By: Herbert Maier
No need to make mention that private equity and venture capital is a rather new asset class in Namibia. It’s substantially been developed and brought to life in Namibia because of regulation promulgated that forces both pension funds and the long-term life insurance businesses to invest between 1.75% and 3.5% of their respective total assets into businesses that are not listed on any stock exchange – a great way of looking to the development of a strong mid-income entrepreneurial sector that has limited ways to access non-banking capital and an initiative that has a proven track records in a number of developed economies. It may be worth indicating that the GIPF has been a key initiator, but also key investor, in this asset class having applied significant amounts of its assets to this class for different purposes, including mandates for infrastructure build in the country.
The unlisted space is an exciting, yet also a potentially risk burdened space which is particularly true for a country like Namibia where, among others, the relatively small population certainly creates scaling challenges so dearly needed in most businesses.
In line with the continued economic recession Namibia has been dealing with since the later part of 2016, the unlisted investment class has been taking strain in most industry sectors, most notably in construction and businesses linked and dependent on uranium mining. Investments would have in addition been made at values that would in fact be difficult to unlock considering not only the recession, but also the unprecedented pandemic that the globe has been facing during the last few months since the outbreak of and reactions to COVID-19.
Namibia has, for understandable reasons, been subject to a lock down for an initial period of three weeks at a time when, as a consequence of a global lack of research, the outbreak in a country like Namibia has had devastating results, both economically and socially. This situation has been further exacerbated by the extension of the lock down for a further two weeks until the beginning of May 2020 for reasons that seem to be sentiment driven with less of a focus on the impact on the country’s economy. The potential economic damage done to Namibia’s business environment is hitherto not fully understood, except to say that GDP growth would plummet significantly – expectations are that negative GDP growth could substantially exceed 6.9% for the year and continue for some time to come.
Where does this leave the unlisted investments? At a portfolio company level we have had to try and understand the implications and consequences – the regulatory involvement from Government, while having come forward with stimulus packages, is not really looking after the longer-term sustainability of businesses and employers as much as may be required and necessary. It is after all the SME sector of any economy that drives employment and new growth opportunities. That said, cash management in addition to finding new ways of doing business remain the key components within this sector and the portfolio companies we have invested in for and on behalf of our investors, substantially consisting of pension and retirement funds. Labour is at risk, and higher unemployment in a country with existing employment challenges, will likely not be avoidable. Understanding the detail of it all is something that private equity is now, more than ever, fully focused on to ensure that further short- to medium-term value erosion can be prevented and positive returns generated for investors and the country in the medium term.
