Summary

Find out more about PART A: Operations and Affairs of the Bank.

PART A: Operations and Affairs of the Bank

ORGANISATIONAL STRUCTURE OF THE BANK OF NAMIBIA

GOVERNANCE

OBJECTIVES AND ACCOUNTABILITY OF THE BANK

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CORPORATE CHARTER

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STRATEGIC PLAN 2022–2024

The Bank’s Strategic plan is linked to its mission and functional priorities.

Following the launch of the Bank’s new three-year Strategic Plan (the Plan), the focus for the Bank has been on the execution of the Plan which has continued to set direction and clear priorities to align departments towards a common goal which in turn, clarifies and simplifies decision-making. Through the Bank’s bi-annual semester strategic performance reviews held in May and November 2022, respectively, great strides towards the achievement of the 2022-2024 Strategic Plan was revealed. Through the Banks’ three-year strategy, the Bank aims to recalibrate, repurpose, reprioritise and future- proof itself. To achieve this, the Bank is envisaged to become a digitally transformed institution with a fully modernised financial system that can help restore economic growth and sustain economic development.

At the core of the plan lies a shared Vision for the Bank, incorporating a new Mission Statement: “To support sustainable economic development through effective monetary policy and an inclusive and stable financial system for the benefit of all Namibians”. Moreover, the Bank aspires to be a leading, central bank that is committed to a prosperous Namibia.

ACCOUNTABILITY

The Bank is committed to good corporate governance practices and accountability to the public.

It is of paramount importance that the Bank always remains accountable to the public at large by adhering to sound corporate governance principles. Relevant legislation and the Bank’s Corporate Charter and Strategic Plan are amongst the tools that guide the Bank in living up to the standards of good governance. The Bank also strives to be transparent by its concrete communication strategy that enables open and clear expression of why and how the Bank acts as it does. The aspects of good governance that the Bank is committed to meet include:

being responsible, respected, trustworthy, and credible;
being accountable to its shareholder – the Government – and the Namibian people;
demonstrating an exceptionally high degree of integrity;
ensuring that its actions and policies are efficient, effective and transparent;
maintaining professionalism and excellence in the delivery of its services; and
being flexible and forward-looking in its approach, while still avoiding undue risk.

THE GOVERNOR

The Governor serves the Bank as its Chief Executive Officer and is accountable to the Board for the management of the Bank and the implementation of its policies.

The Governor also represents the Bank in its relations with the Government and other institutions. In most other matters, comprehensive and Board-approved delegations of authority are in place to enable the Governor and his delegates to carry out their duties related to the implementation of policies. Ordinarily, the Governor is appointed for a five-year term. The Act sets specific criteria for the appointment, reappointment, and dismissal of a Governor. The current incumbent, Mr. Johannes !Gawaxab, was reappointed for a five-year term, effective from 1 January 2022 to 31 December 2026.

THE BOARD OF THE BANK OF NAMIBIA

The Board is responsible for the policies, internal controls, risk management and general administration of the Bank.

In addition to their typical fiduciary duties, Board members are also charged with many high-level responsibilities directly related to the policies and operations of the Bank, including approving the licensing of banking institutions and ensuring the prudent management of international reserves. In addition, the Board is responsible for approving the Bank’s financial statements and annual budget, promoting effective corporate governance practices, and monitoring internal controls and risk management frameworks.

The Bank’s Board members are appointed by the President of the Republic of Namibia.

They consist of the Chairperson (executive member), two executive members, one ex officio member (non-executive), and a minimum of five and a maximum of six further nonexecutive members. The Governor (Chairperson) and the Deputy Governors are the executive members, while the Executive Director of the Ministry of Finance is the ex officio member. In addition, not fewer than five but not more than six non-executive members of the Board are appointed in line with requirements.

The Board meets regularly (at least four times a year) with the main purpose of overseeing and monitoring the Bank’s finances, operations and policies.

During 2022, four ordinary and four special Board meetings were held. Table A.1 below sets out the dates of Board meetings and the attendance of members during 2022:

The Information Technology Governance and Projects Committee (ITGPC), the Audit Committee, and the Remuneration Committee are important elements of the Bank’s sound corporate governance structure.

The Board delegates certain functions to these sub-committees, which have all been established through formal terms of reference, and which report to the Board. The Board can assure stakeholders that the sub-committees held regular meetings during the period under review and that they met their respective obligations in all material respects.

The ITGPC was established to assist the Board in discharging IT-related duties and responsibilities.

The purpose of the Committee is to perform a strategic oversight role to ensure alignment of the IT strategy with the Bank’s strategy through the approval, prioritisation and monitoring of strategic IT projects and initiatives for value creation, risk mitigation and resources assessments. The ITGPC is comprised of three non-executive Board members, and its meetings are held quarterly. The dates of the ITGPC meetings and the attendance of members during 2022 are set out in Table A.2.

The Audit Committee is responsible for evaluating the adequacy and efficiency of the Bank’s corporate governance practices, including its internal control systems, risk control measures, accounting standards, and auditing processes.

