Category Archives: Economic Research

Economic Research

Namibia CPI – November 2015

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The Namibian annual inflation rate decreased slightly to 3.3% in November, down from 3.4% in October. On a month on month basis prices rose by 0.2% again when compared to October. On a year on year basis, the basket categories food and non-alcoholic beverages, health and communication grew at a faster rate in November than in October while the other categories slowed somewhat dragging down overall inflation, with transport and clothing prices contracting. Year on year inflation is again well below average, largely due to a drop in the price of oil over the past year, and the knock on effects this has on prices. 12 month average inflation reached a new low of 3.5%, and has been coming down steadily since November 2014.

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The three basket categories that experienced accelerated annual inflation were food and non-alcoholic beverages, health and communication. Accelerating price increases in the food and non-alcoholic beverages basket category was largely driven by fruit and vegetables prices rising relatively more quickly, followed by mineral water, soft drinks and juices as well as oils and fats and bread and cereals price inflation accelerating. The food price increases could largely be ascribed to the drought currently experienced in Namibia and South Africa. Health prices experienced a price increase of 5.8% year on year and 0.4% month on month

The only two categories that experienced price contractions on an annual basis were clothing and foot wear and transport, however, transport deflation decreased at a slower pace when compared to October. Price decreases in the clothing and foot wear basket category was spread relatively evenly amongst the components of this category.

The transport basket category continues to be a drag on overall inflation, exhibiting year on year inflation of -1.6% and month on month inflation of 0.02%. Transport is the third largest basket category by weighting and as such has a large impact on overall inflation. The deflation experienced by this basket category is largely due to the operation of personal transportation equipment becoming less expensive. Prolonged lower fuel prices due to the oil rout have provided consumers with some respite worldwide and to a large extent in Namibia. The effects of cheap transportation flow through to many other basket categories and in this way contributes to lower overall inflation.

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We expect inflation to remain low for the rest of the year as oil prices fell further during December. However, we expect inflation to pick up in the first half of 2016 as the full benefit of cheap oil is reached and the weak currency causes import prices to rise. Looming drought conditions as well as increasing utilities costs should further see inflation pick up in basket categories such as food and non-alcoholic beverages, and alcoholic beverages and tobacco.

 

Namibian public debt – up, up and away.

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Following major debt issuance and the depreciation of the rand on unhedged Government debt, Namibia’s debt to GDP ratio looks set to reach and possibly surpass 35% by the end of 2015.

2015 will be a year for the books as far as Namibia’s debt is concerned. In the space of just 12 months, it is estimated that public debt (that taken out by the Government) has increased by over 65%, and over N$20 billion, to a total of N$55 billion. A number of reasons for this exist, however the three major reasons are:

  1. Government has ambitious spending plans for the year, which it expected to fund through normal revenue channels and through some fairly sizable debt issuance (approximately N$9 billion in 2015/16). However, revenue has been disappointing, both due to very ambitious forecasts, as well as due to a general economic slowdown in the country, weak commodity prices, and less regional trade. As such, many revenue lines of the Government are under pressure, and likely to remain so for the next few years. As revenue is lower than expected, and expenditure remains relatively high, a lot of debt has had to be issued to fund the activities of Government, and the deficit is likely to be notably larger than expected, probably between N$9 and N$12 billion.
  2. The Government was forced to issue hard currency debt in order to protect the crumbling external position of the country, after an extended period of fiscal and monetary stimulus that drove strong growth in consumption activity, and strong demand for imports. As the external position weakened, the risk of a rating downgrade increased to the point that the Ministry of Finance stepped in and borrowed a large chunk of funds on the international market, massively increasing the country’s hard currency debt, but thankfully staving off a rating downgrade.
  3. Hard currency debt, of which Namibia now has a lot, has re-priced against Government as the currency has weakened. Over the past year, the Rand (and thus Namibia Dollar) has depreciated in value by over 30%, making the stock of Namibian hard currency debt, which was left unhedged despite the repeated warnings of local experts, significantly larger than it was a year ago.

What this means, however, is that Namibia’s public debt to GDP ratio is likely to approach 35% by the end of the year, with the stock of debt up just under 70% in the space of just 12 months – very frightening numbers. Moreover, hard currency debt is set to make up more than 50% of total debt, and once again, this remains unhedged, a situation that most find unimaginable, but the Ministry of Finance persists with. The vast cost of this decision is, after all, carried by the tax payer.

