Category Archives: Economic Research

Economic Research

PSCE – October 2020

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Overall

Total credit extended to the private sector (PSCE) increased by N$71.6 million or 0.1% m/m in October, bringing the cumulative credit outstanding to N$102.95 billion. On a year-on-year basis, private sector credit extension increased by only 1.0% y/y in October, compared to 1.5% growth recorded in September. This represents the lowest level of annual growth on our records dating back to 2002 as issuance continues to slow. N$2.39 billion worth of credit has been extended to individuals on a 12-month cumulative basis, while corporates and the non-resident private sector decreased their borrowings by N$975.0 million and N$369.4 million, respectively.

Credit Extension to Individuals

Credit extended to individuals increased by 0.7% m/m and 4.2% y/y in October. The month-on-month growth has mostly been driven by an increase in ‘other loans and advances’ (or OLA, which is made up of credit card debt, personal and term loans) which grew by 1.1% m/m and 11.0% y/y in October. Overdrafts grew by 1.1% m/m and 3.6% y/y indicating continued use of short-term credit by individuals. On the other hand, longer-term credit agreements like mortgages and instalment credit continued to slow. Mortgages declined by 0.8% m/m and increased by only 4.3% y/y as housing purchases continue to slow in value terms. Instalment credit grew by 0.1% m/m but was down 5.3% y/y as new vehicle sales continue to dwindle, declining 27.3% y/y.

Credit Extension to Corporates

Credit extended to corporates contracted by 0.8% m/m and 2.2% y/y in October, following similar contractions in September. Except for the OLA category, all other segments contracted on a monthly basis. Mortgage loans to corporates declined by 0.8% m/m and 7.8% y/y. Instalment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 1.5% m/m and 16.7% y/y in October the lowest level since early 2019. Overdrafts to corporates declined by 2.6% m/m but increased by 3.6% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved significantly in October, increasing by N$889.4 million to an average of N$3.10 billion during the month. According to the Bank of Namibia, the increase in liquidity is on the back of diamond sales, increased government expenditure and interest payment from the state during the period under review. Due to the increase in liquidity, The outstanding balance of repo’s fell from N$116.0 million to zero by month-end.

Reserves and Money Supply

Broad money supply rose by N$13.4 billion or 11.7% y/y in October, as per the BoN’s latest monetary statistics release. Foreign reserve balances increased by N$1.69 billion or 5.2% m/m to N$34.4 billion in September. The BoN attributes the rise in the official reserve stock to SACU inflows during the period under review.

Outlook

Private sector credit extension growth remains subdued at the end of October, slowing from 1.5% y/y to 1.0% y/y in October. Rolling 12-month issuance fell to N$1.04 billion and is down a rather staggering 82.3% from the N$5.89 billion figure as at October 2019. Although Namibian interest rates are at historical lows, so are business and consumer confidence. Economic activity, which was slow before the pandemic, has been hit hard by global lowdowns, and recovery may take years to materialise. As a result, credit uptake remains weak, as the base of growth, individual mortgages, continues to slow. Additionally, corporates continue to repay debt and de-lever their balance sheets. If these trends continue, we are likely to see private sector credit extension contract on an annual basis in the coming months.

Building Plans – October 2020

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A total of 306 building plans were approved by the City of Windhoek in October, 72 more than in September. In value terms, approvals rose by N$194.1 million to N$327.7 million in October from N$133.6 million worth of approvals in September. A total of 65 building plans were completed at a value of N$54.8 million in October, a decrease of 73.4% y/y in number and 50.1% y/y in value of completions. Year-to-date, N$1.54 billion worth of building plans have been approved, 9.6% lower than the comparative period a year ago. On a twelve-month cumulative basis, 2,173 building plans were approved worth approximately N$1.83 billion, 1.2% higher in value terms than approvals at the end of October 2019.

The largest number of building plan approvals in October was made up of additions to properties. 186 additions to properties were approved with a value of N$67.0 million, 25.7% higher in number and 15.5% more in value terms than in September. Year-to-date 1,352 additions to properties have been approved with a total value of N$578.4 million, a 3.4% decline in number and 11.9% y/y decrease in value. 17 additions worth N$15.1 million were completed during the month. Year-to-date 856 additions have been completed with a combined value of N$439.3 million, down 16.7% y/y in number and 8.0% y/y in value terms.

