Category Archives: Economic Research

Economic Research

NCPI – September 2017

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Annual inflation ticked up in September following a two-month consecutive rise in prices of 5.4% y/y. Inflation increased to 5.6% y/y in September, with an increase in fuel pump prices put through early in the month contributing towards the uptick. On a year on year basis, prices in five of the twelve basket categories rose at a quicker rate in September than in August, somewhat offset by lower rates of inflation in five categories, while the rate of inflation in two categories remained unchanged. Prices for goods rose by 3.6% y/y while prices for services increased by 8.4% y/y.

Due to its large weighting in the basket, housing and utilities is the largest contributor to annual inflation. Annual inflation for this category increased by 8.9% y/y and 0.6% m/m. Annual inflation for rental payments remained unchanged at 9.6% in September and will likely remain this high for the rest of the year. The electricity and other fuels subcategory recorded to largest monthly move in prices in September. On an annual basis, prices in the electricity and other fuels subcategory rose 6% compared to 1.8% in August. The low annual inflation rate for this subcategory stemmed from a decrease in prices of gas products, paraffin, methylated spirits, charcoal and wood. Early in the month of September, a 30 cents per litre increase in the price of petrol and diesel was put in effect that contributed significantly towards the uptick in inflation for this subcategory.

The second largest contributor to annual inflation is food and non-alcoholic beverages. This basket item has been one of the major factors contributing to moderating inflation this year. Following the alleviation of the drought, food inflation continues to moderate towards the end of 2017. Prices in this category rose by 4.2% y/y, down from the 4.6% recorded in August. Fish prices are rising faster than any other within this category, rising by 18.2% y/y and 7.6% m/m in September, while prices for bread and cereals contracted by 2.4% y/y, and meat prices increased by 9.4% y/y. Fruit prices fell by 5% m/m.

Alcoholic beverages and tobacco, the third largest category, saw prices increase 5.3% y/y compared to an increase of 5.2% in September of 2016. Prices of alcoholic beverages rose 5.1% y/y while tobacco prices accelerated by 6.0% y/y. Transport prices rose by 3.9% y/y and 0.7% m/m, in line with the decline in vehicle sales for September. Prices related to the purchases of vehicles rose by 3.9% y/y compared to 4.2% recorded in August.

South African inflation was 4.8% in August, up from 4.6% in July. Lower inflation allowed the SARB to cut interest rates in July, and although the August inflation figure was still well within the SARB’s target band, the MPC opted to leave rates unchanged at the September MPC meeting citing long term risks to the inflation outlook. Bank of Namibia aims to ensure price stability through its monetary policy, which is largely achieved by maintaining the currency peg. This ensures that Namibia imports price stability from South Africa. As such, we expect Bank of Namibia to follow suit and leave rates unchanged at 6.75% at its upcoming MPC meeting scheduled for 25 October. However, persistently weak economic growth and moderating inflation does set the stage for further loosening of monetary policy and we are likely to see rates being cut by 25 basis points before the end of the year, should the SARB lead the way.

Building Plans – September 2017

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A total of 181 building plans were approved in September, 9 more than was approved in August. In value terms approvals printed flat at N$116.88 million in September, not far from the N$116.20 million in August. A total of 86 completions to the value of N$39.03 million were registered in September. This is an increase of N$19 million in compared to N$20.1 million worth of completions in August. Year to date, N$1.83 billion worth of building plans have been approved, increasing by 17.4% year on year. On a twelve-month cumulative basis, 1,814 building plans have been approved worth approximately N$2.24 billion, 1.4% higher in value terms than the same measure for approvals in September 2016.

Of the total 181 plans approved in September, additions to properties accounted for 149 of those approvals. This category usually makes up the majority of approvals and continues to do so. Year to date, 1,157 additions to properties have been approved to the tune of N$829.4 million, 8.5% higher than in the corresponding period in 2016.

27 new residential units were approved in September. Year to date, 223 residential units have been approved, 32 units more than in the corresponding period in 2016. In value terms, N$349.6 million worth of new residential units have been approved year-to-date, a 6.20% contraction compared to the N$372.7 million in September 2016. On a monthly basis, new residential unit approvals increased by 22.7%.

Commercial and industrial building plans approved year to date amount to 32 units, worth N$652 million. This is a significant contraction from the 65 building plans approved by September 2016. This is however offset by the 54.2% increase in the value of these approvals compared to the corresponding period of 2016. 5 commercial and industrial building plans valued at N$10.20 million were approved in September. On a 12 month-cumulative basis, commercial and industrial property approvals rose by 16.6% in value terms in September despite the number of approvals contracting by 50.5%. This points to larger projects being undertaken compared to the base period in 2016, an indication of improving business confidence.

