Category Archives: Economic Research

Economic Research

NCPI – November 2018

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The Namibian annual inflation rate accelerated to 5.6% y/y in November, following the 5.1% y/y increase in prices recorded in October. Prices increased by 0.7% m/m, up from the 0.4% increase recorded in October. On an annual basis prices in five of the basket categories rose at a quicker rate in November than in October, three remained unchanged, while four categories saw lower rates of price increases. Prices for goods increased by 6.1% y/y while prices for services increased by 4.8% y/y. The increase in prices for services was unchanged from the increase recorded in October, while goods inflation accelerated on a monthly basis.

Transport, the third largest basket item, was once again the largest contributor to annual inflation, accounting for 1.8% of the total 5.6% annual inflation rate. Transport prices increased by 1.9% m/m and 13.8% y/y in November, up from the 1.2% m/m and 13.6% y/y increases seen in October. Prices in the three sub-categories all recorded increases on a year-on-year basis. Prices related to the operation of personal transport equipment increased by 15.4% y/y in November, compared to the 15.5% y/y increase recorded in the preceding month. The price of petrol increased by 50 cents per litre in November, while the price of diesel went up by 70 cents per litre, contributing to the jump in the overall category. Prices relating to the purchase of vehicles increased at a rate of 6.9% y/y, while prices related to public transportation services increased by 18.2% y/y.

The Ministry of Mines and Energy has since decreased fuel pump prices of unleaded and diesel by 100 cents per litre and 40 cents per litre, respectively. This should provide some relieve to consumers after a series of fuel price increases this year.

The Housing and utilities category was the second largest contributor to annual inflation due to its large weighting in the basket. Prices for this category remained flat m/m for a third month running and increased 3.7% y/y. Prices in the electricity, gas and other fuels subcategory increased 8.7% y/y, slightly slower than inflation of 9.0% recorded in October. The regular maintenance and repair of dwellings subcategory recorded an increase in prices of 3.5% y/y, which is a marginally slower rate of increase than the 3.7% y/y registered in the previous month. Month-on-month, prices of all the subcategories remained relatively unchanged.

Food and non-alcoholic beverages accounted for 0.8% of the total 5.6% annual inflation rate. Prices in this category rose by 4.7% y/y, faster than the 3.0% recorded in October. Prices for vegetables and fruit increased by 8.9% y/y and 7.9% y/y, respectively. Bread and cereal prices rose 6.0% y/y. Prices of food and non-alcoholic beverages accelerated at a faster pace on both monthly and annual basis. The second-round effects caused by the rampant and continuous increases in transport inflation seems to be filtering through to food prices. This is likely to persist in the very near-term, although recent fuel pump price cuts could moderate this slightly.

The Namibian annual inflation rate of 5.6% is currently trending somewhat higher than neighbouring South Africa’s November figure of 5.2%. The Bank of Namibia’s MPC decided to leave the repo rate unchanged at its meeting last week, deviating from the SARB’s decision last month to hike interest rates by 25 basis points. The BoN stated that the recent declines in fuel prices suggest that the risk of further upward pressure on inflation from this source has been reduced considerably. The BoN further mentioned that at the current level, the stock of international reserves is sufficient to protect the currency peg of the Namibian Dollar to the Rand.

As mentioned in our October 2018 PSCE review, our expectations are for interest rates to remain accommodative in the near-term. However, the BoN will be mindful of possible increases in SA rates and move to adjust local rates accordingly. Higher interest rates in SA will very likely lead to capital outflows from Namibia, which in turn jeopardises foreign reserve levels, and therefore the currency peg.

PSCE – October 2018

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Overall

Private sector credit extension (PSCE) rose by N$585 million or 0.6% m/m in October, compared to the N$524 million or 0.6% m/m increase recorded in September. Year-on-Year, PSCE growth edged up to 7.8% in October compared to 7.3% y/y in September. Cumulative private sector credit outstanding as at the end of October amounted to N$95.893 billion. On an annual basis household appetite for credit continues to outweigh that of businesses. However, the gap between credit extended to households and to corporates has narrowed slightly, owing to an increase in the uptake of credit by corporates observed over the past three months. On a rolling 12-month basis N$6.897 billion worth of credit was extended to the private sector with N$3.7 billion being taken up by households. Corporations took up N$2.53 billion worth of credit over the last 12-months, and claims on non-residents totaled N$662.7 million.