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At the same time, the bank balance of the central government has improved significantly after the recent issuance of the country’s second Eurobond. These funds, however, have been at least partially earmarked to protect the external position, and the remainder will hopefully not be spent on recurrent activities, but saved for infrastructure development.

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The bottom line is that the fiscal position of Government remains weak at the current point in time, with revenue expected to remain under pressure for the next few years (not to mention SACU repayments), and debt reaching concerningly high levels, partially due to a decision not to hedge hard currency debt, which is being proved again and again to have been a very bad decision. In addition, efforts to slow spending, while admirable, are falling well short of the required mark. While the Minister of Finance desperately tries to rein in spending, less financially savvy members of the administration appear adamant to continue to spend money we simply no longer have.

Desperately needed is a reprioritisation of Government spending, away from non-core and non-priority issues, towards real priorities such as housing, water, energy and poverty reduction. However, to date efforts to reprioritise have been wholly inadequate, and haven’t seen any meaningful movement of funds to these priorities. Instead, ambitious project after ambitious project is announced by the country’s policy makers, leaving us with the ever more pressing question – “with what funds?!”

We are increasingly concerned that the debt situation of the country is becoming precarious to say the least, and that sustainability may become a serious issue should hard currency bonds remain unhedged, debt issuance continue at current rates, should the economy slow or should commodity prices remain low for an extended period of time.

We desperately need to reduce spending (and hedge our hard currency debt, all of it!) at this time, there are no two ways about it.

 

New Vehicle Sales – November 2015

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A total of 1,721 new vehicles were sold in Namibia during November. New vehicle sales decreased by 13.6% year on year and decreased 2.6% month on month. At this point of the year, 19,663 vehicles have been sold so far in 2015, down 2.3% on the comparable period of 2014. Thus Namibia is no longer on track for a record year of new vehicle sales, the declining rate of growth of new vehicle sales suggests that we may see a contraction. The 12-month cumulative measure of new vehicles sold decreased further to 21,494 in November from a high of 22,664 in April, largely due to an elevated base and strong vehicle sales in 2014.

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Passenger vehicle sales fell by 19.1% month on month, from 727 in October to 588 in November, down from a high of 910 in March this year. On a year to date basis, sales of passenger vehicles slowed further by 4.4% to 8,421, while year on year sales fell by 23.0% off a high base. 2014 saw exceptional growth in passenger vehicle sales, setting a high base, which has proven to be unsustainable as the year to date percentage change in vehicle sales has shown.

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Commercial vehicle sales increased by 8.9% month on month as 1,133 vehicles were sold. On a year on year basis commercial vehicle sales decreased by 7.7%, and the year to date figure is now lower than for the same period last year as the growth rate in commercial vehicle sales declined steadily, turning negative for the first time in 29 months. Light commercial vehicle sales increased by 12.2% fell 6.7% year on year. Medium commercial vehicle sales fell 44.2% month on month and 38.5% year on year, largely due to the low number of vehicles sold in this category. Heavy commercial vehicle sales fell by 3.0% month on month and 17.2% year on year. Medium and Heavy commercial vehicle sales figures fluctuate greatly due to the low numbers of these vehicles that are sold on a monthly basis. On a year to date basis both medium and heavy commercial vehicle sales are still on track for a record year while light commercial sales figures have declined to below last year’s level.

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Toyota once again topped the number of vehicles sold per brand for the month at 824, a market share of 47.9%. 184 or 31.3% of the 588 passenger vehicles sold during the month were Toyotas, as well as 639 or 61.1% of the 1,045 light commercial vehicles sold. Volkswagen moved 118 passenger vehicles or 20.1% of the total sold during the month. Volkswagen’s market share was 8.8% of the total. Nissan lost some market share this month with 9.3% of the total vehicle sales and Ford’s market share declined to 6.3% for the month.

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The Bottom Line

We have seen exceptionally strong vehicle sales growth through 2014, 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 in 2014 have elevated the base substantially which has led to lower percentage growth figures, although the number of vehicles sold as a whole is still strong. We expect to see vehicle sales normalising somewhat at the levels seen this year. 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.