By Desie Heita
The chairman of the Namibian Stock Exchange, Peter Koep, has joined the financial sector in expressing discomfort with the implementation of Regulation 28, saying in the last five years equities have generated above average returns for all funds and pushed up growth on the bourse’s overall index.
The worst fear for Koep is the absence of suitable investment vehicles in which to pump the funds. He says this may bring about the risk of money wastage and abuse as happened with the Development Capital Portfolio (DCP) of the Government Institutions Pension Fund (GIPF).
Koep also said should the implementation of Regulation 28 see the light of day in its current format, it will drain the bourse of its lifeblood by 10 percent.
“The trend [of average returns for all funds in five years] flies in the face of the proposal by Government to reduce the maximum permissible investment in equities from a worldwide norm of 75 percent to 70 percent immediately and to a further 65 percent in a period of one year,” Koep said in the annual report of the NSX for the year ended 31 December 2007.
Regulation 28 serves to compel pension funds in Namibia to invest 5 percent of the funds in unlisted entities. Currently pension funds must invest up to 35 percent of their funds in Namibia, much of which is pumped into listed entities.
The Ministry of Finance said the amendment of Regulation 28 to compel the investment of 5 percent in unlisted entities is to stop the cash outflow from the country.
The implementation is phased in gradually with 2 percent being enforced this year, followed by a minimum of 3.5 percent next year and then 5 percent from 2010 onwards.
“It is difficult to envisage suitable investments for an immediate 2 percent of the funds value and an additional 1,5 percent per annum over the next two years without running the risk experienced by the GIPF in its DCP during the early part of this decade,” he said.
Koep said the new regulation, together with an additional amendment that will see a reduction in the percentages of funds invested in dual listed entities, is of concern to the Namibia Stock Exchange (NSX).
“This reduction was imposed by Government without confirming its intention to tap the medium term debt market in the next year,” said Koep.
The financial sector has long expressed concerns over the regulation, saying its wording is confusing and might give difficulties to the financial sector during implementation.
One of the problems expressed by the financial sector is the definition of unlisted investments, of which critics say the wording is too narrow as it does not explain whether this includes bonds by Government and parastatals.
Government would be redeeming its current bond of N$500 million by July and is expected to issue only one bond, of N$1,1 billion, which the sector said is too far below the market demand.