Category Archives: Economic Research

Economic Research

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.

 

Namibia New Vehicle Sales – March 2017

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A total of 1,402 vehicles were sold in March, a 21.8% m/m increase from the 1,151 vehicles sold in February, but 9.6% lower than March 2016 when 1,551 vehicles were sold. Year to date 3,463 vehicles have been sold, of which 1,635 were passenger vehicles, 1,683 light commercial vehicles, and 145 medium and heavy commercial vehicles. Compared to the first quarter of previous years, this is below the numbers for the last five years.

Vehicle sales have been contracting on a year on year basis since mid-2015 and this trend continued unabated in March. Although the last month saw a month on month uptick in the number of vehicles sold, cumulatively still off to a very slow start. The slowdown is evident in both the passenger and commercial segments, the former having contracted 5.5% y/y while the latter is down by 13.2% y/y. On a twelve-month cumulative basis, vehicle sales are down 19.7%. It is quite concerning that the heavy and extra heavy commercial segments have seen some of the lowest first quarter sales in nearly ten years, which would indicate that businesses are not investing in new equipment.

Passenger vehicle sales increased by 26.2% m/m to 688 vehicles in March, while commercial vehicles sales increased by 17.8% m/m to 714. Of the 714 commercial automobiles sold, 642 were classified as light, 23 as medium and 49 as heavy. The sharp month on month increase seems to be a seasonal trend, as vehicle sales are normally higher in March on average. However, it remains a positive sign that sales have been in line with previous years for the month of March.

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% of the market each. They were followed by Ford at 7% and Mercedes at 5%, while the rest of the passenger vehicle market was shared by several competitors.

Toyota also remains the leader in light commercial vehicle sales with 47% of the market, followed by Nissan at 17%. Ford and Isuzu claimed 15% and 10% of the number of light commercial vehicles sold in 2017. In the heavy and extra heavy category, Mercedes and Scania have sold the most vehicles, claiming 30% and 25% of the market respectively.

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 for into 2017. This is due to four main factors. Firstly, Lower government spending, specifically on capital assets will have a direct effect on the number of vehicles sold. The latest budget confirms that this will be the case as only N$45.1 million has been budgeted for the purchase of vehicles in the 2017/18 fiscal year’s development budget, a large cut from the N$382.2 million spent in 2015/16. Secondly, slower economic growth means that consumers will have lower disposable incomes on which to spend on capital assets. Thirdly, the bank of Namibia has implemented the Credit Agreement Act, which requires a deposit of 10% on all vehicle loans and limits repayment periods to 54 months. This has reduced the number of people eligible for credit to purchase vehicles. Lastly, the possibility of higher interest rates following the credit downgrade in South Africa, might deter long term borrowing, weighing further on demand.

Namibia CPI – March 2017

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Annual inflation declined to 7.0% in March, 0.8% lower than in February, while prices increased by 0.1% on a m/m basis. The decrease in annual inflation was largely as a result of a drop in food prices and a slight decrease in rental payments for dwellings. Neutralising some of the impact of falling food prices was an increase in the price of vehicles and the cost of operating transport equipment due to an increase in fuel prices. Overall, prices in three of the twelve basket categories increased at a faster annual rate than during the preceding month, eight at a slower rate and one grew at a steady pace. Prices for goods increased 6.3% y/y while prices for services grew 8.1% 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. 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 despite a 0.6% decrease in prices on a monthly basis. Food and non-alcoholic beverage prices increased by 7.4% y/y, a significant slowdown compared to the 11.3% increase in February. The slowdown in annual food and non-alcoholic beverage inflation was partly due to base effects of a large monthly increase in March 2016 as well as the decrease in prices on a monthly basis in March 2017. The price cuts in maize and flower seen earlier this year mean that bread and cereal prices are now only 1.5% up from March 2016. While annual growth in coffee, tea, and cocoa prices has slowed slightly, this subcategory has still seen prices increase by 22.7% on a y/y basis, the quickest in the food basket. Fish prices are also still significantly up over last year at 16.7%.

Transport costs were one of the few basket categories to see an increase in annual inflation rate in March. As suggested earlier, this is largely due to an increase in fuel prices during the month and supported by increases in vehicle prices. Growth in the annual increase in vehicle prices has continued to slow at 6.9% in March versus 9.4% in February, while growth in the cost of operating personal transport equipment increased to 8.5% y/y versus 4.5% in February.

The Alcohol and tobacco category displayed increases of 4.4% y/y and 0.4% m/m in March versus 5.4% y/y and 0.3% m/m in February. The main driver in this basket category remains alcohol prices with tobacco prices relatively flat y/y.  The increases in sin taxes should put upwards pressure on alcohol and tobacco prices in April as the increased tariff is passed on to the consumer.

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 process remain relatively stable at around US$55/barrel, and the end of the regional drought has brought some relief to consumers with some food prices actually declining. The recent downgrade of South Africa’s credit rating however, has seen the rand depreciate from R12.3/US$ to R13.50/US$ with further weakness a likelihood. 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. Due to currency effects we expect annual inflation to remain elevated over the short term although possibly dipping below 7% in April.