Category Archives: Economic Research

Economic Research

NCPI – March 2018

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The Namibian annual inflation rate remained at 3.5% y/y in March, unchanged from February, and significantly down from the 7.0% recorded during the same period last year. Prices increased 0.1% m/m. Of the twelve basket items, four saw a higher annual inflation rate than the previous month, two remained unchanged, while six categories saw lower rates of price increases. Prices for goods increased by 2.8% y/y while prices for services grew by 4.4%, similar annual price increases to those seen in February.

Housing and utilities remained the largest contributor to annual inflation due to its large weighting in the basket. This category remained flat m/m and increased 3.3% y/y, contributing 0.9% towards the annual inflation figure. Year-on-year price increases within the subcategories showed little change from those recorded in February, with the exception being price increases for regular maintenance and repair of dwellings which slowed down to 1.7% y/y in March, from the 3.0% y/y in February. From a month on month perspective, prices in this subcategory increased by 0.3%, while electricity, gas and other fuels increased by 0.1% m/m. The rest of the subcategories remained unchanged month on month.

The transport basket category contributes about 14% towards annual inflation, and serves as the third largest basket item by weighting. It accounted for 0.7% of annual inflation in March which makes it the second largest contributor this month. Prices for transport rose by 0.3% m/m and 5.4% y/y. Prices related to the purchases of vehicles rose by 6.9% y/y in March compared to an 8.2% y/y increase in February. The price of crude oil has surged to levels last seen in 2014 as the risk of violent conflict grips the market and raises concerns over potential Middle East supply disruptions.

The alcoholic beverages and tobacco category showed slightly slower increases of 4.3% y/y and 0.3% m/m. Tobacco prices increased by 1.9% y/y, while alcohol prices increased by 4.8% y/y.

Namibian annual inflation at 3.5% y/y continues trending lower than that of South Africa. South Africa’s February inflation was 4.0% y/y, making it the lowest rate since March 2015 and remaining well within SARB’s target range. The SARB, being an inflation targeting central bank, cut interest rates by 25 basis points at its March MPC meeting whilst pointing out that indications are that a low point in the inflation cycle has been reached. SARB Governor Lesetja Kganyago said that the main changes in the inflation forecast relate to the exchange rate and has cautioned that an international trade war could push inflation expectations higher.

The Bank of Namibia announced this week that the MPC has decided to keep the repo rate unchanged at 6.75% due to foreign reserves having dropped by N$4.1 billion in the past three months. According to BoN, foreign reserves stood at N$26.1 billion at 31 March.

PSCE – February 2018

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Overall

Private sector credit extension (PSCE) increased by N$1.1 billion or 1.2% m/m in February, bringing the cumulative credit outstanding to N$91.6 billion. On an annual basis, private sector credit extension increased by 5.1% in February, a slight uptick when compared to the 5.0% y/y growth recorded in January. On a rolling 12-month basis, N$4.4 billion worth of credit was extended to the private sector, with individuals stacking up N$3.5 billion worth of debt while N$767.6 million was extended to corporates. The claims on non-resident private sector increased by N$139.4 million y/y.

Credit extension to households

Credit extension to households expanded by 0.6% on a monthly basis and 7.0% on an annual basis in February.  The slight monthly increase in household debt was a result of a 0.8% m/m or N$272.8 million increase in mortgage loans extended. This follows the 0.2% increase in mortgage loans in January. Year on year the value of mortgage loans extended increased by 8.2%, well in excess of the overall rate of growth in PSCE. The increase in overdraft facilities slowed down to 0.3% m/m, following the 3.8% m/m increase in January. Installment credit, which is often used to finance new vehicle purchases, remains depressed, contracting by 2.8% y/y and 0.4% m/m. Cumulative new vehicle sales continued its downward trend in February, with the reduction in government spending having a direct effect on the demand for new vehicles.

