Category Archives: Economic Research

Economic Research

NCPI – August 2018

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The Namibian annual inflation rate decreased to 4.4% in August, a slightly slower pace than the 4.5% y/y rate of increase in prices recorded in July. The overall NCPI basket registered no price increases on a month-on-month basis in August, following inflation of 0.5% m/m in July. On an annual basis prices in just two of the twelve basket categories rose at a quicker rate in August than in July. Slower rates of inflation in six categories largely contributed to the overall slower rate of increases recorded in August. The rate of inflation in three of the twelve categories remained unchanged. Prices for goods increased at a rate of 4.6% y/y in August, consistent with the July rate. Prices for services increased at a rate of 4.1% y/y following a 4.3% y/y increase in July.

Just as it was in July, transport was the largest contributor to annual inflation in August, accounting for 1.3% of the total 4.4% annual inflation rate. On a monthly basis, transport prices increased at a rate of 0.8% in August, rising faster than the 0.6% m/m increase recorded in July. On an annual basis, transport prices increased by 9.7%, faster than the 8.9% y/y increase recorded in July. August has also been the third consecutive month in which transport prices have been increasing at a quicker annual pace. Prices in the three subcategories all recorded increases on a year-on-year basis. Prices relating to the purchase of vehicles increased at a rate of 7.9% y/y, while prices relating to the operation of personal transport equipment increased by 12.6% y/y. A 20% increase in taxi fares was approved in August and so will only reflect in the public transportation services subcategory from next month. This was the only subcategory that registered a slower pace of increase in August of 1.7% compared to 1.8% in July.

The transport category has been under pressure following consecutive months of fuel price hikes, with hikes in September being the latest. The price of Brent Crude oil has rallied since the start of August, following a drop in price for much of July. Currency weakness observed in August coupled with the increase in the price of Brent Crude oil drove the increase in fuel prices. As long as these pressures and under-recoveries remain, we expect that the ministry of mines and energy will continue hiking fuel pump prices.

The Housing and utilities category was the second largest contributor to annual inflation, due to its large weighting in the basket. Prices for this category increased by a rate of 0.8% m/m and 4.4% y/y. The electricity, gas and other fuels subcategory recorded the largest increase in prices at 13.2% y/y, faster than inflation of 8.4% y/y recorded in July. Month-on-month, prices in this subcategory increased by 0.5%. The water supply, sewerage service and refuse collection subcategory prices remained unchained on a monthly basis, while the regular maintenance and repair of dwellings subcategory showed prices decreasing at a rate of 0.4% m/m.

Prices for the alcoholic beverages and tobacco category increased at a rate of 5.4% y/y, but declined 0.3% m/m. Prices of alcoholic beverages increased at a rate of 5.8% y/y while tobacco prices increased at a rate of 3.8% y/y.

The Namibian annual inflation rate of 4.4% remains quite low seven months into 2018. It is also trending lower than that of neighbouring South Africa (July: 5.1% y/y). The factors putting upward pressure on inflation at present are currency weakness and the volatility in the price of Brent Crude oil. Tropical storms in the US (Hurricane Florence) is pilling doubt on US production, with expectations for limited supply, which is driving the oil price upward. Fears of Turkish and Argentinian troubles spreading further afield have resulted in prolonged emerging market bond and equity sell-offs. The EM risk-off sentiment has seen the rand weakening by over 17% from the start of August to a peak of R15.60/US$ during the first week in September. Effects of a weaker rand are passed through to Namibia by way of the currency peg. The uncertainty of how long this currency weakness will persist directly feeds into the SARB’s inflation forecast at a time when SA inflation is trending towards the SARB’s 6% upper boundary for annual inflation. If the SARB believes that inflation could break through its 6% target it is likely to hike interest rates in an attempt to rein in escalating inflation. Should the SARB hike rates we believe that the Bank of Namibia is likely to follow suit in order to maintain the reserve position. Higher interest rates will be a further drag on the already struggling Namibian economy.

Building Plans – August 2018

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A total of 269 building plans were approved by the City of Windhoek in August, decreasing by 2.5% m/m but increasing by 56.4% y/y. In value terms, however, approvals increased by N$208.8 million to N$423.5 million, a 264.4% m/m and 97.3% y/y increase. A total of 269 completions to the value of N$94.9 million were recorded in August, a 3.5% y/y increase in number and 21.7% up y/y in value. The year-to-date value of approved building plans reached N$1.43 billion, 16.5% lower than the comparative period a year ago. On a twelve-month cumulative basis, 2,212 building plans were approved worth approximately N$1.91 billion, 16.4% lower in value terms than approvals as at the end of August 2017.

The majority of the number of building plan approvals were made up of additions to properties. For the month of August, 213 additions were approved worth N$83.2 million, 14.1% less in value terms than in July, although the number of additions approved increased by 46.9% m/m and 43.9% y/y. Year-to-date, 1,128 additions have been approved, which is 120 more than in the corresponding period last year. In value terms, $704.3 million worth of additions have been approved year-to-date, a decrease of 6.0% y/y.