New residential units were the second largest contributor to the number of building plans approved with 115 approvals registered in October, 30 more than in September. In value terms, N$242.9 million worth of residential units were approved in October, an increase of 35.3% m/m and 224.9% y/y. Year-to-date 506 new residential units have been approved worth N$666.2 million, an increase of 60.1% and 36.0% compared to the same time last year. 47 Residential units valued at N$39.3 million were completed in October bringing the year-to-date number to 639, up 151.6% y/y. In value terms this is an increase of 183.0% y/y to N$992.5 million.

5 New commercial units, valued at N$18.0 million, were approved in October, bringing the year-to-date number of commercial and industrial approvals to 38, worth a total of N$295.0 million. Bar one month, the number of approvals for commercial and industrial properties has been languishing in single-digit territory since September 2016 and has an average approval rate of fewer than 4 approvals per month over the last 12 months. On a rolling 12-month basis, the number of commercial and industrial approvals increased to 46 units, worth approximately N$314.8 million, a decrease of 43.6% in value terms from the period ending October 2019. One commercial building plan was recorded as completed in October, valued at N$400,000.

During the last 12 months, 2,173 building plans have been approved, increasing by 11.6% y/y. These approvals were worth a combined N$1.83 billion, an increase in value of 1.2% y/y. The last 3 months have seen a steady uptick in the 12-month cumulative number of plans approved in the capital, but the growth in the cumulative value of plans approved have been lagging, for the most part, indicating that the planned construction activity will mostly consist of smaller building projects. The cumulative value of plans approved is still trending downward from a longer-term perspective, as the graph above indicates.

The value of plans completed has however recovered more significantly as can be seen in the below figure, although as we have cautioned in the past, this could simply be due to a completions backlog (paperwork backlog) which is now being processed by the City of Windhoek, making it difficult to say when the actual construction activity took place.

NCPI – October 2020

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The Namibian annual inflation rate remained relatively steady at 2.3% y/y in October, following the 2.4% y/y uptick in prices in September. Prices in the overall NCPI basket increased by 0.1% m/m, as inflationary pressure remains muted. On a year-on-year basis, overall prices in six of the twelve basket categories rose at a quicker rate in October than in September, while four categories recorded slower rates of inflation and two categories posted steady inflation. Prices for goods increased by 3.3% y/y while prices for services rose by 0.9% y/y.

As in September, food & non-alcoholic beverages were the largest contributors to annual inflation in October, accounting for 1.3 percentage points of the total 2.3% annual inflation rate. Prices in this category rose 0.7% m/m and 7.1% y/y, the highest level since March 2017. 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 which increased by 16.1% y/y and vegetables which increased by 14.1% y/y. Price increases in meat products and fish also remained elevated at 9.3% y/y and 8.5% y/y respectively. The prospects for the Southern African region to receive normal to above-normal rainfall for the 2020-21 cropping season are currently high as La Niña conditions is expected to be sustained until at least February 2021. Should this materialise, food inflation should slow down.

The alcoholic beverages and tobacco basket item was the second largest contributor to the annual inflation rate in October. The basket item recorded a price increase of 1.4% m/m and 4.3% y/y during the month. Prices for alcoholic beverages increased at a rate of 1.0% m/m and 3.4% y/y, while tobacco prices rose by 3.2% m/m and 8.4% y/y.

The education basket recorded inflation of 7.0% y/y, with the cost of pre-primary education growing at a rate of 5.6%. Primary and secondary education recorded price increases of 9.3% y/y, while tertiary education prices rose by 5.3% y/y. None of the three subcategories printed price increases on a month-on-month basis. The fact that the basket item with the eighth largest weighting (at 3.6% of the CPI basket) is one of the largest contributors of the annual inflation rate is an indication of just how low inflationary pressure is at the moment.

We believe that inflationary pressure will remain relatively contained at around current levels in the short-term. IJG’s inflation model forecasts an average inflation rate of 2.2% y/y in 2020 and 3.4% y/y in 2021. One of the larger risks to our inflation forecast is global oil prices. While there has been an uptick in oil prices in recent weeks, it is improbable that it would return to levels seen at the beginning of the year anytime soon as the global demand for oil remains muted, especially since several European countries are implementing renewed lockdown measures. The likelihood of higher rental prices in the next 12 months also remains low, given the financial pressure many consumers are under. With these being the larger categories of the inflation basket, we do not foresee any sudden increases in Namibian inflation in the short-term.