Category Archives: Economic Research

Economic Research

Namibia CPI – November 2016

By | | ,
Comments Off on Namibia CPI – November 2016

1

The Namibian annual inflation rate remained at 7.3% y/y in November, unchanged from October. Prices increased by 0.2% m/m. The yearly increases were largely driven by the housing, water, electricity and other fuel category which increased at a rate of 7.9% y/y, the food and non-alcoholic beverages category which increased by 11.6% y/y and the alcohol and tobacco category which was up 6.5% y/y. Overall five of the twelve basket categories increased at a faster rate than the preceding month, three at a slower rate and four categories grew at a largely unchanged rate.

2

Housing and utilities was the largest contributor to inflation, due to its large weighting in the basket. This category increased at a rate of 0.1% m/m and 7.9% y/y and contributed 2.1% to the annual inflation figure. The high level of inflation in this category can be attributed to annual increases in rentals as well as increasing utility costs. Rental increases are normally a yearly adjustment in January. Rentals increased 7.0% m/m in January 2016 and has remained at a 7.0% y/y level ever since. Given the current state of the housing market, it is possible rental escalations may be lower next year and, and as a result of the high base, we may see this category contribute less to inflation going forward. However, the increases in utility costs continue and the water supply, sewerage service and refuse collection category increased by 1.5% m/m and 12.4% y/y.

3

Food and non-alcoholic beverages, the second largest basket item, was also the second largest contributor to annual inflation. Food inflation is currently running at 11.6% year on year, down slightly from the 11.7% y/y figure seen in October. The sub-categories of food generally showed strong monthly increases of between 0.5% and 1.0%, except for a 1.9% m/m increase in bread and cereals, a 0.4% m/m decrease in meat and fish which decreased by 0.8% m/m. On an annual basis, fish prices have increased by 26.6% while meat is only 4.4% more expensive. The upwards pressure on food prices is mainly a result of the drought in Southern Africa which will hopefully ease as the rainy season for 2016/17 begins.

4

The Alcohol and tobacco category displayed increases of 6.5% y/y and 0.6% m/m. Interestingly, tobacco prices increased by only by 0.1% y/y, while alcohol increased at a much quicker pace at 8.1% y/y. Transport prices increased by 3.7% y/y in November, purchase of vehicles increased by 9.9% y/y while public transport is 0.4% cheaper than one year ago. Hotels, Cafes and restaurants prices increased by 9.2% y/y, furnishings and household maintenance increased by 7.7% y/y and education is 7.6% more expensive on a y/y basis.  Other noteworthy items include package holidays which increased 1.1% m/m and household appliances which were 1.7% cheaper than the preceding month.

5

Namibian inflation remains higher than in South Africa, and expectations are for high inflation to continue in both countries. South African inflation is expected to average 6.4% in 2016 and 5.8% in 2017, according to the SARB’s November 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.

Due to SA inflation expectations which return to the target band in 2017 and the low level of growth we do not anticipate repo rate increases in response to inflationary pressures from the SARB. Our expectations of Namibian inflation for 2016 is for an average of 6.7% and for 6.4% in 2017. The main reason for relatively high level being the continual increases seen in administered prices and the unrelenting food price inflation.

Namibia New Vehicle Sales – November 2016

By | | ,
Comments Off on Namibia New Vehicle Sales – November 2016

1

A total of 1,317 vehicles were sold in November, a strong bounce from the low witnessed last month, with the value being 13.8% higher than October’s monthly figure. Despite higher volumes sold on a monthly basis, the November figure is still 23.5% lower than that of November 2015. Since January this year, 15,532 new vehicles have been sold, down 21.0% from the number of vehicles sold over the comparable period last year. Year to date vehicle sales have been slower than both 2015 and 2014, but is still slightly ahead of 2013 levels.

2

Vehicle sales have been contracting on a year on year basis since mid-2015. The slowdown has been felt in both passenger and commercial vehicles, with passenger vehicle sales down 9.0% y/y and commercial vehicle sales down 31.0%. Within the commercial vehicle segments the light commercial category, which makes up the bulk of sales, has decreased by 32.8% y/y, while heavy commercial vehicle sales have decreased by 21.9%. Contrary to these contractions medium commercial vehicle sales have increased by 25% y/y, however, in nominal terms this amounts to only 6 additional vehicles versus last November.

3

Passenger vehicle sales increased by 16.3% m/m to 535 vehicles in November, while commercial vehicles sales increased by 12.2% m/m to 782. This brings the total number of passenger and commercial vehicles sold in 2016 to 6,566 and 8,966 respectively. Of the 8,966 commercial automobiles, 8,247 were classified as light, 259 as medium and 460 as heavy commercial.

4

On a year to date basis, Toyota and Volkswagen dominated the passenger vehicle market based on the number of vehicles sold. Toyota and Volkswagen claimed 27% and 26% of the market respectively. They were followed by Ford at 6% and Mercedes at 5%. The rest of the passenger vehicle market is very fragmented.

5

Toyota remains the leader in light commercial vehicle sales with 44% of the market, followed by Nissan at 15%. Ford and Isuzu each claimed 10% of the number of light commercial vehicles sold in 2016. In the heavy category, Scania is the largest seller, commanding 44% of the market share.

6

The Bottom Line

Throughout the period of 2014 all the way to mid-2015, we have seen robust growth in vehicle sales, which was driven by a strong consumer base supported by expansionary fiscal and monetary policy and real wage growth. However, vehicle sales have seen a severe contraction in 2016, but the slight uptick in November is encouraging, although it might simply be seasonal. This year’s slowdown has largely been a result of higher interest rates and amendments to the Credit Agreement Act., which requires a deposit of 10% on all vehicle loans and limits repayment periods to 54 months. Furthermore, reduction in government spending (directly on vehicles and otherwise), and a generally weak economic climate have adversely impacted the demand for vehicles.

