Category Archives: Economic Research

Economic Research

Namibia CPI – January 2015

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NCPI Jan 2015

 

Namibian annual inflation fell to 4.5 percent in January, from 4.6 percent the preceding month. On a monthly basis, weighted prices rose by 0.8 percent. The consumption categories experiencing the largest price increases over the past 12 months were alcoholic beverages and tobacco (7.5%), miscellaneous goods and services (6.6%), and food (6.5%). The drop in inflation over the period is attributed to the decline in food inflation and the drop in transport inflation, driven by lower fuel prices.

Food and non-alcoholic beverages have seen a steady decline in year on year inflation over the last seven months (down from 10.1% to 6.5%), which contrasts with alcoholic beverages and tobacco which have experienced increased year on year inflation since June last year (up to 7.5% from 6.1%). Housing, water, electricity, gas and other fuels, the largest weighting in the CPI basket, remained roughly in line with December’s year on year inflation of 3.6 percent.

NCPI 2015 Jan

 

Transport inflation continued to decline in January, to 1.5 percent, from 2.9 percent in December. The continued fall in this basket category was expected given the oil price decline. Transport inflation reached 10.7% in June last year as the oil price peaked. Since then the price of oil has fallen over 50% driving a decline of 21% in the price of fuel within Namibia thus far. We expect the fuel price to decline further over the coming months as the oil price stays depressed and this should lead to deflation in the Transport category of the NCPI basket within the next couple of months.

The steady fall in food and other beverage inflation is likely to continue for the greater part of the year as lower fuel prices impact production input costs. The lag between the drop in fuel prices and food inflation slowing tends to be between seven and eleven months and as such should start kicking in before the second half of the year. We are unlikely to see deflation in this basket category as fuel is only one of the many inputs into food and beverage production.

Of the four biggest categories of the NCPI basket only food and non-alcoholic beverages and alcoholic beverages and tobacco currently have inflation levels above the basket average. Considering that we expect food and non-alcoholic beverages inflation to slow, due to the lagged transmission mechanism between low fuel prices and food inflation slowing, and the other determining categories to stay depressed, we expect a further decline in inflation going forward for at least the first half of the year. It should be stressed that the decline in inflation is due to supply side factors and therefore should not be seen as a drop in demand from the Namibian consumer. Supply side inflation respite should benefit the consumer and support GDP growth.

Building Plans – January 2015

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A total of 185 building plans to the value of N$94.9m were approved by the City of Windhoek in January 2015. It looks like a good start for 2015 as 49 more plans were approved in January compared to a seasonally slower December, however in value terms it is significantly less than the N$244.4m worth of plans approved in December. The difference in value is mainly because less expensive commercial and industrial projects were approved in January.

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The 12 month cumulative number of plans approved continued to lose momentum during January, falling to 2,803 compared to 2,846 in December, with the year-on-year growth rate contracting by 14.8%, posting negative growth for the ninth consecutive month, as shown in the graph below. The 12-month cumulative value of plans approved totaled N$2.212bn, down 1.6% y/y.

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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 – December 2014

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Overall

Credit extended to the private sector increased by N$1,093.9m, or 1.6%, in December 2014, taking total credit outstanding to N$69.4bn. On an annual basis PSCE growth accelerated to 16.5%, a slight uptick from November. A net total of N$9.82bn worth of credit has been extended during 2014, the highest level of net issuance seen over a 12 month period to date, as high growth continues to be seen off an ever increasing base. Of this N$9.82bn, approximately N$4.85bn was issued to businesses, while N$4.89bn was taken up by individuals.

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Credit extension to households

Credit extension to households expanded by 1.8% on a monthly basis and 13.3% on an annual basis in December. 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.

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Mortgage credit is still by far the biggest component of credit extended to households, contributing 39.2% to the total PSCE outstanding, and 65.5% of credit extended to households. N$2.90bn worth of mortgage credit was issued during 2014, expanding by 12.0% year-on-year and continues to grow on the back of low interest rates and a strong local economy.

Installment credit makes up the second largest component of credit extended to households (16.6%) but is the fastest growing component with a year on year growth rate of 18.8% compared to the 13.3% 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 21.4%year-on-year in December, meaningfully higher than the growth of credit extended to households. Mortgage loans, the largest component of credit extended to corporations, grew by 22.5% or N$1.48bn during 2014. Overdraft facilities, the second largest component, grew by 21.6% and now amounts to 25.0% of the total credit extended to corporations. The continued growth in PSCE is indicative of the strength of the Namibian economy even amid global divergence and despite South African economic weakness.

Outlook

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.