Category Archives: Economic Research

Economic Research

NCPI – June 2018

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The Namibian annual inflation rate edged up to 4.0% in June, following a rise in prices of 3.8% y/y recorded in May. Prices increased by 0.2% m/m. Of the twelve basket items, three saw a higher annual inflation rate than in the previous month, three remained unchanged, while six categories saw lower rates of price increases. Prices for goods increased by 3.8% y/y while prices for services increased by 4.2% y/y. The increase in prices for services was unchanged from the increase recorded in May, while goods inflation accelerated on an annual basis.

Transport, the third largest basket item, was the largest contributor to annual inflation, accounting for 1.0% of the total 4.0% annual inflation figure. Prices for transport rose 2.7% m/m and 7.2% y/y in June, up from the 0.9% m/m and 5.6% y/y figures seen in May. Prices related to the operation of personal transport equipment increased by 8.9% y/y in June, compared to the 6.2% y/y increase recorded in the preceding month. The price of both petrol and diesel increased by 60 cents per litre in June, 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.

The price of Brent Crude oil dropped by 6.9% on Wednesday to US$73.40 a barrel, the biggest daily decline in two years. The sell-off followed Libya’s announcement that it would boost supply by reopening four export terminals that had been closed since June. Oil prices have been volatile lately after the US has said that it would reinstate sanctions against Iran, a major producer. Wednesday’s decrease brings some relief as oil price increases has largely overshot expectations in 2018. This relief should filter through to Namibian consumers who have experienced a number of fuel price increases during the year. The decision not to increase fuel prices in July by the Ministry of Mines and Energy means that there are under-recoveries at the pumps at present. While fuel price increases towards the end of the year are expected, Wednesday’s decrease in the oil price may result in lower increases than what would otherwise be expected.

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 3.2% y/y, but remained relatively unchanged month-on-month. The regular maintenance and repair of dwellings subcategory recorded an increase in prices of 2.3% y/y, which is a somewhat slower rate of increase than the 2.6% y/y registered the previous month. Month-on-month, prices in this subcategory increased by 0.7%. The electricity, gas and other fuels subcategory recorded slower price increases for a third consecutive month at 4.9% y/y in June. The rest of the subcategories remained unchanged on both a monthly and annual basis.

Alcoholic beverages and tobacco, the fourth largest category, saw marginally slower price increases of 5.1% y/y and unchanged prices month-on-month. Prices of alcoholic beverages rose 5.3% y/y while tobacco prices increased by 4.1% y/y. Food inflation decelerated to 3.8% y/y in June from 3.9% y/y in May. Low food inflation, along with low rental price increases recorded in January, greatly contributed to maintaining the inflation rate at well below average levels for Namibia.

Namibian annual inflation at 4.0% has slowly been ticking up since April, and our expectations are that this trend will continue going forward. Most of June’s increase in the annual inflation figure was caused by the increase in the fuel price of 60 cents per litre. Second round effects will influence other basket items such as food in the coming months.

South African annual inflation came in at a surprising 4.4% in May, slowing somewhat from April’s reported 4.5%. The cumulative effects of increases in fuel prices and VAT was expected to push up the inflation figure.  As Namibia imports most of its inflation from South Africa, the fact that inflation remains in the lower half of the SARB’s target band is positive news for Namibian consumers given the current domestic economic challenges.

PSCE – May 2018

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Overall

Private sector credit extension (PSCE) increased by N$143.5 million or 0.15% m/m in May, bringing the cumulative credit outstanding to N$92.8 billion. On a year-on-year basis, private sector credit extension increased by 5.5% in May, slower than the 6.0% increase recorded in April. On a rolling 12-month basis N$4.8 billion worth of credit was extended to the private sector, with individuals taking up N$3.1 billion while N$1 billion was extended to corporates. Claims on non-resident private sector credit contracted by 0.9% m/m and increased by 130.0% y/y.

Credit extension to households

Over that past twelve months, households have taken up N$3.1 billion worth of credit, accounting for 64% of the twelve-month cumulative credit issued as at May 2018. From a year-on-year basis, credit extended to individuals increased by 6.1% May slowing from the 6.9% y/y growth recorded in April. Month-on-month, household credit extension contracted by 0.3% in May following a 0.5% m/m increase registered in March. The slight decline in appetite for household credit in general is largely attributable to growth in mortgage loans slowing to 6.7% y/y and contracting by 0.8% m/m. Installment credit which started contracting on a year-on-year basis in August 2017, remains further depressed in May, contracting by 3.9% y/y and 0.5% m/m. Use of overdraft facilities increased by 1.7% y/y in May following a 1.1% y/y increase recorded in April, while registering a 3.0% m/m increase.

