Category Archives: Economic Research

Economic Research

PSCE – May 2020

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Overall

Total credit extended to the private sector (PSCE) declined by N$129.9 million or 0.13% m/m in May, bringing the cumulative credit outstanding to N$102.29 billion. On a year-on-year basis, private sector credit increased by 1.8% in May, compared to 3.4% in April. This is the lowest annual growth rate on our records dating back to 2002. On a rolling 12-month basis, N$1.83 billion worth of credit was extended to the private sector. Of this cumulative issuance, individuals took up N$2.92 billion, while corporates decreased their borrowings by N$748.1 million, and the non-resident private sector paid back N$342.3 million of their borrowings.

Credit Extension to Individuals

Growth in credit extended to individuals slowed to 5.2% y/y in May from the 5.7% y/y growth recorded in April.  On a monthly basis household credit increased by 0.1%. Mortgage loans extended to individuals increased by 0.3% m/m and 5.0% y/y. Installment credit, often used to finance vehicle purchases contracted by 0.7% m/m and 7.0% y/y. Overdraft facilities extended to individuals have increased by 0.2% m/m and 10.0% y/y. Other loans and advances (or OLA, which is made up of credit card debt, personal and term loans) fell by 0.1% m/m, but grew by 20.0% y/y in May.

Credit Extension to Corporates

Credit extended to corporates contracted by 0.3% m/m and 1.7% y/y in May. This is the first contraction in corporate credit extension on an annual basis since December 2005. The Bank of Namibia (BoN) attributes this contraction to repayments made by corporates as some businesses restructured their credit exposure, coupled with write-offs during the period. This was expected as economic activity remained muted during the month as a result of the lockdown. Overdraft facilities extended to corporates fell by 1.2% m/m and 8.1% y/y. The persistent contraction in installment credit continued in May, declining by 1.4% m/m and 9.1% y/y. Mortgage loans extended to corporates grew by 0.4% m/m, but contracted 3.7% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved during May, increasing by N$572.4 million to reach an average N$3.90 billion. The balance of repo’s outstanding fell from N$147.4 million at the start of May to zero at the end of the month. The BoN ascribed the improved liquidity position to higher government expenditure in the form of the emergency income grant, the settlement of outstanding invoices for services rendered and the acceleration of VAT refunds.

Reserves and Money Supply

Broad money supply rose by N$4.50 billion or 11.4% y/y in May, as per the BoN’s latest monetary statistics release. Foreign reserve balances declined by 5.1% m/m to N$33.7 billion in May. According to the BoN, the decline is due to government payments as well as revaluation effects after the Namibian dollar strengthened against the US Dollar during the period.

Outlook

Private sector credit extension remained depresses at the end of May, increasing by only 1.8%, with annualised growth slowing for a fourth consecutive month. Cumulative 12-month private sector credit issuance is down 75.5% from the N$7.46 billion figure as at May 2019. Rolling 12-month issuance of N$1.83 billion is now at levels last seen in 2005.

Despite Namibian interest rates now being at their lowest levels yet, we do not expect either consumers or corporates to rush to commercial banks to take up large sums of debt any time soon. Economic activity remains very low and a lack of demand means that growth opportunities for businesses remain extremely slim. Businesses that do make use of credit will likely mostly do so to keep their doors open, instead of investing in capital projects. Banks will furthermore remain cautious in extending loans as their risk appetite will be low given the current economic environment.

NCPI – May 2020

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The Namibian annual inflation rate ticked up slightly to 2.1% in May, following the 1.6% y/y increase in prices recorded in April. Prices in the overall NCPI basket increased by 0.4% m/m. Namibian inflation thus remained at historically low levels in May. On a year-on-year basis, overall prices in eight of the twelve basket categories rose at a quicker rate in May than in April, with two categories recording slower rates of inflation and two categories recording increases consistent with the prior month. Prices for goods increased by 2.3% y/y while prices for services rose by 1.7% y/y.

The food & non-alcoholic beverages category was the largest contributor to annual inflation in May, accounting for 0.83 percentage points of the total 2.1% annual inflation rate. The category recorded price increases of 0.1% m/m and 4.7% y/y. Prices in all thirteen sub-categories recorded increases on a year-on-year basis, with the largest increases being observed in the prices of fruits, vegetables and coffee, tea and cocoa.

The miscellaneous goods & services basket item was the second largest contributor to annual inflation, accounting for 0.32 percentage points of the total 2.1% annual inflation figure. The fact that the sixth largest basket item was one of the largest contributors to the annual inflation figure in May illustrates how low inflationary pressure is at the moment. The prices of miscellaneous goods & services remained steady on a month-on-month basis, but rose 6.1% y/y. The only subcategory which showed an increase on a month-on-month basis was personal effects, which increased by 0.7% m/m. Prices in all other subcategories remained steady during the month, except for the personal care subcategory, which recorded price decreases of 0.4% m/m.

