Category Archives: Economic Research

Economic Research

NCPI – January 2018

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The Namibian annual inflation rate moderated markedly to 3.6% y/y in January following the 5.2% y/y increase in prices recorded in December. Inflation was 1.6% m/m, the largest monthly increase in prices within the last twelve months, as is usually the case in January due to rental price adjustments. The slowdown in annual inflation was mainly driven by the housing, water, electricity, gas and other fuels category which slowed to 3.6% in January from 9.2% observed in December. On a year on year basis, overall prices in four of the twelve basket categories rose at a quicker rate in January, with six categories recording slower rates of inflation and two categories saw unchanged rates of inflation. Prices for goods increased by 2.9% y/y, while prices for services increased by 4.4% y/y, a material slowdown from the 8.0% increase recorded in December.

Despite recording a substantially slower rate of inflation, housing and utilities remains the largest contributor to annual inflation by way of being the largest weighted category. Overall the housing and utilities category recorded inflation of 3.6 y/y, which is significantly lower than the 9.2% y/y increase in December. This lower rate of inflation was caused mainly by rental inflation which slowed from 9.7% y/y in January of 2017 to 2.6% y/y in January 2018. On a monthly basis, rental payments increased by 2.6%. Rental adjustments are put in effect at the beginning of the year and this base is often carried forward for the rest of the year. Lower rental inflation in January this year should thus translate to lower overall CPI figures for the rest of the year. The rest of the subcategories remained relatively unchanged m/m, with regular maintenance and repairs on dwellings increasing by 0.1% m/m while electricity, gas and other fuels increased by 0.3% m/m.

Transport, with a weighting of about 14%, serves as the third largest basket category, accounting for 0.8% of annual inflation in January and making it the second largest contributor this month. Transport costs increased by 0.6% m/m and 6.3% y/y. Oil prices rallied for much of January, reaching US$71 a barrel, the highest level since late 2014. A strengthening rand that began its surge mid-December, however, allowed for fuel pump prices to remain unchanged for a second consecutive month.

Inflation in the alcoholic beverages and tobacco category was 4.2% y/y and 0.2% m/m. Tobacco prices increased by 3.4% y/y, while alcohol prices increased at a slightly quicker pace of 4.4% y/y, according to the NSA.

Namibian annual inflation at 3.6% y/y is once again lower than that of South Africa, with South Africa inflation expected to average at 4.9% in 2018, according to the SARB’s January MPC statement. Food price inflation slowed since South Africa recovered from the drought, despite the current drought experienced in the Western Cape. Likewise, Namibia also emerged from the drought and experienced the same moderation in food inflation. Inflation expectations will further be driven by exchange rates, with the rand having strengthened since the transition of power within the ANC. The currency continued to gain ground following the parliamentary election of Cyril Ramaphosa as president of South Africa.

 

PSCE – December 2017

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Overall

Private sector credit extension (PSCE) increased by N$718.4 million or 0.8% m/m in December, bringing the cumulative credit outstanding at the end of 2017 to N$90.2 billion. On a y/y basis, private sector credit extension increased by 5.2% in December, increasing at a quicker rate than the 4.5% recorded in November. From a rolling 12-month basis, N$4.4 billion worth of credit was extended to the private sector, compared to the previous year, the rolling 12-month issuance is down 36.4% from the N$6.9 billion issuance observed at the end of December 2016. Of this cumulative issuance, individuals took up the lion’s share of credit, amassing N$3.3 billion worth of debt while N$957 million was extended to businesses. Claims on non-resident private sector credit increased by N$113.2 million y/y.

Credit extension to households

Credit extended to individuals increased by 6.7% y/y in December, lower than the 7.1% y/y recorded in November. On a m/m basis, household credit extension rose by 0.8% in December and is marginally slower than the increase of 0.9% registered in November. Installment credit, quite often used to purchase new vehicles, contracted by 3.9% y/y. Tighter credit controls imposed on vehicle financing has been the main driver of the decline in new vehicle sales. The value of mortgage loans extended to individuals increased by 1.0% m/m and 7.8% y/y. Overdraft facilities extended to households slowed in December, increasing by 3.6% y/y compared to 8.5% y/y in November.

Credit extension to corporates

Credit extension to corporates increased by 0.8% m/m in December, following a slow increase of 0.2% m/m in November. Year on year credit extension to corporates grew 2.7% in December, an improved increase in growth from the 1.3% y/y in November. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis remained depressed, contracting by 6.1% y/y in December. Leasing transactions to corporations declined further in December by 17.2% y/y. Overdraft facilities extended to corporates increased by 0.4% m/m and 4.2% y/y.

