Category Archives: Economic Research

Economic Research

PSCE – April 2021

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Overall

Private sector credit (PSCE) fell by N$41.3 million or 0.04% m/m in April, bringing the cumulative credit outstanding to N$105.2 billion. On a year-on-year basis, private sector credit grew by 2.74% in April, compared to the 1.55% y/y growth recorded in March. On a rolling 12-month basis, N$2.81 billion worth of credit was extended to the private sector. N$2.30 billion worth of credit has been extended to individuals on a 12-month cumulative basis, while N$880.0 million was issued to corporates. The non-resident private sector decreased their borrowings by N$369.0 million.

Credit Extension to Individuals

Credit extended to individuals increased by 3.91% y/y in April, compared to the increase of 2.57% y/y recorded in March. On a monthly basis, household credit grew by 0.6%, following the increase of 0.4% m/m recorded in March. Mortgage demand by individuals remained relatively strong, increasing by 0.6% m/m and 5.2% y/y. Instalment credit increased by 0.7% m/m, and by 0.5% y/y, making April the first month since July 2019 to record an uptick on a year-on-year basis. Overdraft facilities extended to individuals have increased by 1.8% m/m and 4.2% y/y. Other loans and advances (OLA) rose by 0.8% y/y and 0.2% m/m, displaying a decline in demand amongst individuals over the last 16 months, from the 65.6% y/y increase in January 2020.

Credit Extension to Corporates

Credit extension to corporates contracted for a third consecutive month, on a month-on-month basis, declining by 0.8% m/m, following the 1.1% m/m contraction recorded in March. On an annual basis, however, credit extension to corporates recorded low growth of 2.1% y/y in April, compared to the 1.2% y/y growth registered in March. Mortgage loans to corporates expanded by 0.4% m/m, other loans and advances (OLA) contracted 2.2% and overdrafts rose 0.9% m/m. On a year-on-year basis, mortgage loans contracted 2.0%, while OLA and overdrafts increased 1.3% and 13.5% respectively.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved during April, increasing by N$376.0 million to reach an average of N$3.0 billion. According to the BoN, the improvement in the liquidity position was largely due to higher inflows of funds by pension funds in adherence to domestic asset requirements as well as proceeds from minerals sales during the period under review. The outstanding balance of repo’s stood at zero for thirteen out of the twenty business days in April and rose to N$591.3 million in the last week of the month.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$3.8 billion or 3.1% y/y in April, compared to the 9.4% y/y increase recorded in March. Foreign reserve balances rose by N$6.5 billion to N$41.2 billion in April. The BoN ascribed the rise in official reserve stock to inflows in the form of the IMF Rapid Financing Instrument (RFI), SACU receipts, as well as foreign currency purchases by the BoN during the period under review.

Outlook

Overall, PSCE growth remains subdued, decreasing by N$41.4 million or 0.04% m/m in April, resulting in a second consecutive month of negative growth. The rolling 12-month private sector credit issuance is down 15.5% from the N$3.32 billion cumulative issuances as at the end of April 2020, with individuals taking up most (81.8%) of the credit extended over the past 12 months.

We expect the Bank of Namibia to leave interest rates unchanged at their historically low levels at its April MPC meeting, which will continue to accommodate indebted consumers and corporates. However, the lack of confidence in the economy is evidenced by corporates exploiting the low rates to de-lever their balance sheets rather than using the opportunity to expand their financial positions. As a result, the contracted interest rates alone are unlikely to drive PSCE growth. The lacklustre PSCE statistics reflect the nation’s poor recent economic performance of late, as it reflects both lower consumption spending as well as lower investments by corporates, two vital components of GDP. With few drivers for economic growth, a recovery in credit extension is unlikely in the short term.

Building Plans – April 2021

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The City of Windhoek approved a total of 250 building plans in April, representing a 9.6% m/m increase from the 228 building plans approved in March. In monetary terms, the approvals were valued at N$234.1 million, a 48.1% m/m increase. 199 buildings with a value of N$93.12 million were completed during April, a 1.2% m/m decrease in value terms. Year-to-date building approvals are 65.9% and 15.0% higher in number and value terms, respectively than during the same period in 2020. This increase is however mostly due to stagnant construction activity during the lockdown last year. Year-to-date, the number of completed buildings increased by 44.7% y/y to 495, while the value of these completions rose marginally by 8.3% y/y from N$276.3 million in 2020 to N$299.4 million in 2021. On a twelve-month cumulative basis, 2,608 buildings with the value of N$1.94 billion were approved, an increase of 39.8% y/y in number, and 7.2% y/y in value.

