Category Archives: Economic Research

Economic Research

PSCE – April 2018

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Overall

Private sector credit extension (PSCE) increased by N$271.1 million or 0.3% m/m in April, bringing cumulative credit outstanding to N$92.6 billion. On a year-on-year basis, private sector credit extension increased by 6.0% in April, on par with the 5.9% increase recorded in March. On a rolling 12-month basis N$5.3 billion worth of credit was extended to the private sector, with individuals taking up N$3.5 billion while N$920 million was extended to corporates. Claims on non-resident private sector credit increased by 0.8% m/m and 196.0% y/y.

Credit extension to households

Credit extended to individuals increased by 6.9% y/y in April and remained flat from the 7.0% y/y growth recorded in March. On a month-on-month basis household credit extension rose by 0.5% in April which is marginally faster than the 0.2% registered in March. Installment credit remained depressed, contracting by 3.3% y/y and 0.8% m/m. The value of mortgage loans extended to individuals increased by 0.6% m/m and 8.0% y/y. Demand for overdraft facilities continued to slow down on an annual basis, increasing by 1.1% y/y in April compared to 2.4% y/y in March. Overdraft facilities recorded a contraction in credit outstanding of 0.3% m/m in April.

Credit extension to corporates

Credit extension to corporates remained flat month-on-month in April after contracting by 0.3 m/m in March. Year-on-year credit extension to corporates increased by 2.6% in April, slightly faster than the 2.1% y/y recorded in the two previous months. Mortgage loans to corporates increased by 1.9% m/m and 7.9% y/y. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 7.9% y/y in April. Overdraft facilities extended to corporates contracted by 2.0% m/m, but increased by 2.4% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks increased by N$190 million to an average of N$3.2 billion during April. According to Bank of Namibia, government payments and mineral sales proceeds of about N$1.0 billion contributed to the improved liquidity position during the month. Commercial banks continue making use of BoN’s repo facility, and although average repos have moderated from N$344.5 million during March to N$197.1 million in April.

Reserves and money supply

The stock of foreign reserves increased by N$3.9 billion to N$30.7 billion in April. This increase mainly stemmed from inflows of SACU receipts, commercial bank sales of foreign currency, increased rand seignorage receipts as well as the depreciation of the Namibian dollar against all the major foreign currencies during the period under review, according to the Bank of Namibia.

Outlook

Private sector credit extension growth remained depressed at the end of April. Although the country’s foreign reserve position strengthened during the month, our expectation is that Bank of Namibia will leave rates unchanged at its MPC meeting next week, thereby not providing consumers and businesses with any further relief, although current rates remain relatively accommodative by historic standards.

The SARB’s MPC meeting last month unanimously decided to keep interest rates unchanged, stating that risks and uncertainties that could possibly affect the inflation rate have shifted to the upside. The rand was initially supported by the election of President Cyril Ramaphosa in February, but has since weakened in line with its emerging-market peers as rising treasury yields boosted the demand for US dollar assets. The weaker currency may push inflation higher, decreasing the likelihood that SARB will cut interest rates again in 2018.

Building Plans – April 2018

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A total of 164 building plans were approved by the City of Windhoek in April. This is a m/m increase of 27.1% from the 129 plans approved in March and follows from two consecutive months of declines in the number of building plans approved. In value terms approvals increased by N$14.1 million to N$96.5 million, representing a 17.1% m/m increase in April. The number of completions for the month of April stood at 231, valued at N$55.5 million. The year-to-date value of approved building plans reached N$526.2 million, 4.1% higher than the comparative period in 2017. On a twelve-month cumulative basis, 1,937 building plans have been approved as at the end of April, an increase of 14.3% y/y. The 12-month cumulative value of plans approved reached approximately N$2.2 billion, an increase of 27.9%.

Additions to properties made up 127 out of the total 164 approved building plans recorded in April. This is a 19.8% m/m increase in additions from the 106 additions recorded in March. Year-to-date 470 additions to properties have been approved with a value of N$372 million, rising 35.2% y/y in terms of value.

New residential units were the second largest contributor to the number of building plans approved with 36 approvals registered in April, a m/m increase of 90% compared to the 19 residential units approved in March. Year-to-date, 96 new residential units have been approved, 4% less during than the corresponding period in 2017. In value terms, N$41 million worth of residential units were approved in April, 70% more than the N$25 million worth of residential approvals in March. The year-to-date value of residential approvals reached N$122 million, 32.6% lower than during the corresponding period in 2017.

