2. Namibian Asset Requirement Costs and Benefits

3. Two separate issues: Namibian Asset Requirement What type of Stock Exchange does Namibia need?

4. Reasons for Namibian Asset Requirement Prudential requirements To support the development of the NSX To promote economic growth and employment

5. Prudential Requirements? Namibia is part of SACU and CMA Namibia’s political and economic risks are tightly linked to those of RSA Stocks of dual listed RSA companies are not less risky because they are booked through the NSX Prudential requirements should not distinguish between Namibian and other CMA assets, but instead be based on asset class compositions and international ratings

6. Did it help to develop the NSX? A place where Namibian businesses can get money at reasonable costs? A place where investors earn on average a return that is higher than the return of a bank deposit? A place where trade reflects information? A place that contributes through effective financial intermediation to more growth and employment?

7. The NSX does not work for local companies in current set-up! Number of de-listings outweigh new listings There is hardly any trade in local shares The local share index has de-linked from the overall index No success stories! Those companies that still operate profitably could have raised the money elsewhere (FNB, M&Z) Many investors in local shares have burned their fingers

8. Economic Growth and Employment? Keeping Namibian money in Namibia to foster growth and create employment through lower interest rates? Keeping Namibian money in Namibia to foster growth and create employment through lower cost of equity finance?

10. Cost of equity has been too low to attract voluntary investment Annual compound returns (initial listing until 31 Dec. 2001) Ln( (Price31Dec2001+Dividends) / IPO Price)Years

11. Summary Namibian Asset Requirement is more a risk than a prudential requirement NSX does not perform its economic role (for local companies) There is hardly any economic value in trading dual listed shares Namibian Asset Requirement has failed to boost economic growth

12. What are the economic costs? The question is not whether a restriction in asset choice is bad for investors The question is: How bad is it? The government or arbitrary regulations cannot make better investment decisions in the long run than professional asset managers

14. Return on Namibian bond Return on RSA bond 199815%10% 199915%10% 200015%10% 200115%10% 200215%10% Average15%10% Comparing Asset Classes

15. Return on Namibian bond Return on RSA bond Return on stock x 199815%10%0% 199915%10%5% 200015%10%25% 200115%10%30% 200215%10%5% Average15%10%13%

16. Annual return on Namibian bond Annual return on RSA bond Return on stock x 199815%10% 199915%10% 200015%25% 200115%30% 200215%10% 15%17%

20. Estimation Procedures Average Performance of Namibian Asset Managers minus Average Performance of South African Asset Managers Namibian Portfolio Performance of Namibian asset managers minus Overall Portfolio Performance of Namibian asset managers Returns of Namibian assets of Namibian asset managers minus Returns of RSA assets of RSA asset managers GIPF’s returns on Namibian assets minus GIPF’s returns on South African assets Asset Classes: Estimate not based on 35% of the portfolio but on the share that is made up of primary listings, cash held in Namibia and Namibian government bonds.

23. Estimated costs in N$million for Namibian pension funds between 1997 and 2001 through Namibian asset requirement based on 35% of pension fund assets

24. Estimated annual costs through Namibian asset requirement in N$million for Namibian contractual savings (35% of 22 billion) based on average returns for 1997 to 2001

25. Conclusion Access to a stock exchange is and will remain important for the economic development of Namibia NSX does currently not fulfil its economic role The Namibian Asset requirement brings hardly any economic benefits for Namibia, and that at a very high price

26. Let’s try something else!