Category Archives: Economic Research

Economic Research

PSCE – October 2017

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Overall

Private sector credit extension (PSCE) increased by N$180.2 million or 0.20% m/m in October, bringing the cumulative credit outstanding to N$89.0 billion. On a y/y basis, credit extended to the private sector rose by 5.2% in October, marginally slower than the growth of 5.24% recorded in September. Growth in total credit extended to the private sector continued to fall on a rolling 12-month basis as N$4.39 billion worth of credit has been extended over the last 12 months. This is down 44% from the N$7.84 billion issuance in the prior 12-month period that ended October 2016. Of this cumulative issuance, individuals took up N$3.6 billion while N$850 million was issued to corporates. Claims on non-resident private sector credit decreased by N$55.22 million y/y.

Credit extension to households

Credit extended to individuals increased by 7.37% y/y in October, compared to the growth of 7.53% y/y in September. On a m/m basis household credit extension rose by 0.63%, a slower increase in growth than the increase of 1.63% m/m recorded in September. Household credit extension has been very much subdued during 2017, having last recorded double-digit growth in August 2016. Installment credit increased by 0.48% m/m and contracted by 2.0% y/y. This is aptly reflected in the dwindling sales of new vehicles as reported for the month of October. New vehicle sales decreased by 20.6% on a rolling 12-month basis and should serve as no surprise that installment credit used to finance new vehicle purchases is declining in tandem. The value of mortgage loans extended to individuals increased by 0.5% m/m and 8.1% y/y. Overdraft facilities extended to individuals grew by 0.6% m/m and 10.9% y/y. Other loans and advances recorded growth of 3.2% m/m and 5.0% y/y.

Credit extension to corporates

Credit extension to corporates contracted on a m/m basis, recording a decline in 0.5% in October albeit slower contraction than the 1.4% m/m contraction in September. Y/y credit extended to corporates rose 2.4% in October, unchanged from the rate registered in September. Instalment credit extended to corporates contracted by 0.6% m/m in September. Installment credit extended to corporates has been contracting since February 2017 and continued to do so in October, declining 6.8% y/y. Mortgage loans extended to corporates increased by 5.8% y/y and 2.4% m/m. Overdraft facilities extended to corporates decreased 6.4% m/m while rising 5.0% y/y.

Banking Sector Liquidity

The average monthly liquidity position of commercial banks decreased from N$3.55 billion in September to N$2.85 billion in October. The decrease is attributed to cross border payments made during the month of October.

Reserves and money supply

Foreign reserves rose by N$138.2 million to N$31.6 billion at the end of October from N$31.4 billion in September. According to the Bank of Namibia the increase in the level of reserves stemmed from the inflows of Southern African Customs Union (SACU) receipts. Reserve balances going forward should further improve following the recent approval of a N$2 billion loan facility from the African Development Bank (AfDB) that has been earmarked for the agriculture and education sectors.

Outlook

With 2017 drawing to a close private sector credit extension has since the start of the year been on a downward trajectory. The slower rates of growth as recorded in the October figures points towards subdued demand for credit, especially from households. This speaks of an over-committed consumer that was further impacted by legislature changes earlier this year that tightened the affordability and qualifying criteria. Relief for consumers was expected through the possibility of easing monetary policy. This was backed by the first rate cut in five years of 25 basis points in July by the SARB and in August by BoN. At the time moderating inflation and the need to aid both struggling economies set the stage for what many expected would be the start of a rate cutting cycle.

Since then, South Africa has been downgraded by both Fitch and S&P while Namibia was not spared in its own respect by Moody’s and Fitch Ratings. Four MPC meetings later, hopes of further rate cuts were dispelled when both committees elected to keep rates unchanged. Credit ratings agency have longed warned of the implications of fiscal indiscipline and it has been clear of late that those weren’t mere warnings. Moody’s has placed South Africa on review and will make a decision in the three months. The risk in Moody’s downgrading South Africa’s local currency in February has the biggest implication in that it will result in South Africa losing its place in global bond indexes. Exclusion from these indices will result into large capital outflows that in turn will result in upside risks for inflation as well as a blow out of the rand. The SARB will most likely in that event rate hikes in an effort to stabilize the currency with Namibia having little room to do anything but adopt the same measures, thus putting further pressure on private sector credit extension.

NCPI – October 2017

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Annual inflation has slowed to 5.2% y/y in October, following a rise in prices of 5.6% y/y in September. Slower increases in the prices of food and non-alcoholic beverages, in addition to contracting prices for clothing and footwear contributed towards annual inflation rising at a slower rate in October. On a year on year basis, prices in three of the twelve basket categories rose at a quicker rate in October than in September, with six categories recorded lower rates of inflation, while the rate of inflation in three categories remained unchanged. Prices for goods rose by 3.1% y/y while prices for services increased by 8.0% y/y.