Credit extension to individuals

Credit extended to individuals increased by 7.0% y/y in October, growing at a slightly slower pace than the 8.0% y/y increase recorded in September. On a monthly basis household credit increased by 0.7%, marginally quicker than the 0.5% m/m growth registered in September. The monthly increase in household credit extension was driven by increases in the mortgage loans and other loans and advances categories which increased by 0.8% and 1.3%, respectively. Compared to October 2017, mortgage loans increased by 8.2% y/y while other loans and advances rose by 18.7% y/y. The effects of the amendments to the national credit act have proven to be long-lasting and have resulted in installment credit realizing negative growth rates since August 2017. Household installment credit contracted by 6.0% y/y in October following a 4.9% y/y contraction in September.

Credit extension to corporates

Credit extension to corporates increased at a quicker pace in October than in September, increasing by 7.1% y/y compared to September’s 4.5% y/y increase. The year-on-year uptick in overall credit extended to corporates has been due to an increase in the use of short-term credit facilities, in particular other loans and advances, picking up from low growth rates in the corresponding period a year ago. Other loans and advances extended to businesses increased by 30.1% y/y and 4.6% m/m. Overdrafts recorded the second highest increase in credit extension to corporates, increasing by 9.8% y/y due to base effects. On a month-on-month basis overdraft credit declined by 0.8% as businesses repaid outstanding overdrawn accounts on net.

Banking Sector Liquidity

The overall liquidity position of commercial banks experienced a substantial decline of N$1.3 billion to reach an average of N$3.4 billion during October from N$4.7 billion in September. Bank of Namibia attributes the decline in liquidity to investors withdrawing idle funds in search of higher yielding assets as well as for facilitating cross-border payments. During the month of October, overall short-term money market rates in SA have trended higher than those in Namibia, which explains the Namibian exodus to some extent. Furthermore, there has been an increase in use of BoN’s repo facility by commercial banks, with the outstanding balance of repo’s increasing from N$147 million at the start of October to N$434 million by month end.

Reserves and money supply

As per BoN latest money statistics release, broad money supply rose by N$13.32 billion or 14.2% y/y in October following a 12.5% y/y increase in September. Foreign reserve balances declined by N$1.41 billion to N$31.1 billion in October from N$32.5 billion in September, representing a 4.3% m/m fall in reserves. BoN attributes the decrease in reserves to commercial banks facilitating foreign currency payments which resulted in net capital outflows, in addition to an interest payment for the US$750 million Eurobond. The governor noted, during the MPC press briefing, that BoN has observed further declines in reserves for the month of November. The governor pointed out that businesses are busy stockpiling in a bid to ensure they meet the seasonal uptick in demand expected around year-end.  Foreign balances are likely to pick up over the next couple of months with the pending release of the delayed N$3 billion disbursement due from the African Development Bank’s loan facility.

Outlook

PSCE ticked up for a third consecutive month, reaching a 17-month high growth rate of 7.3% on a year-on-year basis. PSCE has failed to increase by double digit figures for the past two years. The last time it did so was in October 2017 when PSCE increased by 10.2% y/y. Corporate demand for credit has been ticking up modestly. However, for the majority of 2018 household demand for credit has been driving PSCE growth. Household driven PSCE growth is unsustainable in the long-run, especially when borrowing has been used for consumptive purposes. Growth is likely to become constricted in an environment where the consumer is heavily indebted and the refinancing, and approval of new loans becomes more difficult due to eligibility. The recent increase in credit extended to corporates has been a welcome sight. However, the current economic downturn has led to corporates taking on more short-term credit which does point to businesses borrowing simply to stay afloat.

