Assessment of the role of financial institutions in mineral resources financing in Namibia: a mixed methods study

Nanyemba, Paulina Kandiwapa

Assessment of the role of financial institutions in mineral resources financing in Namibia: a mixed methods study

Thesis / Dissertation

2022

Abstract

The Namibian economy is considered natural resource-dependent, where the mining sector is essential in terms of revenue generation, employment, and infrastructure development. The Chamber of Mines of Namibia in 2020 has reported that the mining sector contributed about 10.1% of the Gross Domestic Product growth in 2020, increasing from 9.4% contribution of 2019. Nevertheless, the sector is experiencing challenges such as lack of access to capital, water and electricity and regulation uncertainty. This study analyses the role of commercial banks in financing the mining sector and the relationship between banking lending to mining and economic growth in Namibia over the period from 2006 to 2020 using a Convergent Parallel Design mixed research method. The role of financial institutions and their impact on economic growth as a function of providing service to the critical economic sector such as mining in Namibia are necessary to assess the natural relationships and challenges. Both the qualitative and quantitative methods were adopted to examine this research problem thoroughly. The Vector Error Correction Estimations techniques and the Granger causality approach have been applied to identify the long-run and short-run causality direction for all possible variables of the study from the secondary quantitative data. While the primary data were collected by semi-structured qualitative interviews with senior mining bankers of commercial banks in Namibia to provide insight into the role commercial banks played. Economic growth and commercial bank lending to mining show no long-run relationship, but a long-run relationship was observed between growth and lagged interest rate. There was no short-run relationship between growth and commercial bank lending observed. In contrast, the unidirectional causal relationship between GDP and commercial bank lending to mining running from GDP and commercial bank lending to mining was observed. The main findings from the interview that supported early findings are that the banks tend to finance mineral projects and provide services to the mining based on the macroeconomic factors and opportunism for profitability purposes but not necessarily contributing to economic growth and development. This study recommended that commercial banks craft policies that aim to increase financing of the mineral sector to acquire and develop human, and technical capacity to facilitate the projects. In addition, it recommends that the government develop monetary and fiscal policies that can increase confidence in the local financial system and promote the flow of funds into the mining sectors. This research has experienced the issues of lack of data iv access; it is also ideal to suggest that financial strengthen their relationship and data sharing with institutions such as the Bank of Namibia and Namibia Statistic Agency that could be available for future research. Lastly, in-depth an investigation of the internal and external factors that financial institutions in Namibia are experiencing in financing the mining sector is recommended for further study.

Keywords

development finance

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