Category Archives: Economic Research

Economic Research

PSCE – February 2023

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Overall

Private sector credit (PSCE) increased by N$664.2 million or 0.60% m/m in February, bringing the cumulative credit outstanding to N$111.3 billion on a normalised basis (removing the interbank swaps the Bank of Namibia (BoN) accounts for in non-resident private sector claims). Year-on-year PSCE growth stood at 3.1% in February, compared to a 2.6% y/y growth rate recorded in January. The past 12 months saw N$3.33 billion worth of credit extended to the private sector, a 40.1% increase from the N$2.38 billion issued over the same period a year ago. The cumulative 12-month period saw individuals taking up N$3.13 billion worth of credit, while corporates took up only N$203.1 million. 

Credit Extension to Individuals

Credit extended to individuals increased by 0.3% m/m and 5.0% y/y, the quickest year-on-year growth since June 2020. All sub-categories registered growth on a month-on-month basis for a third consecutive month. Mortgage loans were the biggest driver of the month-on-month increase, posting growth of 0.2% m/m and 2.8% y/y. ‘Other loans and advances’ (which is made up of credit card debt and personal- and term loans) continues to post robust growth, growing by 0.5% m/m and 17.8% y/y in February. Overdraft facilities to individuals rose by 1.6% m/m but fell by 1.1% y/y.

Credit Extension to Corporates

Credit extended to corporates increased by 1.0% m/m and 0.4% y/y. The primary growth driver in February was overdraft facilities to corporates which rose by 2.4% m/m but fell by 3.0% y/y. Mortgage loans climbed by 0.9% m/m but are down by 5.1% y/y, marking a fifth consecutive month of contraction on an annual basis. Instalment credit grew by 1.8% m/m and 11.6% y/y. Other loans and advances remained steady month-on-month but increased remains up by 5.3% y/y.

Banking Sector Liquidity 

The overall liquidity position of the commercial banks strengthened considerably during February, rising by N$2.18 billion and ending the month at N$7.18 billion. The BoN ascribed the increase to pension fund liquidations, proceeds from diamond sales as well as increased government payments. The repo balance fell from N$419.0 million at the start of the month to zero at the end.

Money Supply and Reserves

According to the BoN’s latest monetary statistics, broad money supply (M2) rose by N$2.67 billion or 2.1% y/y in February. The central bank’s stock of international reserves rose by 2.7% m/m or N$1.25 billion to N$47.5 billion. The BoN noted that the increase was due to “revaluation adjustments” and commercial bank inflows during the month. 

Outlook

PSCE growth ticked up slightly on both a monthly and annual basis in February. The monthly growth was primarily driven by increased corporate credit uptake, particularly from overdraft facilities. Credit uptake by individuals recorded notable growth as well on the back of a N$91.8 million month-on-month increase in mortgage loans. While the uptick in the year-on-year growth rate is positive, it has been trending well below inflation since May 2020, meaning that we have not seen positive PSCE growth in real terms for two-and-a-half years now. 

As we have highlighted in last month’s report, credit uptake by corporates has been particularly lacklustre since June last year, with only short-term ‘other loans and advances’ and instalment credit exhibiting positive growth on an annual basis.

NCPI February 2023

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Namibia’s annual inflation rate soared to 7.2% y/y in February following a 7.0% y/y increase in prices recorded in January. Prices in the overall NCPI basket rose by 0.4% m/m, compared to a 1.1% m/m increase in January. On a year-on-year basis, overall prices in eight of the twelve basket categories rose at a quicker rate in February than in January, three categories recorded slower rates of inflation with education the lone category posting inflation in-line with January. Prices for goods increased by 10.1% y/y while prices for services rose by 3.1% y/y. This represents the greatest annual inflation margin recorded between goods and services inflation since December 2008.

Inflation Attribution

The food and non-alcoholic beverages basket category were again the biggest contributor to the annual inflation print after prices in this basket category rose 14.0% y/y in February. The basket category contributed 2.6 percentage points to the annual inflation rate in February. Month-on-month food and non-alcoholic beverage prices rose by 1.0%, slowing from the 2.3% recorded on average over the past 2 months. Fruit price inflation accelerated for a third consecutive month to 26.8% y/y, with citrus prices rising by 27.4% y/y and avocados by 75.7% y/y. The prices of breads and cereals rose by 0.7% m/m and 22.0% y/y with prices of all of the food items in this sub-category rising by double digits percentages year-on-year except for Mahangu meal which rose by a mere 0.3% y/y. Overall, most of the sub-categories in this basket posted higher inflation compared to January while bread, cereals, fish, vegetables and non-alcoholic beverages including coffee, tea and mineral waters showed signs of slowing inflation.

As the graph below depicts, transport was the second largest contributor to February’s annual inflation print, contributing 1.5 percentage points. Prices in this basket category was unchanged from last month but rose 9.9% when compared to the prices a year ago. Operation of personal transport equipment inflation continued to slow with prices in this sub-category rising 14.2% y/y compared to 15.9% y/y a month earlier. The Ministry of Mines and Energy’s decision to increase the price of petrol by 150c per litre from the beginning of March means we may see prolonged periods of elevated inflation for this category. Purchase of vehicles inflation also slowed in February. Prices in this subcategory fell 0.5% m/m while annual inflation decelerated to 5.3% from 6.2% a month earlier. Public transportation services inflation accelerated to 1.1% y/y from 0.9% in January while prices remained stable from last month.

