(First appeared in New Era 3 June 2015)
In 2006, I was privileged to attend the public meetings at Parliament in Windhoek to address the high cost of finance (especially bank finance) in the country. The late Hon. Reinhard (Kalla) Gertze, Member of Parliament, had proposed an investigation into the financial institutions through public hearings of the Parliamentary Committee on Economics, Natural Resources and Public Administration. (This Parliamentary Committee was then under the chairpersonship of our present President, Dr. Hage Geingob.)They held public hearings on bank charges and regulations and one of the submissions, by a banking institution, outlined why interest is charged.
In their submission, the bank explained that in the beginning of banking, interest was used to offset the risk of providing the credit to the borrower. There are four risks (hazards), namely a) The costs incurred by the bank while providing the loan had to be repaid; b) Inflation means the lender will be able to buy less for the money as time passes; c) Scarcity – in other words once it is lent to a borrower at a specific rate, it cannot be used for another loan; and d) That the borrower cannot pay back the loan. Further, the bank indicated that of these four, the only real difference the government can make is in reducing the risk of borrower’s inability to repay.
This topic has been written about before in my newspaper columns and blogs and the reader is encouraged to learn more about credit risk and how to minimise their perceived risk, as this the amount of interest they would be paying on their loans.
This week however, I was reminded about the topic of interest for an entirely different reason. I was reading an article wherein one of our municipalities was quoted as stating the varying prices for pre-paid and post-paid electricity is. What had me sit up and take notice was that the prepaid electricity was at least one-third more expensive that the post-paid price per unit.
Let me repeat that again: If I give my money for electricity that I will use in future, I have to pay a lot more that the customer who has already used the electricity and only has to pay some thirty days or more after using it. Somewhere this flies totally in the face of the market economic rules that I have been taught.
In my limited understanding, a bank or service provider would like to get the money from your pocket into theirs as soon as possible. If they can get you to purchase the service before you even use it, it means they have money for something they have not yet created. If however, they give you the service or product on credit, it means that they have already spent the money on creating that product and now have to wait to recoup their investment. Thus any properly run business would give you the same product for cheaper IF you paid for it before usage as they would be having the money before they have to spent it in creating the product.
Now why are municipalities (and cellular providers) charging you the consumer more for a product which by free market definition should be sold to you for cheaper because you are paying for it before the product was actually consumed? This opportunity cost being lost due to post-paid accounts is not seen in their bill, but rather in the bill of the poor consumer - who has no choice in having a prepaid meter - and is being made to bear the cost.
If we in Namibia are to talk about being “pro-poor”, we have to recognise that these business practices by private and public business are deliberately making the lower-income consumers pay more because of their ignorance. In my mind it is even worse because the product or service being sold is easily manipulated by the seller to increase their profits without any interference or agreement by the consumer.
We are all pirates
(First appeared in New Era 27 May 2015)
In the past few decades, most consumer have started to question the high prices paid for “branded” products and have shown their willingness to but similarly branded products made in developing countries for much cheaper prices. In addition, with new technologies, many consumers are using the Internet and file-sharing services to get hold of digital products such as music and movies that would previously have to be bought but are now “shared” – with no costs to the consumer. Some consumers especially question products made by for example vehicle manufacturers and compare their prices to pirate products that seem to do the same job for a much lower price.
The World Intellectual Property Organization, WIPO, states that, “systems to protect intellectual property rights, currently in place across the world, have many loopholes that are being exploited by those producing fake goods, especially of well-known international brands. Counterfeit and pirate goods have huge negative economic and social impacts on any country and should be addressed collectively to stop or minimize losses.”
In Namibia recently there has been complaints by musicians and other artists that their copyrighted products have been copied or used without their permission. They have in their sights not only individual consumers, but also radio stations and the proliferation of jukeboxes throughout the country. They feel, quite correctly, that they have invested their time and money in producing a product (music, etc.) and other people are making money without giving them their fair share or reward for what is their Intellectual Property.
One of the main arguments for the protection of Intellectual Property (IP) is that without the financial incentive, artists and businesses would not invest in producing new products. In fact many businesses state that they would not invest in Research and Development (R&D) if they were not ensured IP protection.
While agreeing with WIPO and our local musicians, there is also a need to look at when a “pirate” or “generic” product can be of use to the consumer’s bottom line.
Let us first look at branded clothing products. Upon investigation it was realised that many international firms that started out as manufacturers have become marketing or branding firms. Quite a few such have in fact no production or manufacturing facilities at all but only look for products that they can associate their name with and have consumers purchase these products as being “originals”. A few years ago, I was fortunate enough to visit clothes manufacturing facilities across Southern Africa to see how these factories work and the products they manufacture. Imagine my surprise to find that the same factory is often the manufacturer for products that are branded differently. For example, one factory made socks and t-shirts that were practically the same in design and product quality and were branded for Edgars and Pep Stores respectively. Of course, when investigating the selling price, it was found that one store had a much higher selling price. Of course the companies involved explain that they have different customer types as well as the availability of credit at the upmarket store. While these arguments do make financial sense, the consumer is never informed that the different products originate from the same factory.