Three independent non-executive Board members currently serve as members of the Audit Committee, whose meetings are also attended by one of the Bank’s Deputy Governors; the Director: Finance and Administration, and Head of Risk Management and Assurance; the external auditors; and relevant staff members. The Audit Committee is generally responsible for considering all audit plans and the scope of external and internal audits to ensure that the coordination of audit efforts is optimised. The Audit Committee is also required to introduce measures to enhance the credibility and objectivity of financial statements and reports prepared regarding the affairs of the Bank, and to enhance the Bank’s corporate governance, with emphasis on the principles of accountability and transparency. Table A.3 below sets out the dates of the Audit Committee meetings and the attendance of the audit committee members during 2022.

The Remuneration Committee is responsible for overseeing and coordinating the Bank’s remuneration policy and strategy to ensure its competitiveness and comprehensiveness, so that it is able to attract and retain quality staff and Board members.

This Committee consists of three non-executive Board members and the Deputy Governor designated to this area. The dates of the Remuneration Committee meetings and the attendance of members during 2022 are set out in Table A.4.

MANAGEMENT STRUCTURE

The Bank’s Senior Management Team as at the end of 2022 consisted of the Governor, two Deputy Governors, and the Directors of the Bank’s various departments, as outlined here. To ensure that the Bank implements its policies effectively, in addition to the sub-committees already mentioned (the ITGPC, the Audit Committee and the Remuneration Committtee), various committees are in place. These are the Monetary Policy Committee (MPC), the Financial System Stability Committee (FSSC), the Macroprudential Oversight Committee (MOC), the Management Committee, the Investment Committee, the Risk Management Committee, the Digital Transformation Management Committee, the Budget Committee and the Tender Committee.

The function of the MPC is to implement an appropriate monetary policy stance. The MPC in 2022 consisted of the Governor (Chairperson); the two Deputy Governors; the Director of the Research and Financial Sector Development Department; the Director of the Financial Markets Department; and the Technical Expert in the Research and Financial Sector Development Department. The MPC normally meets every second month to deliberate on an appropriate monetary policy stance to be implemented by the Bank in the subsequent two-month period. Decision-making in the MPC is by consensus. The monetary policy decision is communicated to the public through a media statement delivered at a media conference.

The FSSC assesses the vulnerability and risk exposure of the entire financial system. It is an inter-agency body set up between the Bank and the Namibia Financial Institutions Supervisory Authority (NAMFISA), with the Ministry of Finance as an observer. The FSSC members are the Governor (Chairperson); the Deputy Governors; the CEO of NAMFISA (Deputy Chairperson); and a representative of the Ministry of Finance nominated by the Minister. In addition, the Bank nominates the Director: Banking Supervision and the Director: Financial Stability and Macroprudential Oversight to the FSSC, while the CEO of NAMFISA nominates the two Deputy CEOs and the General Manager responsible for Research, Policy and Statistics. The FSSC meets on a quarterly basis to assess the potential risks that apply to the fi nancial system, and to discuss and recommend appropriate policy measures to address such risks.

The MOC supports the Governor in the execution of the Bank’s macroprudential mandate. The mandate involves the assessment of risks and vulnerabilities in the fi nancial system and the design of appropriate policy responses to mitigate their impact. It is comprised of the Governor as the Chairperson; the two Deputy Governors (with the Deputy Governor responsible for Financial Stability as the Deputy Chairperson); the Advisors to the Governor; and the Directors of Financial Stability and Macroprudential Oversight, Research and Financial Sector Development, Payments and Settlement Systems, Banking Supervision, Financial Markets, and Strategic Communications and International Relations. The Committee meets at least twice a year or at any time during the year as the need arises to discuss key changes to systemic risk during the period and the overall state of the fi nancial system. Additionally, recommendations from the FSSC may be approved at this platform. Macroprudential decisionmaking powers in Namibia are vested in the Governor of the Bank, and the MOC provides him or her with the necessary support.

The Management Committee is responsible for reviewing the Bank’s policies on financial and other administrative matters. The Management Committee is comprised of the Governor (Chairperson); the Deputy Governors; the Advisor(s) to the Governor; all Directors; and the Head of Risk Management and Assurance. The Management Committee meets every second week.

The Investment Committee is responsible for reviewing the management of Namibia’s foreign exchange reserves. While the Board approves the International Reserves Management Policy, the Investment Committee reviews the investment guidelines for final approval by the Governor. The Investment Committee is also expected to ensure that investments comply with the approved policy. The Investment Committee is comprised of the Governor (Chairperson); the Deputy Governors; Advisor(s) to the Governor; the Director of the Financial Markets Department; the Director of the Research and Financial Sector Development Department; the Director of the Strategic Communications and International Relations Department; and the Director of the Finance and Administration Department.

The Risk Management Committee assists the Audit Committee to ensure that the Bank implements an effective risk management policy. The Committee also supports the annual strategic focus areas, thereby enhancing the Bank’s ability to achieve its Strategic Objectives and ensure that disclosure regarding risks is comprehensive, timely and relevant. The Committee is comprised of all members of the Management Committee and is chaired by the Governor or a Deputy Governor. Its meetings are held on a quarterly basis, preceding the Audit Committee meetings.

The function of the Budget Committee is to oversee the budget deliberations of the Bank. The Budget Committee meets as part of the normal annual budget process of determining and providing for the Bank’s income and expenditures (both operational and capital) to be incurred in the execution of its functions and responsibilities. Each department presents and defends anticipated annual budgetary allocations before the Budget Committee. The Budget Committee members are the Governor (Chairperson); the Deputy Governors; and the Director and senior staff members of the Finance and Administration Department, which also provides administrative and support services. One representative each from the Employee Liaison Forum (ELF) and the employees’ bargaining union are permitted to attend and participate in the budget deliberations to ensure transparency.