Credit extension to corporates

Credit extended to corporates ticked up slightly month-on-month, increasing by 0.9% in May following a 0.3% contraction two months ago and printing flat in April. Year-on-year credit extension to corporates increased by 6.3% in May, increasing quicker than the 4.5% y/y recorded in April. The increase in overall loans to corporates was buoyed by a 10.2% y/y increase in mortgage loans to corporates, 3.7% y/y increase in other loans and advances, as well as overdraft facilities growing by 3.1% y/y. Installment credit extended to corporates, remained depressed, contracting by 7.9% y/y in May. This persistent contraction in installment credit to corporates (since February 2017) further suggests that businesses are financing fewer and fewer capital goods, and as such are not expanding operations which is testament of the current recessionary environment.

Banking Sector Liquidity

The overall liquidity position of commercial banks increased by N$732 million to an average of N$4.0 billion during May. Bank of Namibia credits this improvement in liquidity to maturities of treasury bills towards the end of May. The increased liquidity position further reduced the value of repo facilities utilized by commercial banks. The value of repo’s moderated from N$144 million in April to N$92 million during the first half of May with the banks not making use of the facility for the rest of the month.

Reserves and money supply

Foreign reserve balances decreased by N$2.5 billion to N$28.2 billion in May. This decrease was largely a result of commercial banks taking advantage of favorable investment conditions abroad, according to the Bank of Namibia.

Outlook

Private sector credit extension growth remained depressed at the end of May, struggling for the past ten months to reach growth of 7% y/y and above. It has been 19 months since PSCE last recorded double digit growth. The inflation outlook has deteriorated somewhat over the last few months due to dollar strength and an increase in oil prices. As a result, the SARB will be mindful of the risks posed to their inflation outlook, increasing the likelihood of rate hikes going forward. Overall market expectations at present are for interest rates to remain stable for the rest of the year, with a small sample of participants expecting at least one 25bps hike towards the end of 2018. BoN left rates unchanged following the SARB’s decision to keep its rate at 6.5%. BoN will further be satisfied with maintaining the 25bps buffer between its repo rate and that of SA following a N$2.5 billion decrease in foreign reserves.

Building Plans – May 2018

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A total of 161 building plans were approved in May by the City of Windhoek, which is three fewer the 164 approvals in April. In value terms, however, approvals increased by N$31.2 million to N$127.7 million, a 32.3% m/m increase from April. A total of 201 completions to the value of N$51.6 million were recorded in May. The year-to-date value of approved building plans reached N$653.9 million, 43.7% lower than the comparative period a year ago. On a twelve-month cumulative basis, 1,916 building plans were approved worth approximately N$1.7 billion, 27.7% lower in value terms than approvals as at the end of May 2017.

Of the total 161 plans approved in May, additions to properties accounted for 121 of these approvals. Year-to-date, 591 additions to properties have been approved, decreasing by 0.8% y/y but rising 24.3% y/y in value terms to N$446.6 million.

New residential units were the second largest contributor to the number of building plans approved with 37 approvals registered in May, only one more than the 36 approvals in April. Year-to-date, 133 new residential units have been approved, three fewer than during the corresponding period in 2017. In monetary terms, N$171.5 million worth of residential plans have been approved year-to-date, a contraction of 31.6% when compared to the corresponding period last year.

Commercial and industrial building plans approved in May amounted to 3 units, worth N$3.1 million. This is two more than in the prior month, but a decline of 61.3% m/m and 99.4% y/y in value terms. Year-to-date, 17 plans for commercial and industrial purposes have been approved, valued at N$35.9 million. This compares to 16 units valued at N$551.3 million approved over the same period in 2017. On a rolling 12-month perspective, the number of commercial and industrial approvals have decreased by 17.7% y/y in May to 51 units.

The 12-month cumulative number of building plans approved increased by 8.0% as at the end of May when compared to the corresponding period in 2017. A total of 1,916 building plans to the value of N$1.7 billion were approved over the last 12 months which represents a decrease in value of 27.7% y/y due to a single project worth N$501 million dropping out of the 12-month cumulative range. The number of building plans approved, on a cumulative 12-month basis, has been increasing steadily since December 2017.

Consumer and business confidence, as measured by the IJG Business Climate Monitor, showed improvement in April 2018, rising to 51.94 points from 50.87 in March. The leading indicator, however, fell to 43.75 points from 47.6 in March, as a result of reduced government spending, a weaker currency and slow private sector credit extension. This is an indication that forecasts for a sustained recovery from the recession observed in 2017 remain fragile. No relief is expected in terms of interest rate cuts or increased fiscal stimulus in the short term.