• Business 7

External shocks could weigh on growth

- 2023-04-05 00:00:00

Monetary policy tightening globally, high costs of key import items and load shedding in South Africa could weigh on Namibia’s growth prospects. The Bank of Namibia highlighted these factors as key risks to domestic growth.
According to the Namibia Statistics Agency (NSA), the domestic economy expanded by 4.6% in 2022. The Bank of Namibia projects economic growth to moderate to 3% in 2023, while the ministry of finance estimates the domestic economy to grow by 3.2% this year.
Fin24 recently reported that the US Federal Reserve raised its benchmark lending rate by 25 basis points from 4.75% to 5% as it sought to strike a balance between curbing high inflation and averting further upheaval in the commercial banking sector.
In addition, the South African Reserve Bank (SARB) last week raised the repo rate by 50 basis points from 7.25% to 7.75%.
At the first monetary policy announcement in January, SARB increased the repo rate by 25 basis points from 7% to 7.25%. The prime lending rate in South Africa currently stands at 11.25%.
South Africa’s annual consumer inflation rose for the first time in four months, edging to 7.0% in February from 6.9% in January, according to Stats SA.
The South African Reserve Bank’s monetary policy committee prefers to anchor inflation expectations close to the 4.5% midpoint of its target range of 3%-6%.
Namibia has close economic ties with South Africa as the local currency is pegged to the rand.
At the first monetary policy announcement for the year in February, the Bank of Namibia increased the repo rate by 25 basis points from 6.75%.
The repo rate in Namibia currently stands at 7%, while the prime lending rate stands at 10.75%. Inflation increased to 7.2% in February from 7% recorded in January. The next monetary policy announcement is expected to take place this month.
Credit uptake
According to Simonis Storm, credit growth increased by 3.1% year-on-year by the private sector in February 2023, compared to 2.6% year-on- year in the prior month. Credit growth remains below the 6-month moving average, which indicates that credit uptake is on a slowing trend.
Credit uptake was primarily driven by households, rising by 5.0% year-on-year in February 2023, compared to 4.9% year-on- year in January 2023. The biggest drivers of household credit growth were other loans and advances which increased by 17.8% year-on- year, and overdrafts as well mortgages which both increased by 2.8% year-on- year.
Other loans and advances typically include credit card and personal loan debt instruments. Corporates, especially those in the manufacturing, wholesale, and retail sector, were mainly net repayers on their debt in the same month, leading only to a marginal increase of 0.4% year-on- year in February 2023, compared to -0.6% year-on- year in January 2023. Corporates were mainly net re-payers on mortgages which increased by 5.1% and overdrafts by 3.0% year-on-year.
“Despite higher repo rates, together with rising inflation, we do see that credit uptake is on a slow upward trend. Based on the recent short run trend in inflation, we anticipate that BoN will implement another repo rate hike of at least 25 basis points at their next meeting. This forecast is consistent with the BoN's stance that repo rate hikes will continue until inflation rate lowers to 6% year-on-year. Inflation was recorded at 6.9% year-year in December, 7.0% year-on-year in January 2023 and 7.2% year-on-year in February 2023,” Simonis Storm said.
IJG Securities noted that credit uptake by individuals recorded notable growth as well on the back of a N$91.8 million month-on-month increase in mortgage loans. “While the uptick in the year-on-year growth rate is positive, it has been trending well below inflation since May 2020, meaning that we have not seen positive private sector credit extension growth in real terms for two-and-a-half years now.”
In addition, credit uptake by corporates has been particularly lacklustre since June last year, with only short-term ‘other loans and advances’ and instalment credit exhibiting positive growth on an annual basis, IJG said.
Import costs
The Bank of Namibia also views high costs of key import items as a key risk to growth prospects of the domestic economy.
According to the Namibia Statistics Agency (NSA), Namibia’s N$10 billion import bill in January 2023 was mainly driven by petroleum oils sourced from Saudi Arabia, Malaysia and Singapore.
Similarly, Namibia’s N$8.5 billion import bill in February 2023 was also driven by petroleum oil, mostly sourced from India, the United Arab Emirates and Italy.
Fin24 reported that major oil powers led by Saudi Arabia announced a surprise production cut of more than one million barrels per day, calling it a "precautionary" move aimed at stabilising the market.
The reductions, on top of a Russian decision to extend a cut of 500 000 barrels per day, and despite US calls to increase production, risk stoking inflation and pressure to raise interest rates.
Cuts by Saudi Arabia, Iraq, UAE, Kuwait, Algeria and Oman from May to the end of the year will top one million barrels per day - the biggest reduction since the OPEC cartel slashed two million barrels per day in October.
Russia, a leading member of the OPEC cartel, said it was also extending an existing cut of 500 000 bpd to the end of this year, describing it as "a responsible and preventive action".
A Saudi energy ministry official "emphasised that this is a precautionary measure aimed at supporting the stability of the oil market", the official Saudi Press Agency said.
The cuts follow a drop in oil prices triggered by jitters over the banking sector, following the collapse of US lender SVB and UBS's hurried buy-out of troubled rival Credit Suisse, UAE-based oil expert Ibrahim al-Ghitani told AFP. Brent crude oil prices, trading just below US$80 a barrel late last week, should bounce to above US$80 as a result of the reductions, he said, calling prices below $80 "unacceptable" for OPEC . Meanwhile, the ministry of mines and energy announced that fuel prices will remain unchanged for the month of April.
Load shedding
Potential spillover of electricity cuts in South Africa to Namibia could also weigh on the domestic economy. Namibia heavily depends on South Africa for imports.
According to the Namibia Statistics Agency, Namibia’s import bill stood at N$8.5 billion in February 2023.
During the month under review, the top five import markets for the country accounted for 75.8%, in first position was South Africa with a percentage share of 46.2%.
Fin24 recently reported that South Africa posted a current-account deficit for the first time in three years in 2022 as imports increased and power shortages and rail constraints curbed exports, heightening the nation’s vulnerability to external shocks.
According Simonis Storm, Namibia’s live exports decreased by 16.9% year-on-year in February 2023 due to lower demand for weaners from South Africa.
Prices for live animals at auctions have been decreasing due to a decrease in demand as a result of loadshedding. South African farmers struggle to slaughter live animals and retailers struggle to store finished meat products in freezers or fridges due to electricity supply disruptions. Should electricity supply issues be resolved, farmers will have excess stock to sell and so prices could drop even further, Simonis Storm said. –[email protected]