The education basket recorded inflation of 7.0% y/y, with the cost of pre-primary education growing at a rate of 5.6% y/y. Primary and secondary education recorded price increases of 9.3% y/y, while tertiary education prices rose by 5.3%. None of the three subcategories printed price increases on a month-on-month basis.

The NSA’s regional CPI data shows that on a monthly basis prices increased by 0.3% in the northern zone, 0.4% in the central zone, and 0.2% in the mixed eastern, southern and western zone. On an annual basis the northern region recorded the highest inflation rate at 2.3% y/y in May, while both the central zone 2 and mixed zone 3 recording inflation rates of 1.9% y/y. 

Despite a slight uptick in the inflation rate in May to 2.1% y/y, inflationary pressure remains extremely subdued. Despite the lockdown restrictions being lifted for most industries and regions, many businesses and consumers remain under severe financial pressure and are simply not able to afford higher prices for goods and services.

The low inflationary pressure does at least provide the Bank of Namibia (BoN) some leeway to follow the SARB by cutting interest rates at its June MPC meeting in an attempt to resuscitate economic growth. While this should bring some further relief to heavily indebted businesses and consumers, it is unlikely that commercial banks will be spurred on to grow their loan books as risks remain. Monetary policy alone will thus not be enough to drive meaningful economic growth, and as a result inflation is expected to remain low in the short- to medium term. IJG’s inflation model forecasts an average inflation rate of 1.9% y/y in 2020 and 3.7% y/y in 2021.

New Vehicle Sales – May 2020

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A total of 470 new vehicles were sold in May, an 840.0% m/m increase from the 50 vehicles sold in April, but a 55.5% y/y decrease from the 1,055 vehicles sold in May 2019. Year-to-date 2,749 vehicles have been sold, of which 1,184 were passenger vehicles, 1,380 were light commercial vehicles, and 185 were medium and heavy commercial vehicles. On a twelve-month cumulative basis, new vehicle sales continued to decline with a total of 8,804 new vehicles sold as at May 2020, down 23.8% from the 11,559 sold over the comparable period a year ago.

219 New passenger vehicles were sold during May, increasing by 2,333.3% m/m. The monthly comparison is somewhat meaningless seeing that only 9 new passenger vehicles were sold in April due to the lockdown restricting dealerships from selling vehicles. On a year-on-year basis May new passenger vehicle sales were 57.2% lower than the 512 vehicles sold a year ago. Year-to-date passenger vehicle sales rose to 1,184, a 43.5% decrease from May last year. On a rolling 12-month basis new passenger vehicle sales were down 63.0% from the peak in April 2015, and down 27.9% y/y.

A total of 251 new commercial vehicles were sold in May, 512.2% more than in April, but 53.8% less than in May 2019. Of the 251 commercial vehicles sold in May, 231 were classified as light commercial vehicles, 10 as medium commercial vehicles and 10 as heavy or extra heavy commercial vehicles. On a twelve-month cumulative basis light commercial vehicle sales dropped 23.3% y/y, while medium commercial vehicle sales rose 16.8% y/y, and heavy commercial vehicle sales fell by 5.9% y/y.

During the month, Volkswagen retook the lead from Toyota in terms of year-to-date market share of new passenger vehicles sold. Volkswagen claimed 30.2% of the market, followed closely by Toyota with 29.8% of the market. They were followed by Kia and Hyundai with 6.9% and 5.8% of the market respectively, while the rest of the passenger vehicle market was shared by several other competitors.

Toyota remained the leader in the light commercial vehicle space with a robust 57.5% market share, with Nissan in second place with a 14.8% share. Ford and Isuzu claimed 9.8% and 6.3%, respectively, of the number of light commercial vehicles sold thus far in 2020. Mercedes leads the medium commercial vehicle segment with 31.4% of sales year-to-date. Mercedes was also number one in the heavy and extra-heavy commercial vehicle segment with 22.6% of the market share year-to-date.

The Bottom Line

While May’s vehicle sales figure of 470 is considerably higher than that of April’s 50 vehicles, the number of new vehicles sold fell to roughly halve of the number sold a year ago or a quarter of what was sold five years ago. It remains unlikely that new vehicle sales will return to the levels seen in recent months and years as economic conditions are expected to remain dire. The fact that the Erongo region was placed under a further lockdown will continue to weigh down on vehicle sales in June. Furthermore, the revenues of most businesses in the country will be depressed due to the government imposed lockdowns and as a result will not be able to expand/replace their existing vehicle fleets. The tourism sector continues to be affected by the lockdown of the country’s borders is currently sitting with an oversupply of vehicles and will thus not be needing new vehicles in the short- to medium term. During the month the government too announced that they will not be renewing their vehicle fleet for the next five years. For the most part we expect consumers who haven’t lost their jobs or been forced to take a pay cut, and who can still afford to buy vehicles, to either be more prudent with their finances and defer vehicle purchases or to opt for second-hand models while the current economic uncertainty remains.