The 2023 Bank of Namibia Annual Report has been prepared in line with section 67(1) of the Bank of Namibia Act (No. 1 of 2020). The report outlines the governance of the Bank of Namibia (hereinafter referred to as “the Bank”) and key achievements of the Bank in 2023 in the execution of its three-year strategic plan (2022–2024). The report also presents the state of the Namibian economy. It includes a Theme Chapter titled: “The impact of climate change on the economy: Adaptive strategies and policy options for Namibia”. The Theme Chapter is a timely intervention as we navigate climatic swings resulting in erratic rainfall that will probably have a negative impact on the most vulnerable in society and require the redirection of critical resources to emergency relief programmes and mitigation strategies. Finally, the report contains an assessment of banking supervision, and audited annual financial statements of the Bank for the year 2023.
During 2023, global GDP growth is estimated to have slowed compared to 2022 owing to high interest rates, the gradual withdrawal of fiscal support, the fallout from regional conflicts, and the long-term consequences of the COVID-19 pandemic. The growth rate for global GDP slowed from 3.5 percent in 2022 to an estimated 3.1 percent in 2023. Weaker global GDP growth is ascribed to high interest rates, the gradual withdrawal of fiscal support amid high debt, fallout from the conflicts in Ukraine, Gaza and the Red Sea, and extreme weather events, as well as the long-term consequences of the pandemic that have continued to depress global economic activity. Economic growth in most advanced economies and in some emerging markets and developing economies slowed down in 2023. Nevertheless, growth held up well in the US economy and accelerated in China, Japan and Russia over the same period. The global economic growth rate is expected to remain unchanged in 2024, with major risks centred on climate and geopolitical shocks, increasing geoeconomic fragmentation, the slowing Chinese economy, and the possible persistence of underlying inflation.
Global inflation declined in 2023 as supply chains eased and transportation costs declined, resulting in policy interest rates remaining unchanged in the latter part of the year. Inflation decreased in AEs and EMDEs, which is mainly ascribed to a reduction in energy and transportation costs, coupled with a fall in the costs for food due to an abundant supply of agricultural products resulting from favourable weather. Global inflation is projected to decline further to 5.8 percent in 2024 from 6.9 percent in 2023 as tight monetary policy continues to take effect.
During the period under review, real GDP in Namibia recorded further growth, albeit at a slower pace than in 2022. The growth rate of the Namibian economy eased slightly to 4.2 percent from a robust growth rate of 5.3 percent registered in 2022.
Namibia’s current account deficit deteriorated further, primarily due to increasing outflows on the services account on the back of oil exploration and appraisal activities. The deficit on the current account widened to N$34.1 billion during 2023, from N$26.4 billion recorded in the preceding year. This was due to a higher outflow recorded in the services and primary income accounts. As a ratio of GDP, the current account deficit stood at 15.0 percent in 2023, relative to a deficit of 12.8 percent recorded a year previously. On the financial account, buoyant non-reserve related inflows in the form of foreign direct investment were strong enough to cover the current account deficit. As a result, the overall balance of payments registered a moderate surplus amounting to N$4.7 billion in 2023, contributing to a rise in reserves.
Namibia’s foreign exchange reserves remained resilient during 2023 amidst increasing pressure from rising imports. The stock of international reserves rose by 11.9 percent during 2023, from N$ 47.6 billion recorded at the end of 2022 to N$53.2 billion as at 31 December 2023. The increase was supported by higher SACU receipts and government foreign borrowing. The reserve position remains adequate as measured in terms of the three adequacy measures adopted by the Bank, with the import cover in particular closing off the year at 3.8 months of imports, above the 3-month international benchmark.
Namibia’s financial system remained resilient, stable and sound amidst slower economic growth and higher interest rates. The banking sector remained well-capitalised and liquid during 2023, above the prudential requirements. The banking sector’s profitability remained solid due to higher net income, particularly interest income. Asset quality, as measured by the non-performing loans (NPLs) ratio, deteriorated slightly in 2023 but remained below the crisis time supervision intervention trigger point. Going forward, the risks to the banking sector are centred around the impact of climate change, grey listing, and cyber security. Regarding climate change, the Bank has joined the Network of Central Banks and Supervisors for Greening the Financial System to integrate climate-related risks into supervision and financial stability monitoring.
Similarly, the non-bank financial institutions (NBFIs) sector continued to exhibit resilience during 2023. The NBFI sector withstood the headwinds of the macroeconomic environment, characterised by slowing growth in the domestic economy, volatility in global financial markets, elevated inflation rates, and, correspondingly, high-interest rates. The demand for NBFI products was observed to remain sound in 2023, while investment assets performed positively.
