• Business 7

Shifting into second gear

- 2022-11-02 00:00:00

Government’s plans to spend about N$194.8 million on vehicle purchases in the fiscal years to 2025/26 is expected to boost business at car dealerships, whose sales tanks have been running on reserve since the recession and pandemic.
The N$29.7 million government intends spending on buying vehicles in the current fiscal year alone, is the highest since the nearly N$92 million in 2016/17. Since then, as part of government’s fiscal consolidation stance, spending on vehicles have dwindled to zero in 2021/22.
This contributed to new vehicles sales jerking into reverse – from nearly 16 600 in 2016 to around 7 600 in 2020, the lowest since 2004. It’s shifted into first gear since then, with this year’s figures trending around the levels seen in 2019.
But it remains a long way from the freeway stats of 2014, when government pumped more than N$1 billion into vehicle acquisitions and 22 000 new vehicles were sold.
ARMOURED PURCHASING POWER
Increased expenditure on vehicles over the medium-term expenditure framework (MTEF) will contribute positively to the vehicle sales sector, as government had decreased purchases during the latter half of last decade, Cirrus Capital said in their analysis of the mid-year budget review (MYBR).
“Vehicle expenditure was revised upward by 9% for FY 2022/23 (to N$29.7 million), and by 36% and 29%, respectively, for FY 2023/24 (to N$42.4 million) and FY 2024/25 (to NAD78.2 million). Expenditure on vehicles is essentially doubling from FY 2023/24 to FY 2024/25,” Cirrus said.
Documents tabled at finance minister Iipumbu Shiimi’s MYBR last week, show the bulk of the money earmarked for the acquisition of vehicles over the MTEF was allocated to the ministry of defence.
Nearly 65% or N$126.1 million of total vehicle acquisition spent from 2022/23 to 2025/26 has been allocated to defence. Business7 is waiting for feedback from the ministry of defence on why it needs such a large allocation and what vehicles it intends to buy.
EMPTY TANK
Various factors contributed to the slump in new vehicle sales in Namibia.
Former finance minister Calle Schlettwein started putting the brakes on government’s vehicle spent in 2015 in an effort to chase fiscal sustainability and macro-economic stability. Shiimi continued the journey when he took the fiscal reins in 2020.
In an effort to halt run-away growth in instalment debt at local commercial banks, Namibia’s Credit Agreement Act was amended in August 2016.
The changes required a deposit of 10% on all vehicle loans in the country and 54 months repayment as opposed to zero deposits and 60 months period to repay the loan.
This braked year-on-year (y/y) growth in instalment debt virtually overnight.
Government’s fiscal consolidation policy also spearheaded the start of recession in 2016. The economic hardships endured by the already over-indebted consumer further halted new vehicles sales.
The start of the Covid-19 pandemic in 2020 lead to a break-down in new vehicle sales. Trying to boost sales, the ministry of industrialisation and trade in September 2020 amended the regulation in terms of the Credit Agreements Act, extending the period to repay a vehicle loan from 54 months to 72 months.
PICKING UP SPEED
The latest data by the National Association of Automobile Manufacturers of South Africa (Naamsa) shows 7 932 new vehicles were sold in Namibia in the first nine months of this year. Of this, 4 075 or 51.4% were passenger vehicles, 3 358 were light commercial vehicles and 499 were medium and heavy commercial vehicles.
On a 12-month cumulative basis, total new vehicle sales breached the 10 000 level for the first time since March 2020, IJG Securities said.
“New passenger vehicle sales continue to tick up on a 12-month cumulative basis, while new commercial vehicle sales continue to hover around the 4 800 level, where it has been trending since April 2021,” IJG said.
A total of 1 018 new vehicles were sold in September, the majority of which was commercial sales. This is indicative of potential growth in the road cargo segment of the transport sector, according to Simonis Storm (SS).
Local car rental companies purchased a total of 162 vehicles during Namibia’s peak tourist season from May to September this year, compared to 240 vehicles bought in last year’s peak tourist season, SS said.
“This is indicative of major global supply constraints still limiting available stock at local dealerships, as we know that there is significant demand from rental companies who want to expand their fleet. High demand stems from a significant improvement in tourist inflows during this year,” the analysts said.
SPEED BUMP
While Cirrus still anticipates some general improvement in vehicle sales, it said the international supply-side disruptions will continue to be a constraint, which will act as a drag.
Cirrus also expects that rising interest rates “will act as a further hurdle given its impact on affordability”.
The Bank of Namibia (BoN) last week hiked its repo rate for the second consecutive time, bringing it to 6.25% and pushing up the prime-lending rate at local commercial banks to 10%. According to SS, the new average car loan rate is 12%.
The BoN has increased its repo rate by 250 basis points so far this year, with another upward bump expect at its last monetary policy announcement at the end of this month.
“Based on the consumer price index (CPI) figures in the United States posted on 13 October 2022, we expect further rate hikes are in store for the US, South Africa and Namibia,” Cirrus said.
SS foresees another hike of 75 basis points.
“The rate of interest rate hikes is expected to gradually slow into early 2023 and thereafter remain level for a while, before some slight easing from later in 2023 – provided inflation is brought under control in developed markets,” SS said.
CAUTIOUS
SS is of the opinion that “some of the local banks perceive car loans as higher risk in the current economic environment”, saying this has constrained vehicle sales in recent months.
“Indeed, some local dealerships still indicate that a large share of customers are seeing their car loan applications rejected,” SS said.
According to the latest data by the BoN, instalment and leasing credit to households remains subdued, up just one percent y/y in September.
“Given the high prices for new vehicles, the tight second-hand market, and sharp rise in premiums with interest increases, it comes as no surprises that instalment credit has been weak as vehicle sales growth, while improving, is still not quite that strong,” Cirrus said.
The analysts added: “Additionally, new vehicle sales are being driven more by corporates (including logistics, mining, tourism/rental agencies) and government starting to purchase vehicles again.”
Instalment credit to business in September increased 15.4% y/y. IJG attributed the growth to rising new vehicles sales.