The Tender Committee is responsible for ensuring sustainable, ethical, transparent, and cost-effective procurement of and tendering for the Bank’s assets, goods and services. To achieve these objectives, the Committee takes into consideration the following:

quality of the product/service;
cost/price;
reliability of suppliers;
delivery time and after-sales service support; and
support to Small and Medium-sized Enterprises (SMEs)

The key objectives of the Digital Transformation Management Committee are to determine and align the Strategic Objectives of the Bank with cross-departmental matters of Digital Transformation, Technology, Projects, Processes and Overall Efficiency within the Bank. The DTMC members are the Governor (Chairperson); Deputy Governors; Advisor(s) to the Governor; and all departmental heads. The Head: Risk Management and Assurance, the Deputy Director: Strategy, Projects and Transformation, and the Director: Information Technology are permanent attendees who serve in the capacity of Advisors to the Committee. The DTMC meets at least four times per calendar year.

REPORTING OBLIGATIONS

The 2020 Bank of Namibia Act requires the Bank to submit various reports to the Minister of Finance. The requirement includes the obligation to submit a copy of the Bank’s Annual Report to the Minister of Finance within three months after the end of each financial year. The Minister, in turn, is required to table the Annual Report in the National Assembly within 30 days of receiving it. The Report must contain the Bank’s annual accounts, certified by external auditors, information about the Bank’s operations and affairs, and information about the state of the economy. Apart from the Annual Report, the Bank is further required to submit a monthly balance sheet, which is published in the Government Gazette.

THE YEAR UNDER REVIEW

The Bank has four main strategic focus areas, namely: the Purpose Pillar, the Stakeholder Engagement Pillar, the Talent and Transformation Pillar, and the Future-fit Organisational Efficiency and Effectiveness Pillar. Each of these pillars consists of High-level Strategic Objectives that the Bank aspires to achieve. These Strategic Objectives are directly connected to the Bank’s functional priorities, its Mission, its Vision, and developments in the internal and external environments. Below is an overview of the Bank’s Strategic Pillars and their corresponding High-level Strategic Objectives.

In order to ensure the successful implementation of the Strategic Plan, the Strategic Objectives have been dissected into strategic initiatives, with clear and measurable targets. On a biannual basis, the Directors of the various departments report on progress made with their strategic initiatives and the attainment of their targets. The entire Strategic Plan is reviewed and refreshed annually. It is therefore important not only to design strategies that can be engaged in pursuit of these objectives, but also to clearly describe the strategic outcomes that would reveal whether a particular objective has been met.

These performance outcomes are complemented and further substantiated by a summary of key actual outcomes and achievements during the year. The more detailed discussions on specific Strategic Objectives initiatives follow in this Section.

FINANCIAL STABILITY ASSESSMENT AND SURVEILLANCE

The Bank assesses risks and vulnerabilities that could threaten financial sector stability to determine the sector’s ability to withstand internal and external shocks. Such assessments are published in April each year in the Financial Stability Report (FSR), followed by a review in September. Threats to financial stability in Namibia were and will be continuously monitored in a accordance with the advisory guidance of the FSSC and direction of the MOC. The Macroprudential Oversight Framework was successfully completed in 2022; completion of the Resolution Framework, Options and Strategies is, however, contingent upon the promulgation of the new Banking Institutions Act, which is expected in 2023. All high-level strategic initiatives pertaining to the assessment of risks and vulnerabilities in the financial system were successfully completed in 2022.

Namibia’s financial system remained stable, sound and resilient. During the year under review, the domestic financial system remained stable, robust, and resilient enough to withstand elevated risks and vulnerabilities emanating from the global and domestic economic and financial environment. Both the banking and non-banking financial industries continued to perform adequately and remained profitable for most of 2022. Moreover, the banking industry remained liquid and well capitalised, while the non-banking financial industry reported funding and solvency positions above the prudential limits.

The Banking industry remained profitable, liquid and well capitalised. Both the capital adequacy and the liquidity position of the banking industry improved and remained above the statutory minimum requirements. Moreover, profitability improved with both return on assets and return on equity edging upwards. A key challenge for the banking industry during 2022 was the management of asset quality, as measured by the non-performing loans (NPLs) to total loans ratio. Despite the improvement in this ratio during the latter part of 2022, the impact of inflationary pressures, interest rate adjustments and a slow economic recovery s still filtering through and is expected to have a negative impact on the ratio. Overall, however, the banking industry remained sound, with the threat to financial system stability remaining subdued.

The Non-bank Financial Institutions (NBFI) industry remained profitable and sufficiently capitalised. The profitable returns were impacted by high inflation, recessionary pressures, and the geopolitical tension in Europe which led to unfavourable developments in the financial markets. Given the large income-earning asset base and sufficient reserves held by pension funds, the shortfall of benefits paid in excess of contributions received can therefore be covered, thus posing no real risk to financial stability. As such, the pension funds sector remained well funded, coupled with stable performance in the long-term insurance and collective investment schemes sectors, despite lower returns on investments.

