Category Archives: Economic Research

Economic Research

PSCE – January 2020

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Overall

Private sector credit (PSCE) increased by N$304.6 million or 0.3% m/m in January, bringing the cumulative credit outstanding to N$104.0 billion. On a year-on-year basis, private sector credit grew by 7.0% y/y in January, on par with December’s increase of 6.9% y/y. Cumulative credit extended to the private sector over the last 12-months amounted to N$6.77 billion. Of this cumulative issuance, individuals took up N$3.9 billion worth of debt while N$3.1 billion was extended to businesses. The non-resident private sector decreased their borrowings by N$200.6 million.

Credit Extension to Individuals

Credit extended to individuals increased by 7.0% y/y in January, compared to 7.2% y/y recorded in December. On a monthly basis, household credit decreased by 4.4%. This relatively large decline seems to be due to individuals paying back overdrafts during the month, resulting in an 18.1% m/m decrease in this category. There has been a corresponding jump in the overdrafts and other loans and advances categories for businesses which suggests a reclassification between individuals and businesses. The ‘Other loans and advances’ to individuals category recorded a decline of 13.3% m/m, while the same category for corporates jumped by 17.8% during the month. Installment credit increased by 2.5% m/m, while mortgage loans extended to individuals decreased by 2.7% m/m.

Credit Extension to Corporates

Credit extension to corporates grew by 7.5% y/y in January, rising at a quicker rate than the 7.1% y/y increase recorded in December. On a month-on-month basis, credit extension to corporates rose 7.3% in January, the highest monthly increase since January 2007. Most of this stemmed from a substantial 17.8% m/m increase in ‘other loans and advances’ and a 10.0% m/m increase in overdraft facilities extended to corporates, which is likely due to a reclassification as noted above. Mortgage loans to corporates also saw a sizeable increase of 8.9% m/m. Leasing transactions to corporations increased by 51.0% m/m, although this is from a low base.

Banking Sector Liquidity

The overall liquidity position of commercial banks deteriorated further during January, declining by N$935.0 million to reach an average of N$47.7 million. According to the Bank of Namibia, the decline is a result of seasonal factors following a decrease in cash balances from the banking system over the festive season, as well as commercial banks’ accumulated long positions in liquid assets. The low liquidity position has meant that commercial banks had to utilize the BoN’s repo facility, with the balance of repo’s outstanding increasing from N$1.75 billion at the start of January to N$2.04 billion at the end of the month.

Reserves and Money Supply

Broad money supply rose by N$11.0 billion or 10.6% y/y in January, as per the BoN’s latest monetary statistics release. Foreign reserve balances rose by 7.3% m/m to N$31.0 billion in January. The BoN attributed the increase to the inflow of SACU receipts during the period.

Outlook

Overall PSCE growth in January was very much in line with the growth seen in December on a year-on-year basis, increasing by 7.0%. Rolling 12-month private sector credit issuance is up 1.2% to N$6.8 billion as at the end of January 2019, with individuals taking up most (56.9%) of the credit extended over the past 12 months.

The BoN’s MPC unsurprisingly followed the SARB’s MPC decision to cut the repo rate by 25-basis points at its meeting in February. While this should provide some relief to heavily indebted consumers, we don’t anticipate that further accommodative monetary policy will be effective in stimulating economic activity to the extent that it reverses the current low growth trend.

January’s PSCE data shows that businesses continue to be dependent on short-term debt, particularly in the form of overdrafts and credit card debt. Businesses’ reliance on short-term debt is concerning, but not unexpected, given the fact that Namibia remains in an economic slump. While we do believe that there will be marginal economic growth in 2020, it will largely be due to base effects and not a significant improvement in economic conditions. Businesses and consumers are thus expected to continue to rely on short-term debt as a means of making ends meet for as long as economic conditions remain challenging.

Building Plans – January 2020

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A total of 121 building plans were approved by the City of Windhoek in January, representing a 33.0% m/m increase from the 91 building plans approved in December. In monetary terms, the approvals were valued at N$189.4 million, an increase of N$23.0 million compared to last month. Buildings with a value of N$16.4 million were completed during January. January 2020 is off to a slower start in terms of both number and value of approvals, compared to January 2019 when 162 building plans worth N$272.7 million got the nod. On a twelve-month cumulative basis, 1,991 building plans worth approximately N$1.90 billion were approved, a decline in number of 6.4% y/y, but an increase of 3.6% in value terms over the prior 12-month period.

In terms of number of approvals, additions to properties made up the largest portion of approvals. For the month of January, 98 additions to properties were approved with a value of N$35.7 million, 33 fewer than the number of additions approved in January 2019. The value of the additions approved in January is however only N$864,000 less than those observed in the first month of 2019. 14 additions worth N$3.6 million were completed during the month.

