Category Archives: Economic Research

Economic Research

PSCE – September 2017

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Overall

Total credit extended to the private sector increased by N$287.3 million or 0.32% m/m in September, bringing the cumulative credit outstanding to N$88.8 billion. On a y/y basis, credit extended to the private sector rose by 5.24% in September, compared to growth of 6.35% in August. Growth in total credit extended to the private sector continued to fall on a rolling 12-month basis as N$4.42 billion worth of credit has been extended over the last 12 months, down from N$8.42 billion in the prior 12-month period. N$1.38 billion of this cumulative issuance was issued to corporates and N$3.13 billion to individuals, while claims on non-resident private sector credit decreased by N$89.33 million y/y.

Credit extension to households

 Credit extended to individuals increased slightly from 6.38% y/y in August to 6.45% y/y in September. This follows a significant slowdown in credit extension to individuals that grew at an average of 8.7% y/y for the first six months of the year. Credit extended to individuals increased by 0.59% m/m in September. Installment credit contracted by 0.93% m/m and 0.6% y/y. The effects of the amendments to the Credit Agreement Act continue to be felt 6 months after implementation. Subdued vehicle sales volumes serve as testament to the contraction in installment credit, which is largely used as means of vehicle financing. The value of mortgage loans extended to individuals increased by 0.9% m/m and 6.4% y/y. Overdraft facilities extended to individuals recorded no change m/m while increasing by 11.6% y/y. Other loans and advances recorded growth of 0.9% m/m and 17.3% y/y.

Credit extension to corporates

Credit extension to corporates printed flat m/m in September, compared to the 2.1% rise registered in August. Y/y credit extension rose 3.9%, down from the 6.0% growth recorded in August. Installment credit extended to corporates contracted by 0.6% in September. Y/y installment credit extended to corporates has contracted by 7.4%. Mortgage loans extended to corporates increased by 10.9% y/y and contracted by 0.4% m/m. Overdraft facilities extended to corporates rose 0.1% m/m and 9.9% y/y.

Banking Sector Liquidity

The average monthly liquidity position of commercial banks decreased slightly to N$3.55 billion in September from N$3.91 billion in August. The decrease is attributed to cross border payments made during the month of September.

Reserves and money supply

Foreign reserves rose by N$842.02 million to N$31.4 billion at the end of September from N$30.62 billion in August. According to the Bank of Namibia the increase in the level of reserves stemmed from the repayment of debt by the Banco Nacional de Angola as well as exchange rate effects. This is a welcome sight following that government has confirmed settling of all outstanding invoices, which was most likely done through the AfDB loan facility.

Outlook

Private sector credit extension continues its downward trend with persistent subdued growth. Expectations of easing monetary policy was blown out the water, when the South African Reserve Bank (SARB) kept rates unchanged at its September MPC meeting. The more defining moment was when finance minister, Malusi Gigaba, presented the midterm budget framework to parliament sighting revenue shortfalls and the subtle hint of abandonment of fiscal discipline. This reaffirmed fears that South Africa might be see its local currency downgraded as early as December. This could in turn result in the country falling out of global bond indexes. The exclusion from these indices will trigger huge bond selloffs that will impact the rand negatively. If these events materialize and inflation ticks upward outside of the SARB’s 6% target monetary policy is likely to enter a hiking cycle which will place further pressure on consumers.

The Bank of Namibia (BoN), as a result of its mandate to maintain the currency peg with the South African rand, will then follow with the same monetary stance. Following the tabling of Namibia’s own midterm budget review yesterday, local risk in expenditure overruns characterize the state of Namibian finances. Expected increases in domestic debt that will result in debt to GDP exceeding 44% are anticipated. Debt to GDP is forecasted to moderate over the MTEF period although guidance in prior budgets pointing to this have not led to this materializing. Credit ratings agencies will not look favourably on further fiscal slippage.

New Vehicle Sales – September 2017

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1,163 New vehicles were sold in September, an increase of 6.3% m/m, but down 3.6% y/y. Year-to-date 10,435 new vehicles have been sold, a 19.7% on last year. On a rolling 12-month basis 13,957 new vehicles have been sold in Namibia, down 22.8% from September 2016, and down 38.4% from peak 12-month cumulative number of vehicles sales in April 2015. On a calendar year basis 2014 was the peak in total new vehicle sales, with decreases in each subsequent year. Currently 2017 is on track to deliver new vehicle sales similar to numbers last seen in 2012.

A total of 443 new passenger vehicles were sold during September, up 10.8% m/m. Year-to-date passenger sales rose to 4,421, down 19.4% compared to the number sold by September last year. On a rolling 12-month basis passenger vehicle sales are at their lowest level since April 2012. Commercial vehicle sales reflect a similar picture, down 20.0% year-to-date and 23.6% on a rolling 12-month basis. A total of 720 new commercial vehicles were sold in September and 6,014 have been sold year-to-date. Light commercial vehicle sales are down 35.5% from their peak, slightly less than the 40.8% that passenger vehicle sales are down. Medium commercial vehicle sales are down 50.5% from their peak, while heavy commercial vehicles are down 46.4% since peaking in December 2015.

Outstanding installment credit has contracted on a year-on-year basis in each of the last three months as customers purchase less new vehicles. Credit extension to corporates, a leading economic indicator, continues to slow which points to further economic stagnation which is likely to show in vehicle sales figures leading up to the end of the year. The IJG business climate monitor, while showing some signs of improvement in the economy, continues to be in recessionary territory also pointing to further depressed vehicle sales figures going forward.

Toyota continues to lead the market for new vehicle sales with 35% of the passenger vehicle market and 47.9% of the light commercial market this year. Volkswagen holds the second place with 24.9% of passenger vehicle sales, while Nissan takes second place in the light commercial vehicles category with 16.3% of sales this year. Ford retains the third position in both passenger and light commercial new vehicle sales on a year to date basis. Hino leads the medium commercial vehicle category with 34.8% of sales while Scania has 32% of the heavy and extra-heavy commercial vehicle market cornered year to date.

The Bottom Line

Cumulative vehicle sales continue to contract on a rolling 12-month basis, and year-to-date vehicle sales figures are currently below 2012 levels. This is a reflection of depressed business and consumer confidence, as well as slowed government spending on new vehicles. Tighter credit conditions have only exacerbated the above conditions. The current interest rate environment is precarious with South Africa teetering on the edge of a local currency credit ratings downgrade which, should it take place, will see rapid currency depreciation. This will likely be followed by interest rate hikes which, along with higher prices for vehicles, will put further pressure on consumers. However, should positive political outcomes be seen in South Africa, there is scope for currency appreciation and further monetary easing, bringing relief to Namibian consumers too, and kick-starting the economy.