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Economic Research

Building Plans – August 2016

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A total of 177 building plans were approved in August to the value of N$269.4 million. On a year-to-date basis, the City of Windhoek has approved 1,141 building plans, a significant decrease when compared to the 1,759 plans approved over the same period last year. However, the dollar value of building plans approved on a year-to-date basis stood at N$1.403 billion in August, down only 0.5% or N$6.4 million over the comparable period last year.

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Majority of building plans approved, were for plans of additions to existing structures. Year to date, a total of 935 building plans for additions were approved in August, 439 less plans when compared to the same period last year and 466 less when compared to the average ytd figure over the last 10 years. From a value perspective however, N$705.7 million worth of additions were approved year to date, which compares to N$659.6 million over the same period last year and N$476.1 million average ytd figure since 2006

Year to date,136 less residential units were approved when compared to 287 over the same period last year and 141 less than the ytd average since 2006. In dollar terms, N$324.8 million worth of residential plans were approved year to date, more or less in line with the N$339.8 million over the same period in 2015 and N$328.3 million average ytd figure over the last ten years.

The number of commercial units approved in 2016 so far amounted to 55, valued at N$372.5 million. This compares to 98 units, valued at N$410 million over the same period last year. On average over the last 10 years, 52 commercial units, valued at N$286.9 million were approved year to date.

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The 12-month cumulative number of building plans approved continued trending down in August, as depicted by the graph below.  On a 12-month cumulative basis, 1,849 building plans were approved in August, 30.2% less than the same measure for August last year. In value terms however, 12-month cumulative value of plans approved in August was 8.8% higher than the value of plans approved over the same period last year, at N$2.190 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.

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. 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.

Half-year revision of our growth expectations

At the beginning of the year, we believed that some growth could be expected in the construction sector, following what we believe will be a large contraction in 2015, mostly due to base effect as a result of three big mines constructed through 2014. However, this view was based on the expectation that we would see the commencement of a number of large government projects during the year, including water and energy projects. We have now revised this view, and believe that these projects will not start until later years. In the meantime, Government has also cut the capital budget aggressively. The slowdown seen in the number of building plans approved also suggest difficult times ahead for the construction industry.   As a result, we have revised down our growth forecast for the construction industry for the year, expecting a contraction of 4.5%.

Fitch Revises Outlook on 4 Namibian Corporates to Negative

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The below press release is from the Fitch Ratings website:

Fitch Ratings-London-12 September 2016: Fitch Ratings has revised the Outlooks on the Long-Term Issuer Default Ratings (IDR) and National Long-Term Ratings of four Namibian corporates to Negative from Stable. A full list of rating actions is below.

KEY RATING DRIVERS
The rating actions follow the revision of the Outlook on Namibia’s Long-Term IDRs and National Long-Term ratings to Negative from Stable (see ‘Fitch Revises Namibia’s Outlook to Negative; Affirms at ‘BBB-‘; dated 02 September 2016 at www.fitchratings.com). Fitch’s assessment of fundamental issuer-specific credit considerations remains unchanged.

Namibian Ports Authority and Namibia Power Corporation’s ratings remain aligned to those of the Namibian sovereign, based on Fitch’s assessment of its legal, operational and strategic ties with the state as strong in accordance with the agency’s ‘Parent and Subsidiary Rating Linkage’ criteria.

Namibia Water Corporation’s (NamWater) linkage with the Namibian remains strong in accordance with the agency’s ‘Parent and Subsidiary Rating Linkage’ criteria. However, the lack of strong legal links means that we would view the links as supporting the utility’s rating at one notch below the sovereign rating. As such, NamWater’s standalone profile drives the ratings. The Outlook on NamWater’s ratings is now constrained by the Outlook on Namibia’s ratings.

Fitch applies its parent subsidiary linkage criteria to Telecom Namibia’s ratings, which are notched down two levels from Namibia’s Long-Term Local Currency IDR of ‘BBB-‘.

For each issuer’s Key Rating Drivers, Rating Sensitivities and Key Assumptions see the recent rating action commentaries (RACs), referenced below.

The rating actions are as follows:
Namibian Ports Authority
National Long-Term rating affirmed at ‘AA+(zaf)’; Outlook revised to Negative from Stable
National Short-Term rating affirmed at ‘F1+(zaf)’

See ‘Fitch Upgrades NamPort to ‘AA-(zaf); Outlook Stable’, dated 22 June 2015 at www.fitchratings.com for Key Rating Drivers and Rating Sensitivities.

