Category Archives: Economic Research

Economic Research

Building Plans – July 2018

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A total of 276 building plans were approved by the City of Windhoek in July, 42 more than the 234 approvals in June. The value of building plans approved in July was N$214.7 million, which is only the second month this year in which approved plans surpassed the N$200 million mark, the other being January that registered N$269.3 million worth of approvals. A total of 260 buildings with a value of N$78.0 million were completed during the month of July. On a year-to-date basis, 1,251 plans have been approved, 192 more than the 1,059 plans approved over the same period last year. The year-to-date value of approved building plans currently stands at N$1.0 billion, which is 37% lower than the N$1.6 billion worth of approvals registered over the same period in 2017. On a twelve-month cumulative basis, 2,115 building plans worth approximately N$1.6 billion have been approved, 34.3% lower in value terms when compared to the same measure as at the end of July 2017.

Additions to properties generally make up the majority of the number of building plan approved. Additions accounted for 145 of the total 276 plans approved in July, 19% lower on a m/m basis. Year-to-date, 915 additions to properties have been approved, increasing by 6.4% y/y, but decreasing by 7.6% y/y in terms of value to N$621.2 million.

New residential units were the second largest contributor to the number of building plans approved in July, registering 131 approvals compared to the 53 registered in June. Year-to-date, 317 new residential units have been approved. This is an increase of 143 approvals when compared to the corresponding period in 2017. In value terms, N$342.9 million worth of residential plans have been approved year-to-date, a 15.3% increase when compared over the same period in 2017.

For the first time since May 2010 there were no approvals for commercial and industrial properties. The number of approvals for commercial and industrial properties have been languishing in single digit territory since September 2016 and have an average approval rate of 4 approvals per month over the last 12 months. The inactivity in the commercial and industrial space is reflective of the contraction in construction activity and recession in the economy as whole.  Business confidence remains subdued, illustrated by the lack of capital investment. On a 12 month-cumulative basis, the number of commercial and industrial approvals has decreased by 25.4% y/y in July to 44 units, worth approximately N$112.2 million, a huge decrease of 85.8% in value terms over the prior 12-month period.

During the last 12 months 2,115 building plans have been approved, increasing by 14.0% y/y. These approvals were worth a combined N$1.6 billion, a decrease in value of 34.3% y/y. The number of building plans approved, on a cumulative 12-month basis, has been steadily increasing since December 2017. The growth in the cumulative number of plans approved has been driven mainly by approvals in additions to properties and new residential units which are of lower relative value. The overall decrease in value of cumulative plans approved is highly concerning as, even in nominal terms, this shows a substantial decrease of construction activity in the capital. Growth in commercial and industrial construction activity remains extremely subdued as the decrease (on a 12-month cumulative basis) in credit extended to corporates also reflects.

Significant deteriorations of the Turkish and Argentinian currencies have led to increasing fears of widespread emerging market contagion. The result has been an emerging market sell-off that has negatively impacted the rand. Policy uncertainty with regards to land reform has further exacerbated the issue. To make matters worse the SA economy has entered into a recession, contracting by 0.7% in Q2 following a revised 2.6% (previously 2.2%) contraction in Q1. The rand spiked above R15.50 to the US dollar in the aftermath of the GDP data release. The South African Reserve Bank (SARB) will closely monitor the weakness in the rand, as well as for how long this weakness persists, since it presents upward risks to the SARB’s inflation forecast. Prolonged weakness to the rand could lead to inflation breaching the SARB’s inflation target band, the result of which would be a monetary policy tightening cycle which would put further pressure on economic growth. Should the SARB move in this direction, which the market is currently expecting and pricing in, the Bank of Namibia will have to follow suit because of the currency peg. Such monetary tightening in Namibia would be a further drag on the fragile economic recovery we are experiencing at present.

PSCE – July 2018

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Overall

Private sector credit extension (PSCE) increased by N$292.8 million or 0.3% m/m in July. Cumulative credit outstanding currently amounts to N$93.4 billion. PSCE growth slowed to 6.3% y/y in July from 6.4% y/y in June. This slowdown was driven by slower growth in credit extended to corporates at 3.4% y/y versus 4.2% in June. Credit extension to individuals grew at 6.7% y/y versus 6.4% in June. On a rolling 12-month basis N$5.5 billion worth of credit was extended to the private sector. Individuals took up N$3.5 billion, corporates took up only N$1.2 billion, and claims on non-resident private sectors accounted for N$824 million.

Credit extension to individuals

Credit extended to individuals increased by 6.7% y/y in July, a further uptick in the pace of credit extension from the 6.4% y/y growth recorded in June. Credit extension to individuals increased by 0.9% m/m in July following growth of 0.8% in June. Installment credit extension continued to contract, by 5.1% y/y and 0.1% m/m in July. Credit extended through overdraft facilities contracted by 1.7% y/y and 2.5% m/m as individuals paid down on these facilities. Other loans and advances grew by 16.2% y/y and 2.9% m/m in July.

