Category Archives: Economic Research

Economic Research

PSCE – April 2017

By | | ,
Comments Off on PSCE – April 2017

Overall

Total credit extended to the private sector increased by N$113.7 million or 0.13% m/m in April, bringing the cumulative credit outstanding to N$87.36 billion. On a year on year basis, credit extended grew by 8.1%, the slowest growth recorded since mid-2010. On a rolling 12-month basis, N$6.51 billion worth of credit was extended, down significantly from the highs of 2015. This consisted of N$2.49 billion worth of credit extended to corporates and N$4.06 billion to individuals, while the non-resident private sector decreased their borrowings by N$33.7 million.

Credit extension to households

Credit extension to individuals continued to slow in April, expanding by 8.7% y/y and 0.5% m/m. Installment credit contracted by 0.5% m/m bringing the year on year growth to 2.2%. Vehicle sales, which make up a large portion of installment credit, has been in negative territory since the end of 2015 which has decreased the demand for these loans considerably. Similarly, the growth in mortgage loans has been slowing from an average of 12.3% y/y over the previous five years to the current level of 8.9% y/y.

The general slowdown in credit extended to individuals is attributable to tighter lending conditions and banking sector liquidity, as well as a deterioration in the creditworthiness of the average borrower due to an increase in debt to incomes over the last two years. Additionally, overdraft loans to individuals has picked up strongly in 2017, increased by 1.2% m/m and 12.3% y/y in April, which is an indication of the financial stress felt by the consumer.

Credit extension to corporates

Credit extended to corporates contracted by 0.4% m/m in April after contracting 0.3% m/m in March. This has slowed annual growth to 7.4% y/y, the lowest growth rate since December 2011. Instalment credit extended to corporates contracted by 0.8% m/m, the seventh consecutive monthly contraction, which brings the annual growth figure to 0.2% y/y. Mortgage loans extended to corporates also contracted by 0.4% m/m and grew by 6.1% y/y. Mortgage loans extended to corporates have recorded single digit growth figures for the last eight months, a significant slowdown from the 20% plus growth rates seen pre-March 2016. Overdrafts have increased quite strongly, growing by 1.3% m/m and 12.6% y/y.

Banking Sector Liquidity

Although still relatively low, the overall liquidity position of commercial banks improved to an average of N$1.84 billion during April, a N$467.4 million improvement from the preceding month. We expect liquidity to continue improving as the loan from the African Development Bank has relieved some of the pressure on government to fund their deficit though debt issuance. This will allow some of these funds to find its way back to the banking sector, decreasing the cost of funding and opening margins for the banks. An increase in funding would increase the supply of loanable funds and would likely be supportive of credit extension going forward.

Reserves and money supply

Foreign reserves increased by N$3.1 billion to N$25.7 billion at the end of April from N$22.6 billion in March. According to the Bank of Namibia the rise in the level of reserves emanated mainly from SACU inflows. The increase in foreign reserves is estimated to increase our import coverage ratio to 3.1x, up from the 2.7x reported in March and above the best practice of a minimum of three months import cover.

Outlook

The outlook for private sector credit extension has improved slightly. As mentioned, we expect short term money market investments to find their way to the banking sector, increasing the supply of loanable funds and drive down funding costs. Which should incentivize the commercial banks to lend more. However, the demand for credit may remain slightly muted as the economic environment has not yet improved to such an extent as to increase the demand for capital goods such as houses and vehicles. Furthermore, South Africa’s local currency debt rating is still under review by both S&P and Moody’s. A downgrade of this rating may trigger capital outflows resulting in currency depreciation and higher inflation expectations. As the South African Reserve Bank is an inflation targeting bank, an unexpected increase in inflation due to currency weakness could trigger interest rate hikes which will have to be matched by Bank of Namibia, putting pressure on credit extension.

Building Plans – April 2017

By | | ,
Comments Off on Building Plans – April 2017

A total of 143 building plans were approved in April with a value of N$112.9 million, while 9 buildings with a value of N$26.7 million were completed. Thus far 2017 is off to a poor start, year to date 566 plans were approved while 76 were completed, the lowest number of plans approved and completed in the last twenty years. The year to date value of approved building plans currently stands at N$505.6 million, 32.4% lower than the corresponding period in 2016. On a twelve-month cumulative basis, 1694 building plans were approved worth approximately N$1.73 billion, 27.1% less than the preceding twelve-month period.

