A Namibian House: The Magic Inside

Originally published in the Informanté newspaper on Thursday, 8 December, 2016. 

Honesty. Loyalty. Kindness. Generosity. Laughter. These are the values we need to have as Namibians if we want to join our President in building a Namibian House. One “where everyone feels a sense of belonging, where everyone is presented with a fair opportunity to prosper in an inclusive manner and by so doing, ensure that no one feels left out.” But we cannot do so alone – we need to do it together. We need to forge a bond with one another to succeed – we need to form a friendship with one another. 

Friendships are such an important part of all our lives, and yet because of its ubiquity, one we tend to neglect even though it is one of the most important bonds we need for a successful society. Friends make us feel included – and friends inspire us to be better people. We don’t just want friends – we need them! In marriage, friendship is rated as more important as intimacy. If you friend eats healthy, you are five times more likely to eat healthy as well. Even at work it is important – people without friends at work are one twelfth as likely to report feeling engaged. 

The Greek philosopher Aristotle said, “In poverty and other misfortunes of life, true friends are a sure refuge. They keep the young out of mischief; they comfort and aid the old in their weakness, and they incite those in the prime of life to noble deeds.” Friends come in many shapes and sizes, and all these types of friends help us in different ways.

Some friends are motivators – builders. They motivate you, and encourage you to develop yourself – they drive you to succeed. They’ll risk themselves in order to see you succeed, because they know that success is not a zero-sum game, and they know that success is best shared. Other friends are your champions. They believe the same things you do, and they’ll provide vital encouragement in your endeavours. They have your back, and will stand up for you even if you’re not there.

Friends can also be your partners. You’ll share similar interests, and this is the basis for many a friendship. These are the people you’re on common ground with, and who join you on your journey through life, with similar ambitions etc. Friends can also be companions – the people who are there for you when you need them. These are the people you want around you when something big happens in your life – the people you share a deep bond with. 

Some friends are connectors. These friends help you build friendships, as they learn to know you, and introduce you to other friends, and help you to meet new people. If you need something, they know someone who can help. Other friends are your energetic friends – they’re the fun part of a social circle. They make a good day great, and lift your spirits when you’re down. 

Then you have your intellectual friends – your creative friends. They help you open your mind, and expand your horizons. They help you discover new ideas, new opportunities and drive you to explore other people and cultures. They want to create a positive change, and always ask the good questions. Finally, you have your friends who are expert navigators of life. They are always there with sound advice, and they are the people you approach when you need guidance. During difficult times, they’ll help you to see a positive future that remains grounded in reality. 

As you discover these values in your friends around you, you’ll start to see that you, too, fulfil many of these roles for your friends. Friendships cultivate the virtues which are essential to a flourishing society. And while friendships are mutually beneficial, friendship at its core is not a give-or-take proposition. Friendships occur because we are willing to give ourselves to another life. We don’t make friends because we expect something in return, but because we have something we can give.

Friendships are born from generosity, as we give yourselves. We bond through laughter, while loyalty binds us together and make us strong. Mutual honesty shows us that we belong, and our kindness shared unites us through each day, and for the rest of our lives. Success does not happen in isolation – every successful person has a group of friends that helped him/her become that success. Oscar Wilde famously said “Anybody can sympathise with the sufferings of a friend, but it requires a very fine nature to sympathise with a friend’s success.”

We, as a country, need to be invested in each other’s success if we wish to break the cycle of poverty. We need to be honest with one another about what is required, and invested in not leaving anyone behind. We need to lift up those who are trapped in the darkness, and give freely to ensure success permeates across all the strata of our society. We’ll do it with a smile on our faces, because seeing each other succeed should fill our hearts with joy. We cannot do it alone. 

We need to become more than citizens – we need to become friends! Friends invested in seeing the Harambee Prosperity Plan succeed. Friends who motivate, who encourage, who are there for each other when needed. Friends that join everyone who can help each other, and friends who not only open each other’s minds, but also guides each other to a new future we built together. When citizens are friends, success will follow like magic. All the values in the world cannot thrive if they cannot be shared amongst friends – but when they are, I believe you’ll find that friendship is magic.

Deep Breaths

Originally published in the Informanté newspaper on Thursday, 1 December, 2016. 

A few months ago, I explained how inflation was a natural occurrence of our modern economies, just as our own inflation started to skyrocket. The time has come once again to revisit that topic, as our inflation woes have only worsened, and our economic situation has become more precarious as well. With our GDP growth turning negative in the second quarter, and our government expecting overall growth to slow to 2.5%, it is time to examine our options. 