 

Credit extension to corporates

Credit extension to corporates grew by 3.4% y/y and contracted by 0.4% m/m. On a rolling 12-month basis N$1.2 billion was extended to corporates, a far cry from the highs of over N$5.3 billion recorded for the 12 months ending in February 2015. In real terms corporations are reducing their exposure to credit although this may not be so on an individual business basis in some industries. Installment credit extended to corporates contracted by 8.0% y/y and 0.5% m/m in July. Leasing transactions to corporations contracted by 2.8% y/y but grew by 0.1% m/m. Overdraft facilities extended to corporates grew by 1.6% y/y but contracted by 1.7% m/m. There has been a net decrease in overdraft facilities utilized by corporates of 4.1% over the last four months while there has been an increased use of other loans and advances. Other loans and advances to corporates grew by 19.5% y/y and 3.9% m/m in July.

Banking Sector Liquidity

The overall liquidity position of commercial banks decreased by N$198.6 million to an average of N$4.5 billion during July. Once again the Bank of Namibia credited strong liquidity during the month to proceeds from diamond sales. Liquidity within the Namibian market has been strong for a number of quarters. Despite this the repo facility saw increased use during the month of July.

Reserves and money supply

Foreign reserve balances increased by N$1.2 billion to N$30.8 billion in July. The reserve position has strengthened since the recent lows in March this year. SACU revenues, the repatriation of Namibia dollars from Angola, and currency weakness all contributed to this improvement. The imminent receipt of funds from the African Development Bank should see further improvement in August, supported by yet further currency weakness. It should be noted that a drop in local demand for foreign goods has also contributed through a reduced trade deficit.

 

Outlook

Private sector credit extension continues to languish with credit extended to corporates failing to match, let alone beat, annual inflation for most of the year, while the average monthly credit extended to individuals this year remains well below last year’s average values (note that 2017 was a recession year). One would expect credit extension to corporates to lag a recovery in credit extended to households as demand leads investment into new business. The lack of acceleration in credit extension to individuals is thus likely to result in further lackluster credit extension to corporates for some time to come. Government is one source of demand which could provide some relief to struggling companies although this is also unlikely due to the continuation of the mild fiscal consolidation stance and uncertain government revenues.

NCPI – July 2018

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The Namibian annual inflation rate increased to 4.5% in July, following the 4.0% y/y increase in prices recorded in June. Prices increased by 0.5% m/m, a notable acceleration from the 0.2% increase recorded in June. On an annual basis prices in five of the twelve basket categories rose at a quicker rate in July than in June, somewhat offset by lower rates of inflation in four categories, while the rate of inflation in three categories remain unchanged. Prices for goods increased by 4.6% y/y while prices for services increased by 4.3% y/y. This is the first month since December 2016 in which goods inflation was higher than services inflation.

Transport accounted for 1.2% of the total 4.5% annual inflation figure in July, making it the largest contributor this month. On a monthly basis, transport prices increased by 0.6% in July, which is slower than the 1.6% m/m increase recorded in June. However, on an annual basis, the 8.9% increase in transport prices is faster than the 7.2% y/y growth recorded in June. Prices related to the operation of personal transport equipment increased by a hefty 11.8% y/y, compared to the 8.9% y/y increase recorded in the preceding month. The price of both petrol and diesel increased by 10 cents per litre in July, contributing to the jump in the overall category. Price increases related to the purchases of vehicles and prices for public transportation services were relatively unchanged month-on-month and year-on-year. Both of these sub-categories are under threat of higher inflation in the future due to currency weakness and taxi union demands.

The price of Brent Crude oil has been dropping since the beginning of July due to a waning global economic growth outlook and reports of crude inventories increasing in the US. This should bring some relief as oil price increases have overshot expectations in 2018 thus far. We do, however, expect fuel price increases towards the end of the year as there are currently under-recoveries present at the pumps. The recent currency weakness is also likely to have an impact on the fuel price.

The Housing and utilities category was the second largest contributor to annual inflation, due to its large weighting in the basket. Price inflation for this category came in at 0.8% m/m and 3.7% y/y. The acceleration in inflation for this category is due to a raft of price increases introduced by several of the country’s municipalities in July. The electricity, gas and other fuels subcategory recorded an increase in prices of 8.4% y/y, which is a faster rate of increase than the 4.9% y/y registered the previous month. Month-on-month, prices in this subcategory increased by 3.5%. The water supply, sewerage service and refuse collection subcategory recorded slower price increases at 6.1% y/y in July, while the regular maintenance and repair of dwellings subcategory recorded price increases of 3.6% y/y, up from 2.3% y/y recorded in June.

The alcoholic beverages and tobacco category recorded price increases of 1.9% m/m and 6.8% y/y, an increase over the figures seen in the prior month. Prices of alcoholic beverages rose 7.5% y/y while tobacco prices increased by 3.6% y/y.

Namibian annual inflation of 4.5% in July is the highest level for the year thus far. For the second month in a row, most of the increase in the annual inflation figure was driven by increases in transportation costs. As we expected, the Bank of Namibia’s Monetary Policy Committee (MPC) today announced their decision to leave the Repo rate unchanged at 6.75%. The MPC said the current rate remains appropriate to support domestic growth, while maintaining the currency peg. As at the 31st of July, the stock of foreign reserves stood at N$32.6 billion, representing a 9.9% m/m increase. This, the bank says, is estimated to be enough to cover 5.3 months of imports of goods and services.