Category Archives: Economic Research

Economic Research

Namibia New Vehicle Sales – April 2017

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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.

Namibia CPI – April 2017

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Annual inflation declined to 6.7% in April, 0.3% lower than March. Prices increased by 0.3% m/m. The lower annual figure was due to moderation of food price inflation with is currently at 5.8% y/y, down from its 2016 average of 10.4%. Of the twelve basket items, only two saw a higher annual inflation rate, four remained unchanged, while seven categories saw lower rates of price increases. Prices for goods increased 5.6% y/y while prices for services grew 8.2% y/y, with slower growth in goods prices supported by a stronger Namibian dollar.

Housing and utilities remains the largest contributor to annual inflation due to its large weighting in the basket and the effect of irregularly high rental increases of 9.7% in January. Annual inflation in this basket category declined to 9.6% in March as the rental payments subcategory was adjusted downward by 0.1% on a m/m basis and have remained at that level in April. Furthermore an 8% tariff increase has been approved by the Electricity Control Board effective 1 July, which should put upwards pressure on this basket item going forward. We continue to expect the housing and utilities basket category to underpin overall inflation.

Food and non-alcoholic beverages, the second largest basket item, was the second largest contributor to annual inflation, accounting for 1.0% of the total 6.7% inflation. Food and non-alcoholic beverage prices increased by 5.8% y/y, a further slowdown compared to the 7.3% increase in March, and was below the peak of 13.2% witnessed in January.  The slowdown in annual food and non-alcoholic beverage inflation was partly due to base effects as well as lower inflation on agricultural produce resulting from good rainy seasons in parts of South Africa. Bread and cereal prices have moderated to 0.9% y/y, the price of vegetables have decreased by 1.3% y/y and fruits are 0.8% more expensive on an annual basis. While annual growth in coffee, tea, and cocoa prices has slowed slightly, this subcategory has still seen prices increase by 22.4% on a y/y basis, the quickest in the food basket. Fish prices are also still significantly up over last year at 15.8%.

Transport is one of the two basket categories which saw an annual increase in April. This was driven largely by the 8.2% y/y increase in the price of vehicles, but also by the 8.1% y/y increase in the operational cost largely due to higher fuel prices than last year.

The Alcohol and tobacco category displayed increases of 3.9% y/y and 0.4% m/m in April versus 4.4% y/y and 0.4% m/m in March. The main driver in this basket category remains alcohol prices which increased by 4.2%y/y while tobacco was up 2.5% y/y. Normally the effect of sin taxes result in average increases of 4.1% over the months of March and April, thus the increase of only 0.8% over those two months this year is unusually low, especially considering that sin tax increases have been larger than previous years.

Namibian inflation is decreasing at a faster pace than we anticipated at the start of the year. A strengthening rand on a y/y basis has driven a decrease in goods inflation specifically. Oil prices remain relatively stable at around US$50 to US$55/barrel, and the end of the regional drought has brought some relief to consumers with some food prices declining. The recent downgrade of South Africa’s credit rating however, has seen the rand depreciate somewhat, and more weakness could follow if local currency ratings are downgraded. This will flow through to inflation and could cause South African inflation to remain above the 3% to 6% target range for longer than expected. We also expect Namibian inflation to remain elevated in the short term, averaging around 7.4% for the year.

PSCE – March 2017

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Overall

Total credit extended to the private sector increased by N$34.4 million or 0.04% in March, bringing the cumulative credit outstanding to N$87.25 billion. This is the slowest monthly growth in credit extension since July 2011. On a year on year basis growth in PSCE of 8.5% was recorded, the second slowest rate of growth in PSCE in the last 5 years.  On a rolling 12-month basis N$6.85 billion worth of credit was extended, down significantly from the highs of 2015. Over the last 12-months N$2.8 billion worth of credit was extended to corporates, N$4.1 billion to Individuals, while the non-resident private sector decreased their borrowings by N$27.7 million.

Total credit extended to the private sector increased by N$34.4 million or 0.04% in March, bringing the cumulative credit outstanding to N$87.25 billion. This is the slowest monthly growth in credit extension since July 2011. On a year on year basis growth in PSCE of 8.5% was recorded, the second slowest rate of growth in PSCE in the last 5 years.  On a rolling 12-month basis N$6.85 billion worth of credit was extended, down significantly from the highs of 2015. Over the last 12-months N$2.8 billion worth of credit was extended to corporates, N$4.1 billion to Individuals, while the non-resident private sector decreased their borrowings by N$27.7 million.

 

Credit extension to households

Credit extension to individuals slowed markedly in March, increasing by 0.2% m/m and expanding by 8.8% y/y. On a month on month basis mortgage loans extended to individuals expanded by 0.6% versus 0.3% in the previous month, while on a y/y basis the rate of growth of mortgage loans extended to individuals continued to slow, growing at 9.0%. Overdrafts extended to individuals spiked last month, recording growth of 3.7%, compared to a contraction of 0.7% in March. Instalment credit extended to individuals continued to contract on a m/m basis, recording negative 0.7% m/m, and growing at 4.0% 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.

 

Credit extension to corporates

Credit extended to corporates contracted by 0.3% m/m and grew at 8.4% y/y in March, a slowdown compared to the previous month in both cases. Overdrafts extended to corporates increased by 14.9% y/y due to base effects, but contracted by 1.0% m/m. Instalment credit extended to corporates contracted by 0.6% m/m, the sixth consecutive monthly contraction, while also contracting by 0.5% y/y. Mortgage loans extended to corporates grew by 0.9% m/m and 6.8% y/y. Mortgage loans extended to corporates have recorded single digit growth figures for the last 7 months, a significant slowdown from the 20% plus growth rates seen pre-March 2016.

 

Banking Sector Liquidity

The overall liquidity position of commercial banks deteriorated to an average of N$1.37 billion during March, a decrease of N$738 million compared to the preceding month. The figure above illustrates the challenges faced by the banking sector. Low liquidity and high cost of funding has squeezed interest margins for banks, leading to less aggressive credit extension strategies than in the past. We would expect the established banks to be selective when extending loans to the private sector and employ less aggressive strategies to increase the size of their loan books.

 

Reserves and money supply

Foreign reserves decreased by N$134.3 million or 0.6% to N$22.58 billion at the end of March. According to the Bank of Namibia the decline in the level of reserves for the month under review stemmed from a decrease in net purchases of rand by commercial banks. The US dollar value of reserves has declined to below the 2013 average despite large inflows in the form of the second Eurobond as well as asset swap agreements. Thus in hard currency terms, merchandise trade imbalances continue to result in a natural flow of funds out of Namibia.

Outlook

The outlook for private sector credit extension remains muted. The recent downgrade of South Africa to junk status increased the risk of interest rate hikes just when the outlook was turning decidedly positive. While the currency has not depreciated as rapidly as might have been expected, and thus the inflation outlook in South Africa remains largely intact at present, the general search for yield and fund flows into emerging markets in all likelihood masked the effects of the downgrade to some extent and future currency depreciation is likely. 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.