2014 New Vehicle Sales

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1,831 new vehicles were sold during December, slightly less than November, as December is usually a seasonally slower month, nevertheless, an increase of 53.9% y/y. Monthly sales figures show record sales were seen during every month of the year in 2014. Total sales for the year stand just shy of 22,000 vehicles, up 36.2% on the 16,113 vehicles sold the previous year.

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During 2014, 9,629 passenger vehicles drove out the show room, with the sales 25.7% higher than 2013, highlighting the flamboyant state of the consumer. Commercial vehicle sales also increased significantly, with strong sales from the light, medium and heavy commercial categories. Commercial vehicles sold totaled 12,323, up 45.8% on last year’s figure.

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Toyota and Volkswagen dominated the passenger market, selling the most vehicles in 2014, with the two brands claiming 30.6% and 22.4% of sales respectively. Toyota was also the market leader in light commercial vehicles, having the lion’s share of sales at 47.7% of the market, followed by Nissan at 14.5% and Ford in third place with 9.9%.

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, a N$517.8m (111.0%) increase on the vehicle expenditure budget of the 2013/14 financial year. We expect the strong growth trend to continue, however sales may slowdown as monetary policy tightening is likely to continue. Nevertheless, government tenders yet to be delivered will maintain the momentum of vehicle sales through 2015.

Namibia CPI – December 2014

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Namibian annual inflation fell to 4.6 percent in December, from 5.0 percent the preceding month. On a monthly basis, weighted prices fell by 0.2 percent. The consumption categories experiencing the largest price increases over the past 12 months were education (8.1%), alcoholic beverages and tobacco (7.1%) and food (7.0%).

On a weighted basis, largely due to heavy weightings in the NCPI basket, over 75 percent of total inflation stemmed from food and non-alcoholic beverages, alcoholic beverages and tobacco, housing, water, electricity, gas and other fuels and transport.

NCPI Dec 2014 02Transport inflation continued to decline in December, to 2.9 percent, from 3.9 percent in November. This represents, however, an even more notable decline from the level of 10.7 percent just seven months earlier, recorded in June. Given the magnitude of the fall in oil prices witnessed over recent months, however, it is becoming increasingly likely that deflation will be seen in the transport category of the NCPI basket in the coming months. This is primarily due to the fact that despite the 14% decline in the price of diesel and petrol from their August highs of N$12.42 and N$12.29 per liter, respectively, over the same period, the cost of oil in Rand/NAD, has fallen by over 55%. As such, major over-recoveries are being seen at the pumps in the country, which recoveries will only increase over coming months, and are thus likely to be passed on to the consumer. As such, domestic pump prices are likely to fall by at least N$2 per liter over the next quarter, taking price back to levels last seen in early 2012.

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Interesting to note is the lagged effect of falling fuel prices on inflation. While pump price changes are rapidly (same month, or one month thereafter) noticed in inflation figures, the price of oil in Rand is a good three-month leading indicator of transport inflation. This is largely due to the fact that it takes between two and three months for falling oil prices to translate to falling pump prices, which in turn translate into falling transport inflation.

Also interesting to note is that while falling pump and oil prices are fairly rapidly passed along to the transport inflation sub-category of “operation of personal transport inflation”, the category of “public transportation services” sees the benefits of falling fuel prices much more slowly, with a nine-month lag on the transmission of petrol price changes to consumers, and a three month lag in the transmission of the change in diesel prices to consumers. The reason for this is likely to be, primarily, that most public transport prices are administered, and thus set quarterly, or annually. The reason for the slower transmission of petrol prices to consumers is that most petrol-powered public transport is made up of taxi and minibus services, which adjust prices less regularly than do the municipalities for their diesel-powered bus services.

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As with transport inflation, food inflation is partially determined by oil/fuel prices. However, the transmission mechanism for changes in prices is significantly more slow than is seen in transport inflation, thus terming these price changes “second round effect”, as opposed to the “first round effects” seen in transport inflation. In Namibia, the second round effects of lower fuel prices take between seven and 11 months to manifest, usually resulting in lower growth in inflation, rather than deflation (as can be witnessed for transport inflation). Food inflation tends to fall as a result of lower fuel prices as both food production and transport rely on fuel as a key input. The former, or course, manifests less quickly than the latter.

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While inflation declined dramatically in December, further declines are expected through the first quarter of 2015, due to the falling fuel price, as well as the aforementioned lagged transmission of already low oil prices to the price of consumer goods in the country. On the demand-pull-side, however, inflation remains relatively high, due to the buoyant state of the Namibian economy, and thus the strong demand for local services, particularly.

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PSCE November 2014

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Overall

Credit extended to the private sector increased by N$1,513.3m, or 2.27%, in November 2014, taking total credit outstanding to N$68.3bn. On an annual basis PSCE growth decelerated to 16.0%, a slight slowdown from October. A net total of N$9.42bn worth of credit has been extended over the last year, the highest level of net issuance seen over a 12 month period to date, and the fourth such consecutive record, as high growth continues to be seen off an ever increasing base. Of this N$9.42bn, approximately N$4.56bn was issued to businesses, while N$4.78bn was taken up by individuals.

Credit extension to households

Credit extension to households expanded by 1.52% on a monthly basis and 13.3% on an annual basis in November. The growth in credit extension to households can be largely ascribed to prolonged and historically low interest rates in Namibia, allowing for the relatively cheap uptake of credit by interest sensitive households. While interest rates have now started to increase, the transmission mechanism is relatively slow, particularly when interest rate increases are small, as have been the recent hikes.

Once again the largest percentage of the growth in credit extended to households was in the other loans and advances subcategory which expanded by 3.27%. Mortgage credit is still by far the biggest component of credit extended to households, contributing 39% to the total PSCE outstanding, and 65.5% of credit extended to households. Mortgage credit expanded 1.41% month-on-month and continues to grow on the back of low interest rates and a strong local economy, although year on year growth of 11.75% is below the average for the category.

Instalment credit makes up the second largest component of credit extended to households but is the fastest growing component with a year on year growth rate of 18.3% compared to the 13.27% growth seen in total credit extended to households. 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, and much of this is spent on imported goods.

Credit extension to corporates

Credit extension to corporates grew by 20.14% year-on-year in November, down from 21.37% in October but still meaningfully higher than credit extended to households. Mortgage loans, the largest component of credit extended to corporations, grew by 3.35% for the month. Overdraft facilities, the second largest component, grew by 7.81% and now amounts to more than 25% of the total credit extended to corporations. Overall for the month credit extended to corporations rose 3.41%. The continued growth in PSCE is indicative of the strength of the Namibian economy even amid global divergence and despite South African economic weakness.

Money Supply and Reserves

Foreign reserves declined by 8.6% month on month to N$13.75bn in November after decreasing by 8.5% month on month in October. For the year to date foreign reserves have declined 26.1% from N$18.61bn.

Annual M2 growth increased to 9.8% in November, up from growth of 5.0% in October. Total broad money supply currently stands at N$76.16bn.

Looking forward we expect to see further strong credit growth. Real income growth is expected to remain elevated given the expansive economic conditions that are still prevalent within Namibia which will continue to reinforce demand for credit as Namibian’s leverage off increased income.

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