Housing and utilities, the largest contributor to annual inflation by weighting, recorded an increase in inflation of 8.6% y/y and a decline 0.1% m/m in October. The electricity and other fuels subcategory recorded an increase in prices of 4.1% y/y, which is a slower rate of increase compared to 6.0% registered the previous month. On a m/m basis prices in this subcategory contracted by 0.4%. Consumers were spared a fuel price increase during October and we expect prices to come under pressure following a fuel pump price increase in November and December at 40 cents and 50 cents respectively.

Food and non-alcoholic beverages contributed about 17% towards annual inflation. One of the major reasons for the slowdown in inflation this year has been the continued moderation in food inflation. Prices in this category rose by 3.7% y/y, lower than the 4.2% recorded in September. Prices for bread and cereals contracted by 2.7% y/y while prices for fish and meat rose by 15.2% and 9.2% respectively.

Alcoholic beverages and tobacco, the third largest category, saw prices increase 5.7% y/y compared to an increase of 6.0% in October of 2016. Prices of alcoholic beverages rose 5.5% y/y while tobacco prices accelerated by 6.4% y/y. Transport prices rose by 4.4% y/y and 0.6% m/m. Prices related to the purchases of vehicles rose by 6.5% y/y in October compared to 3.9% y/y increase in September.

South African inflation rose 4.8% in October following a 5.1% increase in September. The SARB kept its benchmark rate unchanged at 6.75%, having cut rates for the first time in five years in July this year. Escalating uncertainties in the economy as well as potential upside risks to inflation were cited as reasons to the latest decision to keep rates unchanged. Though annual inflation remains within the SARB’s target band, concerns remain that the rand was sensitive to political developments and weak economic growth prospects. The ratings downgrade of South Africa’s local currency to “junk” from S&P Global Ratings sent the rand tumbling. This was however offset by Moody’s decision to place South Africa on review. A ratings downgrade from Moody’s will effectively push South Africa out of major global bond indices, resulting into large capital outflows that will have significant bearing on inflation. Namibia’s foreign currency rating was recently cut to “junk” by Fitch ratings on the back of a mid-year budget review that was tainted by expenditure over-runs, disappointing revenues and escalating debt to GDP levels. Future debt issuance will most likely become more expensive as a result, especially in international capital markets. Though inflation has been

Building Plans – October 2017

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A total of 160 building plans were approved in October, 21 building plans less than what was approved in September. In value terms approvals decreased by 24.3% m/m, falling from N$116.88 million in September to N$88.46 million in October. A total of 88 completions to the value of N$51.96 million were registered in October. Completions increased by 33.1% m/m from 86 completions worth N$39.03 million in September. Year to date, N$1.91 billion worth of building plans have been approved, an increase of 13.2% y/y. On a twelve-month cumulative basis, 1,805 building plans have been approved worth approximately N$2.21 billion, 4.5% higher in value terms than the same measure for approvals in October 2016.

Additions to properties made up 130 approvals out of the total 160 approved plans recorded in October. Year-to-date, 1,287 additions to properties have been approved, increasing by 4.8% y/y and rising 7.5% y/y in value terms. Year-to-date total approvals are on track to exceed approvals registered during 2016 in value terms. As such, 2017 has been a better year than 2016 was, although not by much.

21 new residential units were approved in October, 6 less than the 27 approved in September. Year-to-date however, 244 residential units have been approved, 17 units more than in the corresponding period in 2016. In value terms, N$368.1 million worth of new residential units have been approved year-to-date, a 16.8% contraction compared to October 2016.

Commercial and industrial building plans approved amount to 41 units, worth N$675.3 million year-to-date. This is a decline of 43% in the number of plans approved from the 73 building plans approved in the corresponding period in 2016. This is however offset by the 54.2% increase in the value of these approvals compared to the corresponding period of 2016. One large commercial plan approved in May this year skews the value of approvals considerably. If one excludes this N$500 million plan, then the value of commercial and industrial plans approved year-to-date would be 60% below that of 2016 for the same period.

In the last 12 months 1,805 building plans have been approved, contracting by 0.8% compared to October 2016. Private sector credit extension growth slowed to 5.24% in September from 6.35% in August. Commercial banks are maintaining adequate monthly average liquidity positions and the slowdown credit extension growth is a sign of weak business and consumer confidence. Demand for debt has been low and the cost of debt risks becoming more expensive looking forward. Hopes of continued monetary policy support were dashed when the South African Reserve Bank (SARB) and Bank of Namibia (BoN) kept policy rates unchanged during September and October MPC meetings respectively. Mid-term budget reviews in both South Africa and Namibia that where characterised by expenditure overruns and widening budget deficits to be funded by ballooning government debt, have further exacerbated fears of credit ratings downgrades. This will place further pressure on consumers and business alike if it results in a rate hiking cycle. The outlook for a rebound in construction may thus be muted in the short term.