South Africa: The Namibia Investment Promotion Act, 2016: Hindering Or Promoting Foreign Investment?

Last Updated: 20 July 2017
Article by Wolf Wohlers

Foreign investors planning to invest in Namibia may have to jump over a few additional hurdles if the current version of the Namibia Investment Promotion Act, 2016 ("NIPA") is enacted. We understand that although NIPA was passed in August 2016, it is under review by the government. This development comes after the private and the public sectors raised concerns relating to the negative impact that NIPA may have on investment in Namibia.

NIPA is set to replace the Foreign Investments Act, 1990 and, if implemented, will result in far-reaching changes in the Namibian foreign investment regime. In comparison with its predecessor legislation, which provided for a free investment regime backed by institutional support, NIPA provides for an investment approval regime that affords wide-ranging discretionary powers to the Minister in charge of investments (whose identity has not been clarified in NIPA) to regulate and decide on investment matters, while also adding numerous procedural hurdles for the approval of investments and registration of investors.

NIPA, which is to commence on a date still to be determined by the Minister, has the objectives of providing a transparent framework for investment and promoting sustainable economic development through the mobilisation of foreign investments. However, among the many concerning contents, two aspects of NIPA have raised apprehension in the legal community and among investors, which have the potential to create an investment framework that could be susceptible to corruption and result in the proliferation of red tape for investors, manifestly contradicting NIPA's objectives of transparency and the mobilisation of investments. These two features are the discretionary power given to the Minister to reserve categories exclusively for certain categories of investors and the introduction of an approval and registration regime.

Reservation of categories by the Minister

NIPA gives the Minister the power to, by regulation, reserve certain categories of economic sectors or business activities exclusively for certain categories of investors, such as the State, Namibians or joint venture partnerships between Namibian and foreign investors. The Minister may also set out conditions that need to be met by investors, and may introduce incentives.

The Minister is therefore granted broad discretion to determine the types of investors that may invest in certain business activities or economic sectors. Although this could give the Minister the ability to ensure Namibian participation in the market, and therefore the growth of the Namibian economy, the possibility of abuse or manipulation is evident, as the powers could be used to completely reserve certain business sectors for the State, or exclude foreign investors from investing in specific business activities or economic sectors. The Minister's ability to introduce incentives and conditions could furthermore open the doors for potential corruption.

Registration of investors and approval of investments

NIPA requires investors that meet certain investment thresholds (to be determined by the Minister) to register with the Namibia Investment Centre. NIPA also provides that no foreign investor may invest in Namibia or acquire any licence, permit, authorisation or concession in Namibia through any form of merger, acquisition, direct or indirect sale or transfer without first receiving the approval of the Minister. It is this provision that changes the current investment regime from a free to an approval regime, and is likely to have two potentially far-reaching consequences.

Firstly, the administrative burden placed on the Minister to personally approve the registration of new investments could result in approvals being delayed. This may dissuade foreign investors from embarking on what could well be a burdensome process, and encourage them to rather place their investments in another country.

Secondly, the Minister's wide discretionary powers in approving and registering investments create an investment regime that could be dependent on personal style, preferences, intentions and whims of the incumbent Minister. Although NIPA does purport to set out criteria for the approval of investments, which the Minister must consider in order to determine a proposed investment's benefit for Namibia, these criteria are vague, and NIPA does not provide any further restrictions or checks and balances on the Minister's wide discretionary powers.

The verdict: hindering or enhancing investment opportunities?

Although NIPA's objectives are to promote transparency and the mobilisation of investments, the Minister's wide discretion to determine which investors may or may not partake in certain economic sectors and business activities could potentially result in excluding potential investors. Furthermore, the over-regulation of this field may slow down the investment process, leaving investors frustrated and dissuaded from investing in Namibia.

There is no indication when NIPA will commence, or what its contents will be. Although NIPA's objectives include promoting investment opportunities in Namibia, it is likely to hinder the investment process if it is enacted in its current form. To avoid this, NIPA will have to be redrafted to address numerous issues, such as the streamlining of its procedural aspects and introducing proper guidelines and limitations relating to the Minister's wide powers.

Stefanie Busch is a candidate attorney at ENSafrica in Namibia. This article was reviewed by Wolf Wohlers, a director at ENSafrica in Namibia.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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