Author Archives: IJGResearch

PSCE – April 2016

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Total credit extended to the private sector increased by N$241.8 million or 0.29%, in April, taking total credit outstanding to N$83.9 billion. On an annual basis PSCE growth increased by 12.4% in April compared to 13.0% in March. A total of N$9.3 billion worth of credit has been approved over the last 12 months with N$1.8 billion worth of credit being approved in 2016 thus far. Of this N$9.3 billion worth of credit issued during the last 12 months, approximately N$3.8 billion was taken up by businesses, while N$4.9 billion was taken up by individuals.

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Credit extension to households

Credit extension to households expanded by 0.6% on a monthly basis and 11.8% on an annual basis in April. Credit extension to households has continued to slow as interest rate hikes change consumer trends. It is worth remembering however that the transmission mechanism between rate hikes and PSCE contractions is relatively slow, particularly when interest rate increases are small. We do expect to see further rate hikes going forward and this should lead to a continuation of the slowdown of credit extension to households and possibly contractions on a monthly basis.

During the month household mortgage loans expanded by 0.6% month on month and 12.1% year on year, down from 0.7% month on month and up from 11.5% year on year and continue to make up the majority of credit extended to households. On a year on year basis the rate at which individuals are taking up mortgage loans has been increasing, from below the average rate of private sector credit extension to households to well above it. On a year on year basis mortgage loan issuance is thus driving credit extension to individuals.

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Instalment credit, the second largest component of loans extended to individuals, grew at 12.6% year on year in April, up from 12.1% in March, although well off the long term average growth for this component of PSCE. On a month on month basis instalment credit grew by 0.1%, down from 0.4% in March. The lackluster instalment credit growth on a yearly basis can be attributed to tighter monetary policy as well as a slowdown in credit extension by credit providers due to less than ideal liquidity conditions.

PSCE – April 2016

PSCE – April 2016

Credit extension to corporates

Credit extension to corporates registered a much lower but positive growth of 0.1% from 0.2% on a month-on-month basis and an annual growth of 12.9% year-on-year in April, down from 15.2% in March. Credit extended to corporates during April was again primarily driven by exceptional growth in mortgage loans, up 15% year on year and 0.3% month on month. Instalment credit extended to corporates grew at a rate of 3.9% year on year and declined 0.6% on a month on month basis, while overdraft facilities grew by 7.4% year on year and 3.3% on a month on month basis. Although corporate credit has been growing at a far quicker rate than credit extended to individuals, the relatively low base from which this growth stems means that the majority of private sector credit still sits with the individual.

Reserves and money supply

Foreign reserves decreased slightly during April. The decrease primarily came as a result of net government payments. International reserves stood at N$24.661 billion at the end of April, down from N$24.910 billion in March.

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Outlook

Private sector credit extension has slowed considerably on a year to date basis as a result of the current interest rate hiking cycle. Should we see further rate hikes in the SA market due to above target inflation and a volatile and depreciating Rand, we will see further rate hikes from the Bank of Namibia as well. This will put further pressure on the consumer which will in turn affect corporates. Further impacting the current economic climate is the drought experienced in the central region. Water restrictions may limit business activities and deter further investment, all of which has a negative impact on credit extension. We thus expect PSCE to continue to slow down, possibly topping out in the not too distant future.

Building Plans – April 2016

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A total of 198 building plans worth N$219.8m were approved by the city of Windhoek in April. On a year-to-date basis, 642 plans were approved, significantly less when compared to the 878 plans approved over the same period last year. In value-terms however, approved plans on a year-to-date basis are worth N$749.3 million, 30.9% more than the value recorded over the same period last year. This year to date increase in value of plans approved is mostly due to base effects as large commercial projects have been approved by the municipality thus far in 2016.

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The city of Windhoek approved 52 more building plans this month than in March. The equivalent value for the plans approved in April came in at N$219.9m, 16.4% above the March figure. 22 residential units and 161 additions were approved by the municipality during April. The total value for residential units and additions approved in April stood at N$70.07 million and N$105.85 million respectively. Only 6 commercial and industrial plans were approved in April, to the value of N$42.43 million, exactly the same figure as reported in March which suggests that this is a duplication instead of an addition for the month.

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The subdued trend in the 12-month cumulative number of plans approved continued in April, bringing the number down to 2,231 units from 2,239 in March. This is reflected in the 12-month cumulative growth rate which was down 21.3% in April, posting negative growth for the 24th consecutive month. As shown in the graph below, the level of the 12-month cumulative number of plans approved has fallen far below the 20-year average for this measure.

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We have experienced a massive boom in the construction industry since 2010, especially over the last 4 years, with an average of N$2.265 billion worth of building plans approved over this period. From a GDP perspective, the Namibian construction industry contributes about 4% to total GDP.

As the construction at the B2Gold mine and the Tschudi copper mine has been completed during 2015 and construction of the Husab mine is nearing completion, the growth contribution from the construction sector is expected to have topped out somewhat.

Of major concern are the current water restrictions in the central part of Namibia. NamWater announced on 18 February 2016 that water supply to Windhoek will be cut by 20% in an attempt to postpone dams running dry from August this year to April 2017. Cabinet has also approved a water tariff increase of 10% during the current financial year. NamWater has given no indication as to when the implementation date for the hike will be. Although the decision to increase the tariff was made in March, the minister of communication and technology, Mr Tjekero Tweya, only made the announcement on 11 April. NamWater is only required to give a months’ notice before any hike is implemented.

Water restrictions and tariff hikes will directly affect economic activity in Namibia, impacting water dependent industries, such as construction. If further water restrictions and new tariffs are implemented, it would have a severe impact on the construction industry as they are heavily reliant on water supply and given the magnitude of construction activity in Windhoek, a standstill of construction activity in the capital would have a significant impact on the economy.