Category Archives: Economic Research

Economic Research

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.

PSCE – April 2020

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Overall

Private sector credit (PSCE) declined by N$1.23 billion or 1.19% m/m in April, bringing the cumulative credit outstanding to N$102.42 billion. On a year-on-year basis, private sector credit increased by 3.4% in April, compared to 5.8% in March. While this is still positive growth, it is the lowest annual growth rate on our records dating back to 2002. On a rolling 12-month basis, N$3.32 billion worth of credit was extended to the private sector. Of this cumulative issuance, individuals took up the lion’s share of credit, amassing N$3.15 billion worth of debt while N$485 million was extended to businesses. The non-resident private sector decreased their borrowings by N$312 million.

Credit Extension to Individuals

Credit extended to individuals increased by 5.7% y/y in April, compared to 7.2% y/y recorded in March. On a monthly basis, household credit decreased by 0.7% following the increase of 0.4% recorded in March. This decline was mostly a result from individuals paying back overdrafts during the month, resulting in a 16.0% m/m decrease in this category. Other loans and advances (or OLA, which is made up of credit card debt, personal and term loans) grew by 4.3% m/m and 22.3% y/y in April. Installment credit contracted by 3.3% m/m and 6.9% y/y. The value of mortgage loans extended to individuals declined by 0.1% m/m, but increased by 5.2% y/y.

Credit Extension to Corporates

Credit extended to corporates contracted for a third straight month, declining by 1.5% m/m in April. On a year-on-year basis credit extension to corporates grew by a mere 1.1%, compared to the 4.6% y/y growth registered in March. The monthly decline can mostly be attributed to repayments of ‘other loans and advances’ by corporates which decreased by 3.0% m/m, but grew by 10.6% y/y. Overdraft facilities extended to corporates increased by 0.2% m/m, but fell 4.3% y/y. The persistent contraction in installment credit continued in April, declining by 1.4% m/m and 7.1% y/y. Leasing transactions to corporations declined by 2.7 m/m and 21.5% y/y. Mortgage loans extended to corporates contracted by 1.3% m/m. The Bank of Namibia (BoN) attributes this category’s decline to repayments made by businesses in the tourism and real estate sectors. This makes sense given that these sectors were harshly impacted by the lockdowns, and would not have taken up new mortgage loans to expand their businesses.

Banking Sector Liquidity 

The overall liquidity position of commercial banks improved substantially during April, increasing by N$3.08 billion to reach an average of N$3.33 billion. The balance of repo’s outstanding fell from N$1.52 billion at the start of April to N$147.4 million at the end of the month. The BoN ascribed the spike in the liquidity level to fiscal operations after the government redeemed the GC20 bond, as well as several payments made by the government such as the COVID-19 stimulus package and VAT refunds.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$4.35 billion or 13.0% y/y in April. Foreign reserve balances rose by N$2.57 billion to N$35.5 billion in April. According to the BoN, this increase due to SACU receipts of N$5.2 billion that were received during the month coupled with exchange rate revaluations due to the Namibian dollar against major currencies.

Outlook

Private sector credit extension continued to languish, increasing by 3.5% m/m during April. It has been 42 months since PSCE last recorded double digit growth. Rolling 12-month private sector credit issuance is down 46.6% from the N$6.23 billion figure as at April 2019. Rolling 12-month private sector credit issuance of N$3.32 billion is now at levels last seen in 2010. 

Instead of taking on additional long-term credit, many businesses would have applied for payment holidays on their existing credit facilities, as the government imposed lockdowns wiped out their revenues. It is for this same reason that commercial banks would have been extra prudent in extending credit during April as the risk of default would have increased because the general economic malaise. We believe that the BoN will follow the SARB decision in cutting the repo rate by 50 basis points at its June meeting. While this should provide some relief to indebted consumers and businesses, it is unlikely that it will increase the risk appetite of the banks and we therefore stick to the view that we don’t anticipate that the more accommodative monetary policy will be effective in stimulating economic activity to the extent that it eliminates the impact of the external shock to the economy.

Going forward we expect that a portion of credit extension will be distressed borrowing by businesses and consumers as economic conditions are expected to remain dire. We don’t foresee businesses in general making use of credit to invest in large capital projects any time soon.