Category Archives: Economic Research

Economic Research

PSCE – August 2018

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Overall

Private sector credit extension (PSCE) recorded it biggest monthly increase since November 2015, rising by N$1.37 billion or 1.5% m/m in August. Cumulative credit outstanding currently amounts to N$94.8 billion. PSCE growth accelerated to 7.1% y/y in August from 6.3% y/y in July. On an annual basis the growth in PSCE was driven largely by credit extended to households which increased at a quicker rate of 8.1% y/y in August compared to 6.7% y/y in July. Credit extended to corporates grew marginally quicker at 3.6% y/y in August versus the 3.4% y/y in July. On a rolling 12-month basis N$6.3 billion worth of credit was extended to the private sector with N$4.2 billion being taken up by individuals. Corporations took up only N$1.3 billion worth of credit while claims on non-residents totaled N$748 million.

Credit extension to individuals

Household appetite for credit remains high judging by credit extended to individuals over the past 12 months. Credit extended to individuals increased by 8.1% y/y in August, a sharp acceleration from the 6.7% y/y growth recorded in July. Base effects saw mortgage loans extended to individual grow by 10% y/y in August compared to the 7.7% y/y increase recorded in July, resulting in the overall acceleration mentioned above. Individuals once again made very little use of overdraft facilities in August, with this increasing by 0.8% y/y following a 1.7% y/y contraction recorded in July. Household appetite for instalment credit remains subdued as reflected in the contractions of 5.6% y/y and 0.6% m/m in August. Other loans and advances grew by 17.2% y/y and 3.5% m/m in August.

Credit extension to corporates

Credit extension to corporates grew by 3.6% y/y and 2.4% m/m. On a rolling 12-month basis N$1.3 billion was extended to corporates as at the end of August compared to N$1.2 billion as at the end of July. Instalment credit extended to corporates contracted by 7.5% y/y but increased marginally by 0.5% m/m in August. Leasing transactions to corporations also contracted in August, by 3.6% y/y and 3.1% m/m. The contraction in instalment credit and lease transactions points towards declining corporate investments of a capital nature. However, the uptick in loans and overdrafts of 22.1% y/y and 1.5% y/y, respectively, could suggest that businesses are lending simply to stay afloat.

Banking Sector Liquidity

The overall liquidity position of commercial banks decreased by N$229.7 million to an average of N$4.5 billion during August from N$4.7 billion in July. The overall liquidity position continued to boast a healthy average monthly balance of above N$4 billion since June. The excess liquidity seems to have found some parking space with Bank of Namibia (BoN) attributing the decrease in overall liquidity to an uptick in the purchases of BoN bills over the month of August. At the same time commercial banks have continued to utilize BoN’s repo facility, with the balance of repo’s outstanding increasing from N$341 million at the start of August to N$386 million as at the end of August.

Reserves and money supply

Foreign reserve balances decreased by N$345 million to N$32.2 billion in August from N$32.5 billion in July. BoN had previously noted that the July balance of foreign reserves was N$30.8 billion, citing errors to March reserve figures. This has since been corrected along with the balances of the preceding three months. The N$345 million decline in reserves, however, BoN attributes to government disbursements over the month under review.

Outlook

Credit extension to individuals continues to outpace extension to corporates by most measures. However, the monthly uptick in PSCE registered in August was largely due to credit extension to corporates, which was almost double credit extension to individuals. The outlook for PSCE growth, for the time being, is rested on interest rate expectations with the SARB MPC keeping policy rates unchanged in September, with expectations for BoN’s MPC to follow suit. Rising oil prices and a weaker rand has seen a rampant increase to fuel pump prices, which will feed into the SARB’s inflation forecast. These factors will weigh on future interest rate decisions which in turn influences the rate of PSCE growth. Interest rates remain broadly accommodative at present but risks remain to the upside.

Notwithstanding global developments, local government fiscal shortages bear further risk to the outlook for PSCE. Local news media has reported that the Ministry of Finance (MoF) has engaged in consultations to discuss proposed increases to tax rates for individuals and various taxes affecting businesses. With individuals accounting for almost 70% of the credit issued from a 12-month cumulative perspective, any increase in tax impacts the ability of credit uptake by an already stretched consumer. This would mean less demand for consumer credit, and less disposable income to service debt. This will further supress consumer spending that in turn affects capital investment by local business, which at present is already heavily suppressed. An increase in corporate taxes (dividend withholding tax) further disincentivises credit uptake by corporates which could delay expansion of operations which further dampens the outlook for PSCE going forward.

New Vehicle Sales – August 2018

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A total of 1,061 new vehicles were sold in August, representing an 11.0% m/m decrease from the 1,192 vehicles sold in July, but 1.7% more than in August 2017. Year-to-date 8,070 vehicles have been sold of which 3,629 were passenger vehicles, 4,023 light commercial vehicles, and 418 medium and heavy commercial vehicles. On a rolling 12-month basis, a total of 12,031 new vehicles were sold as at 31 August 2018, representing a contraction of 13.1% from the 13,848 sold over the comparable period a year ago.

A total of 421 new passenger vehicles were sold during August, decreasing by a hefty 30.4% m/m. From a year-on-year perspective however, 39 more units were sold in August 2018 (up 10.2%) than a year ago. Year-to-date passenger vehicle sales rose to 3,629 units, reflecting a 7.3% decline from August 2017.

