A wide range of exchange controls can be put in place in order to control the inflow and outflow of funds. Two accounts in the balance of payments that records the transactions of an economy with the rest of the world are affected by these controls – the current and the capital account.
The current account includes the trade (imports and exports) in goods and services across the borders as well as current transfers. A good example of current transfer in Namibia is the transfers from the SACU Common Revenue Pool. Some smaller amounts are recorded from the remuneration of employees (remittances of Namibians working abroad) and from investments abroad.
The capital account refers to the inflow and outflow of foreign direct investment (both investment in Namibia by foreign companies and investment by Namibian companies abroad), portfolio investment as well as other short- and long-term investment. Exchange control policies are usually in place to protect the foreign currency reserves of a country that are vital to pay for the imports of goods and services, for the repayment of foreign loans and other obligations as well as to ensure stable exchange rates.
Strong fluctuations in the inflow and outflow of funds can have destabilising impacts on the exchange rate of the domestic currency vis-à-vis foreign currencies and eventually on macro-economic stability.
In the aftermath of the financial crisis, a number of countries re-introduced exchange controls.
The objective of the SADC Protocol on Finance and Investment (FIP) is to achieve sustainable economic development among others by creating a favourable investment climate. Member states have therefore agreed to cooperate on exchange control policies in order to harmonise them.
Since cumbersome capital controls and limits on the transfer of funds across borders can have negative impacts on FDI inflows and outflows and can thus constrain economic development, the FIP aims at liberalising the current and capital accounts completely as well as achieving full currency convertibility.
Furthermore, member states have agreed to improve the collection of information on foreign exchange flows across borders. In order to achieve these objectives, the member states have established the Exchange Control Committee that reports regularly to the Committee of Senior Treasury Officials and to the Committee of Central Bank Governors. However, the Exchange Control Committee has not met for quite a while.
Namibia is part of the Common Monetary Area (CMA) together with Lesotho, South Africa and Swaziland. Therefore, any steps to liberalise the current and capital accounts have to be agreed at CMA level and cannot be determined by Namibia unilaterally. Both accounts have nevertheless been gradually liberalised over the past years, but certain indicative limits remain in place for transfers of funds outside the CMA in order to mitigate the macro-economic risks of strong currency movements.
For instance, Namibians studying abroad can be granted study allowances of N$1 million per annum in addition to the payment of tuition fees. Residents of Namibia may be granted discretionary allowances of up to N$1 million per annum if they are older than 18 years of age, otherwise the limit is N$200 000. This amount can be increased to N$4 million if the applicant provides a Tax Clearance Certificate.
Namibian companies can invest any amount outside the CMA after approval by the Bank of Namibia, while foreign companies operating in Namibia can re-patriate profits without seeking approval from the central bank.
The Namibia dollar is pegged one-to-one to the South African rand that is also legal tender in Namibia and the other CMA countries. While the Namibian currency is not convertible, meaning it cannot be exchanged abroad except in South Africa, with a fee, the Namibia dollar can be exchanged for South African banknotes domestically and these banknotes can be taken abroad.
The recent agreement between the Bank of Namibia and National Bank of Angola allowing for the exchange of their respective currencies at the Oshikango/Santa Clara border post in order to enhance trade between the two countries underlines the importance of currency convertibility for trade.
The exchange control measures in Namibia are based on the Currency and Exchanges Act and on the Exchange Control Regulations. However, other legislation such as the Investment Act that is currently being finalised by the Ministry of Industrialisation, Trade and SME Development will also have an impact on fund transfers if certain requirements for these transfers are stipulated.
* Festus Nghifenwa is the SADC FIP Implementation Coordinator at the Ministry of Finance. He can be contacted for comments and further information by email: firstname.lastname@example.org. This article is the fifth in a series of 12 articles on the SADC Finance and Investment Protocol. For further information and relevant documents on the SADC Protocol on Finance and Investment, please view the website – www.sadc-fip.gov.na.