In terms of the number of approvals, additions to properties once again made up the majority of approvals. In April, 166 additions to properties were approved with a value of N$93.0 million while 168 additions worth N$60.0 million were completed during the month. The number of approvals has been ticking up steadily since January. These approvals are however of lower relative value.

New residential units were the second largest contributor to the total number of building plans approved in April, and the largest contributor in value terms. 80 new units worth N$129.5 million were rubber-stamped in April, representing a 49.1% m/m increase from the N$86.9 million worth of approvals in March. On a 12-month cumulative basis, residential units recorded a 108.3% y/y increase in value. 31 new residential units worth N$33.1 million were completed during the month, representing a decrease in value of 36.2% m/m.

Four new commercial units, valued at N$11.6 million, were approved in April, translating to a 65.8% m/m increase. Year-to-date, there have been twelve commercial building approvals valued at N$26.1 million, which is 50.0% lower in number terms and an 89.4% decrease in value terms compared to the same period last year. On a rolling 12-month perspective, the number of commercial and industrial approvals have slowed to 29 units worth N$110.3 million as at April, compared to the 57 approved units worth N$654.2 million over the corresponding period a year ago. No commercial and industrial units were completed in April.

The 12-month cumulative number of building plans approved increased by 39.8% y/y in April. A total of 2,608 building plans to the value of N$1.94 billion were approved over the last 12 months, representing an increase in value of 7.2% y/y. Additions to properties have made up 65.0% of the cumulative number of approvals, but only 40.2% of the total value of approvals. Completed building plans increased 16.3% y/y in value terms to N$1.56 billion on a 12-month cumulative basis in April. Although residential building plan approvals have gained momentum, the commercial sector remains woeful, contributing a mere 2.0% of the N$299.4 million total building completions so far in 2021. Furthermore, with only 4.1% of building approvals attributable to the commercial sector, this trend seems unlikely to change in the near term. Residential approvals continue to contribute the most in value terms, with 56.3% of approvals and 64.0% of completions, overall indicating a lively housing market.

NCPI – April 2021

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The Namibian annual inflation rate rose to 3.9% y/y in April, with prices in the overall NCPI basket increasing by 0.4% m/m. On a year-on-year basis, overall prices in six of the twelve basket categories rose at a quicker rate in April than in March and three of the basket categories recording slower rates of inflation, while three of the basket categories remained constant. Prices for goods increased by 5.2% y/y while prices for services rose by 2.1% y/y.

Food & non-alcoholic beverages, the second largest basket item by weighting, continued to be the largest contributor to annual inflation, accounting for 1.2 percentage points of the total 3.9% inflation rate. Prices in this category increased by 0.4% m/m and 5.9% y/y. Prices in eleven of the sub-categories recorded price increases on an annual basis, while warm beverage prices fell 0.5% y/y and non-alcoholic beverage prices remained unchanged. The largest increases were observed in the prices of meat which increased by 15.83% y/y, fruit which rose by 10.55% y/y and oils and fats, which increased by 7.50% y/y.

The alcoholic beverages and tobacco basket item was the second largest contributor to the annual inflation rate in April, with prices increasing by 4.2% y/y. On a monthly basis, prices in this basket item rose by 0.4%. The alcoholic beverages sub-category recorded a price increase of 0.3% m/m and 3.3% y/y. Tobacco prices rose 1.1% m/m, and 8.3% y/y.

The housing and utilities, transport, and miscellaneous categories each accounted for 0.30 percentage points of the total annual inflation rate in April. Price inflation for housing and utilities remained steady on a monthly basis but rose 1.3% y/y. The regular maintenance and repair of dwellings subcategory recorded an increase in prices of 6.8% y/y. Prices in the electricity, gas and other fuels subcategory rose 0.9% y/y, while the annual inflation for rental payments stood at 1.3% y/y. Transport prices rose 1.2% m/m and 7.5% y/y, which was driven by the operation of personal transport equipment, which rose 1.9% m/m and 8.1% y/y, the increase resulting from a low fuel price base a year ago. Prices in the miscellaneous category rose 0.4% m/m and 6.6% y/y.

The rising inflation rate is to be expected as, the measurement period includes a low base, due to the lockdown restrictions that constrained economic activity a year ago and Namibia is in now a recovery phase of the business cycle as it emerges from a trough. IJG’s inflation model forecasts an average inflation rate of 3.6% y/y in both 2021 and 2022, indicating moderate inflation over the next two years. Seeing as inflation seems to be relatively contained and expectations for economic growth are also relatively low, we expect the central banks to remain reluctant to intervene with tighter monetary policies such as hiking interest rates. The South African Reserve Bank’s Monetary Policy Committee will meet this week and the South African repo rate is expected to remain steady at 3.5%.