Category Archives: Economic Research

Economic Research

Namibia CPI – October 2014

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CPI

Annual inflation for October slowed by 0.3 percentage points, to 5.0 percent as compared to 5.3 percent recorded a month earlier. On a monthly basis, the inflation rate increased to 0.2 percent. The annual decline in inflation was primarily on account of base effects, with food inflation continuing to slow and transport prices remaining unchanged month-on-month. Housing utilities, the largest weighting in the CPI basket, also saw no growth during October.

Education has surpassed food and non-alcoholic beverages as basket category with the highest inflation, with the cost of tertiary education continuing to grow at a rate of 9.8% per year. The rate of growth of food and non-alcoholic beverage prices has declined for the past 5 months, whereas the cost of alcoholic beverages and tobacco continues to grow at an increasing pace. The Communications category continues to see prices decrease year on year (down 1.1%), and is thus the only category of expenditure seeing actual price declines.

CPI1

 

The decline in communications prices is a direct result of the low interconnection rates between operators within the country. The increased use of internet based communication has added further competition within the sector which has contributed to the decrease in prices.

Decreases in the global oil price are expected to filter through to the consumer in two parts over the next 18 months. First round effects should be felt in the next two months as fuel pump prices decline, while second round effects are expected to have a price-reducing effect on food prices 8-18 months out.

On account of falling oil prices, we have revised our forecast average inflation for 2014 to 5.4% in 2014, down from previous forecasts of 5.7%. We maintain our view that demand-factors are starting to lead inflation in Namibia, as strong growth in the economy with rural urban migration contributing to demand driven increases in prices. Administered and services prices are especially prone to increases caused by these effects. Recent unrest about the cost of housing is not likely to have a long term effect on the rate at which these prices grow but may have a short term influence on the rate of price increases.

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Building Plans October 2014

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A total of 221 building plans to the value of N$86.7m were approved by the City of Windhoek in October 2014. On a year‑to‑date basis (January to October), 2,479 plans were approved compared to 2,816 plans over the same period last year. In value terms, however, plans approved year-to-date are worth N$1,923.8m compared to N$1,920.9m for the same period in 2013, up 0.1%. This increase is mostly due to three large commercial projects that were approved by the municipality in February 2014. On a monthly basis, 80 less plans were approved than in September, more or less in line with the average of 255 plans approved per month over the last three years. The value of plans approved is down 58.7% m/m.

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The 12 month cumulative number of plans approved lost some momentum during October, falling to 2,963 compared to 3,074 in September, with the year-on-year growth rate contracting by 12.2%, posting negative growth for the sixth consecutive month, as shown in the graph below. The 12-month cumulative value of plans approved totaled N$2,241.4m, up 0.6% y/y.

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PSCE, Government Debt, International Reserves – September

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Private sector credit extension growth remained unchanged in September, at an elevated level of 16.3 percent year on year. This growth was driven by strong uptake in credit to businesses, which expanded by 20.2 percent year on year, while credit extension to individuals saw lesser growth of 12.9 percent year on year. With regards to credit categories, outstanding mortgage loans grew by 12.1 percent, while instalment credit growth remained abnormally strong, at 18.6 percent. Following a year of abnormally high growth, the total level of outstanding private sector credit extension is now N$65.6 billion, N$9.24 billion more than a year ago.

PSCE_September

PSCE growth remains driven by instalment credit, a persistent thorn in the side of the Monetary Policy Committee of the Bank of Namibia. The reason behind this (very justified) concern is that many of the goods sold on instalment periods (such as vehicles, furniture and consumer electronics) are imported from outwith the country, which importation puts pressure on the country’s balance of payments. Nevertheless, instalment credit represents a relatively small, but growing, portion of total credit.

PSCE_Categories_September

On a rolling 12 month basis, net credit extension increased to a record N$9.24 billion, from the previous month’s record of N$9.11 billion. This major increase comes about on account of historically low interest rates until mid-2014, followed by two minor (25bp) increases thereafter. This, coupled with abnormally strong growth in the local economy, major fiscal expansion, (expected) declining unemployment and (likely) major increases in cash wages being paid in the construction sector (particularly), is likely to have resulted in major increases in disposable income in Namibia over the past 24 months. Given a low marginal propensity to save in the country, much of this increased income is spent, and often leveraged upon through the local commercial banks.

PSCE_Net_Issuance_September

On the back of major increases in Government expenditure over the past year, as well as a concerted (and budgeted) effort to house smaller cash balances with the commercial and central banks, in September, Government’s deposits with these banks fell to the lowest level seen since December 2006.

Central_Government_Deposits_September

Government’s domestic debt increased from N$20.25 billion to NS20.54 billion between September and October, largely on account of new issuance in the GC17, 18, 24, 25, 27, 30, 32, 35 and 40, some of which resulted from switches out of the GC15, due to mature next year. A total of N$221 million was switched out of the GC15 into longer dated instruments during the month.

Government_Debt_October

Foreign reserve levels recovered through September, to N$16.5 billion, from N$13.7 billion the preceding month. This recovery bolsters the external position of the country somewhat, however was partially due to Rand depreciation. During the month, the Rand depreciated by 5.5 percent vs the US Dollar, which explains a portion of the increase.

Foreign_Reserves_September