Category Archives: Economic Research

Economic Research

PSCE – June 2019

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Overall

Private sector credit extension (PSCE) decreased by N$216.7 million or 0.22% m/m in June, bringing the cumulative credit outstanding to N$100.24 billion. On a year-on-year basis, private sector credit extension increased by 7.4% in June, compared to growth of 8.0% in May. On a rolling 12-month basis, N$6.9 billion worth of credit was extended to the private sector, with individuals taking up N$4.0 billion while N$3.1 billion was extended to corporates, and the non-resident private sector has decreased their borrowings by N$232.8 million.

Credit Extension to Individuals

Growth in credit extension to individuals accelerated to 0.7% m/m and 7.3% y/y in June, compared to 0.4% m/m and 6.4% y/y growth recorded in May. Other loans and advances (which is made up of credit card debt, personal and term loans) grew by 1.4% m/m and 25.9% y/y in June. The rapid growth in short term debt uptake by individuals is very concerning as these loans bear high interest rates and have high default rates when compared to productive loans such as mortgages. Installment credit, which is quite often used to purchase new vehicles, contracted by 4.1% y/y. Mortgage loans to individuals grew by 0.6% m/m and 7.6% y/y, while overdraft facilities extended to individuals have increased by 0.1% m/m and 5.0% y/y.

Credit Extension to Corporates

Credit extension to corporates contracted by 1.4% m/m after increasing by 2.8% m/m in May. On an annual basis, however, credit extension to corporates increased by 8.4% y/y in June, compared to the 11.2% y/y growth registered in May. The month-on-month contraction is mostly caused by businesses paying back overdrafts. Overdraft facilities extended to corporates decreased by 4.0% m/m, but are still up 8.3% y/y. Mortgage loans to corporates increased by 0.4% m/m and 3.7% y/y. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 0.4% m/m and 7.5% y/y in June.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved during June, increasing by N$648.0 million to reach an average of N$4.43 billion. According to the Bank of Namibia (BoN), the increase is attributable to the liquidation of funds, as companies were preparing for corporate tax payments during the period under review. The higher liquidity resulted in a decrease in use of the BoN’s repo facility by commercial banks, with the outstanding balance of repo’s decreasing from N$398.1 million at the start of June to N$388.7 million by month end.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$7.38 billion or 7.3% y/y in June, following a 11.7% y/y increase in May. Foreign reserve balances fell by N$691.0 million to N$33.4 billion in June from N$34.1 billion in May. The BoN attributes the decrease to net capital outflow 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 19.5% from the N$5.79 billion issuance observed at the end of June 2018, with corporates taking up 45.3% of the credit extended over the past 12 months. The credit extended to corporates on a cumulative 12-month basis has increased from N$1.51 billion in June 2018 to N$3.14 billion, while credit extended to individuals increased from N$3.47 billion in June 2018 to N$4.02 billion at the end of June 2019.

Corporates have repaid overdraft facilities during the month, resulting in a 3.0% decrease in total overdrafts. The repayment of overdrafts is a positive sign in our view as the extension of overdraft facilities was unlikely to drive meaningful expansion of productive capacity. We do however believe that the repayment is a short-term phenomenon as both individuals and corporates remain under pressure.

We expect the BoN to follow the SARB’s MPC decision to cut the Repo rate by 25 basis points at its August MPC meeting, which should bring heavily indebted consumers and corporates some relief. However, interest rates remain accommodative by historical standards and further rate cuts are unlikely to result in a meaningful increase in the uptake of credit.

Building Plans – June 2019

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A total of 144 building plans were approved by the City of Windhoek in May, 15 less than in May. N$60.5 million worth of plans were approved in June as opposed to N$81.3 million in May. A total of 220 building plans were completed during the month with a value of N$225.3 million. Year-to-date, N$885.3 million worth of building plans have been approved, 11.7% more than during the corresponding period in 2018. On a twelve-month cumulative basis, 2,108 building plans have been approved worth approximately N$1.93 billion, 26.6% higher in value terms than cumulative approvals in June 2018.

117 additions to properties were approved in June with a value of N$28.1 million, a drop of 17.5% m/m and 63.8% y/y in value. Year-to-date 760 additions to properties have been approved with a total value of N$362.3 million, decreases of 1.3% y/y in number and 30.9% y/y in value terms. On a 12-month cumulative basis the number of additions approved has decreased by 0.8% y/y as well as by 22.2% y/y in value terms. We continue to see more additions to properties being approved but with a lower overall value being added.  Year-to-date 341 additions have been completed with a combined value of N$194.9 million, down 68.3% y/y in number and 42.6% y/y in value terms.

New residential units accounted for 22 of the approvals registered in June, decreases of 47.6% m/m and 58.5% y/y. In value terms N$17.2 million worth of residential units were approved in June, contracting by 62.7% m/m and 68.0% y/y. Year-to-date residential unit approvals have decreased by 0.5% y/y in number and are up 50.2% y/y in value. On a 12-month cumulative basis residential unit approvals recorded a 50.6% y/y increase in number of approvals and a 76.9% y/y increase in value.

5 new commercial units valued at N$15.2 million were approved in June, bringing the year-to-date number of commercial and industrial approvals to 20, worth a total of N$184.9 million. This is 5.3% up in number from June last year and 331.4% up in value terms. On a rolling 12-month basis the number of commercial and industrial approvals have risen to 44 units worth N$522.3 million. This is a decrease of 15.4% y/y in number but an increase of 192.0% y/y in value.

In the last 12 months 2,108 building plans have been approved, increasing by 7.1% compared to June 2018. These approvals are valued at N$1.93 billion, an increase of 26.6% y/y. Overall the cumulative plans approved have increased in number and value terms compared to a year ago which points to positive future construction activity in the city.

Our expectation is for the Bank of Namibia to follow the SARB’s MPC decision to cut interest rates by 25 bps at next month’s MPC meeting. Consumers and businesses are thus likely to be provided with some slight relief. With the rate cut it will become more attractive for businesses to acquire the debt finance needed to expand and invest in capital projects, but only marginally.

Interest rates are unlikely to be the major barrier to capital projects going forward. The construction industry, along with lenders, have been challenged by sluggish growth in the economy and poor business confidence rather than tight monetary policy. We do not expect the decrease in interest rates to bring about a significant improvement in the approvals and completions data in the short term as business confidence is still lacking.

 

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.