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BoN ponders policy interventions for construction sector

By February 15, 2023
BoN ponders policy interventions for construction sector

The Bank of Namibia is set to come up with new policy measures to jump-start the construction sector  which has experienced a significant slow down in recent years.

Central bank Governor Johannes !Gawaxab attributes the sector's dire situation to the cancellation of various projects as well as cuts to government and private sector development budgets.

"At this point in time, the government's development budget, the private sector's development budget, and the interest rate where we are concerning the growth that we have seen, when we quoted a number of 3.9%t that is expected for 2022, that is very much a mining growth that is capital intensive and not coming from a labor intensive type of industry.Thus, what we need in terms of growth is job-creating growth, and the construction industry has excelled at this," he said

According to BoN, real GDP growth is expected to be 3.9% in 2022 and 2.7% in 2023, raising the level of activity above that seen before the pandemic.

Besides this, the central bank observes that domestic economic activity has continued to improve gradually since the previous MPC meeting.

Mining, agriculture, transportation, wholesale and retail trade, tourism, and communication have all experienced significant growth.

However, construction activity continues to fall as both government and private sector work remains slow.

As a result, he notes that the central bank, after much deliberation, has decided to conduct research into what can be done to assist the country's construction sector.

Some of the possible  interventions the governor mentioned includes the review of loan-to-value (LTV) which is the ratio of an asset's value to the amount of money that a bank will lend to purchase it.

"So would reviewing the LTVs help and so forth, we have decided this is something we are going to investigate. We are concerned about the construction sector's growth, which has been nearly non-existent for an extended period of time, and we are considering what we can do from a policy standpoint," he asserted.

This comes after the Construction Industries Federation of Namibia (CIF) recently expressed concern over the government’s lack of support for local construction companies.

The federation's concerns are a result of Namibian-owned construction companies struggling to compete against established foreign firms in the acquisition of major tenders at a time the government's financial capacity is constrained.

Barbel Kirchner, the CIF Chief Executive Officer, said the competition to tender for projects was at an all-time high in 2022 due to the government's inability to stimulate the economy by ploughing money into capital projects.

“This is despite the fact that it appears that the Government is unlikely to be able to finance large scale infrastructure developments and capital projects unless it will have continued access to grants and loans, also considering the development budgets of previous years," she said.

Kirchner noted that Namibia’s development budget was reduced by 10% for the fiscal year 2022/2023, totaling N$4.9 billion, compared to N$5.5 billion the previous year.

The CIF head indicated that the government’s support of Namibian-owned businesses could have a catalytic effect on the Namibian economy as a whole.

“We are very hopeful that this year we will see a drastic change in the way our Namibian-owned contractors are being supported. We feel that our continued call for many, many years to support our local contractors large and small is starting to resonate. I think that we are all aware of the importance of it,“ says Kirchner.

Although the CIF proposes greater support for local businesses, it also supports the notion of creating the ultimate investor-friendly environment, as domestic and foreign investments are also key to stimulating the economy.

Kirchner said a focus on engaging local-owned businesses, much-needed jobs are being created and ensures that money stays in the country.

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Last modified on Thursday, 16 February 2023 19:09
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