Category Archives: Economic Research

Economic Research

Building Plans – March 2016

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A total of 146 building plans to the value of N$188.8 million were approved by the City of Windhoek in March 2016. On a year‑to‑date basis, 444 plans were approved compared to 672 plans over the same period last year, down 33.9%. However, in value terms, plans approved year-to-date are worth N$529.4 million compared to N$462.3 million for the same period in 2015, up 14.5%. This year to date increase in value of plans approved is mostly due base effects as large commercial projects were approved by the municipality so far in 2016.

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On a monthly basis, 36 less plans were approved in March than in February, and the total value of plans approved was down 3.2% month on month. 14 residential units and 126 additions were approved by the municipality during March. The value of the plans approved for houses and additions were valued at N$60.4 million and N$85.9 million respectively, while 6 commercial and industrial plans valued at N$42.4 million got the go-ahead in March.

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The 12-month cumulative number of plans approved continued to lose momentum during March, falling to 2,239 compared to 2,367 in February, with the year-on-year growth rate contracting by 22.1%, posting negative growth for the 23nd consecutive month. As shown in the graph below, the level of the 12 month cumulative number of plans approved has fallen well below the 20-year average number of plans approved of 2,500.

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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 that were approved over this period. From a GDP perspective, the Namibian construction industry contributes about 4% to GDP, or N$5.776 billion recorded 2014.

In our view, the Namibian construction sector will remain vibrant during 2016, with both private sector and government having aggressive development plans. However, as the construction at the B2Gold mine and the Tschudi copper mine being completed during 2015 and construction of the Husab mine nearly completed, the growth contribution from the construction sector is expected to decline.

A major concern is the possibility of water restrictions in Namibia, especially in the central region. NamWater announced 18 February 2016, that water supply to Windhoek will be cut by 20% in an attempt to postpone dams running dry in 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 announcement Monday, 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 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 total GDP.

PSCE – February 2016

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Overall

Total credit extended to the private sector increased by N$430.5 million, or 0.5%, in February 2016, taking total credit outstanding to N$79.9 billion. On an annual basis PSCE growth slowed slightly from 13.8% in January to 12.7% in February. A total of N$9.0 billion worth of credit has been approved over the last 12 months with N$1.2 billion worth of credit being approved in 2016 thus far. Of this N$9.0 billion worth of credit issued during the last 12 months, approximately N$3.6 billion was taken up by businesses, while N$5.3 billion was taken up by individuals.

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Credit extension to households

Credit extension to households expanded by 0.4% on a monthly basis and 12.9% on an annual basis in February. 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.

Household mortgage loans expanded by 0.8% month on month and 13.7% year on year and continue to make up the majority of credit extended to households or individuals. 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 13.1% year on year in February, down from 14.5% in January, well off the long term average growth for this component. On a month on month basis instalment credit grew by 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 grew by 0.7% on a month on month basis and 12.2% year-on-year in February, growing slower than credit extended to households for the first time since January 2014, mainly due to base effects given strong growth seen over the last two years. Credit extended to corporates during February was again primarily driven by exceptional growth in mortgage loans, up 20.4% year on year and 0.6% month on month. Instalment credit extended to corporates grew at a rate of 8.7% year on year and 0.5% month on month, while overdraft facilities grew by 5.5% year on year and contracted 2.7% 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 February. The decrease primarily came as a result net government payments. International reserves stood at N$25.216 billion at the end of February, down from N$25.292 billion at the end of January. The Eurobond proceeds are a major boost to the reserve position of the country which has been declining in real terms. Picture5

Outlook

Private sector credit extension continues to grow at a rapid rate, adding approximately N$1 billion to the total outstanding private sector credit each month. While the rate of growth has been slowing slightly in recent months, the base off of which it is calculated has grown significantly. A slowdown in the growth rate of credit extended to individuals since 2014 has been compensated for 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 looming drought conditions may put pressure on this measure.

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.

New Vehicle Sales – February 2016

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A total of 1,350 new vehicles were sold during February, a drop of 2.8% from the January sales of 1,389 and down 30.7% over February 2015, driven by a slowdown in both passenger and commercial vehicle sales. At this point of the year, 2,739 vehicles have been sold so far in 2016, down 25.2% 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 -8.9% for February.

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Sales of passenger vehicles rose by 11.0% month on month, from 546 in January to 606 in February. On an annual basis, total sales of passenger vehicles fell by 26.2%. Commercial vehicle sales decreased 33.9% year on year to a sales figure of 744 vehicles, which was due to lower sales numbers of light and heavy commercial vehicles, slightly offset by an increase in sales of medium commercial vehicles. On a monthly basis, commercial vehicle sales was 11.7% lower than in January.

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Toyota and Volkswagen continue to dominate the passenger vehicle segment with Volkswagen selling 180 (30%) vehicles and Toyota selling 113 (19%) of the 606 passenger vehicles sold. Toyota was however the market leader in light commercial vehicle sales, having the lion’s share at 41% of the market, followed by Nissan at 15% and Ford in third place with 14%. 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.