Another example that is starting to gain momentum for discussion is the high price of medicinal products that receive IP protection and provide huge profits to international pharmaceutical companies. In a sense, the high prices are justified for the amount of research costs, but does that imply that a poor consumer who cannot afford this price should be allowed to die? Many developing countries are looking at the high cost of medicine and introducing generic products (non-branded) at much lower prices to ensure each citizen has the right to quality medical care. It is necessary for Namibia to also start balancing the need for Intellectual Protection against the needs of its people.
In the past few decades, most consumer have started to question the high prices paid for “branded” products and have shown their willingness to but similarly branded products made in developing countries for much cheaper prices. In addition, with new technologies, many consumers are using the Internet and file-sharing services to get hold of digital products such as music and movies that would previously have to be bought but are now “shared” – with no costs to the consumer. Some consumers especially question products made by for example vehicle manufacturers and compare their prices to pirate products that seem to do the same job for a much lower price.
The World Intellectual Property Organization, WIPO, states that, “systems to protect intellectual property rights, currently in place across the world, have many loopholes that are being exploited by those producing fake goods, especially of well-known international brands. Counterfeit and pirate goods have huge negative economic and social impacts on any country and should be addressed collectively to stop or minimize losses.”
In Namibia recently there has been complaints by musicians and other artists that their copyrighted products have been copied or used without their permission. They have in their sights not only individual consumers, but also radio stations and the proliferation of jukeboxes throughout the country. They feel, quite correctly, that they have invested their time and money in producing a product (music, etc.) and other people are making money without giving them their fair share or reward for what is their Intellectual Property.
One of the main arguments for the protection of Intellectual Property (IP) is that without the financial incentive, artists and businesses would not invest in producing new products. In fact many businesses state that they would not invest in Research and Development (R&D) if they were not ensured IP protection.
While agreeing with WIPO and our local musicians, there is also a need to look at when a “pirate” or “generic” product can be of use to the consumer’s bottom line.
Let us first look at branded clothing products. Upon investigation it was realised that many international firms that started out as manufacturers have become marketing or branding firms. Quite a few such have in fact no production or manufacturing facilities at all but only look for products that they can associate their name with and have consumers purchase these products as being “originals”. A few years ago, I was fortunate enough to visit clothes manufacturing facilities across Southern Africa to see how these factories work and the products they manufacture. Imagine my surprise to find that the same factory is often the manufacturer for products that are branded differently. For example, one factory made socks and t-shirts that were practically the same in design and product quality and were branded for Edgars and Pep Stores respectively. Of course, when investigating the selling price, it was found that one store had a much higher selling price. Of course the companies involved explain that they have different customer types as well as the availability of credit at the upmarket store. While these arguments do make financial sense, the consumer is never informed that the different products originate from the same factory.
Another example that is starting to gain momentum for discussion is the high price of medicinal products that receive IP protection and provide huge profits to international pharmaceutical companies. In a sense, the high prices are justified for the amount of research costs, but does that imply that a poor consumer who cannot afford this price should be allowed to die? Many developing countries are looking at the high cost of medicine and introducing generic products (non-branded) at much lower prices to ensure each citizen has the right to quality medical care. It is necessary for Namibia to also start balancing the need for Intellectual Protection against the needs of its people.
If you want to make enemies, try to change something
(First appeared in New Era 20 May 2015)
This week, I take a quote from Thomas Woodrow Wilson (1856-1924) who was the 28th President of the United States of America (1913-1921). He held a PhD in Political Science and was the President of Princeton University (1902-1910). He wrote various books including a textbook used in colleges in which he argued that government should not be deemed evil and advocated the use of government to” allay social ills and advance society's welfare”.
The past week it was my privilege to have my ten year-old stepson staying with us during the school holidays. At one point, I was playing a game involving Star Trek characters and he asked what that was. I tried to explain but found that the generation gap of what we had watched on television was too broad. Nevertheless, it was good to again watch an episode together and hear the words “To boldly go where no man has gone before”.
The present Housing Crisis (yes it is a Crisis with a capital letters), needs bold actions to address the plight of the landless. No citizen can truly feel the rewards of Independence, without being able to state, “there is my home - it belongs to me”.
Let us look at some bold measures that could be enacted to help the Namibian consumer achieve that dream.
