Category Archives: Economic Research

Economic Research

Vehicle Sales – February 2015

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1,947 new vehicles were sold in Namibia during February, up 13.5% m/m, which is mostly due to January being a seasonally slower month. The higher monthly numbers, compared to January, were on account of a 15.7% increase in commercial vehicle sales and a 10.5% rise in passenger vehicle sales. At this point, total sales for the year stand at 3,663 vehicles, up 11.1% on the comparable period of 2014.

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The 12-month cumulative measure increased further to 22,319 and is now 29.6% higher than a year ago, up 0.7% from the previous month.In our view the growth in the 12-month cumulative number is largely a result of a lower base in the previous year.

Sales of passenger vehicles increased by 10.5% m/m to 821 vehicles sold during the month, up from the previous month’s 9.7% contraction. On an annual basis, passenger vehicle sales rose, increasing 11.1% y/y after increasing 6.4% in January. Commercial vehicle sales rose 15.7% to a sales figure of 1,126 vehicles, which was due to higher sales numbers of light commercial vehicles on the back of government tenders coming through. On an annual basis, commercial vehicle sales increased by 7.2%.

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Toyota and Volkswagen dominated the passenger market, selling the most vehicles in February, with the two brands claiming 26.9% and 24.1% respectively. Toyota once again was the market leader in light commercial vehicles, having the lion’s share of sales at 48.1% of the market, followed by Nissan at 16.3%, and Ford in 3rd place.

The Bottom Line

The strong increase in vehicle sales is attributed to a number of factors, namely the on-going expansive fiscal and monetary positions of the Ministry of Finance and Bank of Namibia, as well as purchase of vehicles by Government.The Ministry of Finance has allocated N$984.5m to vehicle purchases in the 2014/15 National Budget, this is N$517.8m or 111.0% more than what was spent on vehicles during the previous financial year. Additionally, the mining sector has purchased a number of commercial vehicles over recent months, largely on account of the on-going construction of the Tschudi, Otjikoto and Husab mines in the country.

Strong growth in the local economy, (expected) falling unemployment and increased wages, has increased the disposable income of consumers, which disposable funds are often used to purchase vehicles. The strong state of the Namibian consumer can thus be well illustrated by vehicle sales figures. However as no cars are manufactured in Namibia, all new vehicles sold must be imported. Given the small, open, nature of the Namibian economy, this puts major pressure on the country’s balance of payments, which pressure cannot be sustained long-term.

The strong growth witnessed in February is expected to continue, however may slow towards the end of the year as monetary policy tightening starts to gain traction. Nevertheless, government tenders yet to be delivered are expected to maintain the momentum of the vehicle sales through 2015.

 

Building Plans – February 2015

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A total of 213 building plans to the value of N$172.5 million were approved by the City of Windhoek in February 2015. On a year‑to‑date basis (January to February), 398 plans were approved compared to 495 plans over the same period last year. In value terms, plans approved year-to-date are worth N$267.4 million compared to N$695.1 million for the same period in 2014, down 61.5%. This decrease is mostly due base effects as three large commercial projects were approved by the municipality in February 2014. On a monthly basis, a few more plans were approved in February when compared to January, and the value of plans approved is up 81.8% m/m. The higher figures are mainly seasonal as December and January tend to be slower months.

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The 12 month cumulative number of plans approved continued to lose momentum during February, falling to 2,749 compared to 2,803 in January, with the year-on-year growth rate contracting by 16.4%, posting negative growth for the tenth consecutive month, as shown in the graph below. The 12-month cumulative value of plans approved totaled N$1.870 billion, down 27.2% y/y, with the base again having a drag effect.

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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, many such plans fall out of the Windhoek municipal area, and as such are not captured in the monthly building plan statistics.

PSCE January 2015

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PSCE 01 2015

Overall

Credit extended to the private sector increased by N$495.8m, or 0.71%, in January 2015, taking total credit outstanding to N$69.9bn. On an annual basis PSCE growth decelerated slightly to 16.1%, from the 16.5% in December. A net total of N$9.71bn worth of credit has been extended over the last 12 months, as high growth continues to be seen off an ever increasing base. Of this N$9.71bn, approximately N$5.21bn was issued to businesses, while N$4.42bn was taken up by individuals.

Credit extension to households

Credit extension to households contracted by 0.32% on a monthly basis, but expanded 11.97% on an annual basis in January. This is the first monthly contraction since January 2012, and only the ninth monthly contraction in the last nine years. The actual size of the contraction was small relative to the expansions seen in the previous few periods, and is insignificant in terms of total outstanding household credit. Bank of Namibia cited elevated levels of private sector credit extension as one of their reasons for hiking interest rates in February, but it is questionable whether the 25 basis point increase will have much effect on credit extension. The current period contraction is due to seasonal effects witnessed in January and February. It is also worth noting that the transmission mechanism between rate hikes and PSCE contractions is relatively slow, particularly when interest rate increases are small.

Household mortgage loans contracted by 0.79% month on month and as such was the driver behind the contraction in household credit extension. The contraction was widely spread over the category however, with only subcategory expanding during the month being overdrafts. Mortgage loans continue contribute over 65% of the total value of household credit although this fraction is slowly declining as instalment credit grows more rapidly.

Installment credit continues to makes up the second largest component of credit extended to households (16.5%) but is the fastest growing component with a 12 month average year on year growth rate of over 18%. This points to a nation that is becoming more comfortable with the use of debt for private consumption. Installment credit is often used to purchase consumer goods and could be seen as a non-productive utilization of credit. Much of this is spent on imported goods which puts pressure on the country’s reserve position when too large.

Credit extension to corporates

Credit extension to corporates grew by 22.67% year-on-year in January, meaningfully higher than the growth of credit extended to households once again. Mortgage loans, the largest component of credit extended to corporations, grew by 0.77% m/m and 23.6% y/y, once again illustrating the seasonal effect of credit extension on mortgages and other credit. On a month on month basis loans and other advances as well as overdraft credit continues to drive credit extended to corporates, while instalment credit experienced a contraction. The seasonal effects seen in credit extended to households is mitigated by high growth in loans and other advances attributable to corporates during the month in review.

Reserves and money supply

Foreign reserves increased by 21.7% m/m in January, from N$13.5bn to N$16.5bn, but declined 11.5% y/y. The usual SACU payment in January has elevated the reserve position to more sustainable levels, although still lower than last year January. The M2 money supply saw a slight decrease of 0.23% from December as transferable deposits held with BoN fell by 4.2%.

Outlook

Due to strong wealth effects as a result of prolonged and abnormally high growth, we believe that demand for credit will remain high, while real income growth will allow suppliers of debt to continue to lend with a fair level of confidence. Additionally, the lagged effects of increasing interest rates mean that it is unlikely that we will see a major impact on credit demand by households for a period of 6 to 18 months after rate hikes start, provided that the magnitude of the hiking cycle is sufficient to cause an impact.

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