Category Archives: Economic Research

Economic Research

NCPI – August 2019

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The Namibian annual inflation rate increased marginally to 3.7% y/y in August, following the 3.6% y/y increase in prices recorded in July. On a month-on-month basis, prices rose 0.1% following a 0.2% price change recorded in July. On an annual basis, prices in seven of the twelve basket categories rose at a quicker rate in August than in July, this was offset by slower rates of inflation in three categories, while the rate of inflation in two categories remained unchanged. Prices for goods rose by 3.2% y/y while prices for services increased by 4.4% y/y.

As in July, Transport was the largest contributor to annual inflation in August, accounting for 0.8% of the total 3.7% inflation figure. Transport prices increased by 0.1% m/m and 6.1% y/y in August, slightly slower than the 0.5% m/m and 6.9% y/y increase recorded in July. Prices in the three subcategories all recorded increases on a year-on-year basis. The public transportation services subcategory registered an increase of 19.9% y/y as a result of the 20% increase in taxi fares that was approved in August 2018. Prices relating to the purchase of vehicles increased at a rate of 3.0% y/y, while prices relating to the operation of personal transport equipment increased by 3.8% y/y.

The ongoing trade dispute between China and the US, coupled with tensions in the Persian Gulf continues to pressure on the price of Brent Crude oil, resulting in a month-on-month decrease of 7.3% to US$60.47 at the end of August. The lower oil price should bode well for a cut in Namibian pump prices in the coming months if oil prices remain around current levels, and if the rand continues appreciating against the US dollar.

Food & non-alcoholic beverages, the second largest basket item in weighting, was the second largest contributor to annual inflation, accounting for 0.7% of the total inflation figure. Food and non-alcoholic beverage prices increased by 4.1% y/y, ticking up from the 3.4% y/y recorded in July. Prices in eleven of the thirteen sub-categories recorded increases on annual basis. The largest increases were observed in the prices of vegetables which increased by 13.9% y/y and fruits which increased by 11.0% y/y. The meat and oils and fats sub-categories saw marginal price decreases of 0.7% y/y and 0.4% y/y, respectively. The decline in meat prices is not expected to last however, as it is largely driven by high supply of animals as farmers slaughter more during the drought. Restocking farms in the future will likely lead to upward pressure on meat prices.

The alcohol and tobacco category displayed an increase of 0.1 m/m and 3.9% y/y in August. The main driver in this basket category remains alcohol prices which prices which increased by 6.0% y/y while tobacco prices were down 5.1% y/y. A 7.8% m/m decrease in tobacco prices recorded in May is the cause for annual decrease in tobacco prices. The Namibia Statistics Agency (NSA) has not provided any explanation for this decrease in any of its bulletins since May.

The NSA generally reconstitutes the CPI basket every five years, with the last reconstitution done in 2013. The NSA states in its bulletin that it planned to rebase the CPI basket this year based on the 2015/16 Namibia Household Income and Expenditure Survey (NHIES) results. There were however methodological changes in the NHIES 2015/16 and as a result the rebasing could not take place. According to the NSA, the next CPI rebasing will take place after the next NHIES. The NSA notes that that the next CPI rebasing will only be done after the next NHIES has been conducted.

Zonal data shows that on a monthly basis, prices printed flat in the central zone, while rising elsewhere in the country. On an annual basis, the Windhoek and surrounding area, recorded the lowest inflation rate at 3.0% in August, with the mixed zone 3 covering the south, east and west of the country recording the highest rate of inflation at 5.0% y/y. Inflation in the northern region of the country increased to 3.5% y/y.

The Namibian annual inflation rate of 3.7% y/y for August continues to trend lower than that of neighbouring South Africa’s July inflation figure 4.0% y/y for a fourth consecutive month. Low food price inflation and subdued housing and related inflation rates have contributed greatly to the low overall inflation figure in August.

Should the price of oil continue to trend at current levels, coupled with the appreciation of the Namibian Dollar against the US dollar that we have seen in recent weeks, we expect the Ministry of Mines and Energy to cut fuel prices sometime in the coming months, which should ease transport inflation and bring some welcome relief to consumers. IJG’s inflation model forecasts an average inflation rate of 3.9% y/y in 2019. The largest upside risk to this forecast is higher food costs, as the drought affects local food production.

Building Plans – July 2019

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A total of 181 building plans were approved by the City of Windhoek in July, 37 more than in June. The value of approvals increased to N$114.9 million in July as opposed to N$60.5 million in June. A total of 218 building plans were completed during the month with a value of N$108.3 million. Year-to-date N$1.0 billion worth of building plans have been approved, 0.7% lower than over the comparative period a year ago. On a twelve-month cumulative basis 2,013 building plans have been approved worth approximately N$1.83 billion, 14.5% higher in value terms than cumulative approvals by the end of July 2018.

147 additions to properties were approved in July with a value of N$73.0 million, increasing by 159.4% m/m but dropping by 24.6% y/y in value terms. Year-to-date 907 additions to properties have been approved with a total value of N$435.2 million, a decrease of 0.9% y/y in number and 29.9% y/y in value terms. On a 12-month cumulative basis the number of additions approved has decreased by 3.1% y/y and by 27.4% y/y in value terms.  Year-to-date 531 additions have been completed with a combined value of N$258.7 million, down 60.1% y/y in number and 37.7% y/y in value terms.