1. Create a National Mortgage Association. The NMA should provide banks with state money to finance home mortgages. This will raise levels of home ownership and the availability of affordable housing. The state should also regulate that at least 55% of these mortgages should be allocated to low- and moderate-income housing.
2. Rental income should be taxed. In many countries rental income is taxed on a progressive basis and helps to cap the greed of landlords. In Tanzania for example, rental income is taxed at 31.45% 0 definitely a barrier to capitalistic tendencies in the market.
3. Have higher property taxes for home owners with more than one property. This should also put a dampener on the view that individuals can become rich through renting at exhorbitant prices.
4. The lands register should be investigated and all companies (close corporations, etc.) should be taxed at a higher rate on residential properties if this is not their place of business. In other words, companies that own property for the purpose of residential leasing should be taxed higher to reduce the undue pressure on house prices.
5. Introduce a Capital Gains Tax (CGT) that will tax non-residents when they sell a property. This will help to reduce the number of foreign investors who see the Housing Crisis as an opportunity to make money through speculation of property. This can also be expanded to include companies owning property to reduce speculation by businesses in the home market. Namibia has the lowest rate of 0% compared with 25% and 40% in Botswana and South Africa respectively.
6. Remove price increasing legislative effects in the housing market. At present too many industries receive “infant protection” and other measures to allow them to increase their selling price without meeting competitiveness in the market. If, on the one hand we argue for a free market economy in housing, why do we introduce statutory false selling prices by giving infant protection to industries such as cement manufacturing? The prices in Namibia for many of the materials used in housing are high because of legislation within Namibia and the Southern African Customs Union (SACU). Creating jobs that do not allow the working population to own property will only continue the history of an indentured labour.
7. Establish a Rent Control Board. I have written about this in last week’s column and hope the readers have looked at the arguments put forth. The rent control should peg the amount of rent charged to the bond repayment such a property would have to repay.
The bottom line issue of the Housing Crisis remains: Without home ownership, a citizen feels like a foreigner in their own country.
This week, I take a quote from Thomas Woodrow Wilson (1856-1924) who was the 28th President of the United States of America (1913-1921). He held a PhD in Political Science and was the President of Princeton University (1902-1910). He wrote various books including a textbook used in colleges in which he argued that government should not be deemed evil and advocated the use of government to” allay social ills and advance society's welfare”.
The past week it was my privilege to have my ten year-old stepson staying with us during the school holidays. At one point, I was playing a game involving Star Trek characters and he asked what that was. I tried to explain but found that the generation gap of what we had watched on television was too broad. Nevertheless, it was good to again watch an episode together and hear the words “To boldly go where no man has gone before”.
The present Housing Crisis (yes it is a Crisis with a capital letters), needs bold actions to address the plight of the landless. No citizen can truly feel the rewards of Independence, without being able to state, “there is my home - it belongs to me”.
Let us look at some bold measures that could be enacted to help the Namibian consumer achieve that dream.
1. Create a National Mortgage Association. The NMA should provide banks with state money to finance home mortgages. This will raise levels of home ownership and the availability of affordable housing. The state should also regulate that at least 55% of these mortgages should be allocated to low- and moderate-income housing.
2. Rental income should be taxed. In many countries rental income is taxed on a progressive basis and helps to cap the greed of landlords. In Tanzania for example, rental income is taxed at 31.45% 0 definitely a barrier to capitalistic tendencies in the market.
3. Have higher property taxes for home owners with more than one property. This should also put a dampener on the view that individuals can become rich through renting at exhorbitant prices.
4. The lands register should be investigated and all companies (close corporations, etc.) should be taxed at a higher rate on residential properties if this is not their place of business. In other words, companies that own property for the purpose of residential leasing should be taxed higher to reduce the undue pressure on house prices.
5. Introduce a Capital Gains Tax (CGT) that will tax non-residents when they sell a property. This will help to reduce the number of foreign investors who see the Housing Crisis as an opportunity to make money through speculation of property. This can also be expanded to include companies owning property to reduce speculation by businesses in the home market. Namibia has the lowest rate of 0% compared with 25% and 40% in Botswana and South Africa respectively.
6. Remove price increasing legislative effects in the housing market. At present too many industries receive “infant protection” and other measures to allow them to increase their selling price without meeting competitiveness in the market. If, on the one hand we argue for a free market economy in housing, why do we introduce statutory false selling prices by giving infant protection to industries such as cement manufacturing? The prices in Namibia for many of the materials used in housing are high because of legislation within Namibia and the Southern African Customs Union (SACU). Creating jobs that do not allow the working population to own property will only continue the history of an indentured labour.
7. Establish a Rent Control Board. I have written about this in last week’s column and hope the readers have looked at the arguments put forth. The rent control should peg the amount of rent charged to the bond repayment such a property would have to repay.
