Category Archives: Economic Research

Economic Research

PSCE – May 2016

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July

Overall

Total credit extended to the private sector increased by N$117.5 million or 0.15% in May, taking total credit outstanding to an approximate of N$81 billion. On an annual basis PSCE growth increased by 11.2% in May, down from 12.4% growth recorded over the preceding month. A total of N$8.1 billion worth of credit has been approved over the last 12 months with N$2.1 billion worth of credit being approved in 2016 thus far. Of this N$8.1 billion worth of credit issued during the last 12 months, N$3.3 billion was taken up by businesses, while N$4.7 billion was taken up by individuals.

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Credit extension to households

 Credit extension to households expanded by 0.5% on a monthly basis and 11.2% on an annual basis in May. Credit extension to households has seen a consistent slowdown over recent months, both on account of higher interest rates reducing credit demand, but mainly due to more cautious lending practices being undertaken by commercial banks. It is worth remembering that the transmission mechanism between rate hikes and PSCE demand is relatively slow, particularly when interest rate increases are small. Going forward, we expect to see interest rates starting to top out, partially due to expected rand strength and partially due to a weakening regional outlook. However, we expect credit supply to remain constrained going forward due to funding challenges in the commercial banks.

During the month household mortgage loans expanded by 0.5% month on month and 11.4% year on year, down from 0.6% month on month and 12.1% year on year in the preceding month. Mortgage loans continue to make up the majority of credit extended to households. Mortgage loans remain the largest component of total loans extended to households, at 67% of the total. Thus, while not the fastest growing category of credit, the largest monthly and yearly net issuance to households was seen in this credit category.

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Instalment credit, the second largest component of loans extended to individuals, grew at 12.1% year on year in May, down from 12.4% in April, and well off the long term average growth for this component of PSCE. On a month on month basis instalment credit growth remained unchanged at 0.1%. The lackluster instalment credit growth can be attributed to tighter monetary policy as well as a slowdown in credit extension by credit providers due to less than ideal liquidity conditions.

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Credit extension to corporates

Credit extension to corporates contracted by 0.4%, from a positive growth of 0.1%, on a month-on-month basis. On an annual basis, corporate credit grew by 11.0%, down from 12.9% in April. Credit extended to corporates during May was again primarily driven by strong growth in mortgage loans, up 16.6% year on year and 2.4% month on month. Instalment credit extended to corporates grew at a rate of 3.5% year on year and 0.1% on a month on month basis, while overdraft facilities grew by 5.4% year on year and contracted by 4.8% on a month on month basis. Credit extension to corporates grew at a slower rate than the growth in credit extension to private households for the first time this year. This was particularly as a result of net-repayment in overdrafts and other loans and advances by corporates.

Reserves and money supply

Foreign reserves have stabilized over the past few months, following the major outflows in the past few years. The exchange rate was out of equilibrium for Namibia for a number of years, with demand for Namibia Dollars by internal and external parties well below demand for foreign currency by Namibians. As a result, the balance of payments was negative through most of 2013, 2014 and 2015, before Government issued a second Eurobond in October 2015. However, with the ZAR weakness through 2015 the currency has moved closer to an equilibrium level for Namibia. This, coupled with the general economic slowdown in the country which is driving reduced demand for imports, has helped to stabilize the balance of payments, and thus, reserves.

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Outlook

Going forward, we expect to see interest rates top out in the next quarter, driven by recent events in Europe. Brexit, particularly, is likely to ensure that UK and ECB rates remain low or fall over the next few months, while the US is also expected to keep interest rates on hold. This will likely drive fund flow reversals out of advanced economies into EM. This will cause EM currency strength, and drive down the cost of corporate and government borrowing in EM economies. It is further expected to provide some inflation space for the SARB, who will thus be able to keep interest rate increases on hold, and possibly even allow for some interest rate easing, given the weak regional outlook.

This process will take a few months, however, and we are likely to see PSCE growth remain weak over the next quarter, possibly picking up again towards year end.

 

Building Plans – May 2016

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A total of 103 building plans worth N$47.7m were approved by the city of Windhoek in May. On a year-to-date basis, 745 plans were approved, significantly less when compared to the 1,073 plans approved over the same period last year. In value-terms, approved plans on a year-to-date basis are worth N$796.9 million, again15% less than the value recorded over the same period last year. This year to date decrease in the number of plans approved is mostly due to the water constraints ongoing in Windhoek.