Credit extension to corporates

Credit extension to corporates grew by 2.0% m/m in February after increasing by 0.3% m/m in January. On an annual basis credit extension to corporates accelerated to 2.1% y/y from 1.7% y/y in January. This was due to growth in the “other claims” category, which increased 6.8% m/m and y/y. Mortgage loans to corporates increased by 0.5% m/m and 6.4% y/y. Overdraft facilities extended to corporates increased by 2.2% on both a monthly and yearly basis. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 0.2% m/m and 6.4% y/y in February. Credit extended to corporates in February explains approximately 92% of the change in credit extended to corporates on a year on year basis.

Banking Sector Liquidity

The overall liquidity position of commercial banks deteriorated to an average of N$1.85 billion during February, a decrease of N$59.3 million compared to the preceding month. The decrease in the overall liquidity position culminated from cross border trade-related outflows and corporate tax payments during the review period according to the Bank of Namibia. Commercial banks continue to utilize BoN’s repo facility, and although average repos have decreased slightly from N$644 million in January to N$603 million in February, the use of the facility suggest that some banks are experiencing mild liquidity stress.

Reserves and money supply

Foreign reserves decreased by N$1.5 billion to N$26.8 billion in February, the lowest level since May last year. According to the Bank of Namibia, the decline in the level of reserves was due to net commercial bank purchases of foreign currency, net government purchases and maturities of foreign currency investments held with the central bank during the period under review.

Outlook

Private sector credit extension continued its slow start in the second month of 2018, with the growth during the month mainly driven by the increased demand for credit by the corporate sector while that of the household sector declined. This month, South Africa survived a credit ratings downgrade from Moody’s, and saw inflation figures remaining well within SARB’s target band. This gave the bank room to cut rates by 25 basis points, with the possibility of further cuts as the year progresses, and BoN is expected to follow suit. This will bring relief to both consumers and the corporate sector, and will make it more attractive for businesses to acquire the debt finance needed to expand and invest in capital projects, and in turn hire more people.

Building Plans – February 2018

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A total of 134 building plans were approved by the City of Windhoek in February. This is a decline in the number of plans approved on a monthly basis when compared to the 153 building plans approved in January. In monetary terms, the approvals were valued at N$78 million, a significant decrease of N$191.3 million compared to last month. 214 Buildings with a value of N$60.1 million were completed during February. The year to date value of approved building plans currently stands at N$347.2 million, 19.9% higher than the corresponding period in 2017. On a twelve-month cumulative basis, 1,979 building plans were approved, an increase of 16.8%, worth approximately N$2.25 billion.

The largest portion of building plan approvals was once again made up of additions to properties, from both a number and value perspective. Year to date 237 additions to properties were approved with a value of NS273.3 million, 65.0% more in value terms, and 51 more than the number of additions observed in the corresponding period in 2017.

New residential units were the second largest contributor to building plans approved with 41 residential units approved year-to-date, four more than the corresponding period in 2017. However, in monetary terms, N$56.3 million worth of residential plans were approved, 31.8% lower than the first two months of 2017.

The number of new commercial units approved so far in 2018 amounted to 9, valued at N$17.6 million. This compares to 8 units valued at N$41.5 million approved over the same period in 2017. On average over the last 20 years, 9.8 commercial units valued at N$52.2 million were approved in the first two months of the year (this figure is not inflation adjusted).

From a 12-month cumulative perspective, 1,979 building plans have been approved by February, an increase of 16.8% when compared to the corresponding period in 2017. This increase is positive news, as building plans approved is a leading indicator of economic activity in the country and implies that the Namibian economy is starting to show signs of recovery. The recent announcement by Moody’s to keep South Africa’s credit rating at investment grade has provided the South African Reserve Bank with space to reduce interest rates. The SARB’s 28 March MPC meeting saw the first rate cut of the year with the possibility of further cuts as the year progresses. This lower cost of debt will bring some relief to businesses and consumers alike.