During the review period, the Bank continued to support the operationalisation of the Namibia Deposit Guarantee Authority (NDGA). The NDGA is mandated to manage the Deposit Guarantee Scheme, which aims to protect depositors in the event of bank failures. This is done through ensuring that deposits are reimbursed in an efficient, transparent and speedy manner. The Scheme is considered a necessity in the financial sector as its existence will provide confidence in the system and reduce the risk of a financial system crisis. The Bank will continue to support this institution as it plays a significant role in ensuring a stable and inclusive financial system.

PAYMENT SYSTEM OVERSIGHT

The Bank continued to fulfil its regulatory mandate as the overseer of the National Payment System (NPS) in 2021, in line with the Payment Systems Management Act (No. 18 of 2003), as amended. Payment systems are a crucial part of the financial infrastructure of a country. In Namibia, the regulatory mandate to oversee the NPS was accomplished through risk-based on-site and off-site oversight activities. No on-site inspections were conducted during the period under review. The Bank conducted off-site activities by monitoring system participants through a combination of assessments based on information provided by the regulated institutions in the NPS.

During the period under review, the Bank revised the Determination on the Conduct of Card Transactions within the National Payment System (PSD-4) and gazetted the revised version on 25 July 2022. Due to the ever-evolving payments landscape, the Bank conducts periodic reviews of its regulatory framework to ensure that it remains relevant and robust. PSD 4, which provides guidance on how domestic, regional and international card transactions should be routed and defines specific preventive provisions on the acquisition and routing of e commerce transactions, was updated to respond to the changes in the card payments ecosystem.

As part of its efforts to strengthen regulatory oversight of Electronic Funds Transfers (EFTs) at domestic, regional and international levels, the Bank introduced the Determination on the Conduct of Electronic Funds Transfer Transactions in the National Payment System (PSD-9). PSD-9 seeks to ensure that all EFT transactions are processed and facilitated through the appropriate structures within the applicable financial systems. Hence, this determination will replace the Directive on the Conduct of EFT transactions within the National Payment System No.183 (dated 29 June 2007) and will come into force on 14 April 2023.

To strengthen operational excellence and enhance security in the NPS, the Bank issued the Determination of the Operational and Cybersecurity Standards within the National Payment System (PSD-12). The determination’s functional aspects relate to key risk indicators for the operation of important systems in the payments ecosystem (availability, Recovery Time Objectives (RTOs), types of disaster recovery, etc.). The security aspects relate to, among others, the safety of payment data to curb data breaches and reduce cyber fraud in general.

In fulfilment of the guidance provided in the Bank’s Guidance Note on Interchange Determination in the National Payment System, dated 26 November 2020, the Bank issued the Determination on Card Interchange and ATM Surcharging (PSD-11). The determination came into effect on 22 August 2022 (in respect of Card Interchange for Fuel Transactions) and on 1 October 2022 (in respect of the remainder of the Determination). PSD-11 provides the revised rates for card interchange and determines the ATM surcharging fees for off-us ATM withdrawals and balance enquiries. All card participants and payment service providers must ensure compliance with the prescriptions of PSD-11.

A position paper on The Feasibility of Open Banking within the Namibian Financial Sector was published by the Bank on 31 October 2022. The position paper was issued in line with the Bank of Namibia’s Strategic Plan for 2022 to 2024, as well as the NPS Vision 2025, which identified Open Banking as one of the global payment systems megatrends and opportunities for industry to explore over the 5-year term of the NPS Vision, with the objective of promoting innovation and transformative payment solutions. Overall, Open Banking is aligned with the Bank’s commitment to drive greater digital transformation and financial inclusion and lead through innovation.

As part of its public education efforts, the Bank issued a newsletter addressing components of the NPS. In this regard, the Bank issued a newsletter with the title Understanding E-Commerce and the Treatment of FinTechs in the National Payment System. Its purpose was to inform and educate the public on the electronic commerce ecosystem, regulated products and services and their related fees and charges, as well as on the Bank’s Financial Technology (FinTech) Innovations Regulatory Framework, which provides direction on how FinTech innovations that are not presently subject to the Bank’s existing regulations will be treated.

NAMIBIAN INTERBANK SETTLEMENT SYSTEM

In 2022, the Bank provided interbank settlement services through the Namibian Interbank Settlement System (NISS) to authorised institutions. The interbank transactions settled in the NISS comprise single-item time-critical transactions processed by the participants in the NISS, and retail payments such as EFTs and card transactions that are cleared through Namclear. During 2022, the Bank conducted one unannounced NISS disaster recovery exercise and two business continuity management exercises. The unannounced NISS disaster recovery exercise and the business continuity management exercise conducted during the second quarter of 2022 were successful as the twohour Recovery Time Objective (RTO) was met. However, the business continuity management exercise conducted during the third quarter of 2022 was unsuccessful due to IT-related issues experienced.

The Bank continued to provide collateralised lending to the NISS participants through overnight and intra-day lending facilities. During 2022, the NISS participants utilised the intra-day and overnight credit facilities on numerous occasions to bridge liquidity shortages in order to fulfil the settlement obligations within the NISS. In addition, the Bank developed a set of procedures to guide the NISS participants, in the event of a payment clearing house batch (or batches) defaulting. Furthermore, the procedures are intended to ensure that the NISS as a financial market infrastructure can take timely action to contain losses and liquidity pressures and reduce associated risks which may cause systemic risks within the NPS.

