Category Archives: Economic Research

Economic Research

PSCE – February 2017

By | | ,
Comments Off on PSCE – February 2017

Overall

Total credit extended to the private sector increased by N$937.1 million or 1.1% in February, bringing the cumulative credit outstanding to N$87.21 billion. This is a slight uptick in the annual growth rate which has increased to 9.0% from 8.5% in January. The increase was driven by increases in overdrafts and other loans. Over the last twelve months a net of N$7.23 billion worth of credit was extended, N$3.03 billion to corporates, N$4.24 billion to Individuals, while the non-resident private sector decreased their borrowings by N$43.6 million.

Credit extension to households

Credit extension to households pick up slightly in February, increasing 0.8% m/m and expanding by 9.2% y/y. The monthly increase was largely as a result of a spike in overdrafts and other loans which increased by 3.7% m/m and 4.2% m/m respectively, bringing the annual increases to 15.4% y/y and 21.8% y/y respectively. The sharp increases in these categories may be an indication of a very stretched consumer. Growth in mortgage loans on the other hand, was flat at 0.3% m/m and slowed to 9.2% y/y.

The slowdown in household credit is likely to continue as the demand for new debt remains low and low banking sector liquidity suppresses the supply of loans. Furthermore, there is an increased possibility of higher interest rates in the near future, which would deter long term borrowing. Installment credit has been the hardest hit by this squeeze as the demand for capital good such as vehicles has faded. Cumulative 12-month vehicle sales have declined by 21.3% y/y. Installment sales decreased by 0.2% m/m and grew by 5.3% y/y.

Credit extension to corporates increased by 1.5% m/m in February after increasing by 1.3% in January. On an annual basis credit extension accelerated to 9.1% y/y from 8.2% y/y in January. This was also due to strong growth in overdrafts and other loans, which grew by 4.8% m/m and 8.8% m/m respectively. Mortgage loans and installment credit growth was muted, mortgage loans grew by 0.3% m/m while installment credit declined by 1.8% m/m. This brings the annual extension figures for mortgages, overdrafts and installment credit to 7.1% y/y, 12.3% y/y and -0.2% y/y respectively. As with credit extended to individuals, the drop off in installment credit has been the most pronounced, and is now in negative territory on an annual basis. This means that, on average, corporates are repaying these loans, and is an indication that businesses are not expanding as they are not spending on equipment and vehicle fleets at the same rate as in the past.

The overall liquidity position of commercial banks improved to an average of N$2.11 billion during February. This is an increase of N$748.9 million when compared to the preceding month, which is usually a challenging month for the banking sector in terms of liquidity. Average repos decreased to N$880.8 million from N$1.29 billion in January. The continued use of the repo facility indicates that the banks are still facing challenges in terms of liquidity, although it seems to be improving.

Reserves and money supply

Foreign reserves decreased by N$231.3 million (-1.0% m/m) to N$22.71 billion at the end of February. According to the Bank of Namibia the decline in the level of reserves for the month under review emanated from the exchange rate appreciation effect.

Outlook

Despite the uptick in overdrafts, the overall trend for slower PSCE growth remains intact. Higher interest rates have dampened demand while a low liquidity environment constrains the supply of new loans. The gradual interest rate increases have reduced the discretionary disposable income of Namibian households while banks face increasingly expensive funding as a result of an increase in market rates due to excessive government borrowing. However, we see rising interest rates as the biggest obstacle facing private sector credit growth going forward.

Following the developments in South Africa, where president Zuma decided to fire his finance minister and stack his Cabinet with loyalists, we have altered our outlook to reflect the heightened risk of South Africa losing its investment grade rating. The South African president’s actions led to an immediate downgrade of the nation’s credit rating by S&P Global Ratings and we believe that either Moody’s or Fitch are likely to follow suite. Moody’s Investors Service, which rates South Africa’s debt at two levels above junk with a negative outlook, has already put the nation on review for a downgrade.

A ratings downgrade in South Africa is likely to lead to a downgrade of the Namibian credit rating as well. This would mean that both countries would have increased borrowing costs, a weaker currency and possibly higher inflation. This would likely trigger a move by the South African reserve bank to increase rates in which case Namibia would be forced to follow. Our downgrade scenario called for an immediate reaction of 50 basis points, with more to possibly follow. Higher interest rates and a weaker growth environment will put further pressure on private sector credit extension which is already waning.