In the last 12 months 1,814 building plans have been approved, contracting by 2.5% compared to September 2016. The latest private sector credit extension data showed slowing growth in credit extended to corporates and individuals in August. Mortgage loans extended to individuals contracted by 0.9% m/m in August, but rose by 4.6% m/m for corporates. Commercial banks currently carry a healthy monthly average liquidity position of N$3.5 billion, providing sufficient levels of loanable funds. Consumers therefore seem curtailed by waning appetite for credit, or are simply not meeting affordability requirements.

However, a more positive outlook lies within the current slowdown in inflation and Bank of Namibia (BoN) leaning towards further relaxation of monetary policy in support of economic growth. Having cut interest rates by 25 bps in August, we expect BoN to keep rates unchanged at the upcoming MPC meeting in two weeks’ time as the South African Reserve Bank (SARB) left rates unchanged at its September meeting, citing long term inflation outlook as a risk to policy decisions. However, further rate cuts are expected at the last two respective MPC meetings scheduled for this year. This in turn will provide consumers with relative but very welcome relief that will flow through to discretionary incomes.

PSCE – August 2017

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Overall

Total credit extended to the private sector increased by N$623.4 million or 0.71% m/m in August, bringing the cumulative credit outstanding to N$88.5 billion. On a year on year basis, credit extended to the private sector rose by 6.35% in August, compared to growth of 6.82% in July. Growth in total credit extended to the private sector continued to fall on a rolling 12-month basis as N$5.2 billion worth of credit has been extended over the last 12 months, down from N$8.1 billion in the prior 12-month period. N$2.08 billion of this cumulative issuance was issued to corporates and N$3.08 billion to individuals, while claims on non-resident private sector credit increased by N$120.50 million.

Credit extension to households

Credit extended to individuals slowed down dramatically in August, growing by only 6.38% y/y compared to 8.35% in July, while registering a contraction of 0.48% m/m. Which is also the biggest decrease in credit extension on a month-on-month basis, since a 1.57% contraction in January 2010. Installment credit contracted by 0.03% m/m and 2.0% y/y. Given that vehicle purchases are largely financed through installment credit, the subdued level of growth in vehicle sales further highlights waning consumer confidence and serves as testament to the decelerated growth in installment credit. The effects of the amendments to the Credit Agreement Act are still being felt 5 months after implementation. The value of mortgage loans extended to individuals contracted 0.9% m/m while increasing 6.5% y/y. Overdraft facilities extended to individuals slowed by 2.1% m/m and registered an increase of 13.2% y/y. Other loans and advances recorded growth of 2.6% m/m and 18% y/y.

Credit extension to corporates

Credit extension to corporates increased 2.1% m/m in August compared to the 0.4% rise registered in July. Year on year credit extension rose 6.0%, up from the 5.0% growth recorded in July. Instalment credit extended to corporates was unchanged for August. Year on year installment credit extended to corporates has contracted by 4.6%. Mortgage loans extended to corporates increased by 11.8% y/y and 4.6% m/m. Overdraft facilities extended to corporates rose 1.2% m/m and 18.2% y/y.

Banking Sector Liquidity

The average monthly liquidity position of commercial banks improved to N$3.9 billion in August after averaging above N$2.9 billion during July. The overall liquidity position has improved markedly with the last 3 months averaging an overall position of over N$3 billion. This follows government confirming the settlement of all outstanding invoices by the end of August.

Reserves and money supply

Foreign reserves contracted by N$3.05 billion to N$30.6 billion at the end of August from N$33.6 billion in July. According to the Bank of Namibia the decrease in the level of reserves emanated from net commercial purchases of foreign currency and exchange rate valuation. In addition to government payments, considering that government has likely settled all outstanding invoices through drawing down on the loan facility afforded by the African Development Bank (AfDB).

Outlook

Private sector credit extension continues its downward trend with persistent subdued growth. A bit of reprieve was expected when the South African Reserve Bank (SARB) sat for its September MPC meeting, with many anticipating a rate cut. However, to the markets surprise, this was not to be as the SARB kept rates unchanged, citing long-term risks to the inflation, which is currently within the SARB’s target band at 4.6%. The Bank of Namibia, as a result of its mandate to maintain the currency peg with the South African rand, is set to follow suit and leave rates unchanged as well. Further rate cuts were expected to ease the pressures faced by the consumer, this ever so evident in the contraction on all spheres of lending on a m/m basis for individuals.