640 New commercial vehicles were sold in August, representing a 9.0% m/m increase, but a 3.2% y/y contraction. 552 light commercial vehicles, 17 medium commercial vehicles, and 71 heavy commercial vehicles were sold during the month. On a year-on-year basis, light commercial vehicle sales have dropped by 10.2%, medium commercial sales increased 41.7% and heavy and extra heavy sales rose by 108.8%. On a twelve-month cumulative basis, commercial vehicle sales remain depressed with light commercial vehicle sales decreasing by 16.9% y/y, medium commercial vehicle sales declining by 0.8% y/y and heavy commercial vehicle sales dropping by 4.8% y/y.

Toyota continues to lead the market for new passenger vehicles sales in 2018 based on the number of new vehicles sold, claiming 35.5% of the market, followed by Volkswagen with a 28.0% share. They were followed by Hyundai and Kia at 5.5% and 4.7% respectively.

Toyota also remained the leader in the light commercial vehicle space with 57.5% market share, with Nissan in second place with a 16.5% share. Ford and Isuzu claimed 9.0% and 5.3% respectively of the number of new light commercial vehicles sold for the year. Hino leads the medium commercial vehicle category with 42.7% of sales while Scania remains number one in the heavy and extra-heavy commercial vehicle segment with 36.6% of the market share year-to-date.

The Bottom Line

The outlook for new vehicle sales remains bleak with the cumulative number of new vehicle sales as at the end of August amounting to 12,031, a decline of 47.0% from the peak of 22,664 new vehicle sales recorded in April 2015. Year-on-year, the cumulative number of new vehicles sold has contracted by 13.1% from the 13,848 cumulative sales recorded in August 2017. Factors such as fiscal consolidation, low consumer and business confidence, expected fuel price increases, coupled with an increasing likelihood of interest hikes over the next 24 months, mean that no significant recovery in vehicle sales can be expected over the short to medium-term.

NCPI – August 2018

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The Namibian annual inflation rate decreased to 4.4% in August, a slightly slower pace than the 4.5% y/y rate of increase in prices recorded in July. The overall NCPI basket registered no price increases on a month-on-month basis in August, following inflation of 0.5% m/m in July. On an annual basis prices in just two of the twelve basket categories rose at a quicker rate in August than in July. Slower rates of inflation in six categories largely contributed to the overall slower rate of increases recorded in August. The rate of inflation in three of the twelve categories remained unchanged. Prices for goods increased at a rate of 4.6% y/y in August, consistent with the July rate. Prices for services increased at a rate of 4.1% y/y following a 4.3% y/y increase in July.

Just as it was in July, transport was the largest contributor to annual inflation in August, accounting for 1.3% of the total 4.4% annual inflation rate. On a monthly basis, transport prices increased at a rate of 0.8% in August, rising faster than the 0.6% m/m increase recorded in July. On an annual basis, transport prices increased by 9.7%, faster than the 8.9% y/y increase recorded in July. August has also been the third consecutive month in which transport prices have been increasing at a quicker annual pace. Prices in the three subcategories all recorded increases on a year-on-year basis. Prices relating to the purchase of vehicles increased at a rate of 7.9% y/y, while prices relating to the operation of personal transport equipment increased by 12.6% y/y. A 20% increase in taxi fares was approved in August and so will only reflect in the public transportation services subcategory from next month. This was the only subcategory that registered a slower pace of increase in August of 1.7% compared to 1.8% in July.

The transport category has been under pressure following consecutive months of fuel price hikes, with hikes in September being the latest. The price of Brent Crude oil has rallied since the start of August, following a drop in price for much of July. Currency weakness observed in August coupled with the increase in the price of Brent Crude oil drove the increase in fuel prices. As long as these pressures and under-recoveries remain, we expect that the ministry of mines and energy will continue hiking fuel pump prices.

The Housing and utilities category was the second largest contributor to annual inflation, due to its large weighting in the basket. Prices for this category increased by a rate of 0.8% m/m and 4.4% y/y. The electricity, gas and other fuels subcategory recorded the largest increase in prices at 13.2% y/y, faster than inflation of 8.4% y/y recorded in July. Month-on-month, prices in this subcategory increased by 0.5%. The water supply, sewerage service and refuse collection subcategory prices remained unchained on a monthly basis, while the regular maintenance and repair of dwellings subcategory showed prices decreasing at a rate of 0.4% m/m.

Prices for the alcoholic beverages and tobacco category increased at a rate of 5.4% y/y, but declined 0.3% m/m. Prices of alcoholic beverages increased at a rate of 5.8% y/y while tobacco prices increased at a rate of 3.8% y/y.

The Namibian annual inflation rate of 4.4% remains quite low seven months into 2018. It is also trending lower than that of neighbouring South Africa (July: 5.1% y/y). The factors putting upward pressure on inflation at present are currency weakness and the volatility in the price of Brent Crude oil. Tropical storms in the US (Hurricane Florence) is pilling doubt on US production, with expectations for limited supply, which is driving the oil price upward. Fears of Turkish and Argentinian troubles spreading further afield have resulted in prolonged emerging market bond and equity sell-offs. The EM risk-off sentiment has seen the rand weakening by over 17% from the start of August to a peak of R15.60/US$ during the first week in September. Effects of a weaker rand are passed through to Namibia by way of the currency peg. The uncertainty of how long this currency weakness will persist directly feeds into the SARB’s inflation forecast at a time when SA inflation is trending towards the SARB’s 6% upper boundary for annual inflation. If the SARB believes that inflation could break through its 6% target it is likely to hike interest rates in an attempt to rein in escalating inflation. Should the SARB hike rates we believe that the Bank of Namibia is likely to follow suit in order to maintain the reserve position. Higher interest rates will be a further drag on the already struggling Namibian economy.