Following the settlement value milestone of a trillion Namibia dollars recorded during 2021, the NISS reached yet another settlement value milestone during 2022. This is attributable to the usage of the credit lending facilities, particularly the 7-day Repo, high volumes of the new domestic EFT system streams (NamPay), and the buying/ selling of government securities through open market operations. The aggregate settlement value recorded in the NISS during 2022 was N$1,131.0 billion, with a volume of 90 434 transactions settled in the NISS, which translates to an average of 299 transactions per settlement day. The total value and volume settled through the NISS in 2022 increased by 7.68 percent and 0.75 percent, respectively, over the 2021 figures. Moreover, the share of single transactions settled in the NISS amounted to N$766.29 billion, which translates to 67 percent of the total value settled. The value of retail payment transactions cleared through Namclear was N$364.70 billion, which represents 32.2 percent of the aggregate value settled.

CLEARING SYSTEM

The Bank continued to oversee the clearing operations in the NPS. During the review period, Namclear remained as the only service provider that provided clearing services within the NPS. It clears inter-bank EFT and card transactions, which are submitted to NISS for settlement.

The value of EFT transactions processed by Namclear increased in 2022 to N$349.7 billion. This represents a 12 percent increase in value and a 9 percent increase in volume over the 2021 figures. The increase in EFT usage can be attributed to increased economic activity after to the COVID-19 lockdown restrictions ended during 2021.

Card payment transactions continue to increase year-on-year. In 2022, Namclear processed card transactions with a total value of N$38.2 billion. The value and volume processed by Namclear increased by 17 percent and 19 percent, respectively, over the 2021 figures.

INTRABANK AND ELECTRONIC-MONEY SCHEMES

The value of EFT intrabank transactions settled in commercial bank money increased to N$922.7 billion in 2022, from the N$666.6 billion reported in 2021. EFT intrabank transactions have been increasing steadily over the past 2 years (2021–2022), after the sharp economic downturn caused by COVID-19 restrictions and job losses during 2020.

Payment card intrabank transactions in 2022 increased over the transactions reported in 2021. Ninety-four (94) million card transactions were processed between merchants and customers of the same banking institution, amounting to N$66 billion, which is a moderate increase from the N$58 billion reported in 2021.

The use of electronic-money (e-money) schemes, which are currently close-loop, i.e., only operating within the same banking institution’s systems, continued to increase in 2022. The Bank observed an increase in the use of e-money as a payment instrument, which shows a shift in the payments behaviour of users of the domestic payment system. In 2022, the value and volume of e-money transactions increased to N$34 billion and 64 million, respectively. This increase can be attributed to changing consumer behaviour in general due to the ease of use and access to particularly the wallets.

REGIONAL PAYMENT SYSTEMS

The Bank remained a participant in the Southern African Development Community Real-Time Gross Settlement (SADC-RTGS) system. The SADC-RTGS is a regional settlement system that processes time-critical or high-value payments between participating SADC countries. At the end of the 2022 reporting period, there were 89 participants (i.e., registered banking institutions, as well as central banks within the respective SADC jurisdictions) of which five, including the Bank, were Namibian. During 2022, the total value of payments processed in the SADC-RTGS amounted to R1.7 trillion. Namibian banks accounted for R558 billion, which is 33 percent of the SADC-RTGS total. This reflects the optimal usage of Namibian banks of the SADC-RTGS in support of regional payments integration in accordance with the Finance and Investment Protocol.

In support of the adoption of ISO 20022 messaging standards for cross-border payments, the SADCRTGS Operator, in collaboration with the SADC Bankers Association, has logged an ISO 20022 Migration Project, with the proposed implementation date for the SADC region being October 2023. The Society for Worldwide Interbank Financial Telecommunications (SWIFT) instructed financial institutions across the globe to migrate from the current MT (message text) messaging standards to ISO 20022 messaging standards by November 2025. To ensure compliance with SWIFT’s deadline, the relevant engagements are currently underway at both regional and domestic levels. The Bank will, as part of its oversight efforts, continue to ensure compliance with international standards within the NPS.

INDUSTRY FRAUD SYSTEMS

The total value of fraudulent transactions perpetrated within the NPS has increased over the past five-year period. For the period under review, the total value of fraudulent transactions increased substantially compared to 2021. The industry recorded increases of N$638 thousand, N$11.5 million and N$5.9 million for the card, EFT, and e-money streams, respectively, compared to 2021. Payment card fraud increased by 9 percent, EFT by 80 percent, and e-money payments fraud by 62 percent. The increase in payment card fraud was primarily due to Card-Not-Present payment incidents perpetrated via internet banking platforms and/or mobile applications. The EFT fraud was perpetrated primarily via phishing, whilst that in e-money payments resulted from incidents that were perpetrated via phone scams on especially the wallets. The total value of fraud attributable to card, EFT, and e-money streams for the period under review amounted to N$7.3 million, N$14.5 million and N$9.6 million, respectively. The total fraud perpetrated within the NPS remained within the fraud safety index indicator of 0.05 percent as per the Bank’s Strategic Goal, with a figure of 0.00223 percent being recorded.

