Category Archives: Economic Research

Economic Research

NCPI December 2022

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Namibia’s annual inflation rate softened to 6.9% y/y in December. Prices in the overall NCPI basket rose by 0.3% m/m, marginally slower than last month. Year-on-year, overall prices in six of the twelve categories rose at a quicker rate in December than in November, four categories experienced slower rates of inflation and two categories posted inflation rates consistent with those in November. Prices of goods increased by 9.6% y/y, steady from last month. Services inflation continues to trend well below goods inflation and slowed to 3.1% y/y in December.

Inflation Attribution

Transport inflation remained the largest contributor to Namibia’s annual inflation rate, contributing 2.21 percentage points to the annual inflation rate in December. Prices in this basket item rose by 14.3% y/y but contracted by 1.0% m/m, mainly due to the 125c per litre drop in the price of diesel that came into effect in early December. All the sub-categories in the transport basket item bar the purchase of vehicles recorded slower inflation on an annual basis in December. The purchase of vehicles sub-category recorded price increases of 0.2% m/m and 4.5% y/y. Prices in the operation of personal transport equipment sub-category fell by 1.6% m/m while inflation slowed to 22.6% y/y, the slowest over the past 8 months and a sign that the relatively lower oil prices started to filter into the operating costs. Notable price relief in this sub-category is almost certain to show again in next month’s inflation print after the Ministry of Mines and Energy lowered diesel prices by a further 220 cents per litre and petrol by 180 cents per litre at the beginning of January. Prices in the public transportation services sub-category climbed by 0.1% m/m and 1.4% y/y, the slowest annual rise in prices since July 2022.

The food & non-alcoholic beverages item was the second largest contributor to the annual inflation print, marginally behind the transport basket item after it contributed 2.19 percentage points in December. Prices in this basket item rose by a sizeable 2.2% m/m and 11.8% y/y, the steepest annual inflation print since January 2017. While inflation in four of the thirteen sub-categories slowed with 1 remaining steady, the bulk of the sub-categories in this basket item recorded price increases on an annual basis in December, strikingly for the 12th consecutive month. Oils and fats saw the largest prices increase on an annual basis, rising by 20.8% y/y, followed by fruits which saw prices rise by 20.5% y/y. Bread and cereals prices also saw a sharp increase in December, rising by 6.7% m/m and 18.2% y/y, the steepest annual price increase recorded in this sub-category over the past decade.

The alcohol & tobacco category was the third largest contributor to the inflation rate, marginally higher than Housing, Water and Electricity- and Furniture basket items. Inflation of alcohol and tobacco products slowed to 4.2% y/y in December, but continues to trend above the 3.8% inflation rate reported for this basket item a year ago. Housing, water and electricity inflation softened to 2.1% y/y, yet remained above the 1.2% y/y inflation reported in December last year. The prices of furniture increased by 10.6% y/y in December compared to 1.3% y/y a year ago.

Outlook

December saw Namibia’s annual inflation rate continuing to trend lower with the print falling below 7.0% for the first time since July 2022 and steadily moving back towards the upper end of the SARB’s target range.

While we expect inflation to continue to slow into 2023, a close eye will be kept on January’s print as the month usually marks the revision of rental prices in the NCPI basket, which anchors about a quarter of the inflation basket for the rest of the year. The current economic climate and property market dynamics have us believe that we could see another year of relatively low inflation in this line item for 2023, but somewhat higher than last year.

The SARB’s first MPC meeting for 2023 is scheduled to take place on 26 January. Recent below-expectation inflation numbers coupled with lower fuel prices and moderating food prices should all provide the SARB (and by extension the BoN) leeway to slow the pace of rate hikes.

IJG’s inflation model currently forecasts Namibia’s annual inflation rate to continue to steadily slow during the course of 2023, before reaching around 4.1% at the end of the year.

PSCE – November 2022

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Overall

Private sector credit (PSCE) rose by N$587.0 million or 0.5% m/m in November, bringing the cumulative credit outstanding to N$110.2 billion after normalising for interbank swaps accounted in non-resident private sector claims. Year-on-year, private sector credit grew by 3.2% in November, marginally quicker than the 3.0% y/y growth recorded in October. On a 12-month cumulative basis, N$3.46 billion worth of credit was extended to the private sector. Of the cumulative issuance, corporates borrowed N$1.37 billion and individuals took up N$2.52 billion.

Credit Extension to Individuals

Credit extended to individuals rose by 0.8% m/m and 4.1% y/y in November. Annual growth in all of the credit lines to individuals bar overdraft facilities picked up in November. Overdraft facilities to individuals contracted by 1.5% m/m and 1.9% y/y. Annual growth in this line item has been trending in the negative territory since March 2022. Mortgage loans to individuals recorded growth of 0.3% m/m and 2.2% y/y, albeit marginally slower than in October. Other loans and advances (consisting of credit card, personal, and term loans) grew by 3.5% m/m and 13.8% y/y, naturally picking up pace as the holiday season approached. Instalment credit annual growth also picked up pace as credit extended in this category rose by 0.8% m/m and 3.8% y/y.

