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Finance

Finance (316)

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The Government Institution Pension Fund (GIPF) says it has no appetite to acquire the Grove Mall of Namibia, where it once held a 33% stake.

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The Nedbank Group says it will continue funding Namibia’s key economic sectors as part of its contribution towards the growth of the domestic economy.

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If you are ill, you go to the doctor, if you need legal assistance you use a lawyer and if a waterpipe burst you call a plumber. We seek out experts for important decisions because that is their job - to have the knowledge that we do not.

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Defined as the next best alternative forgone, it is a popular concept used to assist entities in making decisions given constraints on resources.

Put differently, given the limited supply of critical resources, what are you giving up on being able to expand those resources on one activity?

Although this is often used by companies, it is a very good concept to assist in making personal decisions too.

The most common way that I get to engage with this concept is around investments as well as borrowing. Often people ask what the best way to save or invest is because they are trying to make the most out of their money.

 Of particular importance is knowing whether it is better to save some money when paying off a loan or simply focus on attacking your debt to pay it off. The answer to that is always “it depends” and the defining factor is the opportunity cost of your choice.

When assessing opportunity cost, it is important to note that you should not only focus on the money you could earn if you were to invest in something but also rather what you can avoid paying if you were to choose an alternative course of action.

For example, you have N$30 000 up for investments. You could do one of the followings:

  1. Invest it in a fixed-term deposit, earning an interest of 5.7%.  If early withdraws are done, you incur a 1.5% penalty on the value of the funds.
  2. Pay off a one-year personal loan with an interest rate of 10%.
  3. Keep it in a call account for emergency purposes with an interest rate of 2.4% with on-demand access to the money.  

What is the cost associated with each of the above options on an annual basis:

  1. If you do not invest in the fixed-term deposit, you will lose out on the interest of N$ 1 710.
  1. If you do not pay off the loan, you incur an additional N$ 1 649 in interest (compounded).
  2. If you invest in the call account, you will lose N$720 interest and either incur an early withdrawal penalty on the funds in a fixed-term deposit or interest on a personal loan if you do not have other emergency savings.

Based on the above, although the short-term loan may appear expensive at an interest rate of 10%, the opportunity cost of paying off that loan then becomes the interest you could have earned if you invested the funds in the fixed term deposit.

This example is, of course, simplified but in real life, there are always more factors to consider. 

Given the current increases in interest rate and inflation, are your investments still generating enough return to offset the increasing costs of servicing the debt you have?

If not, you might have homework to do to ensure your choice of investment is still appropriate.

For more, check out our YouTube channel Money matters with Budget Bee- Namibian Youtuber to learn more on the subject.

*Klestina Kauhondamwa is a Chartered Accountant by profession

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The Namibia Students Financial Assistance Fund (NSFAF) is demanding repayment of N$529 250 from a former employee, who allegedly defrauded the company by preparing payment requisition documents and instructing Bank Windhoek to make payments into the account of a person posing as a student.

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Namibia’s insurance sector received the highest number of complaints from consumers of financial services in the first quarter (Q1) of 2022 according to non-banking sector regulator, the Namibia Financial Institutions Supervisory Authority (Namfisa).

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The Bank of Namibia (BoN) says the country’s financial system is robust and resilient to withstand elevated risks and vulnerabilities emanating from the global environment.

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Letshego Holdings has partnered with the Ongos Valley Group to provide financial assistance to aspiring homeowners, including those who do not qualify for housing bonds with other commercial banks.

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The Bank of Namibia (BoN) is planning to align the Building Societies Act 2 of 1986 with international best practices.

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Job Amupanda has withdrawn from a 19-member Technical Committee appointed by Finance minister Iipumbu Shiimi to spearhead consultations on the protracted Financial Institutions and Markets Act (FIMA).