Category Archives: Economic Research

Economic Research

NCPI – April 2019

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The Namibian annual inflation rate remained at 4.5% y/y in April, unchanged from March. On a month-on-month basis, prices increased by 0.4%, following the 0.2% m/m increase in March. Overall, prices in six of the basket categories rose at a faster annual rate than during the preceding month, five at a slower rate and one grew at a steady pace. Prices for goods rose by 4.4% y/y in April, while prices for services grew by 4.7%.

The alcoholic beverages and tobacco category displayed price increases of 1.6% m/m and 7.5% y/y in April, making it the largest contributor to annual inflation, accounting for 1.0% of the 4.5% annual inflation rate. The main driver in this basket category was alcohol prices which increased by 1.7% m/m and 7.6% y/y. Tobacco prices meanwhile increased at a rate of 0.8% m/m and 7.2% y/y. The relatively large increase in the prices of the alcoholic beverages and tobacco basket category can likely be explained by sin taxes that were announced during the budget speech in March, as well as second round effects stemming from the series of fuel price increases announced towards the end of 2018.

Transport, the third largest basket item, was the second largest contributor to annual inflation, accounting for 1.0% of the total 4.5% annual inflation figure. Transport costs increased by 0.7% m/m and 7.1% y/y. The purchase of vehicles subcategory saw price increases of 1.6% m/m and 4.6% y/y, while the operation of personal transport equipment subcategory recorded price increases of 0.6% m/m and 4.7% y/y. Brent Crude oil prices increased by about 6.5% during April, reaching US$73 per barrel at the end of the month. The Ministry of Mines and Energy once again announced that the government would finance the under-recoveries recorded during April, and subsequently kept fuel pump prices unchanged for the month.

Prices for the food & non-alcoholic beverages category was the third highest contributor to the annual inflation rate in April. Prices in this category fell by 0.2% m/m, but rose by 5.3% y/y. Prices in all thirteen sub-categories recorded increases on a year-on-year basis, with the largest increases being observed in the prices of vegetables, fruits and bread and cereals. We expect food price inflation to remain under upward pressure for the rest of the year, as poor rainfall during Namibia’s rainy season affects local food production.

The Namibia Statistics Agency (NSA) for the first time released regional CPI data for Namibia, grouping the country into three zones, based on the then Central Bureau of Statistics’ (CBS) 2005 grouping. Zone 1 consists of regions in the northern part of the country, namely Kavango East, Kavango West, Kunene, Ohangwena, Omusati, Oshana, Oshikoto, Otjozondjupa and Zambezi. Zone 2 covers the Khomas region and Zone 3 covers the remaining //Karas, Erongo, Hardap, and Omaheke regions. The zonal data shows that Zone 2 (Windhoek) has the highest annual inflation at 5.0% y/y, Zone 3 (East, South and West) the second highest at 4.8% y/y and Zone 1 (North) in third place with an annual inflation rate of 3.8%.

The Namibian annual inflation rate of 4.5% y/y continues to trend marginally higher than that of neighbouring South Africa’s 4.4% y/y. The South African Reserve Bank’s Monetary Policy Committee (MPC) yesterday announced their decision to leave the Repo rate unchanged. The SARB’s MPC lowered its forecast for core inflation from 4.8% to 4.5% in 2019. The probability of the SARB cutting rates has been increasing lately as a result of subdued inflation pressure and low growth forecasts, but these will likely need to be even lower to sway the MPC to cut rates. We expect the Bank of Namibia to follow the SARB’s decision at its next MPC meeting in June. IJG’s inflation model forecasts average inflation of 4.3% in 2019. The largest upside risk to this forecast, however, is higher transport and food costs.

New Vehicle Sales – April 2019

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A total of 926 new vehicles were sold in April, a 1.1% m/m contraction from the 936 vehicles sold in March. Year-to-date, 3,291 vehicles have been sold of which 1,582 were passenger vehicles, 1,543 light commercial vehicles, and 166 medium and heavy commercial vehicles. On a twelve-month cumulative basis, new vehicle sales increased by 1.1% m/m to 11,405 new vehicles sold as at the end of April 2019. On an annual basis, twelve-month cumulative new vehicle sales continued on a downward trend, contracting by 8.2% from the 12,423 new vehicles sold over the comparable period a year ago.

New passenger vehicle sales increased by 10.0% m/m in April, to 464 units. On an annual basis an increase of 29.9% was recorded as April saw an increase in monthly passenger vehicle sales from March for the first time since 1998. Year-to-date, passenger vehicle sales rose to 1,582 units, reflecting lower cumulative sales than the preceding 8 years, and a 10.8% decline from the year-to-date figure recorded in April 2018. Twelve-month cumulative passenger vehicle sales rose 2.2% m/m, but continued to slide on an annual basis, contracting 6.9% y/y.