The bottom line issue of the Housing Crisis remains: Without home ownership, a citizen feels like a foreigner in their own country.
A man’s home is his castle and fortress
(First appeared in New Era 13 May 2015)
The saying “A man’s home is his castle” is an old English proverb and is often attributed to Sir Edward Coke (1552-1634), an English jurist, member of parliament and writer, who used this principle to state that no one may enter a person’s home without permission.
The past two years I have been renting a double story flat in a complex close to the Social Security Commission. As my family has expanded to include a wife and baby I have had to start looking for a free-standing house or at least a flat without stairs as we fear our baby will be a little rough with his new walking ring. As I was looking through the various rental options, I once again realised that the price of rentals in Windhoek is going through the roof. This led me to look once again at the issue of rent control and its applicability in the Namibian situation.
The idea to enforce rent control is in place in at least 40 countries across the world. The idea of rent control is to promulgate laws or regulations that sets renting prices on residential housing as a price ceiling for certain types of accommodation. Generally speaking such laws dictate the frequency and degree of rent increases and is commonly indicated at a level less than the rate of inflation.
The arguments for rent control are a) a moral ground that housing is a human right which supersedes the property rights of a house owner. In this argument, the income a landlord may receive from a property should for example be no higher than 20% of a bond repayment for a house of this value; b) price control also gives the tenant the right to insist upon certain improvements being done on a minimum standard without the landlord being able to improperly adjust with higher rentals fees; and c) most importantly, the social dynamics of rent control (or to use the term correctly “rent stabilisation”), is an important one for consumer protection as the laws or regulations provide assurance to the consumer that they can maintain stability in their housing situation.
At present, there is a tendency among some landlords to insist upon an increase of 10% and sometimes higher from renters and they inform the renter to either pay this increased amount or move.
It has become painfully obvious that the main problem is not that rentals are increasing, but rather that the shortage of housing has led to there being many more people looking to rent than the number of houses available on the market. The local authorities have caused this problem through the slow speed of serviced land being available for new housing which has put a lot of pressure on potential home owners who now need to rent as there is no other option available. Thus the market is being skewed by the supply and demand equation that stipulates that prices will go up and where there is more demand than what can currently be supplied.
Thus looking at rent control and applying it in certain areas will help to keep the market in check, but in reality it is a solution that also has its downside. Most free market believers will point out that controlling rent leads to a reduction in the quantity and quality of houses available. While this argument is valid once all other factors are equal, we must realise that this could be short-term strategy to ensure that greed tendencies do not lead to the further impoverishment of our consumer especially in the lower and middle income families.
Perhaps a new debate should take place to talk not about land (as in farmlands) but rather a discussion of how to increase the availability of housing (a man’s castle) to more of our people.
The saying “A man’s home is his castle” is an old English proverb and is often attributed to Sir Edward Coke (1552-1634), an English jurist, member of parliament and writer, who used this principle to state that no one may enter a person’s home without permission.
The past two years I have been renting a double story flat in a complex close to the Social Security Commission. As my family has expanded to include a wife and baby I have had to start looking for a free-standing house or at least a flat without stairs as we fear our baby will be a little rough with his new walking ring. As I was looking through the various rental options, I once again realised that the price of rentals in Windhoek is going through the roof. This led me to look once again at the issue of rent control and its applicability in the Namibian situation.
The idea to enforce rent control is in place in at least 40 countries across the world. The idea of rent control is to promulgate laws or regulations that sets renting prices on residential housing as a price ceiling for certain types of accommodation. Generally speaking such laws dictate the frequency and degree of rent increases and is commonly indicated at a level less than the rate of inflation.
The arguments for rent control are a) a moral ground that housing is a human right which supersedes the property rights of a house owner. In this argument, the income a landlord may receive from a property should for example be no higher than 20% of a bond repayment for a house of this value; b) price control also gives the tenant the right to insist upon certain improvements being done on a minimum standard without the landlord being able to improperly adjust with higher rentals fees; and c) most importantly, the social dynamics of rent control (or to use the term correctly “rent stabilisation”), is an important one for consumer protection as the laws or regulations provide assurance to the consumer that they can maintain stability in their housing situation.
At present, there is a tendency among some landlords to insist upon an increase of 10% and sometimes higher from renters and they inform the renter to either pay this increased amount or move.
It has become painfully obvious that the main problem is not that rentals are increasing, but rather that the shortage of housing has led to there being many more people looking to rent than the number of houses available on the market. The local authorities have caused this problem through the slow speed of serviced land being available for new housing which has put a lot of pressure on potential home owners who now need to rent as there is no other option available. Thus the market is being skewed by the supply and demand equation that stipulates that prices will go up and where there is more demand than what can currently be supplied.
