Category Archives: Economic Research

Economic Research

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.

New Vehicle Sales – July 2018

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New vehicle sales of 1,194 units were recorded in July, with sales falling by 7.0% from the 1,284 new vehicles sold in July 2017. On a month-on-month basis new vehicle sales increased by 5.3% as 60 more vehicles were sold in July than in June. Year-to-date, 7,132 new vehicles have been sold, an 11.4% decrease from the number of sales recorded in the corresponding period of 2017.  Of the 7,132 vehicles sold this year, 3,275 were passenger vehicles, 3,527 were light commercial vehicles, and 330 were medium and heavy commercial vehicles. On a twelve-month cumulative basis, a total of 12,281 new vehicles were sold as at July 2018, a decrease of 13.2% from the 14,147 sold over the comparable period a year ago. Thus on a twelve month cumulative basis new vehicle sales are still declining as the Namibian economy continues to languish.

A total of 607 new passenger vehicles were sold during July, representing an increase of 30.5% m/m and 22.4% y/y. Year-to-date passenger vehicle sales amounted to 3,275, down 7.1% compared to the number sold by July last year. The rolling 12-month vehicles sales figures continue to reflect weakness in the number of passenger vehicles sold, declining 10.3% y/y as at July 2018.

587 Commercial vehicles were sold in July, representing a 12.3% m/m and 25.5% y/y contraction. 525 light commercial vehicles, 31 medium commercial vehicles, and 31 heavy commercial vehicles were sold during the month. On a year-on-year basis, light commercial sales have declined by a hefty 29.2%, medium commercial sales increased 72.2% and heavy and extra heavy sales rose by 10.7%. On a twelve-month cumulative basis, commercial vehicle sales remain depressed with light commercial vehicle sales decreasing by 15.8% y/y, medium commercial vehicle sales remaining flat and heavy commercial vehicle sales dropping by 14.6% y/y. We prefer to look at the twelve-month cumulative figures as they give an indication of the trend in vehicle sales. For the most part this measure of new vehicle sales remains firmly in contractionary territory, with only medium commercial vehicle sales showing some evidence of having reached a turnaround point.

Year-to-date, Toyota and Volkswagen continue to hold their market share in the passenger vehicle market based on the number of new vehicles sold, claiming 37.8% and 27.1% of the market respectively. They were followed by Hyundai at 5.1% and Kia at 4.6%, while the rest of the passenger vehicle market was shared by several competitors.

Toyota also remained the leader in the light commercial vehicle space with a robust 59.8% market share with Nissan in second place with a 14.6% share. Ford and Isuzu claimed 9.2% and 5.4%, respectively, of the number of light commercial vehicles sold so far in 2018. Hino leads the medium commercial vehicle category with 43.5% of sales while Scania remains number one in the heavy and extra-heavy commercial vehicle segment with 32.2% of the market share year to date.

The Bottom Line

The cumulative number of new vehicle sales continued to contract on a 12-month basis, amounting to 12,281 at the end of July. Year-on-year, the 12-month cumulative number of new vehicles sold has contracted by 13.2% from the 14,147 cumulative sales recorded in July 2017. While passenger vehicle sales have picked up on both a monthly and annual basis in July, commercial vehicle sales remain depressed, and overall sales remain well below the figures seen in 2015 and 2016. Low government spending on capital assets, slow economic growth and disposable income growth as well as amendments to the credit agreement act have been identified as the main impediments on new vehicle sales. These factors coupled with a weakening currency and increasing fuel prices make it unlikely that significant recovery in vehicle sales can be expected for the rest of the year.

PSCE – June 2018

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Overall

Private sector credit extension (PSCE) increased by N$345.0 million or 0.37% m/m in June, bringing the cumulative credit outstanding to N$93.1 billion. On a year-on-year basis, private sector credit extension increased by 6.4% in June, compared to growth of 5.5% in May. On a rolling 12-month basis N$5.6 billion worth of credit was extended to the private sector, with individuals taking up N$3.3 billion while N$1.5 billion was extended to corporates. Claims on non-resident private sector credit contracted by 0.9% m/m and increased by 186.6% y/y.

Credit extension to individuals

Credit extended to individuals increased by 6.4% y/y in June, marginally faster than the 6.1% y/y growth recorded in May. Month-on-month, credit extension to individuals increased by 0.8% in June following a 0.3% contraction registered in May. Installment credit extension remained depressed, contracting by 4.8% y/y and 1.4%% m/m. Demand for overdraft facilities continued to decrease on an annual basis, with overdraft facilities increasing by a slight 0.6% y/y in June compared to 1.7% y/y in May. Overdraft facilities recorded a contraction in credit outstanding of 1.1% m/m in June.

Credit extension to corporates

Credit extension to corporates contracted by a slight 0.2% m/m after increasing by 0.9% m/m in May. On an annual basis, however, credit extension to corporates increased by 4.2% y/y in June, 1.4 percentage points higher than the 2.8% y/y growth registered in May. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 6.7% y/y in June. Leasing transactions to corporations contracted by 3.6% y/y in June following the 5.0% y/y decline in May. Overdraft facilities extended to corporates decreased by 1.4% m/m, but increased by 0.6% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks increased by N$937 million to an average of N$4.9 billion during June. Bank of Namibia credits this improvement in liquidity to proceeds from diamond sales coupled with companies hoarding liquidity in preparations for customary corporate tax payments. The increased liquidity position meant that repo facilities amounting to N$176 million were utilised only briefly at the end of June.

Reserves and money supply

Foreign reserve balances increased by N$1.5 billion to N$29.6 billion in June. This increase was due to payments received from Banco Nacional de Angola, interest received on investments, Rand seigniorage and exchange rate fluctuations, according to the Bank of Namibia.

Outlook

Growth in private sector credit extension has been ticking up for most of the first half of the year, but still remains far from the double-digit growth rates last seen in 2016. According to BoN’s data, the overall liquidity position of Namibian commercial banks averaged the highest levels since August 2014. Despite this, banks are selective regarding extending more credit into an economy currently in a recession. Thus, credit supply is dampened by selective issuance justified by stretched balance sheets and high debt to income levels. Demand for credit has been affected by stricter borrowing requirements set by BoN during the last two years. Furthermore, overall market expectations currently are for interest rates to remain stable for the rest of the year. Due to the abovementioned reasons, our expectation is for private sector credit extension to remain under pressure for the rest of the year.