Category Archives: Economic Research

Economic Research

Building Plans – November 2017

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A total of 235 building plans were approved in November and represents a 46.9% m/m increase from the 160 building plans approved in October. In value terms approvals increased by more than N$80 million to N$172 million in October from N$88.46 million approved in September. Total completions fell from the 88 recorded in October to 67 for November. In value terms however, completions increased by 67.1% m/m with N$86.85 million worth of completions registered in November. Year to date, N$2.09 billion worth of building plans have been approved, an increase of 12.2% y/y. On a twelve-month cumulative basis, 1,932 building plans have been approved worth approximately N$2.19 billion, 13.6% higher in value terms than the cumulative approvals registered in November 2016.

 

Additions to properties made up 197 approvals out of the total 235 approved plans recorded in November. Year-to-date, 1,484 additions to properties have been approved, increasing by 12.5% y/y and rising 14.7% y/y in value terms. With 2017 drawing to a close, year-to-date total approvals, in value terms, have surpassed the N$1.97 billion approvals registered in 2016 with N$119 million. By that account 2017 has, albeit marginally, been a better year than 2016 for commercial and residential real estate.

33 new residential units were approved in November, 12 more than the 21 approved in October. Year-to-date residential approvals showed further improvement with 277 new approvals, 36 units more than in the corresponding period in 2016. In value terms, N$407.9 million worth of new residential units have been approved year-to-date, a 22% contraction compared to November 2016.

Commercial and industrial building plans approved amount to 5 units, worth N$16 million for November. This is a month-on-month decline of 44.4% in the number of plans approved and a 31% decline in value terms as well.  Year-to-date 46 plans for commercial and industrial purposes have been approved, a far cry from the 76 building plans approved in the corresponding period in 2016. However, in value terms, 2017 is on course to exceed the N$482.3 million registered in 2016, with year-to-date value of commercial and industrial plans approved already at N$691.3 million. Reason for this being one large commercial plan approved in May this year that has buoyed the value of approvals considerably for 2017. This approval alone accounts for 72% of commercial and industrial building plans approved this year. Stripping out this single commercial property development would result in a contraction compared to 2016.

From a 12-month cumulative perspective, 1,932 building plans have been approved in November, increasing by 13% compared to corresponding period in 2016. Additions to properties exceeded new developments by more than four times. While private sector credit continuously slowed since the start of 2017, currently at 5.2% in October. Total mortgage loans extended to the private sector grew at an average of 8.2% during 2017. This is slower than the growth in mortgage loans of 11.7% recorded in 2016. Consumers and businesses will now look to 2018 in hopes of some relief, however recent downgrades and the potential of further downgrades in South Africa point to greater possibilities of a rate hiking cycle, which would put further pressure on consumers and will further delay a much needed economic recovery.

PSCE – October 2017

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Overall

Private sector credit extension (PSCE) increased by N$180.2 million or 0.20% m/m in October, bringing the cumulative credit outstanding to N$89.0 billion. On a y/y basis, credit extended to the private sector rose by 5.2% in October, marginally slower than the growth of 5.24% recorded in September. Growth in total credit extended to the private sector continued to fall on a rolling 12-month basis as N$4.39 billion worth of credit has been extended over the last 12 months. This is down 44% from the N$7.84 billion issuance in the prior 12-month period that ended October 2016. Of this cumulative issuance, individuals took up N$3.6 billion while N$850 million was issued to corporates. Claims on non-resident private sector credit decreased by N$55.22 million y/y.

Credit extension to households

Credit extended to individuals increased by 7.37% y/y in October, compared to the growth of 7.53% y/y in September. On a m/m basis household credit extension rose by 0.63%, a slower increase in growth than the increase of 1.63% m/m recorded in September. Household credit extension has been very much subdued during 2017, having last recorded double-digit growth in August 2016. Installment credit increased by 0.48% m/m and contracted by 2.0% y/y. This is aptly reflected in the dwindling sales of new vehicles as reported for the month of October. New vehicle sales decreased by 20.6% on a rolling 12-month basis and should serve as no surprise that installment credit used to finance new vehicle purchases is declining in tandem. The value of mortgage loans extended to individuals increased by 0.5% m/m and 8.1% y/y. Overdraft facilities extended to individuals grew by 0.6% m/m and 10.9% y/y. Other loans and advances recorded growth of 3.2% m/m and 5.0% y/y.

Credit extension to corporates

Credit extension to corporates contracted on a m/m basis, recording a decline in 0.5% in October albeit slower contraction than the 1.4% m/m contraction in September. Y/y credit extended to corporates rose 2.4% in October, unchanged from the rate registered in September. Instalment credit extended to corporates contracted by 0.6% m/m in September. Installment credit extended to corporates has been contracting since February 2017 and continued to do so in October, declining 6.8% y/y. Mortgage loans extended to corporates increased by 5.8% y/y and 2.4% m/m. Overdraft facilities extended to corporates decreased 6.4% m/m while rising 5.0% y/y.

