NCPI – May 2019

The Namibian annual inflation rate slowed to 4.1% y/y in April, from 4.5% in March. On a month-on-month basis prices decreased by 0.1%, following the 0.4% m/m increase in April. Overall, prices in only two of the basket categories rose at a faster annual rate than in April, price in five categories rose at a slower annual rate and five categories recorded steady inflation rates. Prices for goods rose by 3.7% y/y in May, while prices for services grew by 4.6% y/y.

The transport basket was the largest contributor to annual inflation in May. Prices in the transport basket rose 0.8% m/m and 7.6% y/y during the month, reflecting the increase in fuel prices and taxi fares respectively. The cost of purchasing motor vehicles dropped by 1.0% m/m in May, with annual growth in vehicle prices recorded subdued growth of 4.1%. The cost of public transportation services has risen by 20.0% when compared to May last year, due to the increase in taxi fares in September. The operation of personal transport equipment, largely made up of fuel expenses, costs 1.9% more than in April, and 5.7% more than in May 2018.

Food and non-alcoholic beverages prices decreased by 0.3% m/m, although this basket of goods costs 4.4% more than it did last year. Despite this relatively subdued rate of annual inflation and contraction on a monthly basis, this basket category made up the second largest portion of annual inflation. The meat prices subcategory recorded price decreases of 1.7% m/m and 0.4% y/y, meaning that meat is cheaper on average than it was last month and in May last year. The decline in meat prices is not expected to last however, as it is largely driven by high supply of animals as farmers slaughter more during the drought. Restocking farms in the future will likely lead to upward pressure on meat prices. Fish prices saw even larger decrease in May, recording deflation of 5.0% m/m and 1.4% y/y.

Alcohol and tobacco prices decreased by 1.2% in May with annual price inflation in this basket category slowing to 5.5% from 7.5% in April. Tobacco prices recorded a decrease of 7.8% m/m and 3.4% y/y and thereby caused the slowdown in inflation in the overall category. This is very puzzling and no explanation for this decrease in prices is given by the NSA in its bulletin. Market dynamics have seen above average increases in the prices of tobacco products in recent years in order to maintain revenues as cigarette use declines. Prices for alcoholic beverages continued their upward trend in May, recording inflation of 0.3% m/m and 7.6% y/y.

The Namibia Statistics Agency (NSA) released regional CPI data for Namibia for the first time in April, 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. This zonal data shows that on a monthly basis prices decreased 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 3.3%, with the mixed zone 3 covering the east and west of the country recording the highest rate of inflation at 5.0%. Prices in zone 2 (Windhoek and surrounds) increased by 4.1% y/y.

Low food price inflation and subdued housing and related inflation rates have contributed greatly to the low overall inflation figure in May. The moderate food price inflation comes as some relief to struggling households in the current economic climate. Aggregate demand in the Namibian economy remains depressed despite accommodative interest rates. Low aggregate demand is indeed responsible for much of the low price inflation experienced at present. Generally, depressed aggregate demand this is countered with monetary policy through interest rate cuts. This is however not an option for the Bank of Namibia (BoN) at present as decreasing rates to below those in neighbouring South Africa may put pressure on the reserve position and by extension the currency peg. As such monetary policy is currently restricted to what the South African Reserve Bank (SARB) implements across the border.

The SARB, expected to keep rates on hold for 2019 at the beginning of the year, is taking an ever more dovish tone as the year progresses. The last SARB monetary policy committee (MPC) decision was split 3:2 between members wanting to keep rates on hold and those calling for a cut, respectively. The market now expects two rate cuts of 25 basis points in South Africa in 2019. Should the SARB cut rates we believe that BoN will follow, bringing some relief to Namibian borrowers.

We do however not believe that a 50 basis point decrease in interest rates in Namibia will be enough to drive meaningful economic growth in the current policy environment. The policy uncertainty created over the last three years, combined with impending tax amendments, make the business climate in Namibia less conducive to growth and employment creation. In this environment monetary policy is likely to be less effective than during a growth slowdown free of these impediments to growth. Policy clarity thus remains the strongest tool available to government to turn around the Namibian economy.

Building Plans – April 2019

A total of 170 building plans were approved by the City of Windhoek in April, 12 more than in March. In values terms, approvals rose by N$40.4 million to N$169.04 million in April from N$128.6 million worth of approvals in March. A total of 62 building plans were completed  at a value of N$55.2 million in April. Year-to-date, N$743.5 million worth of building plans have been approved, 41.3% higher than the corresponding period in 2018. On a twelve-month cumulative basis, 2,200 building plans were approved worth approximately N$2.06 billion, 7.0% lower in value terms than cumulative approvals in April 2018.