Thus looking at rent control and applying it in certain areas will help to keep the market in check, but in reality it is a solution that also has its downside. Most free market believers will point out that controlling rent leads to a reduction in the quantity and quality of houses available. While this argument is valid once all other factors are equal, we must realise that this could be short-term strategy to ensure that greed tendencies do not lead to the further impoverishment of our consumer especially in the lower and middle income families.
Perhaps a new debate should take place to talk not about land (as in farmlands) but rather a discussion of how to increase the availability of housing (a man’s castle) to more of our people.
We are in an African standoff
(First appeared in New Era 6 May 2015)
Today’s column is a play of words on the saying “It is a Mexican standoff”. A Mexican standoff refers to when two or more opponents have their guns drawn and unless there is an agreement to stop, all parties will die regardless of who pulls the trigger first. This remains unresolved until some outside event makes it possible to resolve it. It is used in today’s column to symbolise the stand-off on issues of land and specifically access to urban land.
The past week I was working in Onyaanya constituency of the Oshikoto region. Unfortunately there were no suitable accommodation establishments that had place for the period within the immediate vicinity and I had to book into a guest house just outside Ondangwa. As it was a long weekend, I managed to take time in the evening to do some “window shopping” in the towns of Ondangwa and Ongwediva. I must add that I was glad that my employer had not paid my salary by the end of the month and I was actually glad (not really) as it was definitely tempting to go on a real shopping spree. I found almost all the retailers that you will find in Windhoek and even some that had not yet made it to the capital city.
The bad news was that more and more of the small- and medium-sized enterprises (SMEs) belonging to Namibians ae being displaced to make space for these multinational (mostly South African) companies. While appreciating the convenience of having a large range of well-priced goods within the modern mall environment, it is worrying that the only employment being created is for low-level front-end jobs and that more of our indigenous entrepreneurs are going out of business.
The same issue, foreign ownership, comes up in discussions of how property developers in the housing market are only catering for up-market, high-income earners and neglecting the indigenous low-income earners.
It would really be a good initiative for our local authorities to insist upon “Inclusionary Zoning”. This term (which was coined in America) refers to local authority and other planning regulations that require a given share of new construction to be affordable by people with low to moderate incomes. For example, the local authority or the Ministry of Local Government, Housing and Rural Development can insist within the purchase deed that 10% -30% of new houses and townhouse complex space be allocated to lower-income earners. The term specifically uses the word “inclusionary” to indicate that the policy is aimed at countering “exclusionary zoning” whose aim is to exclude low-cost housing from certain areas in a local authority.
While investigating this use of local authority regulations to provide a wider range of housing options I was immediately impressed by the two issues that will be addressed such policies. Firstly, the apartheid past has caused certain areas to still be markedly different based on the skin colour of the inhabitants and is considered one of the racial divides we need to address in an Independent Namibia. Secondly, the free market (or as our constitution states – mixed economy), has been driven by profits and these are obviously at the high end of the market where top dollar can be charged and profits are the primary purpose.
The biggest benefits include, but are not limited to a) the creation of income-integrated communities, b) reduced bussing and commuter costs borne by the local authorities as they must presently provide subsidised travel for low-income earners who provide the home work force in high income areas; c) equality in access to schooling and other government services across communities; and d) perhaps most importantly speed up the process of reconciliation by eroding the apartheid land usage policies based on colour.
I must end this column with a reminder that what started me on this route of thinking was the shopping malls mushrooming all over the country that are not catering for our SME’s. The Government of Namibia must implement a policy of inclusionary zoning that will force property developers to include an SME park area within their complex. This will encourage entrepreneurship and decrease the feeling of “loss of participation in the economy” experienced among the people.
Today’s column is a play of words on the saying “It is a Mexican standoff”. A Mexican standoff refers to when two or more opponents have their guns drawn and unless there is an agreement to stop, all parties will die regardless of who pulls the trigger first. This remains unresolved until some outside event makes it possible to resolve it. It is used in today’s column to symbolise the stand-off on issues of land and specifically access to urban land.
The past week I was working in Onyaanya constituency of the Oshikoto region. Unfortunately there were no suitable accommodation establishments that had place for the period within the immediate vicinity and I had to book into a guest house just outside Ondangwa. As it was a long weekend, I managed to take time in the evening to do some “window shopping” in the towns of Ondangwa and Ongwediva. I must add that I was glad that my employer had not paid my salary by the end of the month and I was actually glad (not really) as it was definitely tempting to go on a real shopping spree. I found almost all the retailers that you will find in Windhoek and even some that had not yet made it to the capital city.