The alcohol and tobacco basket category saw prices increase by 0.4% m/m and 7.1% y/y. The prices of alcoholic beverages climbed by 0.4% m/m and 7.6% y/y. The acceleration from January’s 6.5% y/y rate was largely driven by steep increases in prices of white spirits and brandies which rose 26.0% y/y and 8.1% y/y respectively. We expect more price pressures to come from this sub-category following the steep increase in ‘sin taxes’ on alcoholic beverages with effect from 23 February as was announced by the Minister of Finance during the FY2023/2024 budget speech last month. Tobacco products recorded price increases of 0.2% m/m and 5.1% y/y, with cigarette prices up 5.8% y/y while pipe tobacco prices increased by 2.9% y/y.  Similarly, more price pressures are expected from the increased ‘sin taxes’ on tobacco products.

Outlook

The acceleration of Namibia’s annual inflation rate to 7.2% in February marks the second consecutive month of higher annual inflation and comes as prices of items in most of the basket categories continue to soar. This shows that we have yet to enter a disinflationary cycle and that a prolonged restrictive monetary policy stance may be required to bring inflation down to desired levels.

Namibia is not alone in this predicament. We continue to see relatively high and ‘sticky’ inflation prints from numerous countries. Most notable are the US and the Eurozone, where their central banks are considering further interest rate hikes to push inflation down to target levels faster which in turn heightens fears of a possible recession in those economies.

Whether Namibia will be spared from further rate hikes will be largely dependent on the SARB’s assessment of the necessity to hike rates even further to bring South Africa’s inflation back within the target range of between 3-6%. South Africa’s annual inflation print stood at 6.9% in January. February’s inflation print is expected to be announced this week and will be followed by the SARB’s MPC announcement scheduled for 30 March. Both announcements should provide insight into the scope and duration of further interest rate hikes needed to curb inflation not only for South Africa but for our economy given the close economic ties with our southern neighbour.

Despite seeing inflation accelerating during the first two months of the year, IJG’s inflation model predicts a gradual slowdown in Namibia’s annual inflation rate over the remainder of year, before ending the year at around 4.5%.

Building Plans – February 2023

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The City of Windhoek approved 167 building plans in February, a 111.4% m/m increase from January’s low base of 79 approvals. In monetary terms, the approvals were valued at N$72.7 million, a 229.0% m/m increase from January’s dismal N$22.1 million. Year-to-date 246 building plans worth N$94.8 million have got the nod, a decrease in number of 37.7% y/y and down 66.7% y/y in value terms. On a twelve-month cumulative basis, 2,318 buildings worth N$1.56 billion were approved, a contraction of 7.4% in number- and 21.8% in value terms over the comparative 12-month period a year ago. 50 building plans worth N$41.6 million were completed during the month. 

Additions to properties made up the largest portion of building plan approvals in terms of both number and value of approvals. 127 additions to properties with a value of N$47.2 million were approved during the month, 5 fewer than in February 2022. While February’s additions to properties approvals data is significantly better than we saw in both January and December, it is still below the average monthly approvals we saw during 2022 in both number and value terms. On a 12-month cumulative basis, the number and value of additions to properties remain roughly in line with the levels seen during the same 12-month period a year ago. 26 Additions, worth N$12.6 million were completed during the month. 

37 New residential units valued at N$23.5 million were approved in February. Again, while this is 17 more, and nearly double the value we saw approved for this category in January, it remains significantly lower than the approvals recorded for most months during 2022. For added perspective, the monthly average approvals in 2022 was 61 residential units worth N$58.7 million. The slowdown is also evident in the 12-month cumulative figures which stands at 635 units worth N$618.0 million, a decline of 26.2% y/y in number terms and a contraction of 39.3% y/y in value terms. A total of 23 residential units worth N$27.8 million were completed during the month. 

February saw 3 new commercial and industrial units approved for the third consecutive month. In value terms, the approvals amounted to just N$1.95 million. This brings the year-to-date approvals to 6 commercial buildings worth N$2.1 million, which translates to a 14.3% y/y decrease in the number of plans approved and a 75.6% y/y decrease in value terms. On a rolling 12-month perspective, the number of commercial and industrial approvals stood at 56 worth N$156.2 million, compared to the 40 units worth N$172.7 million over the corresponding period a year ago. Only 1 commercial unit valued at N$700,000 was completed in February. 

The building plans data for February showed an improvement in planned construction activity from January, although the increase was from a very low base, and the month’s approvals were well below the average monthly approvals witnessed in 2022, as mentioned a couple of times in this report. The total value of approvals in February (at N$72.7 million) was more than three times reported in January, but still below half the monthly average recorded last year.

2023 is thus off to a particularly slow start in terms of planned construction activity in the capital. As we pointed out in last month’s report, building plan approvals is a leading indicator of economic activity in the country and the above data implies that certain sectors of the Namibian economy are still faced with hardship.