DBN attended Public Discussion
Unlocking Growth: Exploring the challenges to market access and bankability for SMEs in Namibia.

Development Bank backs privately owned solar for enterprise

Solar a critical need for industrialisation

Development Privately owned solar generation is a significant force for the future of Namibian enterprises, says Development Bank of Namibia Head of Marketing and Corporate Communication, Jerome Mutumba.

There is a current moratorium on implementation of new solar photovoltaic feeds into the national electricity grid, but solar photovoltaic plants can still lend impetus to Namibia’s drive for industrialisation.

To explain this, Mutumba notes that the majority of Namibia’s electricity supply is imported, and that this limits confidence of investors. Mutumba cites a report by Musa Carter in The Economist newspaper of 25 October 2017, which states that a group of unidentified investors decided against establishing manufacturing facilities in Namibia due to concerns over electricity.

Mutumba goes on to say that although we have various national development programmes and policies that give impetus to the country’ aspirations, if the critical component of electricity to power industrial processes is not available, or is priced too high, economic development predicated on industrialisation will experience a sluggish ascent.

Mutumba acknowledges that electricity tariffs need to be marked up to support development of generation capacity and infrastructure, with a view to long-term reductions in imports of electricity, but this also has to be balanced with the needs of industrialisation, which not only will address current needs of economic development, but also the needs of future generations.

The differences in tariffs across the regions obviously make countries which offer lower electricity costs and greater local generation capacity far more attractive to industrialists. If Namibia is to compete, a model has to be provided which is cost efficient for industrialists and gives them security of supply.

Mutumba advances a model in which enterprises can own their own distribution capacity in the form of renewables, particularly solar. To illustrate the model, he uses DBN-financed solar power facility Sun EQ, which provides electricity to Ohorongo Cement. The Sun EQ facility, he says, secures the supply of electricity under an offtake agreement with Ohorongo, and also gives both entities the ability to agree on rates that make Ohorongo sustainable.

In term of financing, Mutumba says that a facility of this nature may be financed over a period of 10 or more years, out of an estimated lifespan of up to 30 years. Although the repayment is required for the period of 10 or more years, this can be recovered from sales of electricity during that period, subsequent to which the cost of generation falls substantially, and the gains can be used either for growth or in anticipation of future replacement.

This model, he says, should be advanced to industrialists as a solution to Namibia’s power deficit. In terms of the model the industrialist not only profits and grows as a result of core business, but can also profit and grow from the subsidiary business of supply of electricity for operational needs.

Talking about scale, Mutumba says, the Bank is open to discussion about the scale of the plant. He suggests that if scale is a concern to a single enterprise, neighbouring enterprises may consider forming consortiums.

Although this may seem unusual, this model can already be seen in shopping centres where electricity is supplied to a spread of tenants from solar installations on roofs. There is no reason why, given a bit of thought and ingenuity, it should not be applied to industrial parks office parks and housing developments, Mutumba concludes.

The Board of the Development Bank of Namibia has extended the tenure of CEO Martin Inkumbi for another five years. Inkumbi was initially appointed as CEO in 2013 following a period as Acting CEO in the wake of the departure of founding CEO David Nujoma.

During the five years since Inkumbi’s appointment, the Bank’s balance sheet has grown from N$2.3 billion with loans and advances of N$1.7 billion at the end of 2013 to N$8.8 billion with loans and advances of N$7.7 billion at 31 March 2018. The Bank’s core business is to advance development by lending to larger enterprises, SMEs and developers of infrastructure.

In addition to the growth of the Bank’s balance sheet, the Bank has passed two major milestones under Inkumbi’s leadership.

Firstly, the Bank put in place an enterprise-wide risk management framework, which enables it to respond to risks in a prudent and proactive manner, including risks inherent in lending, internal operational risks and the risk posed by external market forces. The framework is primarily geared to enable the Bank to mitigate the higher levels of risk inherent in segments of its balance sheet and commitments that require a higher appetite for risk to achieve the Bank’s targeted levels of development impact.