The bad news was that more and more of the small- and medium-sized enterprises (SMEs) belonging to Namibians ae being displaced to make space for these multinational (mostly South African) companies. While appreciating the convenience of having a large range of well-priced goods within the modern mall environment, it is worrying that the only employment being created is for low-level front-end jobs and that more of our indigenous entrepreneurs are going out of business.
The same issue, foreign ownership, comes up in discussions of how property developers in the housing market are only catering for up-market, high-income earners and neglecting the indigenous low-income earners.
It would really be a good initiative for our local authorities to insist upon “Inclusionary Zoning”. This term (which was coined in America) refers to local authority and other planning regulations that require a given share of new construction to be affordable by people with low to moderate incomes. For example, the local authority or the Ministry of Local Government, Housing and Rural Development can insist within the purchase deed that 10% -30% of new houses and townhouse complex space be allocated to lower-income earners. The term specifically uses the word “inclusionary” to indicate that the policy is aimed at countering “exclusionary zoning” whose aim is to exclude low-cost housing from certain areas in a local authority.
While investigating this use of local authority regulations to provide a wider range of housing options I was immediately impressed by the two issues that will be addressed such policies. Firstly, the apartheid past has caused certain areas to still be markedly different based on the skin colour of the inhabitants and is considered one of the racial divides we need to address in an Independent Namibia. Secondly, the free market (or as our constitution states – mixed economy), has been driven by profits and these are obviously at the high end of the market where top dollar can be charged and profits are the primary purpose.
The biggest benefits include, but are not limited to a) the creation of income-integrated communities, b) reduced bussing and commuter costs borne by the local authorities as they must presently provide subsidised travel for low-income earners who provide the home work force in high income areas; c) equality in access to schooling and other government services across communities; and d) perhaps most importantly speed up the process of reconciliation by eroding the apartheid land usage policies based on colour.
I must end this column with a reminder that what started me on this route of thinking was the shopping malls mushrooming all over the country that are not catering for our SME’s. The Government of Namibia must implement a policy of inclusionary zoning that will force property developers to include an SME park area within their complex. This will encourage entrepreneurship and decrease the feeling of “loss of participation in the economy” experienced among the people.
Too Good To Be True
(First appeared in New Era 18 April 2015)
The heading of today’s column was originally from the title of the essay “Siquila too good to be true” by Thomas Lupton in 1580. The term “too good to be true” expresses the unconvinced view that something that seems fine must have something wrong with it.
The past week I was looking at various options, I came across a number of businesses that promised me various levels of income and most of them indicated that it would be “easy”. I researched different businesses from online selling, private blog networks, Tupperware sales, Herbalife and even looking at becoming a Golden Products agent. Each of these businesses had very low entries into the business and was built on a multi-level marketing strategy (MLM). A Multi-Level Marketing is a marketing strategy in which the sales force is compensated not only for sales they generate, but also for the sales of the other salespeople that they recruit. This recruited sales force is referred to as the participant's "downline", and can provide multiple levels of compensation.
The selling point for each business was that I would make a lot more money if I recruit people who would also sell the companies products and I would make a percentage commission on their sales. To put it a little broadly, I would make more money if I have more people recruited, and they were doing the actual sales.
As a consumers we always dream of having more money to spend and we need to differentiate between a legitimate business opportunity and a business opportunity that “is too good to be true” and which will lead to you losing your money.
One of the most harmful scams that happens to people is when such a scheme turns out in fact to be a pyramid scheme. For you to be sure you do not get caught – and lose your money – is to learn how to identify a pyramid scheme and which regulatory authority you can contact if you believe you might be involved in such a scheme.
So what is a pyramid scheme? Any multi-level marketing company must have a product or service that they sell to a client. Normally a business that has a product you personally can, and wish to, use makes for an easy product to sell onwards to clients. If a company is selling overpriced and difficult to sell products you should already be wary of the business. As a consumer (and potential entrepreneur) you will have to purchase a minimum amount of product from the company which you in turn must sell for you to make money. Once you purchase enough of the product to qualify for commissions you will start to realise it is difficult to resell the inventory.
At this point you will learn that recruiting others to become agents or distributors is the only way to have a chance of recovering the money you invested. The person or company that recruited you will start to pressure you to increase your sales through getting others to become distributors. This emphasis on “recruiting your downline” is an indicative sign that you are dealing with a pyramid scheme. A pyramid scheme can only survive if there is a constant flow of new consumers to buy in the bottom or entry level.
So, how can you protect your hard money? The following questions should help you to check if the company meets the pyramid profile. Does the opportunity offer a large monthly income for very little work or even simply for working from home? Does it require you to put some of your own money into then business by buying a product or service? Does the company insist you pay a membership fee? Is there a strong emphasis on how much money you will make according to the number of people your recruit? Is the commission structure very complex? Does it sound too good to be true? If so, it probably is.
