Category Archives: Economic Research

Economic Research

PSCE – September 2018

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Overall

Private sector credit extension (PSCE) rose by N$524.4 million or 0.6% m/m, compared to the N$1.375 billion or 1.5% m/m increase recorded in August. PSCE growth ticked up marginally to 7.3% y/y in September from 7.1% y/y in August. Cumulative credit outstanding currently amounts to N$95.3 billion. Similar to what transpired in August, the monthly increase in PSCE for September was driven by corporates rather than households. On an annual basis PSCE growth was largely driven by household demand for credit. Growth in credit extended to households however, did slow marginally to 8.0% y/y in September compared to 8.1% y/y in August. Credit extended to corporates increased by 4.5% y/y in September following a 3.6% y/y rise in August. On a rolling 12-month basis N$6.49 billion worth of credit was extended to the private sector with N$4.15 billion being taken up by households. Corporations took up N$1.64 billion worth of credit while claims on non-residents totaled N$705.8 million.

Credit extension to individuals

Credit extended to individuals increased by 8.0% y/y in September, almost unchanged from the 8.1% y/y growth recorded in August. Mortgage loans extended to individual increased by 9.5% y/y in September compared to the 10.0% y/y increase recorded in August.  Other loans and advances grew by 18.0% y/y and 1.6% m/m in September. Growth in installment credit remained in negative territory, contracting by 4.6% y/y and 0.2% m/m in September. Household demand for overdraft facilities remained subdued in September, increasing by 0.8% y/y and unchanged on a month-on-month basis.

Credit extension to corporates

Credit extension to corporates grew by 4.5% y/y and 0.8% m/m in September. On a rolling 12-month basis N$1.64 billion was extended to corporates as at the end of September compared to N$1.34 billion as at the end of August. The uptick in the general demand for credit by corporates does provide for some optimism, possibly showing signs of increased business confidence. However, the biggest driver of the increase in credit extended to corporates was a 22.4% y/y increase in loans and other advances, followed by overdraft facilities increasing by 3.6% y/y. The continued contractions in installment credit and leasing transactions of 8.0% y/y and 1.6% y/y respectively, is a sign of declining capital investment. When viewed in conjunction with in the increased use of short-term credit such as overdraft facilities, this points to businesses borrowing to manage cash flows rather than expanding operations.

 

Banking Sector Liquidity

The overall liquidity position of commercial banks increased by N$303.1 million to an average of N$4.8 billion during September from N$4.5 billion in August. Bank of Namibia attributed the strong liquidity in September to an increase in Diamond sales. Furthermore, commercial banks made less use of BoN’s repo facility, with the outstanding balance of repo’s decreasing from N$386 million at the start of September to N$147 million by month end. The balance of BoN bills remained unchanged at N$1.7 billion as at the end of September.

 

Reserves and money supply

Foreign reserve balances increased by N$321 million to N$32.52 billion in September from N$32.20 billion in August. BoN attributes the increase in reserves to inflows from foreign currency deposits by the commercial banks. A portion of the foreign currency deposits are attributable to diamonds sales which also led to the increased liquidity position as noted above.

Outlook

PSCE accelerated moderately for a second consecutive month, reaching a 16-month high growth rate of 7.3% y/y. Much of the rise in PSCE was household driven over the last year. One would expect for the increase in household demand to translate into an increase in business credit to meet that demand. However, corporates have scaled down in their uptake of mortgage financing and installment credit, which finances capital projects. This becomes concerning when viewed in conjunction with loans, advances and overdrafts that have been on the rise and does point to businesses operating under difficult financial conditions. October and November PSCE releases may record increases in short-term credit extended to corporates, as businesses prepare for the seasonal uptick in retail spending expected over the last two months of the year.

Key monetary policy decisions are scheduled between now and December that will have an impact on PSCE growth in the near-term. The SARB Monetary Policy Committee (MPC) will meet in November to re-evaluate interest rates, with present expectations of a 25bp hike in rates. A SARB rate hike will put SA’s repo rate on par with that of Namibia. BoN’s MPC, scheduled to meet in December, would be likely to seriously consider maintaining the 25bp interest rate spread over South Africa which would see a similar rate hike in Namibia. At present, South African money market rates are marginally higher than those in Namibia, and if BoN keeps its repo rate on par with that of SA, it may lead to an outflow of capital from Namibia. A rate hike by BoN would mitigate the risk of capital outflows and protect foreign reserve levels, but will make debt service costs more expensive for an already indebted consumer.

 

Building Plans – September 2018

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A total of 153 building plans were approved by the City of Windhoek in September, decreasing by 43.1% m/m and 15.5% y/y. In value terms, approvals decreased by N$276.2 million to N$147.3 million, representing a 65.2% m/m decline, but a 26.0% y/y increase. The number of completions for the month of September stood at 240, valued at N$138.6 million. The year-to-date value of approved building plans reached N$1.6 billion, 13.8% lower than the corresponding period in 2017. On a twelve-month cumulative basis, 2,184 building plans were approved, an increase of 20.4% y/y, worth approximately N$1.94 billion, a decrease of 13.6% in value terms over the prior 12-month period.

Additions to properties made up 114 out of the total 153 approved building plans recorded in September. This is a 46.5% m/m decrease in additions from the 213 additions recorded in August. Year-to-date 1,242 additions to properties have been approved with a value of N$748.5 million, declining 9.8% y/y in terms of value.

New residential units were the second largest contributor to building plans approved, with 33 approvals registered in September, a m/m decrease of 29.8% compared to the 47 residential units approved in August. Year-to-date, 397 new residential units have been approved, 78.0% more than during the corresponding period in 2017. In value terms, N$24.7 million worth of residential units were approved in September, 73.3% less than the N$92.5 million worth of residential approvals in August. The year-to-date value of residential approvals reached N$460.2 million, 31.6% higher than during the first three quarters of 2017.

Commercial and industrial building plans approved amounted to 6 units, worth N$78.4 million for September. Year-to-date, 34 plans for commercial and industrial purposes have been approved which is two more than in the corresponding period in 2017. On a rolling 12-month perspective the number of commercial and industrial approvals have increased to 52 units worth N$414.4 million as at September, compared to the 46 approved units worth N$711.6 million over the corresponding period a year ago.

On a 12-month cumulative basis, 2,184 building plans were approved by September, an increase of 20.4% y/y. In value terms however, approvals are down 13.6% y/y over the same period. The latest private sector credit extension data showed that mortgage loans extended to corporates contracted remained flat m/m in August, but rose by 1.1% m/m for individuals.

The outlook for short to medium term growth in the construction sector remains bleak. If implemented, the proposed changes to the income tax legislation is very likely to have a negative impact on economic growth. Increasing tax rates on businesses, coupled with continued fiscal consolidation by government, means that no substantial growth in capital expenditure on expansionary projects can be expected.