Category Archives: Economic Research

Economic Research

NCPI – June 2019

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The Namibian annual inflation rate moderated to 3.9% y/y in June, following the 4.1% y/y increase in prices recorded in May. Prices increased by 0.1% m/m, compared to the overall basket price decrease of 0.1% m/m in May. Overall, prices in four of the basket categories rose at a faster annual rate than in May, prices in five categories rose at a slower annual rate and three categories recorded steady inflation rates. Prices for goods rose by 3.4% y/y in June, while prices for services rose by 4.7%.

Transport accounted for 1.0 of the total 3.9% annual inflation recorded in June, making it the largest contributor to annual inflation for the month. Prices in the transport basket rose 1.1% m/m and 7.0% y/y. The purchase of vehicles subcategory saw price decreases of 0.5% m/m and 3.6% y/y. The operation transport equipment subcategory recorded price increases of 2.0% m/m and 5.0% y/y. The Ministry of Mines and Energy announced an increase in fuel pump prices of 30 c/l on all controlled products at the beginning of June.

In order to stabilise fuel prices, the Ministry decided not to pass on over-recoveries to the consumer, and kept pump prices unchanged. Brent Crude oil prices increased by 3.2% during June, reaching US$66.55 per barrel at the end of the month and the National Energy Fund saw it prudent to strengthen its financial position given the potential risks of further increases in the Brent Crude prices, citing political tension between USA and Iran specifically.

Alcohol and tobacco prices were flat on a month-on-month basis, but increased 5.5% y/y. The upward movement year-on-year resulted from increases in prices for the alcoholic beverages sub-component. Prices of alcoholic beverages, decreased by 0.2% m/m but increased by 7.9% y/y. However, tobacco prices recorded an increase of 0.8% m/m but decreased by 4.7% y/y.

Food & non-alcoholic beverages, the second largest basket item by weighting, was the second largest contributor to annual inflation, accounting for 0.7 of the 3.9% annual inflation rate. Prices in this category decreased by 0.4% m/m but rose by 3.9% y/y. Prices in ten of the thirteen sub-categories recorded increases on annual basis, with the largest increases being observed in the prices of bread and cereals, and fruits and vegetables.

The increase on an annual basis is likely of the second-round effects of increased transport prices which has filtered through to food prices, coupled with poor rainfall during Namibia’s rainy season that affects local food production.

Zonal data shows that on a monthly basis prices were flat in the central zone 2 while rising elsewhere in the country. On an annual basis the northern regions, in zone 1, recorded the lowest inflation rate at 3.5%, with the mixed zone 3 covering the south, east and west of the country recording the highest rate of inflation at 4.9%. Inflation in zone 2 (Windhoek and surrounding) moderated to 3.7% y/y.

The Namibian annual inflation rate of 3.9% y/y for June is lower than that of neighbouring South Africa’s 4.5% y/y for May. South Africa is yet to announce the June inflation rate, but thus far inflation outcome has been within the 3-6% inflation target. Due to a deteriorating growth outlook for South Africa, as well as the SARB’s latest inflation forecasts, we expect the SARB’s MPC to announce a 25bp rate cute later this week. We believe that the more dovish outlook by central banks in advanced economies gives the SARB enough room to cut rates, with the Bank of Namibia likely to follow suit at its next MPC meeting in August.  IJG’s inflation model forecasts an average inflation of 3.9% y/y in 2019. The largest upside risk to this forecast, is higher transport and food costs and the upper band of 4.3% currently looks more likely.

 

New Vehicle Sales – June 2019

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A total of 977 new vehicles were sold in June, representing a 7.4% m/m decrease from the 1,055 vehicles sold in May. Year-to-date, 5,323 vehicles have been sold of which 2,472 were passenger vehicles, 2,534 were light commercial vehicles, and 317 were medium and heavy commercial vehicles. On a rolling 12-month basis a total of 11,412 new vehicles were sold as at June 2019, representing a contraction of 5.7% from the 12,100 sold over the comparable period a year ago.

378 New passenger vehicles were sold in June, declining by 26.2% m/m and 18.0% y/y. Year-to-date passenger vehicle sales rose to 2,472 units, down 5.0% when compared to the number sold in the first half of last year. Twelve-month cumulative passenger vehicle sales fell 1.6% m/m and 2.4% y/y. Passenger vehicles have made up 46.4% of the total number of new vehicles sold in the first six months of 2019, compared to 44.7% in the same period last year.

A total of 599 new commercial vehicles were sold in June, representing a 10.3% m/m increase, but a 9.7% y/y contraction. Of the 599 commercial vehicles sold in June 519 were classified as light commercial vehicles, 31 as medium commercial vehicles and 49 as heavy or extra heavy commercial vehicles. On a twelve-month cumulative basis, light commercial vehicle sales dropped 10.5% y/y, while medium commercial vehicle sales rose 5.0% y/y, and heavy commercial vehicle sales rose by 25.4% y/y. While medium- and heavy commercial vehicles continue to record growth on a twelve-month cumulative basis, the light segment of the market continues to see lower volumes sold than in 2018.