Namibia Power Corporation (Proprietary) Limited
Long-Term Foreign Currency IDR affirmed at ‘BBB-‘; Outlook revised to Negative from Stable
Short-Term Foreign Currency IDR: affirmed at ‘F3’
National Long-Term rating affirmed at ‘AA+(zaf)’; Outlook revised to Negative from Stable
National Short-Term rating affirmed at ‘F1+(zaf)’

See ‘Fitch Affirms NamPower at ‘BBB-‘; Outlook Stable’, dated 14 June 2016 at www.fitchratings.com for Key Rating Drivers and Rating Sensitivities.

Namibia Water Corporation
Long-Term Foreign Currency IDR affirmed at ‘BBB-‘; Outlook revised to Negative from Stable
Short-Term Foreign Currency IDR: affirmed at ‘F3’
Long-Term Local Currency IDR: affirmed at ‘BBB-‘; Outlook revised to Negative from Stable
Short-Term Local Currency IDR: affirmed at ‘F3’
National Long-Term rating affirmed at ‘AA+(zaf)’; Outlook revised to Negative from Stable
National Short-Term rating affirmed at ‘F1+(zaf)’
Long-Term senior unsecured rating affirmed at ‘BBB-‘
National senior unsecured rating affirmed at ‘AA+(zaf)’

See ‘Fitch Rates NamWater’s NAD200m Senior Unsecured Bonds at ‘BBB”, dated 12 May 2015 at www.fitchratings.com for full rating rationale and disclosures.

Telecom Namibia Limited
Long-Term Local Currency IDR: affirmed at ‘BB’; Outlook revised to Negative from Stable
National Long-Term rating affirmed at ‘A-(zaf)’; Outlook revised to Negative from Stable

See ‘Fitch Affirms Telecom Namibia at ‘BB+’; Outlook Stable’, dated 25 September 2015 at www.fitchratings.com for full rating rationale and disclosures.

KEY ASSUMPTIONS
See the relevant RAC for each issuer referenced above.

RATING SENSITIVITIES
See the relevant RAC for each issuer referenced above.

RATING SENSITIVITIES FOR THE NAMIBIAN SOVEREIGN
Future developments that could result in a downgrade include:
– A failure to narrow the fiscal deficit leading to continued rise in the government debt/GDP ratio.
– Failure to narrow the current account deficit or significant drawdown in international reserves.
– Deterioration in economic growth, for example, due to a worsening of the business environment.

Future developments that could result in the Outlook being revised to Stable include:
– A narrowing of the budget deficit consistent with a stabilisation of the government debt/GDP ratio.
-A marked improvement in the current account balance and increase in foreign exchange reserves.

Contact:
Principal Analyst
Richard Barrow (Namibia Power Corporation, Namibia Water Corporation, Telecom Namibia Limited)
Director
+44 20 3530 1256

Principal Analyst
Yeshvir Singh (Namibian Ports Authority)
Associate Director
+44 20 3530 1810

Supervisory Analyst
Yeshvir Singh (Namibia Power Corporation, Namibia Water Corporation, Telecom Namibia Limited)
Associate Director
+44 20 3530 1810
Fitch Ratings Limited
30 North Colonnade
London E14 5GN

Supervisory Analyst
Shyamali Rajivan (Namibian Ports Authority)
Director
+44 20 3530 1733
Fitch Ratings Limited
30 North Colonnade
London E14 5GN

Committee Chairperson
Josef Pospisil, CFA
Managing Director
+44 20 3530 1287

Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com.

Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary.

Fitch Revises Namibia’s Outlook to Negative; Affirms at ‘BBB-‘

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The below press release is from the Fitch Ratings website:

Fitch Ratings-London-02 September 2016: Fitch Ratings has revised Namibia’s Outlooks to Negative from Stable while affirming the Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at ‘BBB-‘. The issue ratings on Namibia’s senior unsecured foreign- and local-currency bonds are also affirmed at ‘BBB-‘. The Country Ceiling is affirmed at ‘BBB’ and the Short-Term Foreign and Local Currency IDRs at ‘F3’.

Fitch has also revised the Outlook on Namibia’s National Rating on the South African scale to Negative from Stable and affirmed the Long-Term rating at ‘AA+(zaf)’. The issue ratings on Namibia’s bonds with a National rating have been affirmed at ‘AA+(zaf)’.

The revision of Outlook to Negative reflects the following key rating drivers and their relative strength:

HIGH

Namibia’s budget deficit widened sharply to 8.3% of GDP in fiscal year 2015/16 (FY15, which runs from April 2015), well above the government’s 5% target and the worst on record. The deficit has worsened progressively from 0.1% in FY12 to 3.4% in FY13 and 6.4% in FY14, and is well above the ‘BBB’ category median of 2.7%. The overshoot in the deficit in FY15 primarily reflected weaker-than-expected revenues from domestic sources, including company tax and lower-than-expected income tax.

