Category Archives: Economic Research

Economic Research

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.

 

New Vehicle Sales – August 2017

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New vehicle sales of 1,094 units were recorded in August, with sales falling by 19.9% from the 1,366 new vehicles sold in August 2016. On a m/m basis, new vehicle sales fell by 18.7%, with August recording 252 less in sales than July. Year to date, 9,272 vehicles have been sold, 21.4% less than sales recorded in the corresponding period of 2016. Of the 9,272 vehicles sold this year, 3,978 were passenger vehicles, 4,848 were light commercial vehicles, and 446 were medium and heavy commercial vehicles.

Passenger vehicle sales fell by 24.5% y/y, to 400 vehicles, while commercial vehicle sales have fell by 17.0% y/y. Of the 694 commercial vehicles sold in August: 650 were classified as light, 12 as medium and 32 as heavy. Heavy commercial vehicle sales contracted by 25.6% y/y. The highest volume for this calendar year so far, was the sales in June of 83 units, which provided some optimism as increased capital spending pointed toward improving business confidence. Light commercial vehicles sales make up the bulk of this category’s sales, reporting a decline of 15.7% m/m and falling 15.1% y/y.

On a twelve-month cumulative basis, vehicle sales remain under pressure, contracting by 24.4% y/y. Instalment credit, which is mainly used to finance vehicle purchases, has slowed considerably. Although, instalment credit increased by 0.5% m/m in July, this followed six months of consecutive m/m declines, bringing the annual growth to -1.4% y/y.

Year to date, Toyota and Volkswagen continue to maintain their strong hold on the passenger vehicle market. Based on the number of new vehicles sold, claiming 36% and 25% of the market respectively. They were followed by Ford and Mercedes at 7% and 4% respectively, while the rest of the passenger vehicle market continues to be shared by several competitors. Toyota also remains the leader in light commercial vehicle sales with 47% of the market, followed by Nissan at 16%. Ford and Isuzu claimed 12% and 9% of the number of light commercial vehicles sold in 2017.

Hino leads in medium commercial vehicles with 33% of the market, with Iveco following with 27%. In the heavy and extra heavy category, Scania and Mercedes have sold the most vehicles, claiming 29% and 17% of the market respectively. UD Trucks came in at third, with 14% of the number of vehicles sold in this category in 2017.

The Bottom Line

Overall vehicle sales are under pressure and have been since late 2015. The Private Sector Credit Extension (PSCE) growth figures prove testament to waning consumer and business confidence and an already stretched consumer as instalment credit, mainly used to finance capital goods, remains sluggish. The amendments to the Credit Agreement Act had a significant effect on consumer spending as well. Bearing in mind that government is still in its fiscal consolidation cycle with no with little to no plans to increase capital expenditure in sight. Vehicle sales showed signs of slight improvement the previous three months before slumping by 18.7% m/m, and is likely to remain subdued going forward.

PSCE – July 2017

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Overall

Total credit extended to the private sector increased by N$387.7 million or 0.44% m/m in July, bringing the cumulative credit outstanding to N$87.9 billion. On a year on year basis, credit extended grew by 6.82% in July, compared to a revised 7.21% recorded in June. Growth in total private sector credit extension continues to fall in 2017, on a rolling 12-month basis N$5.6 billion worth of credit was extended. N$1.71 billion in credit has been extended to corporates and N$3.97 billion to individuals on a 12-month cumulative basis, while the non-resident private sector has decreased their borrowings by N$31.15 million.

Credit extension to households

Growth in credit extension to individuals ticked up slightly to 8.35% y/y and 0.5% m/m, compared to 8.27% y/y growth recorded in June. Installment credit rose by 0.24% m/m while year on year growth marginally rose 0.4%. The decline in new vehicle sales of 12.8% year on year is reflected in the subdued growth in installment credit, with new vehicle sales making up a large portion thereof. Furthermore, the contraction in new vehicle sales are attributable to a slowing economy and the amendments to the Credit Agreement Act. These amendments now obligate shorter repayment periods, the abolishment of balloon payment options and zero deposit financing. Growth in mortgage loans showed relative improvement in July, recording growth of 0.6% m/m and 8.7% y/y. Overdraft facilities extended to individuals slowed by 0.2% m/m but rose by 18% y/y, the highest it has been since December 2014. Other loans and advances recorded growth of 1.2% m/m and 16.5% y/y.

Credit extension to corporates

Credit extension to corporates rose 0.4% m/m in July from contracting 1.6% in June. Year on year credit extension rose 5.0%, falling from year on year growth of 5.6% in June. Installment credit extended to corporates grew 0.8% m/m, rising for the first time following nine consecutive months of contraction. Year on year installment credit extended to corporates has contracted by 4.1%. Mortgage loans extended to corporates in July showed improvement, rising 3.2% m/m and 7.0% y/y. Mortgage loans extension growth to corporates has been slowing down since the start of the year with. Growth in overdraft facilities extended to corporates contracted 2.6% on a m/m basis and rose 17.6% y/y.

 

Banking Sector Liquidity

The average monthly liquidity position of commercial banks closed at N$2.97 billion in July after averaging above N$3.1 billion during May and June. This would suggest that this was the start of the flow of funds received from the AfDB loan to entities owed as was assured by the Ministry of Finance. With all invoices set to have been settled by the end of August. The overall liquidity position still looks positive and bodes well for commercial banks having increased levels of loanable funds available. However, it remains to be seen exactly how commercial banks will put into effect imminent changes to IFRS9. These changes could have potentially significant bearing towards how banks, going forwards grant credit facilities, the term and effective cost thereof to be carried by the consumer.

Reserves and money supply

Foreign reserves rose by N$5.163 billion to N$33.6 billion at the end of July from N$28.5 billion in June. According to the Bank of Namibia the increase in the level of reserves emanated mainly due to the repatriation of funds by financial institutions, the African Development Bank (AfDB) loan inflow and the repayments by the National Bank of Angola.

Outlook

Private sector credit extension remains very subdued continuing to slowdown as the year progresses. The South African Reserve Bank (SARB) cut its repo rate by 25 basis points in July, this however did little to avoid an unexpected slowdown in South Africa’s private sector growth that moderated to 5.71% in July from 6.16% in June. Bank of Namibia (BoN) followed suit in effecting a rate cut of 25 basis points as well, citing the need to support an ailing economy and maintaining the currency peg between the Namibian Dollar and the SA Rand. The improvement in foreign currency reserves does bode well in achieving the its goal of maintaining the peg. Further rate cuts are expecting at MPC meeting in August and September for the SARB and BoN respectively. Should that hold to be true, we might see an increase in private credit extension, since a single reduction of 25 basis points was going to do little to spur on demand for credit. The current slowdown in private credit extension is testament to an already stressed consumer. A scenario that speaks of low consumer and business confidence. A consumer that is already overburdened and may soon face further tightening of credit qualifying criterion, should our expectations of the effects of IFRS9 come to fruition.