A total of 462 new commercial vehicles were sold in April, contractions of 10.1% m/m and 15.3% y/y. Of the 462 commercial vehicles sold in April, 408 were classified as light vehicles, 16 as medium vehicles and 38 as heavy vehicles. On a year-on-year basis for the month of April light commercial sales rose by 4.3%, medium commercial sales fell by 36.0%, and heavy and extra heavy sales grew by 26.7%. On a twelve-month cumulative basis, light commercial vehicle sales dropped 9.9% y/y, while medium commercial vehicle sales rose 2.2% y/y, and heavy commercial vehicle sales fell 4.3% y/y. While medium commercial vehicles have recorded growth in twelve-month cumulative sales over the last seven months, the light and heavy segments of the market continue to see lower volumes sold than in 2018, already a low base. This is an indication that businesses are yet to increase capital deployment in any meaningful way as business confidence remains under pressure.

Volkswagen once again leads the passenger vehicle sales segment with 31.6% of the segment sales year-to-date. Toyota dropped to second place by this measure with 30.3% of the market-share as at the end of April. Kia, Hyundai, Mercedes and Ford each command around 5.0% of the market in the passenger vehicles segment, leaving the remaining 17.7% of the market to other brands.

Toyota, with a strong market-share of 63.3% ytd, commands the light commercial vehicles sales segment. Ford remains in second position in the segment with 9.3% of the market, while Nissan makes up third place with 6.5% of the year-to-date sales. Hino leads the medium commercial vehicle segment with 40.7% ytd of sales, while Scania was number one in the heavy and extra-heavy commercial vehicle segment with 31.8% of the market share year-to-date.

The Bottom Line

Vehicle sales continue to point to low consumer and business confidence. Anecdotal evidence, as well as Bidvest Namibia automotive division results over the last two years, show struggling dealerships. After eleven quarters of largely stagnant economic activity in Namibia it is hardly surprising that confidence remains low. At present there are few signs that the business cycle is turning, with a global slowdown providing headwinds to an outlook already weighed down by drought. At present there are few prospects for stimulus as government continues to run large budget deficits, with debt largely funding consumption. One of the few levers we believe is available to government at present is policy clarity and growth friendly policy. Clarity on empowerment and investment policy is crucial in 2019, as well as SOE reform.

PSCE – March 2019

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Overall

Total credit extended to the private sector (PSCE) decreased by N$4.3 million from a revised N$97.984 billion cumulative credit outstanding in February to N$97.979 billion in March. This is the first time since June 2017 that we have seen a month-on-month contraction in credit extension. On a year-on-year basis, private sector credit extension grew by 5.79% in March, compared to 6.93% recorded in February. N$2.05 billion worth of credit has been extended to corporates and N$3.42 billion to individuals on a 12-month cumulative basis, while the non-resident private sector has decreased their borrowings by N$112.9 million.

Credit Extension to Individuals

Growth in credit extension to individuals moderated to 0.1% m/m and 6.3% y/y, compared to 7.0% y/y growth recorded in February. Installment credit remained depressed, contracting by 0.6% m/m and 5.2% y/y. Individuals started to repay their overdrafts, resulting in a decline of 1.4% m/m, but increase of 5.0% y/y. Growth in mortgage loans remained at a similar rate as in February, increasing by 0.4% m/m and 7.2% y/y. Other loans and advances recorded growth of 2.9% m/m and 20.4% y/y.

Credit Extension to Corporates

Credit extended to corporates contracted by 0.2% m/m in March after increasing by 1.0% m/m in February. On an annual basis credit extension to corporates increased by 5.5% y/y in March. The month-on-month contraction is mostly caused by businesses paying back overdrafts. Overdraft facilities extended to corporates decreased by 7.5% m/m, but increased by 2.0% y/y. Mortgage loans to corporates contracted by 1.8% m/m, but increased 2.9% y/y. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 0.6% m/m and 9.1% y/y in March.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved during March, increasing by N$1.74 billion to reach an average of N$4.11 billion. According to the Bank of Namibia (BoN), the increase is attributable to increased mineral sales proceeds as well as higher government expenditure which, it says, is customary towards the end of a fiscal year. The higher liquidity resulted in a further decrease in use of the BoN’s repo facility by commercial banks, with the outstanding balance of repo’s decreasing from N$645.7 million at the start of March to N$479.3 million by month end.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$6.74 billion or 6.9% y/y in March following a 10.5% y/y increase in February. Foreign reserve balances rose by 3.0% m/m to N$32.6 billion in March. The BoN stated the increase is solely due to the depreciation of the Namibian dollar against the US dollar. The Namibian dollar depreciated by 3.0% against the US dollar during March reaching N$14.50/US$ at the end of the month. The rand (and subsequently the Namibian dollar) has been relatively volatile since May 2018 as a result of rising interest rates in the US, political uncertainty in South Africa caused by the upcoming election, and continuous bailouts of SOE’s by the South African government.

Outlook

Private sector credit extension remained depressed at the end of March, increasing by only 5.8%, with annualised growth slowing for a fourth consecutive month. From a 12-month rolling perspective, credit issuance is down 0.3% from the N$5.37 billion issuance observed at the end of March 2018, with individuals taking up most (63.9%) of the credit extended over the past 12 months.

Both individuals and corporates have started repaying overdraft facilities during the month, resulting in a 6.0% decrease in total overdrafts. As we have stated in the past, short-term borrowing satisfies short-term needs and as such, the repayment of overdrafts is a positive sign in our view as extension of overdraft facilities was unlikely to drive meaningful expansion of productive capacity.