Banking Sector Liquidity

The average monthly liquidity position of commercial banks decreased from N$3.55 billion in September to N$2.85 billion in October. The decrease is attributed to cross border payments made during the month of October.

Reserves and money supply

Foreign reserves rose by N$138.2 million to N$31.6 billion at the end of October from N$31.4 billion in September. According to the Bank of Namibia the increase in the level of reserves stemmed from the inflows of Southern African Customs Union (SACU) receipts. Reserve balances going forward should further improve following the recent approval of a N$2 billion loan facility from the African Development Bank (AfDB) that has been earmarked for the agriculture and education sectors.

Outlook

With 2017 drawing to a close private sector credit extension has since the start of the year been on a downward trajectory. The slower rates of growth as recorded in the October figures points towards subdued demand for credit, especially from households. This speaks of an over-committed consumer that was further impacted by legislature changes earlier this year that tightened the affordability and qualifying criteria. Relief for consumers was expected through the possibility of easing monetary policy. This was backed by the first rate cut in five years of 25 basis points in July by the SARB and in August by BoN. At the time moderating inflation and the need to aid both struggling economies set the stage for what many expected would be the start of a rate cutting cycle.

Since then, South Africa has been downgraded by both Fitch and S&P while Namibia was not spared in its own respect by Moody’s and Fitch Ratings. Four MPC meetings later, hopes of further rate cuts were dispelled when both committees elected to keep rates unchanged. Credit ratings agency have longed warned of the implications of fiscal indiscipline and it has been clear of late that those weren’t mere warnings. Moody’s has placed South Africa on review and will make a decision in the three months. The risk in Moody’s downgrading South Africa’s local currency in February has the biggest implication in that it will result in South Africa losing its place in global bond indexes. Exclusion from these indices will result into large capital outflows that in turn will result in upside risks for inflation as well as a blow out of the rand. The SARB will most likely in that event rate hikes in an effort to stabilize the currency with Namibia having little room to do anything but adopt the same measures, thus putting further pressure on private sector credit extension.

NCPI – October 2017

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Annual inflation has slowed to 5.2% y/y in October, following a rise in prices of 5.6% y/y in September. Slower increases in the prices of food and non-alcoholic beverages, in addition to contracting prices for clothing and footwear contributed towards annual inflation rising at a slower rate in October. On a year on year basis, prices in three of the twelve basket categories rose at a quicker rate in October than in September, with six categories recorded lower rates of inflation, while the rate of inflation in three categories remained unchanged. Prices for goods rose by 3.1% y/y while prices for services increased by 8.0% y/y.

Housing and utilities, the largest contributor to annual inflation by weighting, recorded an increase in inflation of 8.6% y/y and a decline 0.1% m/m in October. The electricity and other fuels subcategory recorded an increase in prices of 4.1% y/y, which is a slower rate of increase compared to 6.0% registered the previous month. On a m/m basis prices in this subcategory contracted by 0.4%. Consumers were spared a fuel price increase during October and we expect prices to come under pressure following a fuel pump price increase in November and December at 40 cents and 50 cents respectively.

Food and non-alcoholic beverages contributed about 17% towards annual inflation. One of the major reasons for the slowdown in inflation this year has been the continued moderation in food inflation. Prices in this category rose by 3.7% y/y, lower than the 4.2% recorded in September. Prices for bread and cereals contracted by 2.7% y/y while prices for fish and meat rose by 15.2% and 9.2% respectively.

Alcoholic beverages and tobacco, the third largest category, saw prices increase 5.7% y/y compared to an increase of 6.0% in October of 2016. Prices of alcoholic beverages rose 5.5% y/y while tobacco prices accelerated by 6.4% y/y. Transport prices rose by 4.4% y/y and 0.6% m/m. Prices related to the purchases of vehicles rose by 6.5% y/y in October compared to 3.9% y/y increase in September.

South African inflation rose 4.8% in October following a 5.1% increase in September. The SARB kept its benchmark rate unchanged at 6.75%, having cut rates for the first time in five years in July this year. Escalating uncertainties in the economy as well as potential upside risks to inflation were cited as reasons to the latest decision to keep rates unchanged. Though annual inflation remains within the SARB’s target band, concerns remain that the rand was sensitive to political developments and weak economic growth prospects. The ratings downgrade of South Africa’s local currency to “junk” from S&P Global Ratings sent the rand tumbling. This was however offset by Moody’s decision to place South Africa on review. A ratings downgrade from Moody’s will effectively push South Africa out of major global bond indices, resulting into large capital outflows that will have significant bearing on inflation. Namibia’s foreign currency rating was recently cut to “junk” by Fitch ratings on the back of a mid-year budget review that was tainted by expenditure over-runs, disappointing revenues and escalating debt to GDP levels. Future debt issuance will most likely become more expensive as a result, especially in international capital markets. Though inflation has been