The largest portion of building plan approvals were made up of additions to properties, from both a number and value perspective. Year to date 453 additions to properties were approved with a value of N$274.9 million, 10.6% less in value terms than the corresponding period in 2016, but also 69 less additions in absolute terms.

New residential units were the second largest contributor to building plans approved: 100 residential units were approved year to date, 20 more than the corresponding period in 2016. In dollar terms, N$180.6 million worth of residential plans were approved, 2.0% higher than the corresponding period in 2016. It is encouraging to see that the slowdown has been less pronounced in the residential segment as there is still a lot of demand for middle and low income housing.

The number of commercial units approved in 2017 amounted to 13, valued at N$50.1 million. This compares to 31 units valued at N$263.4 million approved over the same period in 2016. On average over the last 20 years, 19.2 commercial units valued at N$157.6 million were approved in the first four months of the year, which would indicate that this is an especially slow year thus far.

The 12-month cumulative number of building plans approved has been steadily declining since its peak in September 2013. This figure has halved from the peak to lows last witnessed in 1991. In the last twelve months 1,694 building plans were approved, 23.8% less than the same measure for April 2016.

According to the Namibian Preliminary National accounts construction sector that recorded a decline in real value added of 29.5% for the year of 2016, which made it the largest detractor to economic growth. Between 2010 and 2015 construction took centre stage in the Namibian economy and created a substantial base off which continued growth was always going to be a challenge, but the abrupt slowdown is likely to cause ripple effects in the economy.

As a leading indicator for economic activity in the country this implies that the whole economy could remain under pressure for the foreseeable future. With government spending on infrastructure slowing and the current economic environment making it increasingly difficult for banks to extend credit, we expect further contractions in the construction sector in 2017 and possibly beyond. This is cause for concern as the sector has always been a large employer, and layoffs would have a negative effect on unemployment.

Namibia New Vehicle Sales – April 2017

By | | ,
Comments Off on Namibia New Vehicle Sales – April 2017

Vehicle sales slowed considerably in April with a total of 946 vehicles were sold, a 32.5% m/m decrease from the 1,402 vehicles sold in March and 36.7% lower than April 2016 when 1,495 vehicles were sold. The slowdown is also evident in the 12 month cumulative sales, as the last twelve months saw 15.0% less vehicles being sold relative to the preceding twelve months. Year to date 4,409 new vehicles have been purchased, the lowest level since 2011. Of these, 2,044 were passenger vehicles, 2,172 were light commercial vehicles, and 193 were medium or heavy commercial vehicles.

Vehicle sales have been contracting on a year on year basis since mid-2015 and year-to-date sales are well below the previous five years. The slowdown is evident in both the passenger and commercial segments, the former having contracted 39.9% y/y while the latter is down by 34.1% y/y. The slow sales numbers in the medium and heavy commercial vehicles remain worrisome, as it indicates a lack of business confidence which may be due to either unwillingness or inability to invest into businesses.

Passenger vehicle sales decreased by 40.6% m/m to 409 vehicles in April, while commercial vehicles sales declined by 24.8% m/m to 714. Of the 537 commercial automobiles sold, 489 were classified as light, 12 as medium and 36 as heavy. The sharp month on month decrease seems to seasonal in nature, as vehicle sales are normally higher in March on average. However, the last month is well below the average sales normally seen in April.

Year to date Toyota and Volkswagen continue to hold their market share in the passenger vehicle market based on the number of new vehicles sold, claiming 32% and 31% of the market respectively. They were followed by Ford and Nissan at 5% each, while the rest of the passenger vehicle market was shared by several competitors.

Toyota also remains the leader in light commercial vehicle sales with 49% of the market, followed by Nissan at 16%. Ford and Isuzu claimed 13% and 10% of the number of light commercial vehicles sold in 2017. Iveco is the leader of medium commercial vehicles with 29% of the market followed by Hino at 28%. In the heavy and extra heavy category, Mercedes and Scania have sold the most vehicles, claiming 26% of the market each.

The Bottom Line

From mid-2015, the new vehicle market in Namibia has been in a state of decline and it seems this trend will continue well into 2017. Lower government spending, specifically on capital assets have had a direct effect on the number of vehicles sold. Additionally, slower economic growth means that consumers will have lower disposable incomes and many consumers have been reigning in their spending as a result. Furthermore, the Credit Agreement Act, which was implemented in August of 2016, prescribes a deposit of 10% on all vehicle loans and limits repayment periods to 54 months. This has reduced the number of people eligible for vehicle financing.