Category Archives: Economic Research

Economic Research

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.

Building Plans – August 2017

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A total of 172 building plans were approved in August, an increase of 43 from the 129 approvals in July. In value terms however, approvals fell by N$24.7 million to N$116.2 million in August from N$140.9 million worth of approvals in July. A total of 29 completions to the value of N$20.1 million were recorded in August. This was a decline in dollar terms of N$71 million compared to N$91.1 million worth of completions in July. Year to date, N$1.71 billion worth of building plans have been approved, 22% higher than the corresponding period in 2016. On a twelve-month cumulative basis, 1,851 building plans were approved worth approximately N$2.28 billion, 4.2% higher in value terms than approvals in August 2016.

Of the total 172 plans approved in August, additions to properties accounted for 148 of those approvals. Additions to properties amounted to 105 in July, with this category usually making up the majority of approvals. This is an indication that there is continuous investment by property owners in the upkeep and improvement of property. Year to date, 1,008 additions to properties have been approved to the tune of N$749.4 million, 6.2% more than in the corresponding period in 2016.

New residential units accounted for 22 of the total 172 approvals registered in August. Year to date 196 residential units have been approved, 45 more than in the corresponding period in 2016. In value terms, N$323 million worth of new residential plans have been approved year-to-date, 0.6% lower than the N$324.8 million in August 2016. On a monthly basis, new residential unit approvals increased by 37.5%, an encouraging sign given the slowdown in private sector credit extension.

Commercial and industrial building plans approved for the year to date amount to 27 units, worth N$641.8 million. This being lower than the 55 building plans approved by the end of August 2016, although higher in dollar terms than the N$322 million in the corresponding period of 2016. Two commercial building plans valued at N$13.7 million were approved in August. On a 12 month-cumulative basis, commercial and industrial property approvals rose by 25.4% in value terms in August compared to the corresponding period in 2016, with the total number of plans approved falling only by 2 units.

The 12-month cumulative number of building plans approved have been ticking up slightly since May, however falling marginally in August. In the last 12 months 1,851 building plans have been approved, 0.1% more than in August 2016. Government has reported settling all outstanding invoices, with the construction industry being a relieved recipient of those dues. However, with government still in a fiscal consolidation cycle and spending less on capital and infrastructure projects, we expect the sector to remain under pressure for the remainder of the year. Bank of Namibia (BoN) only recently cut interest rates by 25 basis points following the South African Reserve Bank’s (SARB) decision in July. The slowdown in inflation on the backdrop of subdued economic growth, has provided room to both central banks for further rate cuts, with MPC meetings scheduled for September and October respectively. Further relaxation of monetary policy in turn provides consumers with relative but very welcome relief that does flow through to their discretionary income.

NCPI – August 2017

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Annual inflation remained unchanged at 5.4% in August. On a month on month basis, prices rose 0.1% following a zero percent price change recorded in July. On a year on year basis, four of the twelve basket categories rose at a quicker rate in August than in July, this was offset by slower rates of inflation in 6 categories, while the rate of inflation in two categories remained unchanged. Prices for goods rose by 3.4% y/y while prices for services increased by 8.1% y/y.

Housing and utilities is the largest contributor to annual inflation, due to its large weighting in the basket. Annual inflation for this category increased by 8.3% y/y and fell by 0.6% m/m. Annual inflation for rental payments remained unchanged at 9.6% in August and will likely remain this high for the rest of the year. Annual inflation for the electricity and other fuels subcategory was 1.8% in August, significantly slower than inflation of 6.9% recorded in July. This follows a tariff increase passed on to consumers by the City of Windhoek in July. On a monthly basis prices within the electricity and other fuels basket decreased by 3.7%, stemming from a decrease in prices of gas products, paraffin, methylated spirits, charcoal and wood.

The second largest contributor to annual inflation was food and non-alcoholic beverages, also the second largest basket item in terms of weighting, accounting for 0.8% of the total inflation figure. Prices in this category rose by 4.6% y/y, up from the 4.3% recorded in July. Three subcategories recorded decreases in price on a year-on-year basis, such as prices for bread and cereal contracting 0.5%.

Alcoholic beverages and tobacco, the third largest category, saw prices increases of 4.8% y/y compared to an increase of 5.6% in August of 2016. Prices of alcoholic beverages rose 4.5% y/y while tobacco prices accelerated by 6.0% y/y. Transport prices increased by 2.0% y/y and 0.1% m/m. Prices related to the purchases of vehicles rose by 4.2% y/y compared to 9.6% y/y one year ago.

Namibian annual inflation in August remained unchanged at 5.4%, the lowest rate of price increases since January 2016. South African annual inflation came in at less than 5% in August, for the first time since late 2015, well within the South African Reserve Bank’s (SARB) target range. Low inflation, coupled with subdued economic growth in South Africa and Namibia, provides both central banks with room to consider further rate cuts with MPC meetings scheduled for September and October respectively. Risks of higher inflation do remain, attributable to exchange rate volatility of the Rand, to which the Namibian Dollar is pegged.