Category Archives: Economic Research

Economic Research

Building Plans – September 2015

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A total of 206 building plans valued at N$133.7 million were approved by the City of Windhoek in September 2015. On a year to date basis, 1,965 plans were approved with a value of N$1.543 billion, versus 2,258 plans valued at N$1.837 billion for the same period last year. This represents a 16.0% decrease in the value of plans approved on a year to date basis. This decrease is mainly due to base effects as three large commercial projects were approved by the municipality in February 2014. The September value, however, is in line with the average year to date value over the last 5 years of N$1.558 billion. On a month to date basis, the value of plans approved decreased by 16.2%, due to a fall in the value of approved additions, domestic and commercial spaces compared to August. The below chart illustrates the value of plans approved on a tear to date basis compared to previous years.

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The 12-month cumulative value of plans approved continued to fall, down from N$2.012 billion in August to N$2.004 billion this month, along with the cumulative number of plans approved, which fell from 2,648 in August to 2,553 in September. These figures are presented in the charts below.

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In our view, the construction sector will remain one of the leading growth and development sectors for 2015 in the Namibian economy, with both private sector and government having aggressive development plans. However, since many of these plans occur outside the Windhoek municipal area, they are not captured in the monthly building plan statistics.

 

PSCE – August 2015

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PSCE Aug1

Overall

Total credit extended to the private sector increased by N$1.03 billion, or 1.39%, in August 2015, taking total credit outstanding to N$75.12 billion. On an annual basis PSCE growth slowed slightly from 15.90% in July to 15.80% in August. A total of N$10.25 billion worth of credit has been approved over the last 12 months with N$5.73 billion worth of credit being approved in 2015 thus far. Of the N$10.25 billion worth of credit issued during the last 12 months, approximately N$5.80bn was taken up by businesses, while N$4.32bn was taken up by individuals.

PSCE Aug2

Credit extension to households

Credit extension to households expanded by 0.76% on a monthly basis and 10.96% on an annual basis in August. Credit extension to households is now growing at a more sedate pace than in the past and may slow further 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.

Household mortgage loans expanded by 0.94% month on month and 13.10% 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.

Installment credit, the second largest component of loans extended to individuals, grew at 2.44% year on year in August, slightly up from 2.18% in July, although well off the rapid growth we saw in the first half of the year. On a month on month basis installment credit grew by 1.82%. The lackluster installment credit growth can be attributed to tighter monetary policy as well as a possible slowdown in credit extension by banks due to less than ideal liquidity positions. We will monitor this figure closely in the coming months as a longer term slowdown in trend growth would confirm the apparent liquidity issues within the country and put pressure on consumers.

PSCE Aug3

Credit extension to corporates

Credit extension to corporates grew by 2.18% on a month on month basis and 23.07% year-on-year In August, once again meaningfully higher than credit extended to households. This expansion was again primarily driven by exceptional growth in mortgage loans, up 29.21% year on year and 3.09% month on month. Installment credit extended to corporates grew at a rate of 42.38% year on year and 1.51% month on month, while overdraft facilities grew by 15.17% year on year and 3.40% on a month on month basis. Total credit issued to corporations has, in the past, made up less than 40% of total PSCE but has crossed this threshold, now making up 41.2% of the total figure. 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 decreased slightly by the end of August 2015, as can be seen in the below figure. International reserves stood at N$14.07 billion at the end of August, down from N$14.3 billion at the end of July. August tends to see a slight decline in reserves due to the lack of significant inflows during this month. The Namibian reserve position remains a concern as the hard currency value (US$) of reserves continues to decline. The Rand has experienced a 15% decline versus the US Dollar thus far this year, a trend that is expected to continue in the long term. International reserves should appreciate in local currency terms due to the depreciation of the local currency but the fact that reserves are not is cause for concern.

PSCE Aug4

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. This signifies an economy expanding rapidly. 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 as well as the inflated base should see future PSCE growth slow somewhat. 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 (closer to GDP growth) should be positive for the economy and prevent it from overheating.