Only 1 new commercial unit valued at N$8 million was approved in April, bringing the year-to-date number of approvals to 14, worth a total N$32.8 million. On a rolling 12-month perspective the number of commercial and industrial approvals have slowed to 51 units as at April, compared to the 61 approved over the corresponding period a year ago. The 12-month cumulative building plans approved within the last 12 months include a single project worth N$501 million and the average approvals in terms of value for this period was N$56.7 million. Excluding this single large project, approvals from a 12-month cumulative basis decline by almost 34% and indicates the generally low level of investment from the business community.

From a 12-month cumulative perspective, 1,937 total building plans have been approved by April, an increase of 14.3% when compared to the corresponding period in 2017. The 12-month cumulative number of approvals has been ticking up since December 2017 and does provide for an optimistic view for approvals to return to above the 2,000-mark, last seen exactly 2 years ago. Consumer and business confidence, as measured by the IJG Business Climate Monitor, fell slightly to 50.8 points in March from 50.9 in February. That it remains above the 50-point mark does signal that an economic turnaround could be on the horizon.

The interest rate environment has changed since the turn of the year. Monetary easing was widely expected to spur economic growth in 2018. This expectation dissipated with the market now not pricing in any more rate cuts in South Africa for 2018. What seems more likely at present is a possible rate hiking cycle, driven by recent rand weakness and an increasing oil price. These two inputs will weigh heavily on the SARB’s inflation expectations with risks being toward the upside, changing the narrative towards higher interest rates should inflation rise outside of the SARB’s target band of 3%-6%. BoN, which has kept its repo rate unchanged and simultaneously adding a 25bps buffer over the SA rate, is likely only to react if the SARB hikes rates beyond BoN’s current 6.75% repo rate. This effectively will offer no reprieve to consumers whom have been the biggest users of credit.

NCPI – April 2018

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The Namibian annual inflation rate increased marginally to 3.6% y/y in April, following the 3.5% y/y increase in prices recorded in March. Annual inflation has slowed markedly from the 6.7% recorded during April last year. On a month-on-month basis, prices increased 0.3%. Overall, prices in six of the basket categories rose at a faster annual rate than during the preceding month, four at a slower rate and two grew at a steady pace. Prices for goods rose by 3.1% y/y while prices for services grew by 4.3%.

The largest contributor to annual inflation remains Housing and utilities due to its large weighting in the basket. This category remained flat m/m for a second month and increased 3.4% y/y, contributing 1.0 percentage point towards the annual inflation figure. The regular maintenance and repair of dwellings subcategory recorded an increase in prices of 3.2% y/y, which is a faster rate of increase than the 1.7% y/y registered the previous month. On a month-on-month basis prices in this subcategory increased by 1.3%. The rest of the subcategories remained unchanged month-on-month and showed little change in price increases year-on-year.

Transport, with a weighting of about 14%, serves as the third largest basket category, accounting for 0.8 percentage points of annual inflation in April and making it the second largest contributor this month. Transport costs increased by 0.6% m/m and 5.8% y/y. Prices related to the purchases of vehicles rose by 7.3% y/y in April compared to a 6.9% y/y increase recorded in March. US president Donald Trump’s withdrawal from the Iran nuclear deal has raised concerns last week that the global supply of oil will be squeezed, pushing up the price of Brent Crude by almost 3%.

The alcoholic beverages and tobacco category showed slightly faster inflation of 4.7% y/y and 0.8% m/m. Tobacco prices increased by 0.5% y/y, while alcohol prices increased by 5.7% y/y.

Namibian annual inflation at 3.6% y/y is once again lower than that of South Africa, with South African annual inflation slowing to 3.8% y/y in March, its lowest rate in seven years. SARB Governor Lesetja Kganyago has recently said that this benign inflation environment is not expected to continue as the expectation is that the most recent reading was the low point in the current inflation cycle due to a combination of base effects and tax increases (including VAT and fuel levy increases). The currently favourable inflationary environment has contributed to a sounder macroeconomic environment, and has afforded some room for monetary policy to remain accommodative for now and help foster improved economic growth.