Namibia’s net foreign direct investment (FDI) inflows declined during the second quarter of 2024, largely driven by base effects, intercompany loan repayments and a slowdown in the appraisal drilling campaigns. Namibia’s net direct investment inflows declined by N$7.2 billion and N$3.9 billion on a yearly and quarterly basis, respectively, to N$8.5 billion.
This was mainly ascribed to high base effects from the previous year’s sale of the foreign assets in the manufacturing sector,” the Bank of Namibia said in a quarterly report released last week.
On a quarterly basis, the fall in net FDI inflows was attributed to the decline in oil exploration and appraisal expenditure reflecting the slowdown in the appraisal drilling campaigns by some of the major operators.
Furthermore, the repayment of intercompany loans by foreign direct investment enterprises in the mining sector also contributed to the decrease in net FDI inflows during the second quarter of 2024.
Apart from this, Namibia’s portfolio investment registered a reduced net capital outflow during the period under review due to a decline in net purchases of foreign equity and debt securities abroad. During the quarter under review, portfolio investment registered a lower net capital outflow of N$1.6 billion compared to a capital outflow of N$8.5 billion recorded a year earlier. This was on the back of reduced net acquisition of foreign equity and debt securities. On a quarterly basis, however, net portfolio investment outflows increased by N$207 million.
Other investment recorded a higher net inflow during the review quarter attributable to the uptake of foreign loans and a fall in foreign-denominated deposits by domestic commercial banks. Other investment recorded a net capital inflow of N$6.3 billion compared to an inflow of N$2.4 billion and N$659 million recorded during the corresponding quarter last year and in the previous quarter, respectively.
“The yearly increase in other investment was chiefly ascribed to a higher uptake of loans and trade credits by resident enterprises in the mining sector. The quarterly increase of N$5.6 billion was on the back of a decline in the holding of deposits abroad by the local commercial banks,” the Bank of Namibia says.
Notably, the official stock of international reserves held by the Bank of Namibia increased during the second quarter of 2024, predominantly due to higher SACU receipts and Customer Foreign Currency (CFC) placements. At the end of the second quarter of 2024, the official stock of international reserves rose by 6.2 percent and 8.8 percent on a quarterly and yearly basis, respectively, to N$57.6 billion. The increase in the stock of international reserves was on the back of higher SACU receipts and Customer Foreign Currency (CFC) placements.
“At this level, reserves remained adequate to maintain the currency peg. The stock of foreign reserves was estimated to be 11.8 times as much as the N$4.9 billion currency in circulation, remaining sufficient to sustain the currency peg between the Namibia dollar and South African Rand, while meeting the country’s international financial obligations.
“The estimated import cover of goods and services stood 3.8 months, remaining unchanged compared to the preceding quarter. However, the estimated cover of goods and services (imports excluding expenditure on oil and gas exploration, which is funded from abroad), stood at 4.6 months, which is higher than the 4.3 months recorded in the previous quarter. Moreover, the official stock of international reserves stood at N$59.3 billion at end of August 2024, reflecting a further 2.9 percent increase compared to the level recorded at the end of June 2024,” the Bank of Namibia said.
In essence, at the end of the second quarter of 2024, Namibia’s external net asset position declined compared to the same quarter of 2023 and the preceding quarter. Namibia’s external balance sheet recorded a net asset position worth N$1.6 billion, which is lower than the N$18.6 billion recorded in the corresponding quarter of 2023 and the N$2.7 billion recorded in the previous quarter. Both the annual and quarterly declines in net asset position were driven by higher gross foreign liabilities, particularly in the categories of direct investment and other investments.