Category Archives: Economic Research

Economic Research

New vehicle sales – July 2016

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A total of 1,570 vehicles were sold in July, 1.2% less than the number of vehicles sold in June and 18.8% down compared to the number of vehicles sold in July 2015. Since January this year, 10,437 vehicles have been sold, down 19.3% from the number of vehicles sold over the comparable period last year. Vehicles sales is currently trending down on a year-on-year basis. This suggests that this trend is likely to continue going forward.

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For the past 12 months, the number of vehicles sold on a cumulative basis in Namibia has been declining, posting negative since December 2015. On a 12-month cumulative basis, 18,747 vehicles were sold up to the end of July 2016, 16.5% less than the number of vehicles sold over the same period last year and 1.9% less than the cumulative number of vehicles sold in the 12 months to June this year.

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On a monthly basis, total passenger vehicle sales rose by 1.6% to 653 in July. On an annual basis however, total sales of passenger vehicles declined 16.5% from 782 in July 2015. The number of commercial vehicles sold decreased on a year-to-date and year-on-year basis, down 17.5% and 20.3% respectively. The decrease in the number of commercial vehicles sold was mainly driven by a contraction in light and medium commercial vehicle sales. On a month-on-month basis, the number of commercial vehicles sold declined by 3.1% in July from 946 in the preceding month.

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Toyota and Volkswagen continue to dominate the passenger vehicle segment with Toyota selling 207 (31.7%) vehicles and Volkswagen selling 158 (24.2%) of the 653 passenger vehicles sold. Toyota was the market leader in light commercial vehicle sales with 46.8% of the sales in this segment, followed by Ford with 15.4% and Isuzu in third place with 12%. Commercial vehicle sales continue to come in higher than passenger vehicle sales as has been the long term trend.

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 in those periods. However, recent data indicates that this is no longer the case as vehicles sales contractions have been seen. Strong growth in vehicle sales over the last couple of years has significantly increased the base on which vehicle sales growth is calculated and this has contributed to the contractions seen in vehicle sales on a 12-month cumulative basis and year-to-date basis. That said the number of vehicles sold on an annual basis is still fairly strong.

The slowdown in the number of vehicles sold has been driven by a number of factors. For instance, higher interest rates and inflation levels, reduction in government spending (directly on vehicles and otherwise), and a weaker economic climate at large have adversely impacted the demand for vehicles. In addition, the amendment to the Credit Agreement Act made on 20 July, enforcing a mandatory 10% deposit on all passenger vehicles and reducing the maximum repayment period to 54 months will further drive down vehicle sales and growth thereof going forward.

Building Plans – July 2016

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sumA total of 121 building plans were approved in July to the value of N$175.4 million. On a year-to-date basis, the City of Windhoek has approved 964 building plans, a significant decrease when compared to the 1,552 plans approved over the same period last year. The dollar value of building plans approved on a year-to-date basis stood at N$1,133.6 in July, down 9.3% or some N$116.2 million over the comparable period last year. The slowdown in the number of building plans has been mainly driven by lack of land available in Windhoek.

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A total of 13 more building plans were approved in July than in June. The dollar value of the plans approved in July came in at N$175.4 million, up 12.6% when compared to last month’s figure.  14 more residential units and 98 additions were approved during July. The residential units and additions approved in July were worth N$32.61 million and N$115.72 million respectively. The number of commercial units approved in July amounted to 9, valued at N$27.04 million.

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The 12-month cumulative number of building plans approved continued trending down in July, as depicted by the graph below.  On a 12-month cumulative basis, 1,879 building plans were approved in July, 30.9% less than the same measure for July last year. In value terms however, 12-month cumulative value of plans approved in July was 1.9% higher than the value of plans approved over the same period last year, at N$2.08 billion. The 12-month cumulative number of building plans approved has fallen to a level last seen in November 1997, with most of this drop happening during the last 18 months. As a leading indicator for economic activity in the country this reinforces our view that we will see economic growth slow in 2016 and possibly beyond.

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The slowdown in the number of building plans approved has been largely driven by a lack of serviceable land in Windhoek as opposed to the popular belief that water restrictions in the Khomas region has been the causal factor. Furthermore, there have been no water restrictions imposed on construction activities around Windhoek. The Municipality has indicated that, there is a high demand for land, but little land left around Windhoek that can be developed.

The number of building plans approved is determined by the number of additions approved, and of new commercial and residential plans approved by the Municipality every month. Historically, the number of new additions approved has usually surpassed the cumulative number of new commercial and new residential plans approved. As can be seen below, the 12-month cumulative number of new building plans approved for flats and houses has been trending down for the most part since the turn of the millennium. This can be attributed to the undersupply of serviced land as well as the type of properties being built on the available land (multiple units on one erf may show up in the data as a single approved plan in many cases). Anecdotal evidence suggests that the lack of available land has contributed to a large extent to the number of additions applied for over the last 15 years as well as limiting the amount of new plans applied for. As property prices increase due to lack of supply so does the number of people living under one roof which may then lead to additional space added to existing buildings. Children stay with their parents for longer, and families accommodate members who cannot afford to rent, etc. The fact that we have seen a steady decline in additions on a cumulative basis over the last two or so years suggests that value addition to existing properties has become significantly less affordable and that the gains from such additions are now much less pronounced than before.