New residential units were the second largest contributor to the total number of building plans approved in January. 17 new units worth N$17.8 million were approved in January, representing an 89.4% decrease from the N$167.9 million worth of approvals in the first month of 2019. On a 12-month cumulative basis, residential units recorded a 30.3% y/y decrease in number of approvals and a 27.3% y/y decrease in value. 19 new residential units worth N$12.8 million were completed during the month.

Commercial and industrial building plans approved in January amounted to 6 units, worth N$136.0 million. This compares to 2 units valued at N$70.0 million approved in January 2019. On average over the last 20 years, 4 commercial units valued at N$26.2 million were approved in the first month of the year. It is interesting to note that three of January 2020’s approvals, worth N$85.3 million, are part of a large building project planned in the Otjomuise vicinity. No commercial and industrial units were completed in January.

The 12-month cumulative number of building plans approved decreased by 6.4% y/y in January. A total of 1,991 building plans to the value of N$1.91 billion were approved over the last 12 months which represents an increase in value terms of 3.6% y/y. The majority of these approvals are additions to properties which are typically of low relative value. While growth in commercial and industrial construction activity has picked up slightly, it is from a low base, and construction activity in the commercial and industrial space remains very subdued. The low number of approvals is an indication that the construction sector is likely to remain under pressure during the rest of the year.

NCPI – January 2020

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The Namibian annual inflation rate slowed considerably to 2.1% in January, following the 2.6% y/y increase in prices recorded in December. Prices in the overall NCPI basket increased 0.6% m/m. On a year-on-year basis, overall prices in four of the twelve basket categories rose at a quicker rate in January than in December, while the other eight recorded slower rates of inflation. Prices for goods increased by 2.6% y/y while prices for services increased by 1.3% y/y.

Transport, the third largest basket item, was the largest contributor to annual inflation, accounting for 0.7 percentage points of the total 2.1% annual inflation rate. Transport costs increased by 0.2% m/m and 5.0% y/y. The purchase of vehicles subcategory saw price increases of 4.6% y/y, while the operation of personal transport equipment subcategory recorded price increases of 6.1% y/y. Fears of the global economic impact of the coronavirus has pushed the price of Brent crude oil down 11.9% in January to around US$58 a barrel. Although it is unlikely for the oil price to remain at current levels in the long run, the lower oil price does at least mean that the likelihood for transport inflation to increase substantially in the short term is low.

Food & non-alcoholic beverages, the second largest basket item in weighting, accounted for 0.4 percentage points of the total inflation figure. Food and non-alcoholic beverage prices increased by 2.1% y/y, ticking up from inflation of 1.7% y/y recorded in December. Prices in twelve of the thirteen sub-categories recorded increases on an annual basis. The largest increases were observed in the prices of fruits which increased by 13.8% y/y and vegetables which increased by 8.4% y/y. The meat sub-category meanwhile saw a marginal price decrease of 0.5% y/y in January. Rainfall figures have so far been mixed, with the northern and eastern regions receiving normal- to above-normal amounts of rain, and the central and southern regions receiving below-normal amounts of rain. Should these regions continue to experience poor rainfall for the rest of the rainy season, local food production will be affected which could lead to higher food price inflation.

Alcoholic beverages and tobacco prices, making up approximately 12.6% of the overall inflation basket, was the third highest contributor to the annual inflation rate in January, with prices of the basket item increasing 0.1% m/m and 2.6% y/y. The main driver in this basket category was alcohol prices which increased by 4.4% y/y while tobacco prices were down 5.1% y/y.

According to the zonal data, the northern regions of the country recorded the highest rate of inflation in January at 1.2% m/m and 2.6% y/y. The central region recorded the lowest inflation rate at 0.2% m/m and 1.0% y/y, while the mixed zone 3 covering the south, east and west of the country recorded inflation of 0.5% m/m and 2.5% y/y.

As the graph above depicts, Namibian annual inflation has been slowing almost consistently since November 2018, and is currently trending at levels last seen in 2005. January’s figure of 2.1% y/y is particularly low as a result of annual rental adjustments being put through. According to the NSA, the prices for the rental payments for dwellings sub-category declined by 1.5% y/y in January. As the tough economic conditions persist, it is ever more difficult for landlords to push up rental prices. As rental payments make up a large portion of the CPI basket, the deflationary adjustment means that Namibian annual inflation in 2020 is likely to be well below Namibia’s long run average. IJG’s inflation model forecasts an average inflation rate of 3.3% y/y in 2020. Lower expected inflation, coupled with low economic growth forecasts means that there is a lot of leeway for the Bank of Namibia’s MPC to cut the repo rate at its February meeting.