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On a monthly basis, 95 less building plans were approved in May than in April. The equivalent value for the plans approved in May came in at N$47.7m, 78.3% below the April figure. 10 residential units and 90 additions were approved by the municipality during May. The total value for residential units and additions approved in May stood at N$12.33 million and N$34.45 million respectively. The number of commercial and industrial plans approved in May declined to just 2, worth as high as about N$8 million.

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The subdued trend in the 12-month cumulative number of plans approved continued in May, bringing the number down to 2,139 units from 2,231 in April. This is reflected in the 12-month cumulative growth rate which was down 24% in May, posting negative growth for the 25th consecutive month. As shown in the graph below, the level of the 12-month cumulative number of plans approved has fallen far below the 20-year average for this measure.

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We have experienced a massive boom in the construction industry since 2010, especially over the last 4 years, with an average of N$2.265 billion worth of building plans approved over this period. From a GDP perspective, the Namibian construction industry contributes about 4% to total GDP.

As the construction at the B2Gold mine and the Tschudi copper mine has been completed during 2015 and construction of the Husab mine is nearing completion, the growth contribution from the construction sector is expected to have topped out somewhat.

Of major concern are the current water restrictions in the central part of Namibia. NamWater announced on 18 February 2016 that water supply to Windhoek will be cut by 20% in an attempt to postpone dams running dry from August this year to April 2017. Cabinet has also approved a water tariff increase of 10% during the current financial year. NamWater has given no indication as to when the implementation date for the hike will be. Although the decision to increase the tariff was made in March, the minister of communication and technology, Mr Tjekero Tweya, only made the announcement on 11 April. NamWater is only required to give a months’ notice before any hike is implemented.

Water restrictions and tariff hikes will directly affect economic activity in Namibia, impacting water dependent industries, such as construction. If further water restrictions and new tariffs are implemented, it would have a severe impact on the construction industry as they are heavily reliant on water supply and given the magnitude of construction activity in Windhoek, a standstill of construction activity in the capital would have a significant impact on the economy.

 

Namibia CPI – May 2016

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The Namibian annual inflation rate increased further to 6.7% in May. On a month on month basis, prices continued to rise, up 0.5% after the 0.6% uptick seen last month. On a year on year basis, six of the twelve basket categories grew at a quicker rate in May than in April, pushing up overall inflation. The biggest contributor to inflation on a monthly basis, as well as on an annual basis were price increases of food and non-alcoholic beverages.

May

On a month on month basis, price increases in the food and non-alcoholic beverages basket category have largely been driven by oils and fats price increases as well as increases in bread and cereals prices. Annual inflation in the food and non-alcoholic beverages basket category jumped to 12.2% in May from 11.1% in April. Relentless drought conditions in the country coupled with the depreciation of the Namibian dollar and rebasing effects resulting from low oil prices on prior periods has led to high inflation growth in this basket category.

Alcoholic beverages and tobacco as the fourth largest basket category made the second largest contribution to monthly inflation followed by recreation and culture. On a year on year basis price increases on alcoholic beverages and tobacco increased from 7.1% in April to 7.3% in May. 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.

The annual inflation rate for the category housing, water, electricity, gas and other fuels saw a moderate increase of 0.1% to 7.6% in May, after spiking from an average rate of well below 3% in 2015. Rapid price increases have been seen in this basket category mainly as a result of increases in inflation for rentals and other dwellings and will be higher for the Windhoek residents going forward, due to a 10% increase in water prices in June to be administered by the City of Windhoek.

The annual rate of inflation in the transportation basket category, the third largest category, slowed almost by half in May to 1.5% from 2.8% in April. This decrease was largely as a result of a decrease on the cost of operating personal transport equipment. We expect to see a pickup in transportation inflation due to recent fuel price increases in May as well as base effects coming through on the oil price.

May InflationGoing forward we expect a further uptick in inflation in June largely due to base effects caused by the drop in oil prices last year as well as more recent currency movements. Adverse effects of the drought currently affecting the region as well as the water crises in the capital should lead to further increases in food inflation and housing utilities inflation respectively in the coming months, helping to drive overall inflation higher.