If you believe that an opportunity might be a pyramid scheme you can contact the Bank of Namibia which is continuously refining the provisions relating to illegal financial schemes also known as pyramid schemes.
The heading of today’s column was originally from the title of the essay “Siquila too good to be true” by Thomas Lupton in 1580. The term “too good to be true” expresses the unconvinced view that something that seems fine must have something wrong with it.
The past week I was looking at various options, I came across a number of businesses that promised me various levels of income and most of them indicated that it would be “easy”. I researched different businesses from online selling, private blog networks, Tupperware sales, Herbalife and even looking at becoming a Golden Products agent. Each of these businesses had very low entries into the business and was built on a multi-level marketing strategy (MLM). A Multi-Level Marketing is a marketing strategy in which the sales force is compensated not only for sales they generate, but also for the sales of the other salespeople that they recruit. This recruited sales force is referred to as the participant's "downline", and can provide multiple levels of compensation.
The selling point for each business was that I would make a lot more money if I recruit people who would also sell the companies products and I would make a percentage commission on their sales. To put it a little broadly, I would make more money if I have more people recruited, and they were doing the actual sales.
As a consumers we always dream of having more money to spend and we need to differentiate between a legitimate business opportunity and a business opportunity that “is too good to be true” and which will lead to you losing your money.
One of the most harmful scams that happens to people is when such a scheme turns out in fact to be a pyramid scheme. For you to be sure you do not get caught – and lose your money – is to learn how to identify a pyramid scheme and which regulatory authority you can contact if you believe you might be involved in such a scheme.
So what is a pyramid scheme? Any multi-level marketing company must have a product or service that they sell to a client. Normally a business that has a product you personally can, and wish to, use makes for an easy product to sell onwards to clients. If a company is selling overpriced and difficult to sell products you should already be wary of the business. As a consumer (and potential entrepreneur) you will have to purchase a minimum amount of product from the company which you in turn must sell for you to make money. Once you purchase enough of the product to qualify for commissions you will start to realise it is difficult to resell the inventory.
At this point you will learn that recruiting others to become agents or distributors is the only way to have a chance of recovering the money you invested. The person or company that recruited you will start to pressure you to increase your sales through getting others to become distributors. This emphasis on “recruiting your downline” is an indicative sign that you are dealing with a pyramid scheme. A pyramid scheme can only survive if there is a constant flow of new consumers to buy in the bottom or entry level.
So, how can you protect your hard money? The following questions should help you to check if the company meets the pyramid profile. Does the opportunity offer a large monthly income for very little work or even simply for working from home? Does it require you to put some of your own money into then business by buying a product or service? Does the company insist you pay a membership fee? Is there a strong emphasis on how much money you will make according to the number of people your recruit? Is the commission structure very complex? Does it sound too good to be true? If so, it probably is.
If you believe that an opportunity might be a pyramid scheme you can contact the Bank of Namibia which is continuously refining the provisions relating to illegal financial schemes also known as pyramid schemes.
Home is where the heart is
(First appeared in New Era 15 April 2015)
The heading of todays’ column is a quote from Gaius Plinius Secundus (AD 23 – August 25, AD 79), a Roman better known as Pliny the Elder. He was amongst others an author, naturalist, and philosopher, as well as naval and army commander of the early Roman Empire. He is also well-known for the quote, “There is always something new out of Africa.” (Source: Wikipedia)
As a newlywed couple, my wife and I have started looking at a house to purchase as the present place we call home is a rental and is not putting any long-term value on our balance sheet. The cost of housing is already well-known and most of us have heard the cry of “Affirmative Repositioning” which seems to imply that land for housing must be made available for all Namibians. However, regardless of whether you purchase an existing house, or get a serviced erf from the local authority, you must still be aware of the hidden costs in the purchase of a property.
Most buyers are not aware of these hidden costs which include costs to transfer the title deed onto your name, registration of the bond, service connection costs to your property and most importantly your loan repayment that could increase due to interest hikes. As part of our homework into purchasing our ideal home, I have tried to define these hidden costs. To provide an indication of what these costs can be, I have used a house purchased for N$ 1 million in the example and placed the estimated hidden cost in brackets where possible.
(a) Transfer Costs – this is the legal cost of having the house registered in your own name and includes deeds office fees (N$ 300); Stamp Duty (N$ 4,000); Transfer Duty calculated as a percentage of the property value (N$ 4,000); Transfer Fee (N$ 10,000); Admin fees (N$ 400) and VAT at 15% (1,560). Total Transfer Cost = N$20,260.
(b) Bank Charges – most commercial lenders charge a bond initiation fee as well as a bank administration fee. These are charged up front and added to your account. Once the property is registered in your name, (and this might happen even before you move in), your monthly repayment will start.