The near-term outlook for PSCE will hinge very much on how quickly, or slowly, consumer and business confidence recovers, and to a larger extent the impact monetary policy will have. Consumer confidence feeds through to business confidence. Increased consumer demand triggers more business production that must meet this demand, thus incentivising businesses to borrow in order to fund capital projects. Borrowing has been predominantly short-term however, and short-term borrowing satisfies short-term needs which is unlikely to drive much meaningful expansion of productive capacity.

Indebted consumers got some form of relief when the BoN left the repo rate unchanged at 6.75% during its December MPC meeting. A decision the MPC deemed appropriate to maintain the one-to-one link between the Namibian dollar and the SA rand. This follows a month after the South African Reserve Bank (SARB) raised its repo rate by 25bps. BoN chose a more accommodative response, having kept a 25bp buffer between its rate and that of the SARB since March 2018. The current interest rate environment is relatively more relaxed compared to historical rates observed over the last eighteen years. Our expectations are for interest rates to remain accommodative in the near-term. However, BoN will be mindful of possible increases in SA rates and move to adjust local rates accordingly. Higher interest rates in SA will very likely lead to capital outflows from Namibia, which in turn jeopardises foreign reserve levels, and therefore the currency peg.

Building Plans – October 2018

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A total of 253 building plans were approved by the City of Windhoek in October, which is 100 more than in September. The value of building plans approved in October was N$155.8 million, an increase of 5.8% from the N$147.3 million worth of approvals in September. A total of 216 buildings with a total value of N$88.8 million were completed during October. On a year-to-date basis, 1,926 plans have been approved, 354 more than over the same period last year. The year-to-date value of approved building plans currently stands at N$1.73 billion, which is 9.7% lower than during the corresponding period in 2017. On a twelve-month cumulative basis, 2,277 building plans were approved worth approximately N$2.01 billion, 8.6% lower in value terms than this time last year.

The largest portion of building plan approvals was once again made up of additions to properties, from both a number and value perspective. 201 additions were approved in October, a 54.6% m/m increase over September and almost matching the number of additions approved in August. Year-to-date 1,443 additions to properties have been approved with a cumulative value of N$850.7 million, a decline of 2.9% y/y in terms of value.

New residential units were the second largest contributor to building plans approved, with 47 approvals registered in October, 14 more than in September. 444 new residential units have been approved year-to-date, 200 more than during the corresponding period in 2017. In dollar terms, N$504.3 million worth of residential plans have been approved year-to-date, an increase of 37.0% when compared to the same period last year.

5 Commercial and industrial building plans were approved in October, worth N$9.4 million. This is one fewer than in the prior month, and a decrease of 88.0% m/m and 59.5% y/y in value terms. The number of new commercial units approved thus far in 2018 stands at 39 with a total value of N$378.5 million. This compares to 41 units valued at N$675.3 million approved over the same period in 2017. On a 12-month cumulative basis, the number of commercial and industrial approvals has increased by 2.1% y/y in October to 48 units, worth approximately N$400.6 million, a decrease of 44.3% in value terms over the prior 12-month period.

On a rolling 12-month basis, the number of building plan approvals have been ticking up since the end of last year. The majority of these approvals are additions to properties which are of low relative value, meaning that in value terms there is still stagnation in the amount of overall investment into the property market. Additions to properties are generally attributable to individuals and the increase in number and value of additions over the last year signals a return of some consumer confidence, although still fragile. We expect consumer confidence to lead business confidence, which, according to the building plans data, still seems to be depressed.

We suspect that Namibia is reaching the bottom of the economic downturn with a number of high frequency indicators such as PSCE pointing to a bottoming out. We expect consumer confidence to translate to business confidence as demand picks up but signs of a widespread upswing in economic activity are still missing at present and global headwinds do pose an increased threat to recovery in the Namibian economy. The outlook for Namibia remains fragile as a result, but barring any external shocks, or poor policy decisions, the country should start emerging from recession in 2019, although at a sedate pace.