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Going forward, affordability issues are likely to mean that the lack of availability of land will become an even bigger issue than it is at present should sufficient steps not be taken to rectify the shortage. In the past the lack of available land has driven increases in property prices, but the limit of affordability is currently being tested, and thus property prices are unlikely to increase at the accelerated rate seen previously.

Namibia CPI – July 2016

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The Namibian annual inflation rate accelerated to 7.0% in July, up from 6.7% in June. On a month on month basis, prices continued to rise, up 0.6% after the 0.3% uptick seen last month. On a year on year basis, half of the basket categories grew at a slower pace in July than in June, which were offset by an increase in prices of the remaining categories. The biggest contributor to inflation, both on an annual and monthly basis, was housing, water, electricity, gas and other fuels.

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Prices in the food and non-alcoholic beverages basket category increased 1.0% in July, after a decrease of 0.6% was recorded over the preceding month. On a year-on-year basis, inflation in this category accelerated to 12.2%, up from 11.3% when compared to June. Food and non-alcoholic beverages inflation was driven by the price increases across the majority of the sub-components, with only milk, cheese & eggs, fish and bread & cereals rising relatively less quickly. The food price increases can largely be ascribed to the drought currently experienced in Namibia and South Africa as is reflected by price increases of fruit, vegetables and grain products such as bread & cereals.

Transport, as the third largest basket category by weight, made the second largest contribution to monthly inflation. On a monthly basis transport saw an increase in prices of 1.6% compared to a 2.1% increase in June.  On annual basis price increases in the transport category stood at 3.0%, a significant increase from the last year’s average of -2.1%.

The annual inflation rate for the category housing, water, electricity, gas and other fuels accelerated to 8.2% in July, up 6.1% from the comparable period last year. On a monthly basis this category has seen an increase of 1.6% in July when compared to 2.1% in June. Rapid price increases have been seen in this basket category mainly as a result of increases in inflation for water supply, sewage services and refuse collection, that spiked from 11.2% year on year in June, to 17.8% in July after the City of Windhoek increased water tariffs. Price increases for rentals and other dwellings have been extremely low for a number of years, as reported by the National Statistics Agency (NSA), and the sudden spike at the beginning of the year has largely resulted in the elevated level of annual inflation we are currently seeing.

Alcoholic beverages and tobacco as the fourth largest category recorded an increase in annual inflation of 0.9% from June to 12.2% in July 2016. On a month on month basis however, prices in this category decreased slightly, down 0.3%. Alcoholic beverages and tobacco inflation has been consistently above the average inflation figure for most of the last five years when looked at on an annual basis, more consistently so than almost any other basket category.

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Inflation expectations for the upcoming fiscal year are notably higher than was the case in 2015. There are a number of reasons for this. Firstly, major rand weakens through 2015 has driven up the cost of imports into the Common Monetary Area in rand terms; secondly, oil prices, which fell dramatically through 2014 and 2015 now appear to be stabilising, and the pass-through of base effects is likely to see an upward rebasing in inflation; third, rand weakness and other factors have driven up costs for many services in the country, including many critical utilities such as electricity and water; fourth, drought and poor harvests in the region mean that food prices are likely to increase, particularly if basic grain imports are required; and fifth, increasing interest rates are likely to see some pass-through of increased borrowing costs to consumers, and reduce consumer disposable income.

The first half of 2016 saw notably higher inflation than was the case through 2015, primarily for the aforementioned reasons, as well as a notable increase in rental inflation rates. The same inflation pickup was seen in both Namibia and South Africa, with South Africa’s inflation moving out of the target 3-6% band for the first time in over 18 months, prompting interest rate tightening from the South African Reserve Bank.

Contrary to popular belief, we are of the view that inflation will remain relatively high for the rest of the year, and into 2017. This view is primarily driven by the enormous administered price increases we have seen for services over recent months. Municipal services, water and electricity have all seen at least high-teen percentage increases in prices over the past few months. These increases will remain for the next 12 months, until the base is reset with their inclusion. These increases are likely to more than offset the improvement in transport inflation due to a stronger rand, and the expected slowing of increases in food prices due to more favourable grain prices.

Due to the aforementioned factors, we have revised our inflation expectations for 2016 up to 6.5% (6.3% in the first half of the year) from our previous expectation of 5.8%. The main reason for the major increase comes from the increase seen in administered prices, but also the large step-up in rental inflation seen since January 2016. As this is recorded once a year, the current high inflation for rental payments, at 7%, up from 1.5% in 2015, will provide buoyancy to the overall inflation number for the rest of the year.