Category Archives: Economic Research

Economic Research

NCPI – July 2019

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The Namibian annual inflation rate slowed to 3.6% y/y in July, following the 3.9% y/y increase in prices recorded in June. Prices increased by 0.2% m/m, compared to the overall basket price increase of 0.1% m/m in June. Overall, prices in six of the basket categories rose at a faster annual rate than in July, prices in five categories rose at a slower annual rate and one category recorded steady inflation rates. Prices for goods rose by 3.1% y/y while prices for services rose by 4.4%.

Transport accounted for 0.9% of the total 3.6% annual inflation recorded in July, making it the largest contributor to annual inflation for the month. Prices for the transport basket rose 0.5% m/m and 6.9% y/y during the month. The purchase of vehicles subcategory saw price increases of 0.6% m/m and 3.6% y/y in July, while the operation of transport equipment subcategory recorded price increases of 0.7% m/m and 4.9% y/y. Although global oil prices have declined in the last few months, the Ministry of Mines and Energy decided to keep fuel pump prices unchanged for July in order to strengthen its financial capacity to subsidise possible under-recoveries in future.

The Housing and utilities category, the largest weighting in the CPI basket, was the second largest contributor to annual inflation, accounting for 0.6% of the 3.6% annual inflation rate. Housing and utility costs increased by 1.0% m/m and 2.2% y/y. The upward movement on a month-on-month basis resulted from an increase in prices for the electricity, gas and other fuels sub-component. Prices of this subcategory rose 5.6% m/m and 1.6% y/y. Water supply, sewage service and refuse collection recorded an increase of 2.2% m/m as a result of the 5% increase in water tariffs effective from 1 July 2019, announced by the City of Windhoek.

Food & non-alcoholic beverages, the second largest basket item by weighting, was the third largest contributor to annual inflation, accounting for 0.6% of the 3.6% annual inflation rate. Prices in this category decreased by 0.6% m/m, but increased by 3.4% y/y. Prices in nine of the thirteen sub-categories recorded increases on annual basis, with the largest increases being observed in the prices of fruits, sugar and confectionaries and vegetables.

Zonal data shows that on a monthly basis prices declined by 0.1% in the central zone 2 while rising elsewhere in the country. On an annual basis the Windhoek and surrounding area, in zone 2, recorded the lowest inflation rate at 3.0% in July, with the mixed zone 3 covering the south, east and west of the country recording the highest rate of inflation at 5.1% y/y. Inflation in zone 1 (Northern region) moderated to 3.2% y/y.

The Namibian annual inflation rate of 3.6% y/y continues trending lower than neighbouring South Africa’s June figure of 4.5%. As the Namibian economy is projected to remain weak in 2019, coupled with slowing inflation since the beginning of the year, the Bank of Namibia (BoN) has this week taken the decision to cut the repo rate by 25 basis points to 6.50%. IJG’s inflation model forecasts an average inflation of 3.8% y/y in 2019. The largest upside risk to this forecast is higher transport and food costs.

New Vehicle Sales – July 2019

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A total of 904 new vehicles were sold in July, representing a 7.5% m/m decrease from the 977 vehicles sold in June. Year-to-date, 6,227 vehicles have been sold of which 2,854 were passenger vehicles, 2,969 were light commercial vehicles, and 404 were medium and heavy commercial vehicles. On an annual basis, twelve-month cumulative new vehicle sale continued on a downward trend, contracting by 7.5% from the 11,119 new vehicles sold over the comparable period a year ago.

382 New passenger vehicles were sold in July, increasing by 1.1% m/m, but contracting by 37.2% y/y. Year-to-date passenger vehicle sales rose to 2,854 units, down 11.1% when compared to the year-to-date figure recorded in July 2018. On an annual basis, twelve-month cumulative passenger vehicle sales fell 4.6% m/m and 8.9% y/y as figures continue to reflect weakness in the number of passenger vehicles sold.

A total of 522 new commercial vehicles were sold in July, representing a contraction of 12.9% m/m and 11.4% y/y. Of the 522 commercial vehicles sold in July, 435 were classified as light commercial vehicles, 37 as medium commercial vehicles and 50 as heavy or extra heavy commercial vehicles. On a twelve-month cumulative basis, light commercial vehicle sales dropped 8.8% y/y, while medium commercial vehicle sales remained flat, and heavy commercial vehicle sales rose by 28.8% y/y. While heavy commercial vehicles continue to record growth on a twelve-month cumulative basis, the light segment of the market continues to see lower volumes sold than in 2018.

