Let’s start at the end as this economic activity is where the buck stops literally. In order for our current financial systems to survive, it needs money to circulate. Money from transactions, investments and loans. We can not abolish this old system as it is what make everything we do possible, so we need to help it and the process should benefit the masses and environment to make it sustainable.
The author has two proposals that can be debated, but first ask yourself, what is interest and what is an exchange rate?
Why is it that in developed countries you pay close to 0% interest and why is it that developed countries always have a higher exchange rate value than a developing country?
Interest is the mechanism by which a government can encourage or limit spending and goes hand in hand with the printing of money. The printing of money bit is a balancing act between over and under valuing of your currency, a problem the USA now faces. So what is it and why the difference between countries?
Developing countries don’t have the money required to build infrastructure nor do they have the expertise to compete with larger more developed countries. Loans are therefore granted for such development, which are administered by the World Bank and IMF (International Monetary Fund). There are many other Banks that we(Namibia) have loans with, for example the loans made by our Namibian utilities.
For the sake of keeping things simple the author is just commenting on two entities to illustrate the point. The Bank of Namibia is therefore a client of the World Bank and IMF. Loans are repaid at set interest levels with regards to ratings obtained from ratings agencies that take into account the asset values offered and general economic system being utilised by a country. Therefore foreign currency and any outside loans cost the Bank of Namibia a certain amount/rate and the repo rate is calculated on top of that in order to make a profit and service the loans.
The movement of currencies, for instance a tourist in Namibia wishes to exchange US dollars for Namibian dollars works on the same principle as normal business as its based on availability and demand. The more a currency is traded the more valuable it becomes as there are more demand for it. Our central bank has to buy US dollars(or other specific accepted currencies) when they pay loans, the Namibian Dollar is not an accepted currency for these transactions, nor many others and this attracts a cost factor. Since there are millions of transactions everyday a willing seller will offer US Dollars at a given rate and it’s up to the buyer to decide who to buy from and that is exchange control.
There have been many banks involved in price fixing over the years, however that’s for another day.
That is why imported goods into Namibia can only be costed on the bill of lading when handed in at its receiving authority, given that day’s exchange rate. This causes problems when exchange rates go higher than anticipated and sometimes it benefits Namibian exporters in the same scenario.
The influence of oil on the Rand to which the Namibian dollar is pegged is another topic, well worth researching. Go do a analysis on the behaviour of the Rand vs the oil price and you will find that over the past two decades when oil’s cost went up the Rand’s exchange value went up and visa versa to mitigate the difference. Really a peculiar situation.
The Namibian dollar and South African Rand has run its course and a new alternative is needed to ensure a future financial system. The pegging of the N$ against the US$, Euro, Yuan or a combination of currencies is the only solution for our economy to create stability.
Namibia is part of world trade and Namibia and all African countries (All developing economies) need to look at this problem. The fluctuations not only causes price stability issues, it destroys value. South African politics have caused more harm to the Namibian economy in the past ten years than any affiliation with its currency can justify.
From the above it is clear that you have to loan money from a developed country with low interest charges and invest in in a developing country with higher interest earning opportunities. Then money will work for you! However this is not allowed for normal folk, only sovereign funds which are countries’ central bank mechanisms to trade in the open stock market., benefitting and also opening up to their potential losses.
In order to benefit normal folk as well the following two upcoming conversations are well worth a look;
- Blockchain and Crypto currencies
With the world taking notice of Cryptocurrencies it has been seen as a saviour and foe, however when you dig a little deeper you will see the underlying technology which is the blockchain. It’s the code based on numerical problems which to this day could not be hacked.
Now if the traditional way of printing, distributing and save guarding of physical money can be eradicated and replaced by a blockchain driven crypto currency that has the same value for every human on earth, all of a sudden there is a level playing field with great cost reductions, meaning less interest charges and less administration to name a few.
This can be done by the banks to keep the structure in place, while each of them may want their own coin for their identity, with the same value it could potentially make funds available to more people as there is less risk, such as exchange rates. The large bank groups in the world are there already, however in our Namibian context it is still a debatable issue at current.
An example of our human thought process. Say there are three humans left on earth and one decides that he/she is going to charge the other two 10% interest on all money he lends them and charge them money to deposit and withdraw while saying his/her money is worth twice as much as the other two’s money. The other two will them him to bugger off. Its that simple yet here we are.
2. Universal Basic income (Social upliftment scheme)
There are many ways to describe and implement these type of system.Here are two examples with the second already in place.
Each country has a tax system and a portion can go towards income for each individual of which a portion then goes back into the tax system, while the rest stimulates the economy.
Canada has implemented a carbon tax system of $50.00 per ton CO2 which is paid by individuals and industry when buying fuel, etc. This tax is then used for environmental expenses and the positive balance is then re-distributed back to the private individuals in the country.