The largest number of building plan approvals in April were made up of additions to properties. 132 additions to properties were approved with a value of N$59.3 million, 24.3% more in value terms than in April 2018. Year-to-date 527 additions to properties have been approved with a value of N$300.0 million, a 19.3% y/y decline in value terms.

New residential units accounted for 32 of the total 170 approvals registered in April, an increase of 14.3% m/m compared to the 28 residential units approved in March. In value terms, N$33.8 million worth of residential units were approved in April, 5.3% more than the N$32.1 million worth of residential approvals in March. Year-to-date 121 residential units have been approved, 25 more than the corresponding period in 2018. In monetary terms, N$275.1 million worth of new residential plans have been approved year-to-date, an increase of 126.0% when compared to the corresponding period last year.

6 New commercial units valued at N$76.0 million were approved in April, bringing the year-to-date number of approvals to 14, worth a total of N$168.4 million. On al rolling 12-month perspective the number of commercial and industrial approvals have slowed to 43 units worth N$N$515.9 million as at April, compared to the 51 approved units worth N$680.0 million over the corresponding period a year ago.

In the last 12 months 2,200 building plans have been approved, increasing by 13.6% y/y in terms of number of approvals, but contracting by 7.0% y/y in terms of value. 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. 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.

Commercial banks currently carry a healthy monthly average liquidity position of N$3.79 billion, providing sufficient levels of loanable funds. Consumers and corporates alike therefore seem curtailed by waning appetite for credit, or are simply not meeting affordability requirements for loans with which to pursue construction projects. A lack of confidence in the economy is acting on both willingness to invest form individuals and corporates as well as appetite for risk from banks.

PSCE – April 2019

Overall

Total credit extended to the private sector (PSCE) increased by N$1.11 billion or 1.14% m/m in April, bringing the cumulative credit outstanding to N$99.1 billion. On a year-on-year basis, private sector credit extension grew by 6.71% in April, compared to 5.79% recorded in March. On a rolling 12-month basis, N$6.22 billion worth of credit was extended. N$2.86 billion worth of credit has been extended to corporates and N$3.80 billion to individuals on a 12-month cumulative basis, while the non-resident private sector has decreased their borrowings by N$199.1 million.

Credit Extension to Individuals

Credit extended to individuals increased by 7.0% y/y in April, an acceleration from the 6.3% y/y growth recorded in March. Most of the growth stems from an increase in shorter-dated debt, with overdraft facilities to individuals increasing by 0.9% m/m and 6.3% y/y. Other loans and advances recorded growth of 2.0% m/m and 21.2% y/y, while installment credit remained depressed, contracting by 1.2% m/m and 5.7% y/y. Mortgage loans to individuals grew by 0.4% m/m and 7.1% y/y.

Credit Extension to Corporates

Credit extension to corporates grew by 2.1% m/m and 7.7% y/y in April. On a rolling 12-month basis, N$2.86 billion was extended to corporates as at the end of April compared to N$2.05 billion as at the end of March. The month-on-month increase was mostly driven by corporates making use of short-term credit facilities, in particular overdrafts, which increased by 4.7% m/m and 9.0% y/y. Other loans and advances, which consists of credit card debt, personal and term loans, extended to businesses increased by 4.7% m/m and 26.2% y/y. Mortgage loans extended to corporates contracted by 0.8% m/m, but increased by a low 0.1% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks increased by N$31.4 million to an average of N$4.15 billion during April from N$4.11 billion in March. According to the Bank of Namibia (BoN), the increase is attributable to SACU receipts, coupled with increased mineral proceeds during the period under review. The improved 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$479.3 million at the start of April to N$385.7 million by month end.

Reserves and Money Supply

Broad money supply rose by N$9.91 billion or 10.2% y/y in April following a 6.9% y/y increase in March, as per the BoN’s latest money statistics release. Foreign reserve balances rose by 4.9% m/m to an all-time-high of N$34.2 billion in April. The BoN stated that the increase is largely due to the increase in the SACU receipts.

Outlook

Private sector credit extension growth remained depressed at the end of April, increasing by 6.7% y/y. From a 12-month rolling perspective, credit issuance is up 13.1% from the N$5.51 billion issuance observed at the end of April 2018, with individuals taking up most (61.0%) of the credit extended over the past 12 months. Most of the growth in PSCE for April stemmed from shorter-dated debt. Our expectation is for private sector credit extension to remain under pressure as both consumer and business confidence remains low.

We expect the BoN to follow the SARB’s MPC decision to leave the Repo rate unchanged at its next MPC meeting later this month. Interest rates, however, remain accommodative and further rate cuts are unlikely to result in a meaningful increase in the uptake of credit.