High Economic Intelligence (HEI) Investments recently organized an economic conversation under the theme: “Foreign Direct Investment (FDI) and the Domestic Investment Climate – The Discovery of Oil in Namibia” in partnership with Debmarine Namibia, Old Mutual, and De Beers Namibia Holdings.
The conversation was graced by Khaya Sithole (CA-SA) from South Africa and Nicholas Kabaso (President of Capital Markets Association of Zambia) from Zambia.
Sithole provided insights on the South African investment climate and juxtapose that with the transformation agenda and the lessons learned from the Broad-Based Black Economic Empowerment policy. Sithole also highlighted that the evolution of the national capital base impacts the nature, form, and duration of investments. Additionally, Kabaso drove the conversation from the Zambian context and also highlighted the lessons to be learned for Namibia, especially given the recent mineral discoveries. Kabaso further stated that balancing traditional and non-traditional export sectors is crucial to achieving a significant and durable reduction in poverty.
Foreign Direct Investment (FDI) to African countries hit a record $83 billion in 2021. This was more than double the amount reported in 2020, when the COVID-19 pandemic weighed heavily on investment flows to the continent. Despite the strong growth, investment flows to
Africa accounted for only 5.2% of global FDI, up from 4.1% in 2020. While most African countries saw a moderate rise in FDI in 2021, around 45% of the total was due to an intrafirm financial transaction in South Africa.
“The discovery of oil in Namibia can be seen as a blessing to many, but it has been viewed as a curse in other quarters but there are lessons to be learned from other oil-producing countries. The conversation’s discussions brought out the following: Over the past two decades, the global economic landscape has witnessed notable shifts and developments. From 2004 to 2020, the concentration of total world output has primarily been observed in East Asia and the Pacific, with China emerging as a prominent player. In a significant turning point, China
surpassed the manufacturing output of the United States and the European Union in 2010,
solidifying its position as a global economic powerhouse.
“Furthermore, the energy sector has experienced a paradigm shift as the world moves towards a more sustainable future. After a century of rapid growth in energy demand, projections indicate that this demand will likely plateau by 2030. This deceleration can be attributed to the increasing integration of renewable energy sources into the global energy mix. The growing prominence of renewable energy technologies is expected to reshape the energy landscape, leading to a more balanced and environmentally conscious approach to meeting energy needs. This however should be looked at in context as the just transition cannot happen overnight,” HEI said.
In Namibia, FDI inflows are predominantly attracted to the mining and financial intermediation sectors, while the fishing, fish processing, and other sectors receive comparatively lower attention. According to the Bank of Namibia, in 2019 the mining and quarrying sector attracted about N$ 53 billion of FDI inflows followed by the financial intermediation sector with about N$25 billion of FDI inflows and the bank projected that in 2022 the sectors will attract FDI inflows of about N$ 85 billion and N$27 billion, respectively.
“HEI is of the view that FDIs have a direct effect on local and regional economic growth, if they contribute to capital accumulation and enable the know-how and technology transfer to the host country. Modern growth theory predicts a positive interaction between FDIs and economic growth as foreign investment flows improve local conditions (human capital, physical capital, institutions) and transfer productivity-enhancing technology to the host countries. It is equally important to model these assumptions in the Namibian context to test if these predictions hold for the domestic economy on past trends,” HEI further explained.
In Namibia, FDI inflows are predominantly attracted to the mining and financial intermediation sectors, while the fishing, fish processing, and other sectors receive comparatively lower attention. According to the Bank of Namibia, in 2019 the mining and quarrying sector attracted about N$ 53 billion of FDI inflows followed by the financial intermediation sector with about N$25 billion of FDI inflows and the bank projected that in 2022 the sectors will attract FDI inflows of about N$85 billion and N$27 billion, respectively.
“Examining the broader African context, the export base of many African countries remains structurally rigid and specifically raw commodity-based, leaving their economies vulnerable to external factors and limiting their overall business competitiveness. Moreover, challenges persist in infrastructure development and business environment across the continent. Zambia, for instance, grapples with poor infrastructure, weak protection of property rights, and high costs of doing business, impeding its progress and growth potential.
“South Africa’s problems entail; addressing the persistent manifestations of the architecture of colonization and apartheid, the constitutional imperative (to correct the wrongs of the past), the expression of the constitutional promise (an ongoing national endeavour), the accidental evolution of the national business architecture (Eskom, Iscor, Sasol, SAA, Dene), the structural design of the workplace dynamics (job reservation policies, mining industry practices), and the structural exclusion of black business. The national problem statement execution paralysis for South Africa focuses on three pillars; the three pillars of redress – BEE, employment equity, and public procurement.”
HEI also noted that to address these challenges, experts emphasize the importance of strategic public investments with a strong emphasis on policy certainty to attract FDIs to stimulate supply-side responses in non-critical economic sectors, infrastructure development, and human capital.
By diversifying economic activities and reducing dependence on foreign expertise, African countries can strengthen their long-term competitiveness and resilience.
“In addition, ensuring fiscal discipline over oil revenues is crucial for sustainable economic development. This approach allows for prudent management of resources, while simultaneously addressing pressing issues such as unemployment, poverty eradication, healthcare improvements, food security, and the fight against corruption. By adopting such measures, African nations can lay the foundation for a more inclusive and prosperous future.
“In conclusion, the augmentation of domestic capital and the enhancement of efficiency through the transfer of new technology, innovation, and best practices is crucial. Secondly, FDI has both benefits and costs, and its impact is determined by the country’s specific conditions in general and the policy environment in particular. This is in terms of the ability to diversify, the level of absorption capacity, the targeting of FDI, and the various opportunities for linkages between FDI and domestic investment,” HEI said.