Category Archives: Economic Research

Economic Research

Building Plans – May 2017

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A total of 182 building plans were approved in May with a value of N$655.5 million, while 47 buildings with a value of N$25.1 million were completed. Although the number of plans approved remains relatively low, the value of plans approved saw a sharp increase, as N$501.2 million worth of commercial properties were approved in May. The year to date value of approved building plans currently stands at N$1.16 billion, 44.7% higher than the corresponding period in 2016. On a twelve-month cumulative basis, 1774 building plans were approved worth approximately N$2.33 billion, 13.1% higher than the preceding twelve-month period.

The majority of the number of building plan approvals were made up of additions to properties. 143 plans were approved in May. Year to date 596 additions to properties were approved with a value of N$359.2 million, 5.1% more in value terms than the corresponding period in 2016.

New residential units were the second largest contributor to building plans approved. 136 residential units were approved year to date, 46 more than the corresponding period in 2016. In dollar terms, N$250.6 million worth of residential plans were approved, 32.4% higher than the corresponding period in 2016. The increased activity in the residential sector has been quite a positive development given the current state of the Namibian construction industry.

The number of commercial units approved in 2017 amounted to 16, valued at N$551.3 million, of which 3 plans were approved in May with a combined value of N$ 501.2 million.  This compares to 33 units valued at N$271.4 million approved over the same period in 2016. The approval of these large commercial properties is also a positive development due to the large number of people employed on these seemingly large projects.

Unfortunately, the longer-term trend remains quite negative. 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 1,774 building plans were approved, 16.7% less than the same measure for May 2016.

Although the month of May witnessed some encouraging developments such as the approval of large commercial properties along with decent number of plans in the residential sector, the construction industry is still struggling. The Construction Industries Federation (CIF) of Namibia claims that 63% of businesses have either closed, are dormant, or have scaled down operations drastically, while at least 30% of the construction workforce has already been retrenched. The CIF expects this situation to worsen if no new tenders are allotted by the end of June.

The abrupt slowdown in the construction sector has caused ripple effects in the economy. According to the CIF, “Retrenchments are being experienced across the entire supply chain. Not only the building and civil contractors, and subcontractors such as electricians, plumbers, flooring specialists, roofers, painters as well as air-condition technicians are affected. Architects, engineers, quantity surveyors as well as suppliers of building materials also needed to scale down operations, and make large-scale retrenchments. Similarly, manufacturers and suppliers of building material are also experiencing a serious downturn.”

PSCE – April 2017

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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

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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.