Secondly the Bank has been able to list an N$2.5 billion bond programme on the Namibian Stock Exchange (NSX). In the first, oversubscribed bond auction, the Bank raised N$291 million. Subsequent private placements raised N$210 million. The programme fulfils the Bank’s mandate to develop financial mechanisms for local investors, and also enables investors to generate returns from development.

Inkumbi describes the first five years of his tenure as a period of ongoing evolution and organizational development. Of particular note is the fact that the Bank grew from a complement of 60 staff in 2013 to 90 staff members at the end of its 2018 year. This is evidence of the increased operational intensity and capacity requirement which has fueled the growth of the Bank’s activities.

Additional facets of the Banks evolution and forward looking policies include pioneering finance for renewable energy generation, and the Environmental and Social Management System that mitigates social and environmental risks of the Bank’s lending activities.

On completing a B.Com with majors in Economics, Management and Finance, from UCT, Martin Inkumbi obtained a Post-Graduate Diploma in Finance and Banking from the University of KwaZulu Natal and an M.Sc in Financial Economics from the University of London.

His career in finance began with a position as a researcher in banking statistics at the Bank of Namibia. After being promoted to Financial Analyst, he joined FNB Namibia as a Corporate Banking Manager. In 2006, he joined DBN in the Lending Department, and worked his way up through the ranks.

Development Bank of Namibia (DBN) CEO Martin Inkumbi has announced the Bank’s new positioning, “Expect more.” He says the new positioning statement reflects both the Bank’s transformation, as well as its ambition for the future.

In terms of the transformation, Inkumbi says the Bank has grown substantially since its inception, and evolved.

In terms of size, the Bank is now custodian of assets of approximately N$11 billion, a resource which is continually deployed to nurture larger scale projects consisting of enterprise and / or infrastructure. The Bank, Inkumbi says, is expected to play a larger role in finance for development, based on its growing capacity.

He adds, that the Bank has made significant progress in sourcing capital through issues notes and lines of credit from the external private sector and institutional entities.

Concerning evolution of the Bank, Inkumbi says that DBN has adopted mechanisms such as an advanced enterprise-wide risk management framework, as well as an environmental and social management system that better enable it to manage the risks inherent to financing startups in a dynamic economic environment. He adds that the Bank is currently implementing a treasury function to further strengthen its liquidity and capital raising capacity.

In this case, he explains that stakeholders and borrowers may expect more by virtue of a deeper pool of capital, but should also expect robust risk management, in keeping with the Bank’s objective of maintaining financial sustainability. The Development Bank is a national asset, Inkumbi adds, and has the duty to preserve and sustain itself, as well as grow.

In terms of its impact on enterprises, Inkumbi says, in addition to the ability to finance larger projects from a deeper pool of assets, the Bank now gives more support to its borrowers and potential borrowers who require such support through a formalized mentoring and coaching program. He describes this as a combination of advisory services prior to landing, and capacity strengthening and development through a network of business experts.

He says that each enterprise and project is regarded not just as a financial asset, but also as an asset for the Namibian economy, and so the Bank’s philosophy is to provide the additional support in order to mitigate risks that arise after lending, and ensure the long-term viability of the initiative that the Bank finances.

Internally, Inkumbi says he believes that the new positioning will have a galvanizing effect on staff. The Bank, he says, provides an exceptional environment for personal development, and this has been the basis for a high degree of motivation, and high level of  expertise. The Bank’s staff are driven by the concept of personal excellence, however, he believes that the new positioning will drive members of the team to expect even more from themselves.

Asked how he sees the future of the Bank, Inkumbi states that the Bank will strive to respond to the priorities of the Harambee Prosperity Plan as well as the expected Fifth  National Development Plan. The Bank, he says, also responds to emerging economic priorities, such as the need to provide social infrastructure such as affordable residential land and housing in line with the Government’s development programs. The Bank’s future will be guided by the needs of the nation, and the goal of sustainable development. In light of this, he concludes, the best forecast for the Bank is to expect more.