New residential units accounted for 31 of the approvals registered in July, an increase of 40.9% m/m. In value terms N$18.1 million worth of residential units were approved in July, increasing by 5.8% m/m but contracting by 84.6% y/y. Year-to-date residential unit approvals have decreased by 31.9% y/y in number but are up by 3.9% y/y in value. On a 12-month cumulative basis a 12.5% y/y decrease in number of residential unit approvals was recorded, although increasing by 16.6% y/y in value. Year-to-date 187 residential units have been completed with a combined value of N$257.7, up 289.6% y/y in number and 178.9% in value.

3 new commercial units valued at N$23.8 million were approved in July, bringing the year-to-date number of commercial and industrial approvals to 23, worth a total of N$208.6 million. This is 21.1% up in number from July last year and 386.9% up in value terms. On a rolling 12-month basis the number of commercial and industrial approvals rose to 47 units worth N$546.1 million as at July. This is an increase of 6.8% y/y in number and 386.9% y/y in value. Year-to-date 26 commercial units have been completed with a combined value of N$178.6 million, an increase of 333.3% in number and 639.1% in value terms. This is encouraging despite both figures coming off a very low base.

In the last 12 months 2,013 building plans have been approved, decreasing by 4.8% compared to July 2018. These approvals are valued at N$1.83 billion, an increase in value of 14.5% y/y. As can be seen in the figure above the cumulative value of building plans approved in Windhoek has been trending downward in both nominal terms as well as simple inflation adjusted terms. Despite various spikes in the nominal figure the average value of plans approved continues to decline. As building plan approvals is a leading indicator this does not paint a particularly rosy picture for the construction industry in the capital city in the short term. This outlook concurs with the view of the Bank of Namibia that construction activity is likely to record a fourth consecutive annual contraction in 2019.

As we expected Bank of Namibia took the decision at its MPC meeting to cut interest rates by 25 bps. The decision to cut the Repo rate will bring some relief to indebted consumers and businesses. The central bank’s decision to cut interest rates comes as the domestic economy is projected to contract by 1.7% in the current year. This aims to boost economic growth given the current low consumer and business confidence.

According to the Bank of Namibia’s Economic Outlook for July 2019, growth in the construction industry is expected to remain negative with improvements expected to occur in 2020. Activity in the construction industry is set to recover due to the increase in government’s development budget for 2019/20 and 2020/21.

PSCE – July 2019

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Private sector credit extension (PSCE) increased by N$86.3 million or 0.09% m/m in July, bringing the cumulative credit outstanding to N$100.32 billion. On a year-on-year basis, private sector credit extension saw a steady increased of 7.4% in July, as seen in the preceding month. On a rolling 12-month basis N$6.9 billion worth of credit was extended to the private sector, with individuals taking up N$4.1 billion while N$3.1 billion was extended to corporates, and the non-resident private sector has decreased their borrowings by N$210.7 million.

Growth in credit extension to individuals increased by 0.5% m/m and 7.4% y/y in July, compared to 0.7% m/m and 6.5% y/y growth recorded in June. Other loans and advances (which is made up of credit card debt, personal and term loans) grew by 0.6% m/m and 27.3% y/y in July. The increase in the uptake of short-term debt remains of concern as household demand continues to rise when compared to the use of more productive loans such as mortgages. Short term debt is characterized by high interest rates and high default rates compared to mortgage loans. Installment credit, often used to finance vehicles contracted by 0.3% m/m and 4.1% y/y. Mortgage loans to individuals grew by 0.7% m/m and 7.3% y/y, while overdraft facilities extended to individuals have increased by 1.0% m/m and 8.7% y/y.

Credit extension to corporates further contracted by 0.6% m/m following the 1.4% m/m contraction recorded in June. On an annual basis, however, credit extension to corporates increased by 8.3% y/y in July, compared to the 8.9% y/y growth registered in June. Overdraft facilities extended to corporates decreased by 0.8% m/m, but are still up 9.3% y/y. The year-on-year increase was caused by business in the fisheries and housing sector taking on overdrafts facilities. Mortgage loans to corporates contracted by 0.5% m/m but increased by 5.2% y/y. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 0.7% m/m and 7.7% y/y in July.

The overall liquidity position of commercial banks declined by N$1.2 billion to reach an average of N$3.25 billion. The Bank of Namibia (BoN) attributes the decline in liquidity balances to outflows as a result of payments of corporate taxes during the period under review. The decreased liquidity resulted in an increase in the use of the BoN’s repo facility by commercial banks, with the outstanding balance of repo’s increasing from N$388.7 million at the start of July to N$391.5 million by month end.

As per the BoN’s latest money statistics release, broad money supply rose by N$6.74 billion or 6.6% y/y in July, following a 7.3% y/y increase in June. Foreign reserve balances rose by N$1.75 billion to N$35.2 billion in July from N$33.4 billion in June. According to BoN this was largely due to SACU payments received during the month under review.

Private sector credit extension growth increased as at the end of July by 7.40% y/y. From a 12-month rolling perspective, credit issuance is up 25.6% from the N$5.5 billion issuance observed at the end of July 2018, with individuals taking up most (58.6%) of the credit extended over the past 12 months. Most of the growth in PSCE for July stemmed from other financial corporations and mortgages extended to individuals.

Corporates increased their demand for overdraft facilities on a year-year basis. The uptake of overdrafts is an indication of lack of liquidity in the fisheries and construction industries to finance working capital in the short-term. Our expectation is for private sector credit extension to remain under pressure as both consumer and business confidence remains low.

As we expected the BoN took the decision to cut the Repo rate by 25 basis points at its August MPC meeting. This should bring heavily indebted consumers and corporates some relief. However, interest rates remain accommodative by historical standards and further rate cuts are unlikely to result in a meaningful increase in the uptake of credit.