Category Archives: Economic Research

Economic Research

NCPI April 2023

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Namibia’s annual inflation rate softened to 6.1% y/y in April. On a month-on-month basis, prices in the overall NCPI basket rose by 0.4% m/m, following the 0.6% m/m increase in March. On an annual basis, overall prices in three of the twelve basket categories rose at a quicker rate in April than in March, eight categories recorded slower rates of inflation while inflation in the education category remained steady over the period. Inflation on services ticked up to 3.2% y/y while inflation on goods edged lower to 8.2% y/y.

Inflation Attribution

The Food and Non-Alcoholic beverages basket item was once again the largest contributor to Namibia’s annual inflation rate, contributing 2.5 percentage points in April. Prices of this basket item increased by 0.5% m/m and 13.5% y/y. The year-on-year inflation rates for most of the sub-categories in this basket category slowed from March but remain relatively elevated. Fruits posted the highest year-on-year inflation followed by Breads and Cereals. Fruit prices increased by 1.2% m/m and 28.5% y/y, marginally slower than the 29.1% y/y increase recorded a month earlier. Prices of the Breads and Cereals sub-category fell by 0.1% m/m but remain high considering that prices of this sub-category are 19.8% higher than they were a year ago. Vegetables and Fish were the only sub-categories which recorded quicker inflation compared to March on a year-on-year basis. Prices of the Vegetables sub-category rose by 2.5% m/m and 15.2% y/y, while prices of the Fish sub-category increased by 0.5% m/m and 8.8% y/y.

The Alcohol and Tobacco basket item was the second largest contributor to April’s inflation print, contributing 0.9 percentage points. Prices in this category rose by 0.6% m/m and 6.7% y/y. Inflation on alcohol products came in at 7.6% y/y, a slight uptick from the 7.4% y/y reported in March. Tobacco product inflation came in at 2.6% y/y, down from 4.8% y/y a month ago. Six of the nine sub-categories in this basket item posted either slowing or steady inflation. Pipe Tobacco, Brandies and Beers/Ales/Ciders were the only sub-categories which saw prices grow faster in April than in March.

Housing, Water and Electricity, which has the heaviest weighting in the inflation basket at 28.4%, was the largest contributor to inflation among the remaining categories and replaced Transport as one of the top three contributors to Namibia’s annual inflation print. Inflation in this category came in at 2.6% y/y in April, down from 3.0% y/y in March. All four sub-categories in this basket item recorded slowing inflation compared to March on a year-on-year basis. Prices of Electricity, Gas and Other Fuels fell by 0.4% m/m, while annual inflation in this subcategory slowed to 4.9%. Prices in the Regular Maintenance and Repair of Dwelling sub-category decreased by 0.4% m/m with annual inflation coming in at 4.8%. Rental inflation and prices of Water Supply, Sewerage Service and Refuse remained steady month-on-month with annual inflation at 2.1% and 2.5%, respectively.

Outlook

The steep drop in April’s inflation print to 6.1% is primarily due to base effects in the Transport category with fuel prices now only marginally higher than they were a year ago. Still, the slowdown should be a welcome development for the Bank of Namibia (BoN) and its quest to temper inflationary pressure. The drop in April’s inflation print, coupled with the fact that we see inflation starting to ease in other parts of the world, may signal the start of a much-anticipated disinflationary cycle which in turn could see the end of the BoN’s tightening of the belt. The BoN raised lending rates by a further 25bps last month, again deciding to not hike as aggressively as the South African Reserve Bank (SARB) last time round and now lags the SARB’s lending rate by 50bps.  Elevated food prices and a weak currency do however pose risks to the BoN’s inflation fight.

IJG’s inflation model continue to predict a gradual slowdown in Namibia’s annual inflation rate over the remainder of year, before ending the year at around 4.8%.

Building Plans – April 2023

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The City of Windhoek approved 131 building plans in April, representing a 28.8% m/m decline from the 184 building plans approved in March. The approvals were valued at N$173.4 million, a 69.1% m/m increase from the N$102.6 million approved in March. Year-to-date, 561 building plans worth N$370.7 million have been approved, down 26.8% in number terms and 28.6% y/y less in value terms compared to the same period in 2022. On a twelve-month cumulative basis, the number of approvals declined by 5.6% y/y to 2,262 and fell by 12.8% y/y in value terms to N$1.61 billion. A total of 54 building plans worth N$65.6 million were completed during April.

93 additions to properties valued at N$58.7 million received the nod in April. This was 21 fewer and N$4.29 million less than in April 2022. Year-to-date, 412 additions to properties worth N$147.2 million have been approved, representing a 13.8% decrease in number terms and a 45.8% drop in value terms compared to the corresponding period a year earlier. On a 12-month cumulative basis, both the number and value of additions to properties continued to decline. 1,609 additions to properties worth N$762.5 million were approved over the past 12 months, compared to 1,630 additions worth N$766.8 over the same period a month ago. A total of 12 additions valued at N$3.69 million were completed during April, the lowest monthly number and value of additions to properties recorded so far this year.

