Category Archives: Economic Research

Economic Research

Namibia Inflation – July 2015

By | | ,
Comments Off on Namibia Inflation – July 2015

NCPI 07 2015 (0)

The Namibian annual inflation rate rose to 3.3% in July, up from 3.0% in June. On a month on month basis prices rose by 0.4% compared to 0.3% in June, largely due to a month on month increase in transport costs. On a year on year basis half the basket categories grew at a faster rate than in June while the other half slowed further. Year on year inflation is still well below average at this stage, largely due to a drop in the price of oil over the past year, and the knock on effects this has on input prices, as well as the heaviest weighted basket item (housing, water and electricity, gas and other fuels) experiencing prolonged inflation of well below the basket average. 12-Month average inflation reached a new low of 4.1%, and has been coming down steadily since November 2014.

NCPI 07 2015 (2)

On a year on year basis, food and non-alcoholic beverages prices have increased by 5.3%, up from 4.1% in June, largely due to a pickup in the rate of inflation of fish, bread and cereal, non-alcoholic beverages, mineral water, and juice prices. The effects of lower input costs due to depressed fuel prices are still flowing through to food prices. This is not likely to persist for long as poor rainfall in Namibia and South Africa, should see prices rebound the end of the year.

Year on year alcoholic beverages and tobacco price inflation slowed to 6.9% versus 7.2% in June. Tobacco price inflation slowed while alcoholic beverage prices increased at a slightly faster rate than during the previous month. Clothing and footwear inflation slowed on a year on year basis while prices have come down marginally since June. Year on year inflation on housing, water, electricity, gas and other fuels continued to slow, posting a July figure of 2.1% versus 2.5% in June. This was largely due to water supply, sewage services and refuse collection inflation slowing on a year on year basis due to base effects. Rental payments for dwellings (both owners and renters) have increased by only 1.5% on a year on year basis, and have not increased on a month on month basis.

The largest contributor to monthly inflation was the increase in transport costs which was driven by an increase in fuel prices. We feel that oil prices will continue to fluctuate for some time to come but that fuel price changes will continue to be smoothed by the Ministry of Mines and Energy and hence occur relatively infrequently.

As expected inflation picked up slightly during July while still at well below average levels. We feel that increases in the rate of inflation will continue going forward, although at a sedate pace. Cost push factors such as the depreciating currency, poor rainfall, and electricity generation issues within the region, all pointing to higher future prices.

NCPI 07 2015 (1)

Building Plans – July 2015

By | | ,
Comments Off on Building Plans – July 2015

Picture1*June figures were used for plans completed

A total of 189 building plans valued at N$145 million were approved by the City of Windhoek in July 2015. On a year to date basis, 1,552 plans were approved with a value of N$1249.8 million, versus 1,679 plans valued at N$1505.8 million for the same period last year. This represents a 17% 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 projectswere approved by the municipality in February 2014. On a month to date basis, the value of plans approved decreased by 13.2%, due to a fall in the value of approved commercial property and houses compared to June. The below chart illustrates the value of plans approved in July compared to previous months.

Picture2

The 12-month cumulative value of plans approved also fell from N$2057.2 million in June to N$2042.3 million this month, along with the cumulative number of plans approved, which fell from 2802 in June to 2719. These figures are presented in the charts below.

Picture3

Picture4

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 – June 2015

By | | , ,
Comments Off on PSCE – June 2015

PSCETOTALS

Private sector credit extension growth slowed to 14.8% in June, from 16.2% in the preceding month, on a year-on-year basis. On a month-on-month basis, credit extension contracted by 0.24%. This is the first time since July 2011 that we have seen a month-on-month contraction in credit extension. This contraction is likely to be driven by supply side issues, most notably the abnormally high loan-to-deposit ratio seen in the banking industry and the abnormally low liquidity levels seen in the industry at the current point in time. As such, the banking sector recovered more credit than it issued in June, resulting in the negative net issuance figure seen.

12MPSCEIssuance

While somewhat worrying, these two indicator levels were foreseeable, as N$9.4 billion (net) worth of new credit has been issued by the banking sector over the past 12 months. Of this, approximately N$4.3 billion of net issuance was seen to non-financial corporates, while N$5.0 billion was issued to households (the remainder was issued to financial corporates). Of this total issuance, approximately N$5.1 billion was issued in the form of mortgage loans, with the remainder being largely made up of installment and leasing credit, overdrafts, credit card and personal loans.

OutstandingPSCE

PSCEBreakdown

As much of the non-mortgage credit is effectively consumptive credit, and due to the fact that Namibia produces relatively few consumer goods, much of this credit flows out of the country. This is particularly true of vehicles, furniture and consumer electronics bought on credit. Due to the net-outflow of funds from the country, a negative balance of payments trend has been seen for a few years. The funding of this balance of payments deficit is effectively drawn from reserves (see the BOP identities), and as such reserves have declined, particularly in hard currency terms, over the past three years.

Reserves

However, in June, the reserve position recovered somewhat, climbing N$1.1 billion to N$14.8 billion. This was likely on account of the deadline for personal income tax payments for the tax year passed, which often results in commercial banks pulling funds back into Namibia (from the CMA) as clients make large tax transfers to Government. As these payments are made, banking sector liquidity dries up (see http://www.ijg-research.net/the-namibian-macroeconomic-environment/), while Government cash balances are boosted. Both factors were witnessed during the month as expected.

At its June MPC meeting, the Bank of Namibia also increased interests rates, part of the on-going rate normalisation being pursued by the Bank. While perhaps hard on the pockets of indebted Namibians, this was a welcomed, and certainly the correct, move from a macroeconomic perspective, as abnormally high levels of credit growth, low liquidity and reserves require that interest rates be increased in order to bring the currently misaligned Namibian economy back into alignment.

Going forward, interest normalisation is expected to continue in its current gradual manner, however current liquidity challenges in the banking sector mean that credit supply may start to dry up, and net issuance is likely to start to slow.