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Fuel price decrease December 2018 – An early Christmas present

The Ministry of Mines and Energy (MME) announced on 30 November 2018 a fuel price decrease of NAD1.00 per litre for petrol and NAD0.40 per litre for diesel countrywide with effect of 5 December 2018 midnight.
A brief analysis:
 Increased global oil supply mainly by OPEC and shale oil producers in the USA coupled with a slowdown of the global economy that reduces the demand for oil – and other commodities – are the main factors behind the drop in global oil prices. The average Europe Brent oil price dropped by 18.4% in November compared to October to USD66.16 per barrel. Daily oil prices declined even further to below USD60 per barrel at the end of November 2018. However, prices remain 5.5% higher than in November 2017.
 Furthermore, the Namibia dollar appreciated on average by 2.8% in November to NAD14.09 per US dollar compared to the monthly average of NAD14.50 per USD in October 2018. Both factors contributed to lower landing costs of fuel in Namibia.
 This resulted in substantial over-recoveries (fuel prices at pump stations were higher than the cost of fuel) of 140.196 Namibia cents per litre for petrol 95 Octane, 60.465 Namibia cents per litre for diesel 500ppm and 59.589 Namibia cents per litre for diesel 50ppm. It was the first time since seven months that the National Energy Fund accumulated over-recoveries. Part of the over-recovery was passed on to the motorists, while the ministry uses part of the over-recovery to recover the NEF subsidy over the past months.
 Pump prices have decreased for the first time since September 2017 for petrol and since July 2017 for diesel. Petrol prices remain, however, 11.2% higher than at the beginning of 2018 and diesel prices 20.2% higher.
The decrease in fuel prices brings much needed relief to Namibian producers and consumers that have to cope with a slow economic recovery and increasing inflation. It will ease the burden on the consumer during the upcoming festive and holiday season. The drop in fuel prices is more generous than the previous under-recoveries would have suggested.
However, the current drop in oil prices highlights once more the volatility in the global oil market that is influenced not only by the performance of the global economy, but also by geopolitical factors such as the tensions in the middle east. The current declining oil prices are mainly caused by a global slowdown of the economy due to continuing uncertainties surrounding the global trade system, which is not good news for Namibia. Slower global economic growth results in lower demand for basic commodities and hence lower prices, which hits commodity exporters such as Namibia. Furthermore, lower oil prices will slow down the recovery of the Angolan economy and subsequently the Angolan demand for Namibian goods and services.
Furthermore, lower fuel prices should not result in complacency on the part of consumers, producers and policy makers to embark on more fuel-efficient transport and production equipment and, moreover, move to electric vehicles and equipment. Such a shift will not only reduce Namibia’s dependency on oil imports, but support our Growth at Home Strategy by harnessing our own natural resources such as solar, wind, biomass and wave power to generate electricity. Policy makers need to take the initiative to design a joint strategy to promote the use (and production) of electric vehicles not only in Namibia, but in the southern African region. Namibia and the southern African region at large are rich in lithium and cobalt, the main inputs into the production of lithium-ion batteries that power electric vehicles. Instead of exporting the minerals as raw materials, policy makers need to design a strategy to add value to the minerals and produce the batteries in the region.
Fuel price decrease December 2018

