By Hilary Mare
THE vehicle industry is in trouble and there could be an even bigger depression in store for dealers, Indileni Nanghonga, Junior Analyst at Simonis and Storm Securities, has revealed.
Vehicle sales plummeted by 19.7 percent year-on-year (y-o-y) to 1 058 in November 2017, while declining by 3.8 percent month-on-month (m-o-m), compared to -5.4 percent the prior month.
“The decline is mainly realised in passenger vehicles (-22.4 percent y-o-y) and light commercial vehicles (-19.7 percent y-o-y). We expect vehicle sales to decline by 18.8 percent to 13 478 for 2017, compared to the 16 598 units recorded in 2016,” Nanghonga highlighted.
Namibia remains pressed on lower growth since the second quarter of 2016 (2Q2016), while households and corporates are highly indebted, leading to sluggish private consumption. Government, which is 45 percent of total debt, has been forced to change its policy towards fiscal consolidation over the Medium-Term Expenditure Framework (MTEF), while households are entangled in debt.
Thus, banking liquidity has been directed to the capital market, rather than reflected through private sector credit extension (PSCE) over the past few months. These have partly contributed to the slower Gross Domestic Product (GDP) growth, as spending continues to flat line.
Essentially, the Namibian GDP for 3Q2017 continued to disappoint, as spending remained subdued.
In terms of 3Q2017, GDP declined by 1.9 percent, compared to a revised contraction of 2.1 percent and 0.7 percent in 1Q2017 and 2Q2017, respectively.
“The poor performance can be ascribed to the construction, wholesale and retail trade, utility (water and electricity) and fishing sectors that recorded a contraction in real value added of 36.9 percent, 4.4 percent, 5.5 percent and 1.3 percent, respectively. PSCE remained lacklustre, adding to signs that the economy will be stuck in a low gear,” added Nanghonga.
Respite to the consumer is observed from moderating inflation. Inflation in November 2017 stood at 5.2 percent y-o-y, compared to 7.3 percent in the prior year. Food inflation continues to be the main driver of this moderation. Although consumers are under pressure, moderating inflation should be good for both the consumer and a fixed income investor.
“We also believe that the strengthening South African rand (ZAR) will further support the moderating inflation,” noted Nanghonga.
In light of Namibian bonds, Nanghonga explained, “The bond rally is extended after Cyril Ramaphosa won the presidency of the ruling ANC, a reaction that reflects too much confidence in the prospect of far-reaching reforms. The yield on the GC27 stood at 10.3 percent on the 20th of December 2017, compared to 10.9 percent seen in November 2017. The GC27 followed the gains on the benchmark yield R186 of 8.6 percent during the same period. Bond spreads widened over the shorter to medium maturities. Specifically, the spread between South Africa and Namibia 10-year widened to 168 basis points in December 2017, compared to the 146 basis points observed in November 2017. We observed an increase in domestic borrowing by 18.6 percent, to N$46.4 billion, mainly due to the issuance of both treasury bills and IRS, which rose by 25.5 percent and 14.6 percent, respectively.”
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