Namport’s flawed N$20 billion plan
At a meeting hosted by the Economic Association of Namibia in Windhoek on Tuesday, economist Rainer Ritter warned that Namport’s infrastructure development plans may cause long-term cash flow problems for Namibia’s Port Authority and worsen the country’s debt burden as the state-owned company’s bottom-line comes under pressure.
Ritter — a former director of the Bank of Namibia and former CEO of the Namibia Financial Institutions Supervisory Authority — presented his findings that showed there had been a notable decline in ship visits and containers handled at Walvis Bay in recent years, and that Namport’s profitability had sunk to an all-time low in recent times.
His report, ‘Namport within the Context of a Logistics Hub’, notes that Namport took on several major capital projects, such as the new container terminal — which should be operational by mid-2019 — at a cost of N$4 billion. Its capital projects, including the north port project, were expected to cost over N$20 billion.
“The major question is, can these costly investments pay off, and whether Namport will be in a position to repay the AFDB (African Development Bank) loan without running into serious financial problems?” Ritter asked.
The flaw in the plan
The economic data presented by Ritter point to serious miscalculations in the growth projections on which Namport’s plan for the new container terminal was based.
Namport executives initially projected that Namibia’s ports would have to handle around 1 million container units a year by 2017, but the number of containers handled at Walvis Bay have dropped consistently since 2012.
In fact, Walvis Bay Port never reached its peak handling capacity of 350,000 containers per year, as volumes started to taper off from a previous high of 330,000 TEUs in 2012. The data show that with the onset of recession, the number of TEUs handled fell to below 200,000 by 2018.
Ritter is not convinced the new terminal built on reclaimed land was necessary. “We never reached the projections for handling of containers. The old terminal could have handled the number of containers.”
The AfDB loan for the new terminal was based on projections that Walvis Bay would handle 700,000 containers per year by 2019, but the latest figures show that the actual number is now closer to 150,000 TEUs.
‘It was also projected that the container units (TEUs) handled will increase from 350,000 units per year to 1 million TEUs by 2017. In reality, this optimistic projection was also not achieved, as only 206,000 containers were handled in 2017, 794,000 less than projected.’
In response, a Namport representative said the new terminal and north port would attract larger vessels and more cargo, and that Namibia needs to invest to grow, adding that significant volumes of cargo currently come from the Zambian copper-belt, a sign that the port authority was doing well.
Namport’s declining rate of profit
NamPort’s profitability is under pressure due to the drop in vessel visits and containers handled, as well as the massive investment in the new terminal. The debt burden for the new terminal would affect cash flow, meaning “a weaker balance sheet” in terms of Namport’s debt-to-equity ratio, Ritter said.
‘Analysing the statement of cash flows we see that the net cash flow from operating activities decreased from N$262 million in 2013 to N$90 million in 2017.
A company spokesperson pointed out that Namport has never needed any bailout from government and was on schedule with its loan repayments to AfDB.
But ‘As indicated, the repayment of the loan from the African Development Bank will only commence at the end of 2019 and is yet to impact cash flows. Therefore, at present the grace period shields current cash flow. In the absence of any significant cash inflows the cash flow situation… is expected to take a turn for the worse when loan repayments commence,’ Ritter noted in his report.
Namport’s representative said the number of vessels docking in the port were declining not because of high tariffs but due to consolidation among shipping companies as bigger vessels were increasingly common, adding that the decline reflected the overall state of the Namibian economy and the situation in Angola.
Ritter rebutted that Angola was importing more through their own harbours, such as Lobito, and that their roads have markedly improved. Therefore Angola is not as dependent on Walvis Bay as before, and the drop in volumes handled at Walvis was not just due to economic problems in Angola. Durban was more competitive and Lobito was gaining strategic importance, he said.
A feeder port
Rainer’s view is that Walvis Bay is a feeder port rather than a hub port, as it is not situated on any major trade route, like Singapore. A hub port typically handles about 2 million containers per year, whereas Walvis Bay handles only around 200,000.
Moreover, the number of vessels that dock at Namibia’s ports and containers handled have steadily declined since 2010.
‘The forecast was that by 2017 the cargo volumes would double to 13 million tonnes. The reality of these predictions — or wishful thinking — have very different outcomes: total cargo for 2017 came to just 5.6 million tonnes, 7.5 million tonnes less than anticipated.’
Ritter argued that major upgrades, such as the Kransberg-Walvis railway line (N$5.5 billion), and the associated port, road and rail upgrades to the tune of some N$20 billion should be “accompanied by a professional cost/benefit analysis” or be set aside until the country’s fiscal position improves.
“Spend the money on capital projects that can produce employment. Don’t proceed with major capital projects without proper cost-benefit analyses,” he warned.
In what may be perceived as an overt pitch for the post of Namport CEO, which will become vacant when Bisey Uirab steps down in the coming weeks, Ritter also proposed that corporate governance at Namport be improved by appointing experts in logistics.
He concluded that “no rigorous research was done prior to embarking on these huge investments… As shown, Namport is experiencing an overall decline in vessel visits [and] a decline in profit margins while the enterprise is expected to start repaying the N$3.2 billion AfDB loan from the end of 2019.”
The implication is clear. Based on overly optimistic and downright false growth projections — the Namibian authorities may have been hoodwinked into taking on massive debt commitments for port, rail and transport infrastructure expansion that may not be needed in the immediate future.
The result is an ever-growing debt burden that threatens the stability and functioning of the wider economy, and increases the risk that — as in the case of Sri Lanka — Namibia may lose strategic assets if unable to service its debt.
Ritter’s evidence suggests that the whole notion of turning Walvis Bay into the preferred logistics hub in SADC is inherently flawed, partly because it is very expensive for a small country to undertake in the current depressed economic climate, but also because it was based on false economic forecasts.