Category Archives: Economic Research

Economic Research

PSCE – August 2019

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Private sector credit extension (PSCE) increased by N$429.3 million or 0.43% m/m in August, bringing the cumulative credit outstanding to N$100.8 billion. On a year-on-year basis, private sector credit extension increased by 6.1% in August, a slowdown from the 7.4% recorded in July. On a rolling 12-month basis, N$5.8 billion worth of credit was extended to the private sector, with individuals taking up N$3.7 billion while N$2.3 billion was extended to corporates, and the non-resident private sector has decreased their borrowings by N$211.9 million.

Credit Extension to Individuals

Growth in credit extension to individuals increased to 0.5% m/m and 6.7% y/y compared to 0.5% m/m and 7.4% y/y growth recorded in July. Mortgage loans to individuals grew by 0.7% m/m and 6.8% y/y, and still showing some resiliency to the economic slowdown.

Other loans and advances (which is made up of credit card debt, personal and term loans) grew by 1.6% m/m and 21.6% y/y in August, while overdraft facilities extended to individuals have increased by 9.0% y/y the highest since November 2017, indicating that the uptake of short-term debt by households continues unabated. The increase in the uptake of short-term debt remains of concern as there is little appetite for more productive loans and consumers remain subject to higher interest terms. Installment credit, which consists largely of vehicle financing, contracted by 1.4% m/m and 5.4% y/y, as result of the continued decline new vehicle sales.

Credit Extension to Corporates

Credit extension to corporates increased to 0.2% m/m compared to the 0.6% m/m contraction recorded in July. On an annual basis, however, credit extension to corporates slowed down to 6.0% y/y in August, compared to the 8.3% y/y growth registered in July. Overdraft facilities extended to corporates contracted further by 3.0% m/m but rose 4.9% y/y. Mortgage loans to corporates contracted by 0.2% m/m but increased 5.0% y/y. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remains depressed, contracting by 0.3% m/m and 8.5% y/y in August.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved in August, increasing by N$409.1 million to reach an average of N$3.66 billion. 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 by N$5 million to N$386.5 million by month end.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$8.32 billion or 8.0% y/y in August, following a 6.6% y/y increase in July. Foreign reserve balances rose by N$1.75 billion to N$33.4 billion in August from N$35.2 billion in July.

Private sector credit extension growth increased by 6.11% y/y during August. From a 12-month rolling perspective, credit issuance down by 10.6% from the N$6.42 billion issuance observed over the preceding twelve-month period, with individuals taking up most (64.3%) of the credit extended.

The increase in the uptake of short-term debt and overdraft facilities by households to fund consumption needs, demonstrates the pressure consumers are under. This is of concern as consumers continue to live above their means. According to Bank of Namibia Financial Stability Report, the level of household indebtedness rose and stands at 95.5% in 2018 compared to 2017. Furthermore, demand is expected to be remain subdued as key sectors recorded declining growth rates. Our expectation is for private sector credit extension to remain under pressure as both consumer and business confidence remains low.

BoN took the decision to cut the Repo rate by 25 basis points at its August MPC meeting, this has brought 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.

New Vehicle Sales – August 2019

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A total of 808 new vehicles were sold in August, representing a 10.6% m/m decrease from the 904 vehicles sold in July. Year-to-date, 7,035 vehicles have been sold of which 3,214 were passenger vehicles, 3,358 were light commercial vehicles, and 463 were medium and heavy commercial vehicles. This is the lowest year-to-date sales witnessed since 2009. On a twelve-month cumulative basis, new vehicle sale continued its downward trend. 10,860 new vehicles were sold over the last twelve months, a 9.8% contraction from the previous twelve months and also the lowest level since 2009.

360 new passenger vehicles were sold in August, contracting by 5.8% m/m and 15.3% y/y. Year-to-date passenger vehicle sales rose to 3,214 units, down 11.6% when compared to the year-to-date figure recorded in August 2018. On an annual basis, twelve-month cumulative passenger vehicle sales fell 10.9% y/y as the number of passenger vehicles sold continued to decline.

A total of 448 new commercial vehicles were sold in August, representing a contraction of 14.2% m/m and 30.2% y/y. Of the 448 commercial vehicles sold in August, 389 were classified as light commercial vehicles, 26 as medium commercial vehicles and 33 as heavy or extra heavy commercial vehicles. On a twelve-month cumulative basis, light commercial vehicle sales dropped 10.5% y/y, while medium commercial vehicle sales and heavy commercial vehicles rose 1.7% y/y and 6.9% y/y, respectively. Heavy commercial vehicles have seen some buoyancy in the last couple of months with 190 vehicles being sold since the beginning of May 2019.

Toyota continues to lead the passenger vehicle sales segment with 30.4% of the segment sales year-to-date. Volkswagen in a close second place with 30.3% of the market-share as at the end of August. Kia, Mercedes, Hyundai and Ford each command around 4.9% of the market in the passenger vehicles segment, leaving the remaining 19.3% of the market to other brands.

Toyota with a strong market share of 58.5% year-to-date remains the market leader in the light commercial vehicle segment. Nissan remains in second position in the segment with 11.6% of the market, while Ford makes up third place with 8.8% of the year-to-date sales. Hino leads the medium commercial vehicle segment with 39.2% 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 2010 levels, and the total new vehicle sales for the last 12 months down 9.8 from the same period in 2018. Vehicle sales is a lagging economic indicator and thus tells us little about what to expect going forward, but continues to illustrate the extent of the economic downturn. Presently, vehicle sales continue to point to low consumer and business confidence. This is evident as number of commercial vehicles sold year-to-date contracted by 14.0%, which shows a slowdown in the demand for durable goods by businesses.

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.