New residential units were the second largest contributor to building plans approved, accounting for 47 of the total 269 approvals registered in August. Year-to-date, 364 new residential units have been approved, 168 more than during the corresponding period in 2017. In monetary terms, N$435.4 million worth of residential plans have been approved year-to-date, an expansion of 34.8% when compared to the corresponding period last year.

Commercial and industrial building plans approved amounted to 9 units, worth N$247.8 million for August. The largest single commercial building plan approval of the month amounted to N$148 million. Year-to-date, 28 plans for commercial and industrial purposes have been approved which is one more than in the corresponding period in 2017. However, the year-to-date value of commercial and industrial approvals at N$290.7 million is 54.7% lower than in the corresponding period last year. This highlights the lack of commercial and industrial development in the first half of 2018.

From a 12-month cumulative perspective, 2,212 total building plans have been approved by August, an increase of 19.5% y/y. In value terms however, approvals are down 16.4% y/y over the same period. The latest private sector credit extension data showed slowing growth in credit extended to corporates and individuals in July. Mortgage loans extended to corporates contracted by 1.9% m/m in July, but rose by 1.0% m/m for individuals. Commercial banks currently enjoy a healthy monthly average liquidity position of N$4.8 billion, providing sufficient levels of loanable funds. Banks are, however, currently weary of the construction industry as the balance sheets of many of the companies are stretched. Low consumer and business confidence, coupled with an increasing likelihood of interest rate hikes over the next 24 months, means that the credit appetite of both individuals and corporates is currently low and that no significant improvement in the approvals and completions numbers are expected in the short term.

Building Plans – July 2018

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A total of 276 building plans were approved by the City of Windhoek in July, 42 more than the 234 approvals in June. The value of building plans approved in July was N$214.7 million, which is only the second month this year in which approved plans surpassed the N$200 million mark, the other being January that registered N$269.3 million worth of approvals. A total of 260 buildings with a value of N$78.0 million were completed during the month of July. On a year-to-date basis, 1,251 plans have been approved, 192 more than the 1,059 plans approved over the same period last year. The year-to-date value of approved building plans currently stands at N$1.0 billion, which is 37% lower than the N$1.6 billion worth of approvals registered over the same period in 2017. On a twelve-month cumulative basis, 2,115 building plans worth approximately N$1.6 billion have been approved, 34.3% lower in value terms when compared to the same measure as at the end of July 2017.

Additions to properties generally make up the majority of the number of building plan approved. Additions accounted for 145 of the total 276 plans approved in July, 19% lower on a m/m basis. Year-to-date, 915 additions to properties have been approved, increasing by 6.4% y/y, but decreasing by 7.6% y/y in terms of value to N$621.2 million.

New residential units were the second largest contributor to the number of building plans approved in July, registering 131 approvals compared to the 53 registered in June. Year-to-date, 317 new residential units have been approved. This is an increase of 143 approvals when compared to the corresponding period in 2017. In value terms, N$342.9 million worth of residential plans have been approved year-to-date, a 15.3% increase when compared over the same period in 2017.

For the first time since May 2010 there were no approvals for commercial and industrial properties. The number of approvals for commercial and industrial properties have been languishing in single digit territory since September 2016 and have an average approval rate of 4 approvals per month over the last 12 months. The inactivity in the commercial and industrial space is reflective of the contraction in construction activity and recession in the economy as whole.  Business confidence remains subdued, illustrated by the lack of capital investment. On a 12 month-cumulative basis, the number of commercial and industrial approvals has decreased by 25.4% y/y in July to 44 units, worth approximately N$112.2 million, a huge decrease of 85.8% in value terms over the prior 12-month period.

During the last 12 months 2,115 building plans have been approved, increasing by 14.0% y/y. These approvals were worth a combined N$1.6 billion, a decrease in value of 34.3% y/y. The number of building plans approved, on a cumulative 12-month basis, has been steadily increasing since December 2017. The growth in the cumulative number of plans approved has been driven mainly by approvals in additions to properties and new residential units which are of lower relative value. The overall decrease in value of cumulative plans approved is highly concerning as, even in nominal terms, this shows a substantial decrease of construction activity in the capital. Growth in commercial and industrial construction activity remains extremely subdued as the decrease (on a 12-month cumulative basis) in credit extended to corporates also reflects.

Significant deteriorations of the Turkish and Argentinian currencies have led to increasing fears of widespread emerging market contagion. The result has been an emerging market sell-off that has negatively impacted the rand. Policy uncertainty with regards to land reform has further exacerbated the issue. To make matters worse the SA economy has entered into a recession, contracting by 0.7% in Q2 following a revised 2.6% (previously 2.2%) contraction in Q1. The rand spiked above R15.50 to the US dollar in the aftermath of the GDP data release. The South African Reserve Bank (SARB) will closely monitor the weakness in the rand, as well as for how long this weakness persists, since it presents upward risks to the SARB’s inflation forecast. Prolonged weakness to the rand could lead to inflation breaching the SARB’s inflation target band, the result of which would be a monetary policy tightening cycle which would put further pressure on economic growth. Should the SARB move in this direction, which the market is currently expecting and pricing in, the Bank of Namibia will have to follow suit because of the currency peg. Such monetary tightening in Namibia would be a further drag on the fragile economic recovery we are experiencing at present.