Credit Extension to Corporates

Credit extended to corporates rose by 0.1% m/m and 3.1% y/y in November. The Bank of Namibia (BoN) ascribed the growth to higher demand for short term credit facilities by corporates in the fishing, energy and manufacturing sector during the period under review. The BoN further noted that the improved growth was tempered as a result of deleveraging by corporates in the services and manufacturing sectors. Mortgage loans increased by 0.3% m/m but fell 3.8% y/y. Overdrafts rose by 3.2% m/m but declined 1.0% y/y. Installment credit posted growth of 0.8% m/m and 11.0% y/y while other loans and advances to corporates contracted by 2.1% m/m but grew by 10.7% y/y.

Banking Sector Liquidity

The overall liquidity position of the commercial banks improved in November, growing by N$1.30 billion to an average of N$4.44 billion and ended the month at N$4.70 billion. The BoN attributed the improved liquidity position to inflows from rising diamond sales.

Money Supply and Reserves

Broad money supply (M2) contracted by N$842.3 million or 0.6% y/y to N$129.1 billion. The BoN ascribed the contraction to declining ‘other deposits’ coupled with lower growth in currency outside depository corporations during the review period. Foreign reserve balances fell by 2.3% m/m or N$1.04 billion to N$43.7 billion in November, which according to the BoN, was largely due to the redemption of the ZAR-denominated NAM01 bond during the review period.

Outlook

November saw the annual PSCE growth marginally higher compared to October. The BoN attributed the slightly higher growth in PSCE to increased demand for credit by the household sector and corporations in the fishing, energy, and manufacturing sectors as noted earlier. We expect PSCE growth to remain restrained over the short term and into 2023 due to rising borrowing costs and tepid economic activity dampening demand for new credit. We also see little on the supply side that would ignite demand for credit over this period.

Building Plans – November 2022

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191 building plans were approved by the City of Windhoek in November, representing a 27.1% m/m decline from the 262 building plans approved in October. In value terms, the approvals were valued at N$134.6 million, down 38% m/m from the N$157.3 million worth of plans approved in October. Year-to-date, 2,357 building plans worth N$1.71 billion have been approved, up 0.2% y/y in number terms but falling by 7.6% y/y in value terms compared to the same period last year. On a twelve-month cumulative basis, the number of approvals fell by 0.5% y/y to 2,455 and in value terms declined by 5.2% y/y to N$1.82 billion. 84 building plans worth N$42.7 million were completed in November.

148 additions to properties were approved in November valued at N$80.9 million, 34 fewer than the 182 units worth N$84.6 million approved last month. Year-to-date, 1,592 additions to properties worth N$865.8 million were approved, representing a 5.4% y/y increase in number terms and a 20.8% y/y jump in value terms. On a 12-month cumulative basis, 1,655 additions to the value of N$902.2 million were approved in November, 60 more than over the same period last year, and a 21.9% y/y increase in value terms. A total of 36 additions worth N$16.4 million were completed in November, up from the 36 additions worth N$9.94 million completed in October.

38 New residential units were approved in November, notably down from the 67 approved in October and the monthly average of 65 for the year. In value terms, N$48.5 million worth of residential units were approved during the month, representing a 23.2% m/m drop from the N$63.18 million approved in October and 54.0% less than a year ago. Year to date, 711 residential units valued at N$680.4 million were approved, representing a 12.0% y/y decline in number terms and a 29.8% y/y contraction in value terms. November saw 743 residential units approved over the last twelve months, an 11.3% y/y decline from the 838 units approved over the same period a year ago. In value terms, N$749.4 million worth of residential units were approved over the past 12 months, representing a 24.6% y/y decrease. 42 New residential units worth N$18.63 million were completed during November, down from the 52 residential units worth N$62.92 million completed in October.

5 New commercial and industrial units valued at N$5.18 million were approved in November, down from the 13 commercial units worth N$9.55 million approved last month. Year-to-date, 54 commercial and industrial buildings valued at N$158.9 million were approved, compared to the 34 commercial buildings worth N$160.3 million over the same period last year. This represents a 58.8% y/y increase in number but a 0.9% y/y contraction in value. On a rolling 12-month perspective, 57 commercial and industrial buildings valued at N$169.9 million were approved in November, compared to the 35 buildings approved worth N$186.5 million over the corresponding period a year ago. This represents an increase of 62.9% y/y in the number of units approved but an 8.9% y/y contraction in value. 6 Commercial and industrial units worth N$7.65 million were completed in November, the highest number of commercial and industrial units since May 2019 after only 2 units worth N$2.98 million were completed last month.

November saw the 12-month cumulative value of building plans approved continue to fall in both nominal and inflation-adjusted terms, as shown in the figure above. The 12-month cumulative value of both commercial and residential units approved dropped in November with the latter contracting for the 8th consecutive month on an annual basis.

The 12-month cumulative value of completed plans also dipped in both nominal and real terms, as displayed below. The cumulative number of building plans completed declined for the 19th consecutive month (year-on-year) to 1,004 in November.

The demand for the construction of new buildings hit a new low in November with the year-to-date value of building plans approved as the lowest value reported over the past decade. As observed last month, 2022 is on course to close out with the lowest annual building plan approval value over the past 10 years. We do not see support for a turnaround in construction demand in the short term. Instead, lacklustre construction activity is likely due to high inflation and ever-rising borrowing costs, conditions which are unfavourable to ignite demand for construction.