Category Archives: Economic Research

Economic Research

Building Plans – February 2017

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A total of 57 building plans were approved in February with a value of N$30.2 million, while 7 buildings with a value of N$27.4 million were completed. Thus far 2017 is off to a slow start, 231 plans were approved in the first two months while 48 were completed, the lowest numbers in the last seven years. The year to date value of approved building plans currently stands at N$289.7 million, 15.0% lower than the corresponding period in 2015. On a twelve-month cumulative basis, 1,694 building plans were approved worth approximately N$1.92 billion, 15.4% less than the preceding twelve-month period.

The largest portion of building plan approvals were made up of additions to properties, from both a number and value perspective. Year to date 186 additions to properties were approved with a value of N$165.7 million, 43.3% more in value terms than the corresponding period in 2016, but 49 less than the number of additions observed in the corresponding period in 2016.

New residential units were the second largest contributor to building plans approved: 37 residential units were approved year to date, seven less than the corresponding period in 2016. In dollar terms, N$82.5 million worth of residential plans were approved, 77.4% higher than the first two months of 2016.

The number of commercial units approved in 2017 amounted to 8, valued at N$41.5 million. This compares to 19 units valued at N$42.0 million approved over the same period in 2016. On average over the last 20 years, 9.3 commercial units valued at N$49.3 million were approved in the first two months of the year.

The 12-month cumulative number of building plans approved has been steadily declining since its peak in September 2013. This figure has halved from the peak to lows last witnessed in 1991. In the last twelve months 1,694 building plans were approved, 28.4% less than the same measure for February 2016.

This decline is worrying as construction has been a major driver of growth in the last couple of years, and our overall GDP growth figures are likely to slow. Between 2010 and 2015 construction took centre stage in the Namibian economy and created a substantial base off which continued growth was always going to be a challenge, but the abrupt slowdown is likely to cause ripple effects in the economy.

As a leading indicator for economic activity in the country this implies that the whole economy could remain under pressure for the foreseeable future. With government spending on infrastructure slowing and the current economic environment making it increasingly difficult for banks to extend credit, we expect further contractions in the construction sector in 2017 and possibly beyond. This is cause for concern as the sector provides a substantial amount of jobs, on which many households depend.

Namibia CPI – February 2017

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The Namibian annual inflation rate declined slightly to 7.8% in February, 0.4% lower than the 8.2% y/y figure seen in January. Prices increased by 0.2% m/m. Annual inflation was mainly driven by housing, water, electricity and other fuel category which increased at a rate of 9.6% y/y and the food and non-alcoholic beverages category which decelerated to 11.3%, but still remains uncomfortably high. Overall, prices in two of the twelve basket categories increased at a faster rate than during the preceding month, nine at a slower rate and one grew at a steady rate. Prices for goods increased 7.5% y/y while services were 8.1% more expensive on a y/y basis.

Housing and utilities was the largest contributor to annual inflation, due to its large weighting in the basket and the effect of irregularly high rental increases of 9.7% in January. Overall the housing category increased 0.3% m/m and 9.6% y/y. This resulted in a contribution of 2.7% to the annual inflation figure. The monthly increases were driven by higher maintenance costs, which increased by 1.3% m/m and higher electricity and fuels costs which increased by 1.4% m/m. The other subcategories remained unchanged m/m, but water supply, sewerage service and refuse collection is still increasing by 11.5% y/y and electricity is now 8.3% more expensive than last February.

Food and non-alcoholic beverages, the second largest basket item, was the second largest contributor to annual inflation. Food inflation is currently running at 11.3% y/y, down from the 13.2% y/y figure seen in January. Despite the price cuts between 6% and 12% for flour and maize products announced by Namib Mills, food inflation moderated only slightly. Namib mills claimed the reduction in their prices were driven by improved rainfall over the maize production areas of southern Africa, as well as the strengthening of the Namibia dollar against the US dollar. Many of the sub-categories of food showed monthly decreases, bread and cereals prices were down 1.5% m/m, while fruits and vegetables decreased by 1.1% and 0.6% respectively. However, on an annual basis, bread and cereals prices have still increased by 10.3% y/y while fruits and vegetables are 13.0% and 4.3% more expensive. The downwards pressure on food prices should continue as the effects of a good rainy season filters through to prices.