29 new residential units valued at N$38.1 million were approved in April, compared to the 58 units worth N$42.7 million receiving the go-ahead a year ago. Year-to-date, 132 new residential units worth N$124.7 million have been approved, down 52.5% from the 278 units worth N$208.4 million approved over the same period a year earlier. The 12-month cumulative new residential unit approval figures continued their downward spiral. 589 units worth N$620.4 million have been approved over the past 12 months, down 28.2% in number terms and 30.0% less in value terms compared to the corresponding period a year ago. A total of 41 residential units valued at N$47.9 million were completed during April.

9 new commercial and industrial units worth N$76.7 million were approved in April, more than thrice the cumulative value of commercial and industrial units approved over the first quarter of the year. This brings the year-to-date commercial and industrial building approvals to 17 valued at N$98.8 million, an increase of 152.3% from the N$39.2 million worth of units approved over the same period in 2022. On a rolling 12-month basis, both the number and value of commercial and industrial unit approvals ticked up from a month earlier. A total of 64 commercial and industrial units valued at N$222.5 million have been approved over the 12-month period, compared to 35 units worth N$184.4 million over the same period a year ago. Only 1 commercial and industrial unit was completed for the third month in a row.

Building plans data showed little buoyancy in April. The approval figures, particularly within the commercial space, witnessed some improvement. These advances were, however, achieved from a very low base and the overall picture for building plans remains relatively bleak as the graphs above and below imply. Construction activity is anticipated to remain low in the near term due to the sluggish economy grappling with high inflation and confronting elevated interest rates. All factors creating an unfavourable environment for fostering interest in new construction projects.

PSCE – March 2023

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Overall

Private sector credit (PSCE) fell by N$67.1 million or 0.06% m/m in March, bringing the cumulative credit outstanding to N$111.2 billion on a normalised basis (removing the interbank swaps the Bank of Namibia (BoN) accounts for in non-resident private sector claims). On a year-on-year basis, PSCE grew by 3.9% in March, compared to a 3.1% growth rate in February. The impact of base effects plays a role in the quicker annual rate, as PSCE fell by nearly 1.0% in March 2022. N$4.21 billion worth of credit was extended to the private sector over the past 12 months. Individuals took up N$3.36 billion worth of credit, while corporates took up N$846.1 million. 

Credit Extension to Individuals

Credit extended to individuals rose by 0.2% m/m and 5.4% y/y. All sub-categories, bar instalment credit, recorded growth on a month-on-month basis. Mortgage loans were again the biggest contributor of the month-on-month increase, registering growth of 0.1% m/m and 3.2% y/y. ‘Other loans and advances’ (consisting of credit card debt and personal- and term loans) continues to post strong growth, increasing by 0.4% m/m and 18.2% y/y in March, the quickest annual growth rate for this sub-category since March 2020. Overdraft facilities to individuals grew by 0.6% m/m and 0.8% y/y, while instalment credit fell marginally by 0.1% m/m but rose 2.5% y/y. 

Credit Extension to Corporates

Corporate credit extension fell by 0.4% m/m but rose 1.9% y/y. In contrast to credit extended to individuals, instalment credit to corporates was the only sub-category which posted monthly growth in March, growing by 3.2% m/m and 12.8% y/y, ahead of inflation, but from a low base. Mortgage loans declined by 0.2% m/m and 4.5% y/y. Other loans and advances contracted by 0.2% m/m but rose 7.1% y/y. Overdraft facilities to corporates fell by 2.3% m/m and 0.9% y/y. 

Banking Sector Liquidity 

The overall liquidity position of the commercial banks strengthened further during March, rising by N$718.4 million to an average of N$8.15 billion. According to the Bank of Namibia (BoN), the increase is due to improved diamond sales, coupled with government payments which were high due to the fiscal year end. Despite the strong liquidity position, the repo balance rose from zero at the start of the month to N$458.4 million at month end.

Money Supply and Reserves

The BoN’s latest monetary statistics show that broad money supply (M2) rose by N$2.32 billion or 1.8% y/y in March. The stock of international reserves climbed by 2.1% m/m or N$980.0 million to N$48.5 billion, translating to 5.1 months of import cover. The BoN attributed the increase to Customer Foreign Currency (CFC) placements.

Outlook

The cumulative credit outstanding fell in March as debt repayments by corporates outpaced credit uptake by individuals. As mentioned earlier in the report, the quicker year-on-year PSCE growth rate is mainly due to base effects, following a nearly 1.0% m/m drop in credit outstanding in March 2022. The subsequent increase in April 2022 of 1.6% m/m should result in a slower annual increase in April 2023 (closer to 2.5% y/y), all else equal.

Corporate credit uptake remains low, with only short-term ‘other loans and advances’ and instalment credit exhibiting positive growth on an annual basis, with the latter primarily from a low base. Credit uptake by individuals is faring better, by comparison, although the annual growth is primarily driven by short-term credit uptake in the form of credit card debt, and personal- and term loans.

Overall PSCE growth continues to trend well below inflation. We do not expect this to change in the short-term, given that inflation remains sticky after March’s print came in at 7.2% y/y and continues to trend above our forecasts.