Banking Sector Liquidity

The average monthly liquidity position of commercial banks declined by N$117 million from N$3.1 billion in November to N$3.0 billion in December. The decrease in the liquidity position is attributed to periodic corporate tax payments to Inland Revenue due at year end. Further deterioration in the overall liquidity position is observed over the month of January, overall liquidity standing at N$1.9 billion. The use of BoN’s repo facility further suggest that some banks are experiencing some stress in liquidity shortages.

Reserves and money supply

Foreign reserves shot up by N$1.1 billion, increasing reserve levels to N$29.7 billion in December from N$28.5 billion in November. According to the Bank of Namibia the increase in reserves emanated from SACU inflows as well as the second tranche of the AfDB loan.

Outlook

Private sector credit extension growth hit freefall during 2017, slowing with every passing month. Households credit growth has been outpacing corporates, accumulating 76% of the credit issued to the private sector in 2017. The skewed uptake in debt between individuals and corporates points to low consumer and business confidence. The meek uptake of credit from a business perspective is more concerning in that it displays a lack of desire from businesses to expand and invest in capital projects, in turn also hiring less people. The outlook for PSCE is largely dependent on the interest rate landscape in South Africa, with BoN expected to follow any rate moves enacted by the SARB.

December’s political developments have been positively received by the market, providing renewed optimism for SA politics going forward. The market’s satisfaction with Cyril Ramaphosa as new ANC party president, was followed by a resurgence of foreign investment into SA equities. This should provide more support for the rand that has strengthened since the ANC’s elective congress in December. Coupled with inflation that has moderated to 4.7% in December and is well within the SARB’s target band of between 3% – 6%, does support the case for monetary easing in 2018. The immediate risk to this scenario however, is that of the imminent credit rating review decision from Moody’s. If SA is successful in averting a downgrade decision, monetary policy will very likely be expected to lighten the cost of debt for heavily indebted consumers through more accommodative policy rates. With BoN set to follow in similar fashion.

New Vehicle Sales – December 2017

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835 New vehicles were sold in December, a decrease of 18.9% m/m and 20.6% y/y. Year-to-date 13,202 new vehicles have been sold, a 20.1% decrease from December last year, the lowest annual vehicle sales figure since 2011. New vehicle sales are now down 41.7% from their peak, reflecting the pressures on corporates, individuals, as well as government in the recessionary environment that Namibia finds itself in. While the figures above are likely to change over the next few months as the data improves, it is unlikely that much upward revision can be expected.

A total of 373 new passenger vehicles were sold during December, down 7.9% m/m and 11.6% y/y. Year-to-date passenger vehicle sales rose to 5,590, reflecting lower annual sales than the preceding five years and a 18.8% decline from December 2016. Passenger vehicle sales have slowed dramatically as a result of tighter credit conditions, depressed government expenditure and low consumer confidence in the current economic climate. On a rolling 12-month basis new passenger vehicle sales were down 43.1% from the peak in April 2015.

Commercial vehicle sales declined to 462 units, a 26.0% m/m, and 26.6% y/y contraction. Year-to-date commercial vehicles sales are down 21.1%, and down 40.7% from the peak. For December, 402 light commercial vehicles, 11 medium commercial vehicles, and 49 heavy commercial vehicles were sold. On a year to date basis light commercial sales have declined by 22.3%, medium commercial sales are down 13.9% and heavy and extra heavy sales have decreased by 1.5%.

Toyota continued to lead the market for new vehicle sales in 2017 with 35.8% of the passenger vehicle market followed by Volkswagen with a 24.8% share. Toyota also remained the leader in the light commercial vehicle space with a 49.9% market share with Nissan in second place with a 16.8% share. In the medium commercial section of the market Hino led the pack with a 35.9% market share followed by Iveco at 25.1%. The heavy and extra heavy category was dominated by Scania with 36.3% of new vehicle sales.

The Bottom Line

Cumulative new vehicle sales fell to the lowest level in five years on a rolling 12-month basis. This is a consequence of the recessionary environment we find ourselves in, characterised by depressed business and consumer confidence, as well as lower government spending. Tighter credit conditions and indebted consumers further hampered new vehicle sales. The continued slowdown in commercial vehicle sales remains worrisome as this is an indication of lower capital expenditure by corporates and lower business confidence in general. While vehicle sales may not drop much further, a rapid recovery in these metrics will only be seen once government resumes normal expenditure patterns and business confidence improves. While the latter may have bottomed out, there is still great uncertainty regarding the former.