The government is targeting a narrowing of the deficit to 4.3% of GDP in FY16. Outturns for the first few months of the current fiscal year indicate revenue has grown strongly. The Ministry of Finance is exerting greater control over expenditure at all ministries and is cutting overtime, travel and capital spending. However, meeting deficit targets will prove challenging, particularly amid a secular decline in revenues from the Southern African Customs Union (SACU), which the government projects will fall under 7% of GDP by 2018 from 12.4% in 2014.

MEDIUM

Gross general government debt (GGGD) increased sharply to 38.2% of GDP at end-2015 from 23.2% at end-2014, albeit partly due to an increase in government deposits following the issue of a USD750m Eurobond and exchange rate depreciation. Fitch forecasts GGGD to rise further to 39% of GDP at end-2016. It is now roughly in line with the peer median of 41%, having previously been a rating strength. We expect government guarantees to peak at 5.8% of GDP in FY16, below the government’s 10% limit.

Namibia’s current account deficit deteriorated to 14.1% of GDP in 2015, from 8.9% in 2013, and well above the ‘BBB’ category median of 1.3%. However, much of the deficit has been financed by external borrowing from parent mining companies, reducing external vulnerabilities.

Merchandise exports should start to grow in the coming years as big mining projects come online. Moreover, imports should fall as capital goods demand decreases (data for 1H16 already show a slowdown in all import categories). Fitch expects the current account deficit to narrow to 6.9% of GDP by 2018. Foreign exchange reserves increased to around 3.4 months of import cover by mid-2016, although this is still below the peer median of 5.7%.
KEY RATING DRIVERS
Namibia’s ‘BBB-‘ ratings also reflect the following factors:

Growth performance remains a key rating strength. The economy grew 5.7% in 2015, and Fitch expects it to expand 4.4% this year (BBB median five-year average: 2.5%). New mining capacity is rapidly coming online, notably the Husab uranium mine, which is expected to begin production by end-2016, and is expected to add around 5% to GDP. The continued strong growth performance is particularly impressive given the continued drought, weak performance in key trading partners (notably South Africa and Angola) and higher interest rates.

A major reform, the New Equitable Economic Empowerment Framework (NEEEF), was announced by the President at the beginning of the year and seeks to increase the involvement of previously disadvantaged citizens in the private sector. While lacking in details, it is likely that the law will be approved by parliament (although the Supreme Court might end up blocking it). This has caused some unease in the business community and could slow down foreign investment in manufacturing and services.

The rapid growth in house prices in recent years has created certain risks for the banking sector. However, given the introduction of macro prudential measures and falling demand from Angola, it is likely that the housing market will cool from here, with a slowdown at the top end of the market already visible. Asset quality is fairly good, with non-performing loans (NPLs) at around 1.6% of total loans at end-2015. The system’s capital position is sound, with a risk- weighted capital ratio of 14.3% in December 2015.

Namibia’s ratings are supported by a track record of political stability, slightly stronger governance indicators than rated peers, a net external creditor position, financing flexibility enhanced by access to the deep South African capital markets and a liquid banking system. However, it has a fairly low level of GDP per capita and economic development, high unemployment and inequality, and is vulnerable to shocks to commodity prices.

SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO)
Fitch’s proprietary SRM assigns Namibia a score equivalent to a rating of ‘BB+’ on the Long-Term Foreign Currency IDR scale.

Fitch’s sovereign rating committee adjusted the output from the SRM to arrive at the final Long-Term Foreign Currency IDR by applying its QO, relative to rated peers, as follows:
Macro: +1 notch, to reflect strong medium-term growth potential and credible macroeconomic policies consistent with its exchange rate regime.

RATING SENSITIVITIES
Future developments that could result in a downgrade include:
– A failure to narrow the fiscal deficit leading to continued rise in the government debt/GDP ratio.
– Failure to narrow the current account deficit or significant drawdown in international reserves.
– Deterioration in economic growth, for example, due to a worsening of the business environment.

Future Developments that could result in the Outlook being revised to Stable include:
– A narrowing of the budget deficit consistent with a stabilisation of the government debt/GDP ratio.
-A marked improvement in the current account balance and increase in foreign exchange reserves.

KEY ASSUMPTIONS
Fitch assumes that the currency peg agreement with South Africa will remain in place and the government will pursue prudent macroeconomic policies consistent with it.

Global assumptions are consistent with Fitch’s ‘Global Economic Outlook,’ including a subdued outlook for commodity prices.