The Macroprudential Oversight Committee (MOC) revised the loan to value regulations in July 2023. In response to the challenges faced by the property market, specifically high NPLs for the mortgage credit category and the dampened demand for mortgage credit, coupled with the low volume of property sales and lacklustre performance in the construction sector, the MOC intervened by revising the loan-to-value regulations in July 2023. The MOC will continue to closely monitor these developments going forward.
The capability of creating a vision and executing on our strategy remained our focus in responding to a disruptive and fast-changing world of work brought on by automation, artificial intelligence, and other technological developments. As such, the Bank continued with its capacity development interventions aimed at building a future-fit workforce that will be able to navigate the working environment of the future. This required the Bank to upskill and reskill its workforce within the fields of core central banking, technology, and leadership to ensure the successful execution of the Bank’s mandate and strategy.
To ensure a future-fit workforce, the Bank continued with its capacity development initiatives through a blended approach. These included in-person and online training, webinars, rotations, coaching, and conferences to ensure the successful execution of the bank’s mandate and strategy. The development interventions were focused on enhancing core central banking, technology, and leadership skills. During the period under review, 400 courses were completed on the Bank’s online learning platform, and 197 face-to-face interventions were attended through leveraging opportunities with existing development partners. To strengthen the Bank’s leadership, bench strength coaching programmes were undertaken and leadership development programmes were offered by Harvard Business School and Stellenbosch University. The Bank further supported 17 employees through its study loan facilities to obtain formal qualifications related to the operations of the Bank.
The cornerstone of a successful organisation is founded on strong cultural values. The Bank continued to embed the desired culture to create an enabling environment that supports the achievement of the Bank’s strategy. The Bank’s culture is built on the philosophy of “running the same race faster and simultaneously running a different race to prepare for the future,” which in essence is expressed by the culture statement “Embracing Agility, Collaboration and Trust (ACT)” which the Bank has adopted. Employees were introduced to the Growth mindset concept, and workshops were rolled out Bank-wide to educate staff on how to be agile, collaborative, and trusting. Culture Champions were appointed and equipped with the necessary skills to support management in driving the desired culture. Customised solutions were also deployed to drive the Bank’s organisational culture.
Digital transformation remains a critical strategic enabler for the Bank, and significant progress has been made in establishing an interrogative redesign of all fundamental processes. The Automation Centre of Excellence was established to leverage internal skills to spearhead the institution’s digitisation and automation journey. As an example, through collaboration with the Ministry of Finance and Public Enterprises, the Bank automated the local and foreign payment processes for the Ministry by introducing robotic process automation, and there are plans to further scale a similar solution to the offices, ministries and agencies, creating substantial efficiencies and further affirming that digital transformation is a key enabler for the Bank. Furthermore, the exploratory work around CBDCs is continuing, and the bank is close to finalising its roadmap consisting of short, medium and long-term objectives. Collaboration with the CMA countries on the opportunities that CBDCs may offer towards enhancing cross-border payments efficiencies is also underway.
The Bank’s financial performance showcased increased robustness in 2023. Operating profit soared by 57.5 percent, from N$651 million in 2022 to N$1.025 billion in 2023, due to higher interest rates and average investment balances. The Bank’s total assets increased by N$9.56 billion, from N$52.36 billion in 2022 to N$61.92 billion in 2023, mainly driven by increased investments on the back of SACU revenues and higher-than-expected diamond sales, proceeds of the sale of Namibia Breweries to Heineken, and valuation gains.
As a result, the Bank will increase the dividend paid to the Government by almost N$100 million. The amount designated for distribution increased by 24 percent year-on-year, from N$772.6 million in 2022 to N$956.9 million in 2023. The Bank will distribute a dividend of N$511.5 million (2022: N$413.7 million) to the Government for 2023. An allocation of N$100 million was made to the Development Fund Reserve for development purposes, and one of N$10 million to the Training Fund Reserve.
Concluding remark
The achievements presented in this report would not have been possible without the important contributions of our staff and Board and the critical support of all our stakeholders. In particular, I would like to thank our staff members for their tireless efforts and commitment to deliver on the Bank’s mandate. Let me also acknowledge the important role played by the Bank’s Board Members for their independent views and strategic focus on attaining the objectives of the Bank. My appreciation equally goes to our stakeholders, who granted their cooperation and provided us with information and data throughout the year, which the Bank used to compile this report and other publications. We ended the year strong and well-positioned to discharge our mandate in 2024.
Looking ahead, the Bank remains steadfast in fulfilling its mission through its commitment and dedication to always being a leading central bank committed to a prosperous Namibia. The Bank will strive to fulfil its mission of fostering the stability, integrity, and efficiency of the nation’s monetary, financial and payment systems. Namibia has a small, open economy which is highly exposed to risks arising from various sources, not least climate variability and change, and this requires the Bank to continue to safeguard and maintain price and financial stability for the sustainable economic development of the country.
Johannes !Gawaxab
Governor
28 March 2024