(c) Service connection costs – most local authorities and other suppliers of water, electricity and telephone expect a deposit before the connection is made and then charge monthly according to usage. Usage can fluctuate and be unexpectedly high during periods of personal problems and cannot always be accurately reflected on a statement due to “usage guessing”.
(d) Property Rates – this is a monthly fee charged by the local authority based on the municipality estimated market value of the property. This rate tends to increase by 8% per year and is presently N$ 0.000914 times the site value and N$ 0.000471 times the improvement value in Windhoek. Thus a property with erf valued at N$ 300,000 and improvement value of N$ 700,000 would have a monthly rate of N$ 603.90 or N$ 7,246.80 per year. (NOTE: Before buying a property, ensure that all previous service charges on the property are paid in full.)
(e) Monthly levies – these are only applicable if you are buying in a complex (sectional title). You will need to pay a monthly levy for shared services in the complex and these can be costly.
(f) Maintenance of your home – there are always thing that break and need to be fixed. Even if you rent out your property, remember that certain items are still your responsibility to maintain.
(g) Insurance – you will need homeowners insurance that will cover any unforeseen circumstance such as your house burning down, etc. In addition, the bank will probably also require you to take out life insurance that will cover the rest of your bond owed in the event of your death.
If you can budget properly and identify all these hidden costs to ensure no surprise, you will enjoy your home for many years.
As for my wife and I, we have decided to go back to the drawing board and find an additional form of income to increase our ability to own a home.
The heading of todays’ column is a quote from Gaius Plinius Secundus (AD 23 – August 25, AD 79), a Roman better known as Pliny the Elder. He was amongst others an author, naturalist, and philosopher, as well as naval and army commander of the early Roman Empire. He is also well-known for the quote, “There is always something new out of Africa.” (Source: Wikipedia)
As a newlywed couple, my wife and I have started looking at a house to purchase as the present place we call home is a rental and is not putting any long-term value on our balance sheet. The cost of housing is already well-known and most of us have heard the cry of “Affirmative Repositioning” which seems to imply that land for housing must be made available for all Namibians. However, regardless of whether you purchase an existing house, or get a serviced erf from the local authority, you must still be aware of the hidden costs in the purchase of a property.
Most buyers are not aware of these hidden costs which include costs to transfer the title deed onto your name, registration of the bond, service connection costs to your property and most importantly your loan repayment that could increase due to interest hikes. As part of our homework into purchasing our ideal home, I have tried to define these hidden costs. To provide an indication of what these costs can be, I have used a house purchased for N$ 1 million in the example and placed the estimated hidden cost in brackets where possible.
(a) Transfer Costs – this is the legal cost of having the house registered in your own name and includes deeds office fees (N$ 300); Stamp Duty (N$ 4,000); Transfer Duty calculated as a percentage of the property value (N$ 4,000); Transfer Fee (N$ 10,000); Admin fees (N$ 400) and VAT at 15% (1,560). Total Transfer Cost = N$20,260.
(b) Bank Charges – most commercial lenders charge a bond initiation fee as well as a bank administration fee. These are charged up front and added to your account. Once the property is registered in your name, (and this might happen even before you move in), your monthly repayment will start.
(c) Service connection costs – most local authorities and other suppliers of water, electricity and telephone expect a deposit before the connection is made and then charge monthly according to usage. Usage can fluctuate and be unexpectedly high during periods of personal problems and cannot always be accurately reflected on a statement due to “usage guessing”.
(d) Property Rates – this is a monthly fee charged by the local authority based on the municipality estimated market value of the property. This rate tends to increase by 8% per year and is presently N$ 0.000914 times the site value and N$ 0.000471 times the improvement value in Windhoek. Thus a property with erf valued at N$ 300,000 and improvement value of N$ 700,000 would have a monthly rate of N$ 603.90 or N$ 7,246.80 per year. (NOTE: Before buying a property, ensure that all previous service charges on the property are paid in full.)
(e) Monthly levies – these are only applicable if you are buying in a complex (sectional title). You will need to pay a monthly levy for shared services in the complex and these can be costly.
(f) Maintenance of your home – there are always thing that break and need to be fixed. Even if you rent out your property, remember that certain items are still your responsibility to maintain.
(g) Insurance – you will need homeowners insurance that will cover any unforeseen circumstance such as your house burning down, etc. In addition, the bank will probably also require you to take out life insurance that will cover the rest of your bond owed in the event of your death.
If you can budget properly and identify all these hidden costs to ensure no surprise, you will enjoy your home for many years.
As for my wife and I, we have decided to go back to the drawing board and find an additional form of income to increase our ability to own a home.
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