Going forward we expect the slowdown to continue. Interest rates may increase in response to increases by the US Federal reserve. Additionally, the adverse effects of lower government spending on capital expenditure should also put pressure on vehicle sales for the foreseeable future.

PSCE – October 2016

By | | ,
Comments Off on PSCE – October 2016

1

Overall

Total credit extended to the private sector increased by N$206.7 million or 0.24% in October, bringing the cumulative credit outstanding figure to N$84.60 billion. Annual growth in PSCE came down slightly, to 10.2%, versus the September figure of 11.1%. Over the last twelve months a net of N$7.85 billion worth of credit was extended, N$3.32 billion to corporates, N$4.34 billion to Individuals and 190.1 million to the nonresident private sector.

Credit extension to households2

Credit extension to households expanded by 0.8% m/m and 9.7% y/y in October. Installment credit to individuals has been steadily decelerating since the start of 2015, down from its peak growth of 23.5% y/y, and is currently running at 9.6% y/y. However, given the 19.5% drop in vehicle sales, this growth is still relatively high and has not seen contracted since 2009. Mortgage loans to individuals have also been slowing, but are still displaying double digit growth of 10.3% y/y. The slowdown in these sections are likely to continue as interest rate increases dampen the demand for new debt and low banking sector liquidity suppresses the supply of loans. Mortgage loans make up the largest portion of credit extended to individuals, currently accounting for 67% of credit, while installment credit makes up nearly 15% of the total figure.

Credit extension to corporates

3

Credit extension to corporates contracted by 0.5% m/m in October versus September’s expansion of 2.0% m/m. On a yearly basis extensions slowed to 10.4% y/y from 12.7% y/y in September. This represents a marked slowdown from the 17.5% y/y figure exhibited in October 2015. October saw overdrafts contract by 2.2% m/m and installment credit decrease by 1.1% m/m, while mortgages, the largest portion of corporate credit, remained flat on a monthly basis. On an annual basis growth was largely driven by the other claims section, which grew 26.8% y/y. Mortgage loans grew by 6.7% y/y and overdrafts were up 9.2% y/y. The split of private sector credit between corporates and individuals is still skewed towards individuals who hold 61% of the total credit extend.

4

The overall liquidity position of commercial banks decreased to an average of only N$1.1 billion during October 2016, reflecting a decrease of N$2.0 billion when compared to the preceding month. These low levels of liquidity are causing the banks to make use of the Bank of Namibia’s repo facility more often, average repos amounted to N$588 million over the month of October.

Reserves and money supply

Foreign reserves decreased by N$1.4 billion (-5.2% m/m) to N$25.1 billion at the end of October. The decrease emanated mainly from net government payments and net foreign currency purchases by commercial banks during the reviewed period.

5

Outlook

Private sector credit extension growth continues to slow as a result of lower demand and supply. 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. This, in conjunction with amendments in the credit affordably act, has undoubtedly dampened down conventional credit demand.

6

 

Since the start of the rate hiking cycle in 2014, the Bank of Namibia has increased the repo rate six times in 25 basis point increments, from 5.5% to the current 7.0%. Future increases are likely to follow moves made by the South African Reserve Bank, as has been the case over the last couple of years, guarding against capital outflows and protecting the currency peg.

The SARB, however, seem very uncertain of the direction of monetary policy as they face several unknowns in the near future. Firstly, all three ratings agencies are on a negative outlook and South Africa (narrowly) avoided a downgrade by S&P early in December. If there is no clear indication of an upswing in the growth trajectory by June, it is completely conceivable that South Africa will be downgraded to a “junk” rating. The political landscape also continues to be a headache as the ANC failed to pass a vote of no confidence in president Jacob Zuma who responded by launching a challenge to the public prosecutors State of Capture report.

Secondly, the SARB faces a storm of global uncertainties. Economic policy uncertainty has arisen following the US presidential election, as speculation is for president Donald Trump to usher in a new era of fiscal expansion. In Europe, Brexit has sparked a new wave of “-xit” possibilities, including Frexit and Italexit. Italy’s referendum on constitutional reform that took place early in December is poised to set the political and economic stage for the foreseeable future. The “no” vote dealt a blow to investor confidence as it could be significantly detrimental to Italy’s banking sector and may have serious contagion effects on the rest of the Europe.

Lastly, South Africa faces a combination of low growth and high inflation making monetary policy a tight balancing act. Given these factors our base case remains for South African interest rates to remain flat for the remainder of this and next year.

Our second scenario is built around a disorderly reaction to a ratings downgrade which may take place in the second half of 2017. Large outflows, currency depreciation and the resultant inflationary pressures will warrant a reaction from the SARB. Rate hikes of 50 basis points can be expected as an immediate reaction, possibly followed by further rate hikes as the reserve bank deems necessary.

A third scenario, fueled by a breakdown in the European Union, leads to worldwide economic weakness and monetary easing from the major central banks. Looser monetary policy leads to fund flows into EM nations including South Africa lending support to the Rand and allowing the SARB to focus on stimulating the South African economy. The SARB will likely cut by 50 basis points in late 2017 in this scenario.

Whichever outcome materializes for South Africa, the Bank of Namibia is likely to follow the SARB relatively closely. Any further increases in rates will put further pressure on the consumer which will in turn affect corporates. However, the last round of increases is still filtering its way through the system and thus we expect PSCE growth to continue to slow recovering only mid-2017.