BOX ARTICLE: POLICY ISSUES EMANATING FROM THE 23RD ANNUAL SYMPOSIUM

INTRODUCTION AND BACKGROUND

The Bank of Namibia held its 23rd Annual Symposium on the 3 November 2022 at the Safari Hotel and Conference Centre under the theme: Maximising economic growth from renewable and non-renewable energy sources in Namibia. The symposium theme focused on the recent discoveries of oil and gas in the country, and the planned production of green hydrogen using renewable energy resources. The Symposium hoped to find ways in which the country can maximise the benefits from these developments and use them to uplift especially the vulnerable and less fortunate and members of the society.

Many of the world’s wealthiest countries have benefited greatly from mineral extraction. For example, Australia, Canada, Finland, Sweden, Botswana and the United States have all had extensive mineral industries and used them as platforms for broad-based industrial development. Moreover, in these countries, minerals exploitation seems to have benefited regions with mines in at least some measure. In the nineteenth-century, mineral exploitation in Australia, for instance, brought development to the states of Victoria and Western Australia. In sub-Saharan Africa, Botswana is one of the few countries that has truly benefited from its mineral wealth. Revenues from diamond mines, combined with sound economic policies, have helped build infrastructure and kept the economy stable.

A major conclusion that emanated from the 23rd Annual Symposium was that the country has an adequate petroleum regulatory framework that can ensure appropriate derivation from the resources, although a few elementary things still need to be addressed. The key policy recommendations made were the need to:

build accountable resource governance institutions to avoid the resource curse;
address the fiscal regime in the extraction industry;
ensure that appropriation of exploration licences is done in an open and transparent auction system;
promote the use of local inputs to target employment, and industrial and technological development; and
improve the ease of doing business, leveraging opportunities offered through regional integration initiatives.

KEY POLICY ISSUES EMANATING FROM THE SYMPOSIUM

The papers and discussions at the Symposium made some key recommendations. These included that from the outset, the country should ensure that economic benefits from the new discoveries trickle down to the most vulnerable communities, while ensuring that certain regulations are in place to avoid rent-seeking behaviours. The following is a summary of the key policy issues that emerged from the Symposium:

Build accountable resource governance institutions to avoid the resource curse

Accountable institutions allow for transparency and accountability in allocating resources. Accountable institutions ensure that access to resources is granted in such a way that prevents mismanagement and other abuses and that the benefits trickle down. The quality of the institutional setting, the prevention of corruption, the maintenance of law and order, and the limiting of bureaucratic inefficiencies are all important. A robust institutional setting could diminish rent seeking activities and ensure the security of property and contractual rights. In turn, this would encourage investment.

Address the fiscal regime in the extraction industry

Namibia will need to review current mineral royalties and taxes to ensure a balance between attracting investors and safeguarding optimal benefits for the country from the resources. This balance is important for facilitating investment while at the same time addressing the notion

Appropriation of exploration licences should be done in an open and transparent auction system

The current open-door licensing system for resource allocation should be substituted with an open and transparent bidding process, wherein different agents bid with extra royalties, income taxes, or the Government’s portion in a profit-sharing agreement. The winner would commit to a certain minimum investment within a specified timeframe to minimise the possibility of daring offers. More specifically, such a system could be implemented by establishing exclusive prospecting licenses that are auctioned and, in the event of success, are subsequently upgraded to the next stage licenses.

Promote the use of local inputs to target employment, and industrial and technological development

The Government should promote the use of local inputs to target employment, and industrial and technological development. The current draft of the local content policy should specifically aim to maximise the benefit delivered to Namibian citizens. This will occur via the enhancement and development of strategies that will target the phased participation of Namibian labour, goods and services, companies, ownership, and financing along the value chain. The Government should provide a clear and stable regulatory framework for local content requirements by reforming the current legal framework to attract investors and maximise the participation of local suppliers along the value chain. Diversification of the local economy will prevent reliance on a single commodity. This can be achieved by developing national competency and capacity. It would therefore be prudent to identify specific sectors for the development of local capacity. Ensuring optimal local content in the exploitation of resources should be prioritised, and specific sectors should be identified for the development of local capacity. It is of vital importance that Namibia’s policy reflects its own special circumstances, as there are no external models to lean on. However, it would be beneficial for the country to learn from other countries’ successes and failures.

Improve the ease of doing business

To facilitate development, the Government needs to ensure that regulations and requirements strike an appropriate balance between fairness and effectiveness, while maintaining an acceptable level of consistency. There are clear parallels between the rules and regulations influencing business development and overall socioeconomic development. Clear requirements and straightforward compliance allow businesses and entrepreneurs to focus on innovation, problem-solving, and employment – all factors that contribute to development. And once set, rules should be stable – at least for periods that broadly coincide with the lifetime of relevant projects in the extractive industries.

Have targeted incentive packages to reduce investment risks

There should be targeted incentive packages to reduce the investment risks faced by early adopters in the green hydrogen initiatives. These could include a mix of financial incentives (subject to improvement of the country’s fiscal position), fast-tracking access to land, assistance in meeting or exceeding legal and regulatory provisions, and utility connections and related matters of immediate relevance to lower the barriers to targeted investments.

Develop an energy transition timeline

The Government should develop a clear energy transition timeline that will boost investor confidence in the country. As a small country that faces the triple challenge of inequality, poverty and unemployment, Namibia is well within its rights to take advantage of all the resources available in the country. However, as the world continues to move towards decarbonisation, it is imperative that the country develop an energy transition timeline.