The Alcohol and tobacco category displayed increases of 5.4% y/y and 0.3% m/m. Tobacco prices increased by 2.0% y/y, while alcohol increased at a much quicker pace at 6.3% y/y. The increases in sin taxes should put upwards pressure on alcohol and tobacco prices as the increased tariff is passed on to the consumer. Transport prices increased by 0.3% m/m and 4.7% y/y in February. Given that fuel levies are set to increase, as set out in the most recent budget, we should see further increases in fuel prices and further rises in transport inflation.

Namibian inflation is now much higher than that of South Africa, and expectations are for high inflation rates to continue in both countries. South African inflation is expected to average 6.2% in 2017, according to the SARB’s January MPC forecast. These expectations are largely driven by a weaker real effective exchange rate and the pass though effect of higher Import prices. The effect of higher food inflation due to the drought, and the pass-through effect of South African food prices on Namibia will likely cause the double digit increases in food prices to continue in the short term, although we are starting to see some of this pressure ease.

Due to expectations of high SA inflation, which remain outside of the target band for most of 2017, we will monitor the March MPC statement closely for a more hawkish SARB. However, given the low level of growth, which has been revised downwards to 1.1% in January, we do not anticipate repo rate increases in response to inflationary pressures in South Africa.

Annual inflation in Namibia averaged 6.7% in 2016, however given the surprisingly high monthly increases witnessed in January, inflation can be expected to remain quite high in 2017. The large monthly increase was driven mainly by rental increases of 9.7% m/m, the largest increase in the last 14 years. Thus, our expectation is for 2017 inflation to average 7.9%.

Namibia New Vehicle Sales – February 2017

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A total of 1,151 vehicles were sold in February, a 26.5% m/m increase from the 910 vehicles sold in January, but 14.9% lower than in February 2016 when 1,352 vehicles were sold. Year to date 2,061 vehicles have been sold, 947 passenger vehicles, 1,041 light commercial vehicles, and 73 medium and heavy commercial vehicles. Compared to the first two months of previous years, this is well below the number of vehicles sold in any year for the last five years.

Vehicle sales have been contracting on a year on year basis since mid-2015. The slowdown has been felt in both passenger and commercial vehicles, with passenger vehicle sales down 10.1% y/y and commercial vehicle sales down 29.4% y/y. Within the commercial vehicle segments the light commercial category, which makes up the bulk of sales, has decreased by 14.7% y/y, while medium commercial vehicles sales have decreased by 50% y/y and heavy commercial vehicle sales have also decreased by 50% y/y. Heavy commercial vehicle sales have dropped to multi-year lows which can be seen as a drop in investor or business confidence.

Passenger vehicle sales increased by 35.6% m/m to 545 vehicles in February, while commercial vehicles sales increased by 19.3% m/m to 606. Of the 606 commercial automobiles sold, 563 were classified as light, 18 as medium and 25 as heavy. The total number of passenger and commercial vehicles sold in 2016 were 7,006 and 9,592 respectively and we are likely to see lower numbers this calendar year.

Year to date Toyota and Volkswagen continue to hold their market share in the passenger vehicle market based on the number of new vehicles sold, claiming 33% and 23% of the market respectively. They were followed by Nissan at 8% and Ford at 7%, while the rest of the passenger vehicle market was shared by several competitors.

Toyota also remains the leader in light commercial vehicle sales with 48% of the market, followed by Nissan at 16%. Isuzu and Ford claimed 12% and 11% of the number of light commercial vehicles sold in 2017, very much in line with the market share observed in 2016. In the heavy category, Mercedes and Hino started off the year by selling 9 and 8 heavy or extra heavy vehicles respectively, or roughly 23% and 20% of the number of heavy commercial vehicles sold this year.

The Bottom Line

From mid-2015, the new vehicle market in Namibia has been in a state of decline and this trend seems to be continuing as we enter 2017. The reduction in government spending had a direct and indirect effect on the demand for new vehicles, both direct orders from government and the weaker economic environment have reduced the demand for capital goods and this is clearly visible in the data. The latest budget confirms that this will be the case going forward, as only N$45.1 million has been budgeted for the purchase of vehicles in the 2017/18 fiscal year’s development budget, a large cut from the N$382.2 million spent in 2015/16 and N$139.1 million spent in 2016/17. Furthermore, amendments to the Credit Agreement Act (which requires a deposit of 10% on all vehicle loans and limits repayment periods to 54 months) have reduced the availability of credit used to purchase these capital goods. We expect the slowdown in new vehicle sales to continue into 2017 as the effects of these policies and a generally weaker economic environment weigh on new vehicle demand.