Toyota once again leads the passenger vehicle sales segment with 30.9% of the segment sales year-to-date. Volkswagen dropped to second place by this measure with 30.6% of the market-share as at the end of July. Kia, Hyundai, Mercedes and Ford each command around 5.0% of the market in the passenger vehicles segment, leaving the remaining 18.9% of the market to other brands.

Toyota with a strong market share of 58.4% year-to-date commands the light commercial vehicles sales segment. Nissan remains in second position in the segment with 12.1% of the market, while Ford makes up third place with 8.5% of the year-to-date sales. Hino leads the medium commercial vehicle segment with 36.4% of sales year-to-date, while Scania was number one in the heavy- and extra-heavy commercial vehicle segment with 36.0% of the market share year-to-date.

The Bottom Line

Vehicle sales remain under pressure, with the year-to-date new vehicle sales in 2019 currently below 2011 levels, and the total new vehicle sales for the last 12 months down 7.5% from the same period in 2018. The prospects for new vehicle sales remain dim in the short- to medium-term as government remains committed to fiscal consolidation. Business and consumer confidence remain depressed as a result of the of the recessionary environment we find ourselves in.

PSCE – June 2019

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Overall

Private sector credit extension (PSCE) decreased by N$216.7 million or 0.22% m/m in June, bringing the cumulative credit outstanding to N$100.24 billion. On a year-on-year basis, private sector credit extension increased by 7.4% in June, compared to growth of 8.0% in May. On a rolling 12-month basis, N$6.9 billion worth of credit was extended to the private sector, with individuals taking up N$4.0 billion while N$3.1 billion was extended to corporates, and the non-resident private sector has decreased their borrowings by N$232.8 million.

Credit Extension to Individuals

Growth in credit extension to individuals accelerated to 0.7% m/m and 7.3% y/y in June, compared to 0.4% m/m and 6.4% y/y growth recorded in May. Other loans and advances (which is made up of credit card debt, personal and term loans) grew by 1.4% m/m and 25.9% y/y in June. The rapid growth in short term debt uptake by individuals is very concerning as these loans bear high interest rates and have high default rates when compared to productive loans such as mortgages. Installment credit, which is quite often used to purchase new vehicles, contracted by 4.1% y/y. Mortgage loans to individuals grew by 0.6% m/m and 7.6% y/y, while overdraft facilities extended to individuals have increased by 0.1% m/m and 5.0% y/y.

Credit Extension to Corporates

Credit extension to corporates contracted by 1.4% m/m after increasing by 2.8% m/m in May. On an annual basis, however, credit extension to corporates increased by 8.4% y/y in June, compared to the 11.2% y/y growth registered in May. The month-on-month contraction is mostly caused by businesses paying back overdrafts. Overdraft facilities extended to corporates decreased by 4.0% m/m, but are still up 8.3% y/y. Mortgage loans to corporates increased by 0.4% m/m and 3.7% y/y. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 0.4% m/m and 7.5% y/y in June.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved during June, increasing by N$648.0 million to reach an average of N$4.43 billion. According to the Bank of Namibia (BoN), the increase is attributable to the liquidation of funds, as companies were preparing for corporate tax payments during the period under review. The higher liquidity resulted in a decrease in use of the BoN’s repo facility by commercial banks, with the outstanding balance of repo’s decreasing from N$398.1 million at the start of June to N$388.7 million by month end.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$7.38 billion or 7.3% y/y in June, following a 11.7% y/y increase in May. Foreign reserve balances fell by N$691.0 million to N$33.4 billion in June from N$34.1 billion in May. The BoN attributes the decrease to net capital outflow of foreign currencies through commercial banks, coupled with net government payments during the month under review.

Outlook

From a 12-month rolling perspective, credit issuance is up 19.5% from the N$5.79 billion issuance observed at the end of June 2018, with corporates taking up 45.3% of the credit extended over the past 12 months. The credit extended to corporates on a cumulative 12-month basis has increased from N$1.51 billion in June 2018 to N$3.14 billion, while credit extended to individuals increased from N$3.47 billion in June 2018 to N$4.02 billion at the end of June 2019.

Corporates have repaid overdraft facilities during the month, resulting in a 3.0% decrease in total overdrafts. The repayment of overdrafts is a positive sign in our view as the extension of overdraft facilities was unlikely to drive meaningful expansion of productive capacity. We do however believe that the repayment is a short-term phenomenon as both individuals and corporates remain under pressure.

We expect the BoN to follow the SARB’s MPC decision to cut the Repo rate by 25 basis points at its August MPC meeting, which 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.