Leveraging on opportunities offered through regional integration initiatives

Regional infrastructure development should be at the forefront of the developmental agenda. Regional infrastructure development creates a larger market and greater economic opportunities. Such infrastructural development is critical for the sustained promotion of the regional economic development, trade, and investment which will contribute to poverty eradication and improved social conditions.

Cooperation on energy infrastructure development at the regional SADC level should be prioritised. Collaboration within the SADC should be a priority for Namibia. For example, South Africa is working on its own green hydro initiatives, which is likely to create competition between the two countries. There should be scope for collaboration and joint projects for investors.

POLICY RECOMMENDATIONS

growth-enhancing policies, which are focused on ensuring that the discoveries contribute to sustainable economic growth in the country;
investment-related recommendations, which are targeted at broad-based investment that will facilitate the exploitation of the resources to the benefit of the economy; and
environmental and climate-related recommendations, which entail appropriate management of the environment while exploiting the resources, and due consideration for the impact of the use of the resources.

The recommendations are clustered into three groups:

Growth-enhancing policies

Build competent and accountable institutions:

As custodians of the oil and gas sector, the Ministry of Mines and Energy must develop a legal framework and policies that underpin mechanisms to ensure accountability.

Ensure that the national oil company is potentially useful instrument:

The national petroleum company must be held to the highest standards of accountability and transparency that prevent it from becoming a state within a state. These will include the following:

implementing well-functioning legal and regulatory systems;
ensuring transparency and accountability for all stakeholders.
controlling petroleum revenues and their spending; and
developing national competence and capacity with respect to the management of the resources.

Manage petroleum revenue:

Through assurance ofaccountability and transparency, the Ministry of Finance and NamRA must ensure the collection of due revenues and avoid leakages.

Maximise local value creation and industrialisation:

Through the local content policy, the Ministry of Mines and Energy must prioritise strategies to enhance local content. This will ensure that the share and capacity of local content within the oil and gas value chain grows to adequate levels. Develop a clear framework for renewable energy: The Ministry of Mines and Energy must prioritise and develop the regulatory framework for the renewable gas sector. This will facilitate transparency and promote confidence among investors who are interested in the sector.

Investment-related recommendations

Invest in interconnectors and transmission (grid-stability): The exploitation of the resources should result in investment in growth-enhancing infrastructure that will be able to benefit communities even when the resources are exhausted. Similarly, investment in infrastructure will be able to facilitate diversification of the economy.

Make incentives and support structures time- and resultsbound: This is advised as an approach that strikes a balance between providing adequate inducement to investors and raising revenues from the resources in a reasonable time.

Ensure that benefits trickle down to the local population by scaling up local content and local employment rules over time.

Environmental and climate-related recommendations

Maintain a high standard of health and safety: The Ministry of Mines and Energy must ensure that regulations pertaining to occupational health and safety in high-risk environments are reinforced, and that enforcement capacity is enhanced. Similarly, education and awareness raising on environmental impacts must be mandatory and enforced.

Control of emissions to the air, discharges to soil and sea, chemical waste, and prudent handling of wastewater: This should include aspects such as the prohibition of flaring and venting of gas except for safety reasons stipulated by law.

Develop and prepare a national decarbonisation strategy and framework: In order to ensure transparency and a clear path on the energy mix and transition to clean energy, it is of paramount importance to develop such policy and strategy.

PURPOSE PILLAR

MONETARY POLICY STANCE DURING 2022

The Bank’s Monetary Policy Committee tightened its monetary policy stepwise throughout 2022, mainly aimed at anchoring inflation expectations and safeguarding the one-to-one link to the South African Rand, while providing support to the domestic economy to the extent possible.While the domestic economy performed comparatively better during 2022, the level of output continued to fall short of its potential, with subdued growth in private sector credit extension and further contraction in the construction sector. Inflationary pressure abated towards the end of the year, but remained elevated, mainly emanating from recurring geopolitical tension and global supply chain disruptions. In this regard, the domestic inflation rate rose much higher than that recorded in 2021, mainly due to high international energy and food prices and currency depreciation in most EMDEs (emerging market and developing economies) during the year. The Bank tightened its monetary policy by raising the repo rate by a cumulative 300 basis points in 2022 to end the year at 6.75 percent. This direction of monetary policy adopted by the Bank was consistent with that of most central banks globally, in response to increased inflationary pressure.

The monetary policy stance adopted in 2022 succeeded in ensuring that foreign reserve levels remained adequate to maintain the fixed exchange rate between the Namibia Dollar and the South African Rand.In pursuit of the containment of inflation and the maintenance of the exchange rate peg, the Bank also raised its policy rate in reasonable alignment with the policy rate of the anchor currency, the South African Rand. As shown in Figure A.1, the Namibian policy rate moved from being slightly above the South African rate in 2021 to slightly below it by the end of 2022, in the interest of supporting the domestic economic recovery. Amidst these developments, the Bank consistently ensured that the reserves remained sufficient to maintain the peg and meet the country’s international financial obligations.

