Namibia, while geographically vast, has a relatively small economy and population. With just 3 million people and a GDP of approximately N$230 billion, the country has often remained under the radar for regional and global investors, whether in the real or financial sectors. However, this may be changing, and for good reason.
Over the past decade, Namibia has experienced slow economic growth, but recent trends suggest a notable upturn. Following the post-pandemic recovery, the economy has expanded at an average annual rate of 4.5%, with GDP now approximately 7.5% above pre-COVID levels. This growth is largely driven by inward investment, particularly in the mining sector, with oil and gas exploration playing a pivotal role. While this phase of expansion remains concentrated, its impact is beginning to surface in economic indicators.
Since early 2022, a total of 19 exploration and appraisal wells have been drilled off Namibia’s southern coast, with an impressive 84% success rate. Leading industry players such as TotalEnergies and Galp are moving towards development, citing multi-billion-barrel discoveries. These reserves, though located in deep waters and challenging conditions, are expected to be commercially viable, with substantial recoverable volumes. The economic implications of such discoveries are profound. Using an oil price of $60 per barrel and an exchange rate of USD/ZAR 18.5, every 100 million barrels extracted could generate revenue equivalent to 50% of the country’s current GDP. TotalEnergies alone is expected to begin production at around 150,000 barrels per day, a figure that could triple within the next decade.
Under Namibia’s current fiscal framework, a significant portion of these revenues is expected to contribute to state finances. While initial capital allowances will slow the immediate impact, the 5% royalty on gross revenue will take effect from the first commercial sales. Namibia has demonstrated fiscal prudence since its independence in 1990, with a brief period of increased spending between 2015 and 2020. Since then, careful financial management and economic growth have reduced the debt-to-GDP ratio from over 70% to below 60%. Additionally, the establishment of a sovereign wealth fund, albeit in its early stages, reflects a commitment to long-term financial sustainability.
A substantial increase in government spending is anticipated, which could provide a much-needed boost to an economy that has stagnated outside of the mining sector. This expansion is likely to transition from its current concentrated form to a broader-based growth phase. One that positively impacts household incomes and business development.
This presents an investment opportunity. Nearly a decade of subdued growth has left Namibia with undervalued assets. Since the first oil discoveries, Namibian bond yields have compressed by over two percentage points, with the government now securing funding at rates comparable to regional peers. Given the potential for significant fiscal inflows and sustained economic growth, a 10-year nominal bond yield of around 11% remains attractive, particularly as inflation remains below 4%.
The real estate market also offers potential value. Property prices in Windhoek and other major towns have remained largely stagnant in nominal terms for the past decade. In contrast, global property markets have seen significant appreciation due to expansive monetary policies. A recent anecdote from a German investor highlighted this disparity: purchasing a two-bedroom coastal property in Swakopmund for under €100,000, an unusually low price for Atlantic seaboard real estate. Similarly, listed companies, including major banks, remain attractively priced. Standard Bank Namibia, for instance, is currently trading at a price-to-book ratio of approximately 0.9x, with a trailing PE ratio below 5x. Given its strategic positioning in the oil and uranium sectors, the bank and other financial institutions are well-placed to benefit from Namibia’s economic transformation.
While Namibia faces challenges, including unemployment and education reform, it remains a relatively stable investment environment. The country has historically maintained a collaborative and pragmatic approach to governance. However, as oil production scales up, risks such as economic overheating, inflationary pressures, and governance concerns must be carefully managed. The recent shifts in political dynamics following the latest elections also introduce a degree of uncertainty, but the general outlook remains positive.
There is still much to be done before Namibia becomes a major oil-producing nation, and key policy decisions will shape the trajectory of this emerging sector. Nonetheless, the economic tide appears to have turned, and various investment opportunities are emerging. Greater clarity on the country’s direction will likely come as the new government takes office after 21 March 2025. The hope is that Namibia capitalises on this moment, ensuring that the transformative potential of its resources is effectively harnessed.
For insights into Namibian investment opportunities across cash, bonds, flexible funds, and property, speak to Cirrus and Bravura.
