Category Archives: Economic Research

Economic Research

Building Plans – April 2016

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A total of 198 building plans worth N$219.8m were approved by the city of Windhoek in April. On a year-to-date basis, 642 plans were approved, significantly less when compared to the 878 plans approved over the same period last year. In value-terms however, approved plans on a year-to-date basis are worth N$749.3 million, 30.9% more than the value recorded over the same period last year. This year to date increase in value of plans approved is mostly due to base effects as large commercial projects have been approved by the municipality thus far in 2016.

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The city of Windhoek approved 52 more building plans this month than in March. The equivalent value for the plans approved in April came in at N$219.9m, 16.4% above the March figure. 22 residential units and 161 additions were approved by the municipality during April. The total value for residential units and additions approved in April stood at N$70.07 million and N$105.85 million respectively. Only 6 commercial and industrial plans were approved in April, to the value of N$42.43 million, exactly the same figure as reported in March which suggests that this is a duplication instead of an addition for the month.

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The subdued trend in the 12-month cumulative number of plans approved continued in April, bringing the number down to 2,231 units from 2,239 in March. This is reflected in the 12-month cumulative growth rate which was down 21.3% in April, posting negative growth for the 24th 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.

New Vehicle Sales – April 2016

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A total of 1,479 new vehicles were sold during April 2016, a drop of 3.0% from the March sales of 1,525 and down 15.1% over April 2015, driven by a slowdown in both passenger and commercial vehicle sales. At this point of the year, 5,743 vehicles have been sold so far in 2016, down 24.0% on the comparable period of 2015. This declining growth rate of new vehicle sales suggests that we may see another contraction in new vehicle sale this year, only to a much larger extent than the slight decrease seen in 2015.

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Rolling 12 month sales continued to contract after turning negative in December for the first time in 69 months, with the year on year 12-month percentage change -14.3% for April, down from 19,697 in March to 19,434 in April.

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Sales of passenger vehicles fell by 6.6% month on month, from 728 in March to 680 in April. On an annual basis, total sales of passenger vehicles fell by 21.8%. Commercial vehicle sales decreased 8.4% year on year to a sales figure of 799 vehicles, which was due to lower sales numbers of light and medium and heavy commercial vehicles. On a monthly basis, commercial vehicle sales was 0.3% higher than in March.

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Toyota and Volkswagen continue to dominate the passenger vehicle segment with Volkswagen selling 191 (28%) vehicles and Toyota selling 212 (31%) of the 680 passenger vehicles sold. Toyota was however the market leader in light commercial vehicle sales, having the lion’s share at 57% of the market, followed by Ford at 11% and Nissan in third place with 9%. Commercial vehicle sales continue to come in higher than passenger vehicle sales as has been the long term trend.

 The Bottom Line

We have seen exceptionally strong vehicle sales growth through 2014 and 2015, fuelled by a strong consumer base supported by expansionary fiscal policy and real wage growth, but the latest figures show that this trend is losing momentum. Strong vehicle sales over the last two years have elevated the base substantially which has led to lower percentage growth figures, although the number of vehicles sold as a whole is still relatively strong. However, we expect to see a decrease in vehicle sales as purchase of vehicles by Government will be reduced this year. The Ministry of Finance has allocated N$426.8 million to vehicle purchases in the 2016/17 National Budget, this is N$592.9m or 58.1% less than the N$1.019 billion what was spent on vehicles during the previous financial year. Further downside risks to this are rising interest rates which may limit marginal lenders from qualifying for financing as well as banking sector liquidity which may limit the amount of loans available to finance vehicle purchases.

PSCE – March 2016

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Overall

Total credit extended to the private sector increased by N$334.8 million or 0.4%, in March, taking total credit outstanding to N$83.7 billion. On an annual basis PSCE growth increased by 13.0% in March compared to 13.3% in February. A total of N$9.6 billion worth of credit has been approved over the last 12 months with N$1.5 billion worth of credit being approved in 2016 thus far. Of this N$9.6 billion worth of credit issued during the last 12 months, approximately N$4.4 billion was taken up by businesses, while N$4.8 billion was taken up by individuals.

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Credit extension to households

Credit extension to households expanded by 0.6% on a monthly basis and 11.5% on an annual basis in March. Credit extension to households has continued to slow as interest rate hikes change consumer trends. It is worth remembering however that the transmission mechanism between rate hikes and PSCE contractions is relatively slow, particularly when interest rate increases are small. We do expect to see further rate hikes going forward and this should lead to a continuation of the slowdown of credit extension to households and possibly contractions on a monthly basis.

During the month household mortgage loans expanded by 0.7% month on month and 11.5% year on year, down from 0.8% and 13.7% respectively and continue to make up the majority of credit extended to households. On a year on year basis the rate at which individuals are taking up mortgage loans has been increasing, from below the average rate of private sector credit extension to households to well above it. On a year on year basis mortgage loan issuance is thus driving credit extension to individuals.

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Instalment credit, the second largest component of loans extended to individuals, grew at 12.1% year on year in March, down from 13.1% in February, well off the long term average growth for this component of PSCE. On a month on month basis instalment credit grew by 0.4%, up from 0.1% in February. The lackluster instalment credit growth on a yearly basis 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 registered a much lower but positive growth of 0.2% from 0.7% on a month-on-month basis and slightly higher annual growth of 15.2% year-on-year in March, from 12.2% in February. Credit extended to corporates during March was again primarily driven by exceptional growth in mortgage loans, up 16.5% year on year and 1.2% month on month. Instalment credit extended to corporates grew at a rate of 6.1% year on year and declined 0.3% on a month on month basis, while overdraft facilities grew by 9.7% year on year and contracted 3.3% on a month on month basis. Although corporate credit has been growing at a far quicker rate than credit extended to individuals, the relatively low base from which this growth stems means that the majority of private sector credit still sits with the individual.

Reserves and money supply

The stock of foreign reserves increased significantly by the end of October due to the inclusion of the proceeds of the successfully issued second Eurobond. Foreign reserves decreased slightly during March. The decrease primarily came as a result of net government payments. International reserves stood at N$24.910 billion at the end of March, down from N$25.216 billion in February. The Eurobond proceeds were a major boost to the reserve position of the country which been declining in real terms.

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Outlook

Private sector credit extension continues to grow at an elevated rate, although slowing down in recent months. While the rate of growth has been slowing it should be noted that the base off of which this growth is calculated has grown significantly. A slowdown in the growth rate of credit extended to individuals since 2014 has been compensated for, to a large extent, by the rapid growth of credit extended to corporates. The current rate hiking cycle is likely to put further pressure on credit extended to individuals in the coming months. Should we see a slowdown in the rate of mortgage loans extended to individuals, we could experience contractions in the overall credit extended to individuals. The outlook for credit extended to corporates continues to look good although further rate hikes this year as well as drought conditions may put pressure on this measure too.

Current banking sector liquidity conditions should put further pressure on credit extension growth as funding becomes more expensive. While not ideal, negatives to the slowdown in credit extension, especially to individuals, may be outweighed by longer term positives. A slowdown in credit extension growth should lead to a reduction in the amount of money flowing out of the country for consumptive purposes, boosting the international reserve position of Namibia. Higher interest rates should also lead to an increase in saving by individuals which is at low levels at present. A slowdown in credit extension to more natural rates (GDP growth) should be positive for the economy and prevent it from overheating.