In light of the need to continue supporting the domestic economy, the Bank of Namibia retained the Covid-19 relief measures in order to assist both households and the corporate sector negatively impacted by the Covid pandemic.The relief measures that were introduced at the height of the pandemic in 2020 were extended further in 2022 as they were deemed necessary to enable the banking institutions to continue providing relief to economic sectors that were still in distress. The following relief measures were extended for another 12 months until 1 April 2023:

The Bank continuously strives to enhance customer service delivery and overall operational efficiency, to which end the cash management system is being enhanced.The Bank conducted extensive research on an Integrated Cash Management System, which is set to be implemented in 2023. The aforesaid solution will enhance service delivery to the commercial banks and improve the Bank’s currency operations. In the same vein, research was conducted on a Currency Digital Public Awareness Tool which aims to enhance the way the Bank communicates with the public and serves as an educational tool to increase awareness. The development and deployment of the said solution forms part of the 2023 Strategic Focus Areas for the Bank.

In accordance with the Bank’s currency procurement policy, the modified N$10 banknote was launched on 4 February 2022.The modified banknote featured the current Governor’s signature as a key noticeable security feature. However, all other security features remained the same. The depiction of the signature of an incumbent Governor of a central bank on a banknote printed during his or her tenure is an industry practice that mainly assists the public to easily identify the banknotes and their validity.

CURRENCY MANAGEMENT

The Bank of Namibia Act (No. 1 of 2020) gives the Bank the sole mandate to produce and issue the Namibian currency.The Banking Services Department has ensured that all activities related to the currency function were executed effectively and in the best interests of the Namibian public.

As the world returned to a semblance of normalcy, the Bank noted a 2.4 percent increase in the currency in circulation in 2022 compared to 2021.This increase is evident in the distribution of the banknotes and coins, with the most notable being the increase of 15.7 percent for the N$10 banknote. Equally, a significant increase of 7.9 percent was noted on the N$30 commemorative banknote. The increase of 3.5 percent for the 10-cent coin is attributed to the discontinuation of the minting of the 5-cent coin in 2018.

STAKEHOLDER ENGAGEMENT PILLAR

COMMUNICATIONS AND STAKEHOLDER RELATIONS

The Bank believes that proactive public engagement through effective stakeholder management is fundamental to safeguarding the public’s interests and responding to the evolving needs of the Namibian people.To this end, stakeholder management is a key pillar of the Bank’s Strategy (2022-2024). During the year under review, particular emphasis was placed on facilitating dialogue and discourse, which would contribute towards placing Namibia firmly on the path towards sustainable economic growth and recovery in line with the Bank’s governing mandate.

In accordance with this objective, the Bank continued to uphold the values of transparency and open engagement by creating platforms to engage stakeholders in active and open dialogue.This was done through the development and implementation of the Annual Bank-wide Stakeholder Engagement Plan derived from the Banks’ Stakeholder Identification and Engagement Procedures. These engagements with the Banks mapped stakeholders continued to be championed by the Governor, Deputy Governors and Senior Management of the Bank as outlined by the Stakeholder Matrix guide.

TALENT AND TRANSFORMATION PILLAR

STAFF COMPLEMENT

A staff complement of 360 positions was approved for the 2022 budget year, which includes 32 Financial Intelligence Centre positions.The actual staff headcount at the end of December 2022 was 337 employees, representing a 93.6% staff strength level. The Bank experienced a total staff turnover rate of 3.58% at the end of December 2022, which is well below the industry turnover of 8.20%. Twelve voluntary exits were recorded during the past twelve months, of which four were regrettable exits (loss of critical skills). It is worth noting that a balanced workforce profile exists in terms of gender and generational representation, which contributes to the diverse and healthy team dynamics in the Bank.

EMPLOYEE RELATIONS

The Bank maintains good employee relations through constructive and mature engagements with employees and the Employee Liaison Forum (ELF).The agreement between the Bank and the recognised union representatives NAFINU (the Namibian Financial Institutions Union) is currently suspended due to there being fewer members in the bargaining unit. Membership of 50% + 1 is required for the agreement to be reinstated.

EMPLOYEE VALUE PROPOSITION (REMUNERATION, REWARD AND RECOGNITION)

As part of the Bank’s efforts to encourage excellent staff performance and foster adherence to corporate values, the human resources department has reflected on the current benefits offered to employees.The strategy was informed by various literature sources, benchmark studies and surveys such as the Exit and Stayed interviews and the Employee Engagement survey that was conducted. The Remuneration benefits of the Bank are reviewed annually to ensure the Bank continues to attract and retain talented individuals.

FUTURE-FIT ORGANISATIONAL EFFICIENCY AND EFFECTIVENESS PILLAR

ENTERPRISE RISK MANAGEMENT FRAMEWORK

The Bank’s Enterprise Risk Management Framework provides the governance structure and approach for our risk management discipline and guidance on instilling an effective risk culture.It establishes the Bank’s risk management universe, structure, policies, and processes. The Risk Management and Assurance Division (RMAD) also works with the IT Security Team, which oversees comprehensive and integrated governance and management of the Bank’s Cyber and Information Security Programme and monitors the IT Security Plan’s implementation.

THE GOVERNANCE OF RISK

The Bank has a complex, multi-layered risk management structure, but the Board is ultimately responsible for risk management.This involves ensuring that risks are appropriately identified, measured, managed and monitored, and maintaining governance. The Board oversees risk strategy execution, approves risk appetite, and ascertains whether risks are mitigated within acceptable tolerance levels.

The Bank’s Risk Management Committee, Audit Committee and Board meetings continued to examine and monitor the highest strategic and operational risks and their defined response strategies.While bearing in mind past risk events, a forward-thinking approach encourages healthy risk discussions during these meetings.

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