Namibia is expected to generate over N$12 billion (US$659.6 million) in Foreign Direct Investment (FDI) in 2022 on the back of increased investor confidence and lucrative opportunities in the renewable energy sector, PSG Wealth Management Namibia has predicted.
This will be an increase from N$11.6 billion (US $636.4 million) recorded in 2021 and a negative N$3.8 billion (US$207 million) recorded in 2020.
“FDI (Foreign direct investment) inflows have improved relative to last year thanks to the reinvestment of earnings by corporates in the mining and financial sectors on the back of increased profits during this period. The growing domestic oil and green hydrogen industries could provide a large boost to FDI in the medium to long term,” said PSG.
The financial service company’s forecast comes after Namibia recorded net FDI inflows for first half of the year (H1 2022) of approximately N$6 billion (US$328.6 million), compared with net inflows of N$5.7 billion (US$311.4 million) in H1 2021.
“Positive FDI momentum was maintained in the second quarter of 2022 as net FDI (inward FDI minus outward FDI) recorded an inflow of [US]$185.8m, higher than the net inflow of [US]$142.8m logged in the previous quarter. Last year saw the strongest influx of FDI since 2015. This followed a slump in foreign investment that started in 2016, due to downswings both in global commodity prices and in domestic economic growth as well as a number of policy own goals from the Namibian government.”
PSG added that the increase in capital inflows in H1 2022 relative to last year was mainly due to the reinvestment of earnings by corporates in the mining and financial sectors on the back of increased profits during this period.
This was after the Bank of Namibia reported that profits retained by foreign direct investment enterprises in the mining industry resulted from higher mineral export earnings, while financial services benefitted from positive growth in both interest and non-interest income.
Moreover, PSG said the rise in FDI has also been supported by increases in equity capital due to exploration activities following offshore oil discoveries as well as the uptake of intercompany loans extended to domestic subsidiaries in the mining sector.
“We estimate that global non-fuel commodity prices – which have helped to stimulate FDI in Namibia – have peaked in Q2 2022 and will retract from the current elevated levels as supply chain constraints ease and global demand moderates. Nevertheless, we project that non-fuel commodity prices will stabilise at above 2013 levels in mid-2025. Hence, we expect prices will remain attractive to mining companies even in the event of a market correction,” said the company.
FDI is a driver of short-term economic growth, as it increases the volume of investment in an economy, but could also improve long-term economic growth-generating technological diffusion from the developed world to the host country.
Moreover, FDI will generally boost a country’s foreign reserves, which helps an economy to maintain the stability of its currency, to repay foreign debts, and to improve its buffers against economic crises.
PSG also cited the Namibian Competition Commission’s approval of Dutch beer giant Heineken’s acquisitions of Namibia Breweries and Distell Namibia with conditions, a proposed merger which could result in FDI inflows of nearly N$10 billion (US$552m) to Namibia during 2022 or early 2023.
