Category Archives: Team Commentary

Team Commentary

Building Plans – February 2015

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A total of 213 building plans to the value of N$172.5 million were approved by the City of Windhoek in February 2015. On a year‑to‑date basis (January to February), 398 plans were approved compared to 495 plans over the same period last year. In value terms, plans approved year-to-date are worth N$267.4 million compared to N$695.1 million for the same period in 2014, down 61.5%. This decrease is mostly due base effects as three large commercial projects were approved by the municipality in February 2014. On a monthly basis, a few more plans were approved in February when compared to January, and the value of plans approved is up 81.8% m/m. The higher figures are mainly seasonal as December and January tend to be slower months.

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The 12 month cumulative number of plans approved continued to lose momentum during February, falling to 2,749 compared to 2,803 in January, with the year-on-year growth rate contracting by 16.4%, posting negative growth for the tenth consecutive month, as shown in the graph below. The 12-month cumulative value of plans approved totaled N$1.870 billion, down 27.2% y/y, with the base again having a drag effect.

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In our view the construction sector will remain one of the leading growth and development sectors for 2015 in the Namibian economy, with both private sector and government having aggressive development plans. However, many such plans fall out of the Windhoek municipal area, and as such are not captured in the monthly building plan statistics.

BON rate hike – our view

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The Bank of Namibia hiked interest rates by 25bp at their February MPC meeting, taking the repo rate to 6.25% and the prime rate to 10.0%. This move came as a surprise to analysts, given the prevailing expectations of global and regional interest rates. Across much of the globe, interest rates have been cut over recent months, and the expectation is that rates will remain low or be cut for most major economies through the rest of 2015 (with the US possibly seeing an increase in rates towards the end of the year). In this, South Africa, is no exception, and given the currency peg between Namibia and South Africa, Namibia has historically not deviated dramatically from South Africa in terms of interest rate position.

Thus, the decision has been taken based on prevailing conditions internally, where PSCE growth has been abnormally high, at over 16%, off an ever increasing base, and reserves have been falling due to major growth in imports (many of which funded through PSCE). However, since the last meeting of the Bank, when rates were kept on hold, little has changed, and if anything, the situation has improved. PSCE growth remained broadly unchanged, while the terms of trade improved dramatically due to falling oil prices. As such, the current account balance should improve, and assuming the capital and financial account remains broadly stable, reserves should start to recover (also, a SACU payment was received in January, further bolstering the external position).

MPC reasons

Nevertheless, we have, for a long time, believed that rates in Namibia were too low give growth and demand-side inflation in the country, and are increasingly concerned as to the tenacity of PSCE demand. As such, we are generally of the view that the rate change brings us closer to a point of equilibrium, however are surprised by the timing of the move.

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Finally, the widening of the interest rate spread between Namibia and South Africa will prove hugely favorable for Namibian commercial banks, who price (some-to-all) deposits off South African interest rates, and loans off Namibian interest rates. This widening of the spread will see notable increases in the commercial bank’s net interest income, which, coupled with major growth in PSCE over the past year, will flow through to the already favorable bottom line of these companies.

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