South Africa’s. Bank Windhoek’s Managing Director James Hill said the bank was proud of the position because the domestic ratings put the bank in the same league as ABSA and Nedbank and other South African banks such as Investec and Imperial Bank in terms of AA local currency long term rating.