Category Archives: Economic Research

Economic Research

Building Plans – July 2016

By | | ,
Comments Off on Building Plans – July 2016

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.

ytd

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.

mths

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.

121

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.

12m

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

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

Picture1

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.

Picture2

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.

Picture3

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.

Building Plans – June 2016

By | | ,
Comments Off on Building Plans – June 2016

bp1

*Excluding walls and pools

A total of 108 building plans worth N$155.7m were approved by the city of Windhoek in June. On a year-to-date basis, 843 plans have been approved, significantly fewer than the 1,317 plans approved over the same period last year. In value-terms, approved plans on a cumulative year-to-date basis are worth N$958.2 million, 13.3% less than the value recorded over the same period last year. This year to date decrease in the number of plans approved is due to many factors, including a fall in demand, slower approval of plans from the municipality, and water constraints in Windhoek.

bp2

On a monthly basis, 6 more building plans were approved in June than in May. The value for the plans passed in June came in at N$155.7m, 184.2% above the May figure. 19 residential units and 86 additions were approved by the municipality during June. The total value for residential units and additions approved in June stood at N$37.1 million and N$94.9 million respectively. The number of commercial and industrial plans approved in June increased to just 3, with a value of N$23.7 million.

bp3

The subdued trend in the 12-month cumulative number of plans approved continued in June, bringing the number down to 1,993 units from 2,129 in May, reflecting a fall of 28.9. As shown in the graph below, the level of the 12-month cumulative number of plans approved has fallen far below the 16-year average for this measure.

bp4

Both Windhoek and Namibia as a whole have experienced a massive boom in the construction industry since 2012, with an average annual approval of N$2.265 billion worth of building plans over this period. From a GDP perspective, the Namibian construction industry contributed about 6% to total GDP in 2016.

As the construction at the B2Gold mine and the Tschudi copper mine has been completed in late 2014 and early 2015, and construction of the Husab mine is nearing completion, the growth contribution from the construction sector has now topped out. Water scarcity, coupled with the aforementioned base effects from the mining sector and a large reduction in the development budget are expected to drive a contraction in the mining sector in 2016. As a result, IJG has revised down its 2016 growth forecast for the construction industry to -4.5% (from 8.3% growth) to reflect the current state of the sector.

Water remains a large issue for the central area of Namibia’s construction industry. The NamWater dam level report, dated 11 July 2016, indicates that all three dams (Von Bach, Swakoppoort and Omatako) supplying water to Windhoek are currently extremely low, at 8% of full capacity (the lowest abstraction capacity). NamWater expects these dams to run out of water by December 2016.

As a water-heavy industry, the current water situation is restrictive to large scale construction activity. This further suggests that we could see fewer building plans approved by the City of Windhoek going forward. Consequently, if the water condition in the central region deteriorates further, or we see more water restrictions and new tariffs being introduced, this could have a further adverse impact on construction activity around Windhoek.