Volkswagen narrowly leads the passenger vehicle sales segment with 31.5% of the segment sales year-to-date. Toyota retained second place with 31.2% of the market share as at the end of June. Kia, Hyundai, Mercedes and Ford each command around 5.0% of the market in the passenger vehicles segment, leaving the remaining 18.2% of the market to other brands.

Toyota, with a strong market share of 59.5% year-to-date commands the light commercial vehicles sales segment. Nissan remains in second position in the segment with 11.1% of the market, while Ford makes up third place with 8.4% of the year-to-date sales. Hino leads the medium commercial vehicle segment with 36.9% of sales year-to-date, while Scania was number one in the heavy- and extra-heavy commercial vehicle segment with 37.9% of the market share year-to-date.

The Bottom Line

Vehicle sales remain under pressure, with the year-to-date new vehicle sales in 2019 currently below 2011 levels, and the total new vehicle sales for the last 12 months down 5.7% from the same period in 2018. The prospects for new vehicle sales remain dim in the short- to medium-term as government remains committed to fiscal consolidation and the economy remains in a recession, putting pressure on demand and investment.

PSCE – May 2019

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Overall

Total credit extended to the private sector (PSCE) increased by N$1.36 billion or 1.37% m/m in May, bringing the cumulative credit outstanding to N$100.45 billion. On a year-on-year basis, private sector credit extension grew by 8.03% in May, compared to 6.71% recorded in March. On a rolling 12-month basis N$7.46 billion worth of credit was extended. N$4.13 billion worth of credit has been extended to corporates and N$3.52 billion to individuals on a 12-month cumulative basis, while the non-resident private sector has decreased their borrowings by N$185.3 million, the third consecutive month in which this has happened.

Credit Extension to Individuals

Growth in credit extended to individuals slowed to 6.4% y/y in May, a noticeable decrease from the growth of 7.0% y/y recorded in April. However, the biggest driver of the increase in credit extended to individuals was a 6.9% y/y increase in mortgage loans, followed by other loans and advances increasing by 23.9%. Other loans and advances have increased to N$7.22 billion, growing at a much quicker pace than overdrafts. Overdraft facilities extended to individuals have increased by 0.5% m/m and 3.7% y/y.

Growth in credit extended to households slowed to 0.4% m/m from 0.6% m/m in April. The value of mortgage loans extended to individuals increased by 0.4% m/m and 6.9% y/y. While instalment credit extension remained depressed, contracting by 0.6% m/m and 5.9% y/y.

Credit Extension to Corporates

Credit extension to corporates increased by 2.8% m/m and 11.2% y/y in May. On a rolling 12-month basis, N$4.13 billion was extended to corporates as at the end of May compared to the N$2.86 billion as at the end of April.  The month-on-month increase was largely driven by mortgage loans extended to corporates which increased by 4.9% m/m and 6.1% y/y. The use of short-term facilities, particularly overdrafts, increased by 2.9% m/m and 11.1% y/y. Other loans and advances, which consists of credit card debt and short-term loans, extended to businesses increased by 3.4% m/m and 28.2% y/y.

Over the last twelve months the use of short-term facilities has increases greatly, pointing to stressed cash flow among corporate borrowers. While a symptom of the lacklustre economic climate, there is a limit to how long businesses can rely on such facilities in the absence of improved economic conditions. The spike in use of short-term facilities is concerning given that expectations are for poor economic conditions to persist in the short-to medium-term.

Banking Sector Liquidity

The overall liquidity position of commercial banks decreased by N$361.5 million to an average of N$3.79 billion during May from the N$4.15 billion in April. According to the Bank of Namibia (BoN), the decline in liquidity balances stemmed mainly from increased demand for BoN bills during the period under review. There was an increase in the use of BoN’s repo facility by commercial banks, with the outstanding balance of repo’s increasing from N$290.9 million at the start of May to N$ N$398.1 million by the end.

Reserves and Money Supply

Broad money supply rose by N$11.6 billion or 11.7% y/y in May following a 10.2% y/y increase in April, as per the BoN’s latest monetary statistics release. Foreign reserve balance contracted by 0.1% m/m down by N$33.7 million to N$34.1 billion. The BoN stated that the decreased is largely due to net capital outflows of foreign currencies through commercial banks, coupled with net government payments during the month under review.

Outlook

From a 12-month rolling perspective, credit issuance is up 48.0% from the N$5.04 billion issuance observed at the end of May 2018, with corporates taking up 55.3% of the credit extended over the past 12 months. The credit extended to corporates on a cumulative 12-month basis has increased from N$509 million in May 2018 to N$4.13 billion. While credit extended to individuals has been rather stagnant, down 9% on a rolling 12-month basis to N$3.52 billion.

However, PSCE growth in May stemmed from the use of short-term debt as the other loans and advances category grew by 12.4% y/y for corporates and 23.9% y/y for individuals. Due to the nature of debt used, this further questions the utilisation of the credit extended and the probability that such debt is not being used to fund capital expenditures or for long-term productive use.