Building Plans – February 2017

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

A total of 57 building plans were approved in February with a value of N$30.2 million, while 7 buildings with a value of N$27.4 million were completed. Thus far 2017 is off to a slow start, 231 plans were approved in the first two months while 48 were completed, the lowest numbers in the last seven years. The year to date value of approved building plans currently stands at N$289.7 million, 15.0% lower than the corresponding period in 2015. On a twelve-month cumulative basis, 1,694 building plans were approved worth approximately N$1.92 billion, 15.4% 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 186 additions to properties were approved with a value of N$165.7 million, 43.3% more in value terms than the corresponding period in 2016, but 49 less than the number of additions observed in the corresponding period in 2016.

New residential units were the second largest contributor to building plans approved: 37 residential units were approved year to date, seven less than the corresponding period in 2016. In dollar terms, N$82.5 million worth of residential plans were approved, 77.4% higher than the first two months of 2016.

The number of commercial units approved in 2017 amounted to 8, valued at N$41.5 million. This compares to 19 units valued at N$42.0 million approved over the same period in 2016. On average over the last 20 years, 9.3 commercial units valued at N$49.3 million were approved in the first two months of the year.

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, 28.4% less than the same measure for February 2016.

This decline is worrying as construction has been a major driver of growth in the last couple of years, and our overall GDP growth figures are likely to slow. 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 provides a substantial amount of jobs, on which many households depend.

Namibia CPI – February 2017

By | | ,
Comments Off on Namibia CPI – February 2017

The Namibian annual inflation rate declined slightly to 7.8% in February, 0.4% lower than the 8.2% y/y figure seen in January. Prices increased by 0.2% m/m. Annual inflation was mainly driven by housing, water, electricity and other fuel category which increased at a rate of 9.6% y/y and the food and non-alcoholic beverages category which decelerated to 11.3%, but still remains uncomfortably high. Overall, prices in two of the twelve basket categories increased at a faster rate than during the preceding month, nine at a slower rate and one grew at a steady rate. Prices for goods increased 7.5% y/y while services were 8.1% more expensive on a y/y basis.

Housing and utilities was 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. Overall the housing category increased 0.3% m/m and 9.6% y/y. This resulted in a contribution of 2.7% to the annual inflation figure. The monthly increases were driven by higher maintenance costs, which increased by 1.3% m/m and higher electricity and fuels costs which increased by 1.4% m/m. The other subcategories remained unchanged m/m, but water supply, sewerage service and refuse collection is still increasing by 11.5% y/y and electricity is now 8.3% more expensive than last February.

Food and non-alcoholic beverages, the second largest basket item, was the second largest contributor to annual inflation. Food inflation is currently running at 11.3% y/y, down from the 13.2% y/y figure seen in January. Despite the price cuts between 6% and 12% for flour and maize products announced by Namib Mills, food inflation moderated only slightly. Namib mills claimed the reduction in their prices were driven by improved rainfall over the maize production areas of southern Africa, as well as the strengthening of the Namibia dollar against the US dollar. Many of the sub-categories of food showed monthly decreases, bread and cereals prices were down 1.5% m/m, while fruits and vegetables decreased by 1.1% and 0.6% respectively. However, on an annual basis, bread and cereals prices have still increased by 10.3% y/y while fruits and vegetables are 13.0% and 4.3% more expensive. The downwards pressure on food prices should continue as the effects of a good rainy season filters through to prices.

The Alcohol and tobacco category displayed increases of 5.4% y/y and 0.3% m/m. Tobacco prices increased by 2.0% y/y, while alcohol increased at a much quicker pace at 6.3% y/y. The increases in sin taxes should put upwards pressure on alcohol and tobacco prices as the increased tariff is passed on to the consumer. Transport prices increased by 0.3% m/m and 4.7% y/y in February. Given that fuel levies are set to increase, as set out in the most recent budget, we should see further increases in fuel prices and further rises in transport inflation.

Namibian inflation is now much higher than that of South Africa, and expectations are for high inflation rates to continue in both countries. South African inflation is expected to average 6.2% in 2017, according to the SARB’s January MPC forecast. These expectations are largely driven by a weaker real effective exchange rate and the pass though effect of higher Import prices. The effect of higher food inflation due to the drought, and the pass-through effect of South African food prices on Namibia will likely cause the double digit increases in food prices to continue in the short term, although we are starting to see some of this pressure ease.

Due to expectations of high SA inflation, which remain outside of the target band for most of 2017, we will monitor the March MPC statement closely for a more hawkish SARB. However, given the low level of growth, which has been revised downwards to 1.1% in January, we do not anticipate repo rate increases in response to inflationary pressures in South Africa.

Annual inflation in Namibia averaged 6.7% in 2016, however given the surprisingly high monthly increases witnessed in January, inflation can be expected to remain quite high in 2017. The large monthly increase was driven mainly by rental increases of 9.7% m/m, the largest increase in the last 14 years. Thus, our expectation is for 2017 inflation to average 7.9%.