September 22, 2024
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Dismantling investment barriers: A new era of Namibian retail investors

September 04, 2023
Dismantling investment barriers: A new era of Namibian retail investors

Most people aspire to be investors, seeking better returns on their money. Recent trends show that ordinary Namibians are increasingly willing to embrace the risks of investing.

Unfortunately, high minimum investment requirements act as a barrier to entry into the unregulated investment landscape, often leading to people trying dodgy “investments” which almost always leads to scams and frauds. Retail investing refers to individuals who use their own money to invest in various assets, excluding professionals, banks, and other financial institutions which are collectively known as institutional investors.

Historically, the investment playground was dominated by institutional investors due to a lack of investment knowledge and the high entry thresholds. This situation can be rectified by implementing structural changes such as reducing minimum investment amounts. Regrettably, many ordinary Namibians who attempt to invest often settle for a 32-day account, which serves as a great savings account but isn't the ideal tool for achieving returns that outpace inflation.

Fortunately, unit trust accounts have gained prominence lately, offering higher returns. However, some unit trusts require a minimum investment of N$75,000. Current structures need to be dismantled to make the investment landscape more accessible, enabling everyday individuals to become investors.

Bonds, also known as "I owe you contracts," represent a type of loan contract that individuals can purchase, receiving annual or biannual payments in return. Government-issued bonds, in particular, are known for their low risk, as the Namibian government has never defaulted on bond payments. Despite their attractive interest rates, averaging a return of 11%, ordinary people tend to shy away from investing in bonds due to their high cost. Government-issued bonds typically require a minimum investment of N$50,000. Fortunately, there are rumours that the Bank of Namibia is considering introducing retail bonds, which could be priced as low as N$500 each when launched.

Another popular investment option with limited participation from ordinary Namibians is stock investing, also known as shares. Stocks come with more risk than bonds, as returns are less stable. In 2023, some companies on the Namibian Stock Exchange (NSX) have performed poorly, with the worst returning -45%, while the best stock returned 55% to investors.

The major hurdle, once again, is the high minimum investment requirement. While some shares on the NSX cost even less than a dollar, certain brokers mandate a minimum investment of N$2,000 or even more, thus not allowing many retail investors to participate on Africa's third-largest stock exchange, with a market capitalization of approximately N$2 trillion. Reducing these minimum investment requirements will also help fix the illiquidity problem the NSX is known to have.

Private equity represents the most exclusive section of the investment space, with limited information available to the public. Minimum investments can reach as high as N$10 million or more. Enabling ordinary retail investors to participate in this space is challenging, as most private equity investments require a serious amounts of capital needed in acquiring private firms, mines, or even sport clubs.

One potential solution is establishing capital pooling companies, allowing ordinary investors to combine their resources to invest or acquire businesses.  With this form of investing, although it may take years to realize these returns on investment, is known to sometimes yield over 100% in returns and carries an even greater risk factor.

In conclusion, the transformation of Namibia's economy is on the horizon and this includes frontiers like the investment landscape. By reducing entry barriers, implementing structural changes, and introducing new investment regulations that invite opportunities, we can bring retail investors to the forefront of the financial game.

This shift not only empowers everyday Namibians to grow their wealth but also fosters a more inclusive and robust economy. As we move forward, let us remember that the key to prosperity lies in ensuring that the average Simon and Nangula have equal access to the opportunities that financial markets have to offer.

*David Iileka is an Analyst at High Economic Intelligence and a frequent economics, business, and finance commentator on Twiter/X @dniileka 

 

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Last modified on Monday, 04 September 2023 21:40
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