Inflation can be defined, inter alia, as the rate as which money loses value. If the inflation rate is at 5%, for example, that means N$ 100 of goods this year, will cost N$ 105 next year. It means your money will lose 5% of its value every year – a frightening prospect! If you thus want to save, you need to to get a return, or interest rate on your savings, of at least 5% just to break even. This means that the interest rate as quoted by the banks, are simply what is known as a nominal interest rate. The real interest rate is the nominal interest rate minus the inflation rate. 

To build capital you thus need a positive (above zero) real interest rate. This is also true for investment in a business. When investing in a business, you expect a return – a return on investment. But similar to interest rates, this needs to be adjusted for inflation as well, to get the real return on investment. For a business this return is generally reflected in its profits after tax.

But businesses need capital, and this is generally procured either via direct investment in a business (also known as equity investment) or via debt, or loans. Since equity investors get partial control of a business depending on their investment, and share in the profits, it is generally the most expensive, since the business owner will have to give up a certain percentage of her profits. Businesses therefore tend to approach banks for loans.

Where do banks get the money to advance loans? Why, they get it from you! The depositor who is saving money at the bank! In order to pay you your interest, they in turn give loans at a higher interest rate to businesses and individuals than what they pay you, and use the difference to cover their expenses. Obviously they cannot lend it ALL out – after all, when you want your money, you’ll not be happy if told that it is in the hands of XYZ corporation that has not repaid its loan yet. 

Generally, however, a lot of money gets saved each day, a lot of loans are repaid each day, and a certain percentage of savings are untouched. So the bank aims to keep a certain percentage of capital in reserve, to pay out should money be withdrawn. Per Bank of Namibia regulations, they need to keep at least a minimum percentage, but they are free to keep more. Unfortunately, they don’t earn any interest on funds in reserve, so they generally keep close to it. 

So what happens when a bank experiences an imbalance, and needs more cash to keeps its reserve intact? They lend from the central bank, as I’ve explained in a previous Theory of Interest. These funds, however, are not for free. They borrow from the Bank of Namibia at the Repo Rate. Thus, the repo rate is the anchor, the benchmark, by which banks set their interest rates. 

If the repo rate is lowered, then banks have some breathing room. They can advance loans at lower rates – and those who have to repay them, businesses and individuals, have a lower repayment amount. For individuals, this means more money to spend at the various businesses in the economy, enhancing their profits. For businesses, this means their real rate of return goes up, as their profits increase due to lower interest costs. Thus, as the interest rates goes down, the economy is stimulated. Growth increases. 

Conversely, when the repo rate goes up, the opposite happens. Loans need to have higher rates – meaning businesses have lower profits, and individuals have less to spend. With higher rates, businesses need to have higher real rates of return to be able to qualify for loans, while their current loans decrease their profits and rates of return. Economic growth thus slows. 

Central banks, however, are not in charge of economic growth – they are in charge of monetary stability. In other words, they need to keep inflation in check. As I’ve previously covered, inflation occurs when economic spending (creating new money by issuing debt) outpaces economic growth. And so, the natural reaction when faced with increasing inflation is for the central bank to increase interest rates, so as to reduce spending (or reducing the money in circulation).

It is thus clear that the Bank of Namibia is in a bit of a bind. With our economic growth currently slowing due to external factors, the last thing our economy needs is the additional pressure an interest rate increase would put on it. But our inflation keeps slipping upwards. Our Repo Rate is currently at 7%, with inflation at 7.3%. This presents an additional problem for inflation targeting, as the banks can effectively utilize their facilities at the reserve bank to borrow at less than inflation – effectively making money in a real sense every time they borrow, since the money they pay back has lost 7.3% of its value, while they only had to pay back 7%. 

The Bank of Namibia’s next Monetary Policy Committee meeting will be on the 7^th of December, and we should be monitoring their repo rate decision with all the attention it deserves. Will they take the view that our current inflation is simply lagging behind their previous rate increases, and will drop soon – and thus keep the repo rate as is? If they are wrong, inflation could spiral out of control. Will they take action to keep the repo rate above inflation, and put more pressure on the economy? If they do, will that put a damper on our potential economic recovery next year? We’ll know on the 7^th of December – and then we’ll have an idea of what 2017 could have in store for us.