The current tax system is the cash flow that should cover all welfare expenses such as pension and medical which are normally budgeted for. Worldwide the tax system is used to create additional income for governments by raising VAT and other taxes such as fuel levies, etc, however when a government is part of the direct income of individuals with their needs it is a manageable system that will not hurt the poor. This system can even run on a blockchain, making it more cost effective and fair. As an example: Say Namibia stops all individual tax and raises VAT to 40%, then everyone pays tax and it will enable more cash flow through the system. With a less complicated tax system there are more savings for the government and so on.
It will take a combined effort to ensure a system like this can work and the reason it can work is that with Cryptocurrency we are back at a limited supply of money, thereby forcing pricing structures to change. There is no gold backing any money these days, only bits and bytes in cyberspace, that is managed by outdated crypto accounting security systems. The switch therefore is in essence only a click away.
Currently the only way a Government can control the economy is by interest rates and the printing of money. These control mechanism are not successful as proven in all economies. It creates uncertainty and benefit only the larger economies.
The biggest opponents against Universal Basic Income stems from the idea that it will make people lazy, however when you take a look at athletes who are supported by governments in order to focus on what they do without working and government grants for children it is in essence operational. Many countries have or are running pilot programs to determine how this UBI will pan out, even Namibia took part in a trial with the inhabitants of two villages in the North receiving a monthly income for a year. The findings over the period were less malnutrition amongst children and an increase in school attendance as well as a reduction in livestock theft and general crime.
With the uptake of AI (Artificial Intelligence) and other industry specific technologies the world will see 40% less traditional jobs due to them becoming obsolete. Since there is not enough open jobs to be filled by this 40% there will need to be some sort of intervention until parity is reached.
It is important to note that many people on earth are born into poverty and thus into welfare. These ideas should not be seen as to take away from one party to give to the next. These ideas are about how we can move forward together, acknowledging each others situation while contributing to the bigger picture which is the ultimate goal of ensuring an prosperous, sustainable in all areas and renewable future for Namibia.
The current financial system in Namibia does not cater for Namibian entrepreneurs. The people that have made it in Namibia are to few and their wealth is not on par with other first world countries. Therefore Angel investing, private equity and business incubators are not available to many.
The Commercial banks work only on assets and credit worthy entities. The Development Bank of Namibia is also a commercial bank and as such risk averse. When you are an entrepreneur and you have an money making idea, the truth is that without assets your financing options are every limited. Namibia should provide safe and available financing avenues for its entrepreneurs to allow them in kick starting their ideas.
There are local bank and government loans towards green business and many international funds and organisations to assist in implementing green technologies, food production, social development and renewables including transport. It is just as mentioned earlier difficult for those with the ideas and drive to get to that finance level.
The effort that is required now, is to ensure that local policy makes it possible to work with outsider finance and especially securing revenue streams with new business models that will disrupt the business as usual model.
Venture Capital firms as an example are not well promoted and all of this creates an unclear path for future business players. Sustainable Funding for small to large businesses is the enabler for the Namibian economy and fortunately there seem to be positive developments in this arena locally. The problem being the pace of change seem to be lagging in implementation.
A new finance model
Previously the author made the point that the only current and future solutions for any agriculture activity is the one where any global environmental impact is absent with Zero carbon footprint and the most resource sensitive processes that are both sustainable and renewable. Finance is no different, it needs to be in tune with environmental requirements.
Namibian entrepreneurs who wants to start a business, need to understand the process of bank(Institutional funding) and the other options available: Example; Bootstrap, Seed, debt or capital?
In Namibia there are yearly Start-Up festivals for entrepreneurs. Many presentations are offered to educate and inspire. The two biggest issues with these events are the lack of participants and lack of finance focus. It is probably the lack of knowledge about alternative finance options that are keeping entrepreneurs from coming forward. There is a large opportunity that needs to be addressed.
A typical business will follow this route and can stop at any point which is in line with the management’s objectives. Not everyone wants a unicorn and as such there are different finance options for each stage which as a rule is not well defined nor available in Namibia.
Current system: Soul or Co-Founder
- Loans from Friends and Family – small amounts N$10,000- 500,000
- Angel Investor – medium amounts – N$500,000 – 2 million. Done with interest and time and/or convertible note (safe agreement) with stock discount 20% if converted. Normally a conversion cap. // Boot camp 5-9% with optional after the fact investments. Incubator process.
- Venture Capitalists – Seed, Series A, B, C, D – seat on board, shares (An US system especially for disruptive tech with million X return potential)
- Private Equity
- IPO, Initial Public offerings
- The new ICO, Initial Coin offerings process which is highly volatile given the speculation in Crypto currencies.
It is very important to note that these investors understand the risks and they focus on 20% of their investments to make money on average. Failure when everything is done possible is not a total end of career scenario. It is part of the process and this is something Namibians need to learn quickly to become open to the idea of risk versus reward.
There is much to be said and done within this space and conversations need to start in an open and trustworthy fashion to encourage participants to take charge of their destiny.
by Willem Baartman