IMF Article IV Note on Namibia 24 Sept 2015

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IMF Executive Board Concludes 2015 Article IV Consultation with Namibia

FROM: http://www.imf.org/external/np/sec/pr/2015/pr15435.htm

Press Release No. 15/435
September 24, 2015

On September 18, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Namibia.1

Namibia has maintained robust Real Gross Domestic Product (GDP) growth since the global financial crisis, although in 2014 it was somewhat weaker. The GDP growth slightly moderated to 4.5 percent in 2014, largely owing to lower global demand for Namibia’s main export commodities (e.g., diamond, uranium). Inflation remained contained, due to low international commodity prices (e.g., fuel). The government’s large scale fiscal program contributed to job creation, and unemployment declined somewhat (to 28 percent in 2014).

Growth performance has been underpinned by a rapid increase in credit. Average annual growth of private sector credit has exceeded 15 percent since 2012, with strong demand from both households and corporates. This credit expansion has been boosted by historically low interest rates, following South Africa’s monetary policy. Net credit to the government has also risen to meet its large domestic financing needs.

Namibia’s fiscal policy stays expansionary, to promote growth and employment. In 2014/15, though the Southern African Customs Union (SACU) revenues and domestic revenues increased, the government increased its recurrent and capital expenditures more, resulting in an overall fiscal deficit of 3.75 percent of GDP. For 2015/16, the budget envisages a larger deficit, with increased expenditures and lower SACU revenues (declined by 1.75 percent of GDP from 2014/15). In light of the financing needs, the government has been exploring the scope for tapping international capital markets.

These developments resulted in increased pressure on external balances, while house prices also rose. With the significant increase in import demand, the current account continued to deteriorate in 2014, and international reserves declined to 1½ months of imports by May 2015. House prices have increased by 87 percent over the last five years, driven by several factors (e.g., the growth in disposable income, relatively low interest rates, purchases for short term capital gains, and structural factors).

Namibia’s growth outlook is clouded with downside risks, while facing significant policy challenges. The main near-term risks are associated with (i) highly volatile SACU revenues, (ii) rapid growth of house prices, and (iii) external environment. In addition, Namibia continues to face serious development challenges, including high unemployment and inequality. Its main policy challenges are therefore to strengthen its resilience to exogenous shocks and manage systemic risks in the financial sector, while promoting inclusive growth and job creation.

Executive Board Assessment2

Executive Directors commended Namibia’s robust macroeconomic performance following the global financial crisis. While medium-term growth prospects remain good, they noted that risks are increasing. The recent expansionary fiscal policy—while contributing to job creation—has increased pressure on external balances and put downward pressure on international reserves. Volatile revenues from the Southern African Customs Union (SACU) and rising housing prices are adding to uncertainties. Against this backdrop, Directors called for continued commitment to sound policies and structural reforms to build adequate policy buffers, preserve financial sector stability, and reduce unemployment and inequality.

Directors welcomed the authorities’ commitment to pursue growth-friendly fiscal consolidation, noting that a sustained effort will be needed with the aim to build international reserves. They stressed the importance of containing the government wage bill and reducing subsidies and transfers to state-owned enterprises, as well as strengthening revenue administration and public financial management, while safeguarding critical social and development needs. In view of the prospective decline in SACU revenues, they also suggested that tapping international capital markets could help increase buffers, but noted that the associated interest rate, rollover, and exchange rate risks need to be managed carefully. Directors commended the authorities’ plan to undertake a midyear budget review, which would incorporate their fiscal consolidation measures.

Directors acknowledged that Namibia’s financial system is generally sound, but called for vigilance on recent housing market developments. They highlighted the close macrofinancial linkages, and cautioned that accelerating real estate prices―combined with high concentration of banks’ mortgage lending―could pose risks to the financial sector and the real economy. In this respect, Directors commended the Bank of Namibia for its plan to introduce loan-to-value limits for nonprimary resident purchases, and recommended further targeted macroprudential measures to safeguard financial stability. In light of the significant size of nonbank financial institutions and their close inter-linkages, greater supervision of this sector is essential. Directors also encouraged further steps to enhance cross-border coordination.

Directors welcomed the authorities’ intention to address high unemployment and inequality. In view of high youth unemployment, Directors supported the authorities’ objective to reduce skill mismatches through improving education and job-related skills development. They also emphasized the importance of further improving business conditions and facilitating financial intermediation with proper supervisory oversight.