October 2018 inflation rate – transport inflation pushes up overall inflation

The Namibia Statistics Agency has released the Consumer Price Index (CPI) for October 2018 on 15 November 2018. The CPI is being used to calculate the month-on-month (compared to the previous month) and year-on-year (compared to the same month in the previous year) inflation rates. The annual inflation rate rose from 4.8% in September 2018 to 5.1% in October 2018. It is slightly below the inflation rate in October 2017 that stood at 5.2%, but it is the highest inflation rate so far for 2018. On a month-on-month basis, inflation slowed down from 0.8% in September to 0.4% in October 2018.
Herewith are some of the main highlights:
 Price increases for goods remain the main drivers behind the overall increase in the inflation rate. Price increases for goods accelerated from 4.9% in September to 5.3% in October on a year-on-year basis. It is the fastest pace since April 2017 (5.6%). Goods inflation continued to exceed the inflation rate for services that rose slightly from 4.7% in September to 4.8% in October. Prices for services rose faster in October than in any other month this year, although it remains below the inflation rates experienced in 2016 and 2017. Inflation rates for both categories are heavily influenced by transport inflation. Transport fares are up by 18.0% and costs for the operation of vehicles (mainly fuel prices) are up by 15.5%.
 Food price inflation accelerated to 3.0% in October 2018 from 2.6% in the previous month and hence reversed the trend of slower price rises seen since June 2018. The main reason is the increase in inflation for the category ‘sugar, jam, honey, etc.’ that experienced price increases of 2.8% in October, while prices actually declined in the past five months. Prices for vegetables also rose stronger in October (7.6%) than in September (5.2%). These two sub-categories account for 18% of total food inflation. Prices for dairy products declined at a slower pace in October (-0.2%) than in September (-0.6%). Meat prices (3.4%) climbed at the slowest pace since February 2016 (2.6%), while fruit prices rose by only 9.6% compared to 15.3% in September. Despite price increases announced by Namib Mills for some of their products, such as wheat flour and mahangu, price rises for the category ‘bread and cereals’ remained at the same level as in September (3.8%). However, prices increased faster than in any month between February 2017 (10.3%) and August 2018 (2.6%).
 Prices for alcohol and tobacco rose at a slower pace in October (4.9%) than in September (5.6%), because of a drop in the inflation rate for alcoholic beverages from 6.3% to 5.3%. In contrast, prices for tobacco products accelerated faster (3.2%) in October than in September (2.6%).
 The inflation rate for the category that accounts for the largest share in the consumption basket (28.4%), namely housing, electricity and water, remained at 3.8% as in September, despite higher costs for the maintenance of dwellings up from 3.4% to 3.7%) and for electricity (up from 9.0%
to 9.5%). On the other hand, there was no change in the inflation rates for rental payments (2.6%) and for water supply, etc. (5.6%).
 Transport inflation remains the main driver of higher inflation. The increase in fuel prices by NAD0.50 per litre in October resulted in an inflation rate for the operation of transport equipment by 15.5% compared to October 2017. The rise in taxi and municipal bus fares led to an increase in the cost of public transportation services by 18.0% compared to October 2017. These two categories that account for 9.0% and 2.4% respectively of the total inflation rate are the drivers of higher inflation rates for the goods and services and hence for the overall inflation rate. Vehicle prices rose by 6.0% compared to 8.5% in September.
 Prices for health services increased at the slowest pace in October 2018 (4.8%) since March 2015 (4.7%) caused by lower price increases for medical products in October (3.4%) than in September (3.8%).
 The trend of falling prices for clothing and footwear was reversed in October 2018 when prices rose slightly by 0.3% compared to October 2017. This is due to higher prices for footwear (2.6%), while prices for clothing continue to decline (-0.7%). The same trend is observed for the category ‘communications’. Prices climbed by 1.1% in October, while they dropped by 1.2% in September.
Higher fuel prices have resulted in higher transport inflation and have already led to price increases for transport services and some consumer products as mentioned above. Second round effects of higher transportation costs due to increased input costs for producers and service providers (wholesale and retail trade outlets for instance) will support higher inflation rates in the months to come. However, there could be some relief on the horizon. Global oil prices have, despite sanctions on Iran as one of the main oil exporting countries, weakened from a spike at USD86 per barrel (4 Oct. 2018) to some USD73 per barrel in recent days. Combined with a more stable exchange rate this could contain further fuel price increases even though Government will try to recover losses of the National Energy Fund of close to NAD500 million over the past months.
The inflation rate remains well within the 3% to 6% bracket that the South African Reserve Bank uses as a benchmark for its interest rate decisions.
Recent wage and salary negotiations have again highlighted the limited use of the single inflation rate as a guideline for wage increments. The increase in the minimum wage for domestic workers has been criticised as being too low. The across the board offer at other institutions will increase inequality since the absolute increase for higher income groups exceeds the absolute increase for lower income groups. Separate inflation rates for low, middle and high-income earners would provide more accurate benchmarks for wage and salary negotiations. A separate inflation rate for low-income groups will also assist Government’s decision regarding increases for social grants.

EAN Commentary – NCPI October 2018

Fuel price increase November 2018 – The upward trend continues

The Ministry of Mines and Energy (MME) announced on 5 November 2018 a fuel price increase of NAD0.50 per litre for petrol and NAD0.70 per litre for diesel countrywide with effect of 7 November 2018 midnight.
According to the MME statement, the price of refined petrol and of refined diesel remained stable compared to September at USD86 per barrel and USD95 per barrel. However, the Namibia dollar weakened from NAD14.40 in September to NAD 14.50 vis-à-vis the US dollar causing the cost of fuel in NAD to rise. In addition, the industry margin will be increased by 2 Namibia cents per litre.
A brief analysis:
 Pump prices for diesel have been increased since May 2018 and for petrol since June 2018. Higher oil prices and a weaker Namibia dollar have been the main reasons, but adjustments in the transport costs from Walvis Bay to inland destinations as well as the increase in the fuel tax added to price rises in previous months.
 Petrol prices in Windhoek will be 19.6% and diesel prices 23.5% higher than at the beginning of the year and 24.7% and 28.9% higher than in November 2017.
 However, the pump price increases cover only 78% of under-recoveries per litre for petrol and 61% of under-recoveries per litre for 50ppm diesel. Under-recoveries occur when the actual costs of fuel landed in Walvis Bay plus the various additional costs such as dealer margin, industry margin, fuel levy and fuel tax remain above the pump price at service stations. Under-recoveries are absorbed by the National Energy Fund (NEF). The NEF has subsidised fuel prices since May 2018, because the first under-recoveries were experienced in April. The NEF spent a total of NAD470 million so far to cushion the higher cost of fuel. The under-recoveries peaked in September at NAD1.32 per litre for petrol and NAD1.45 per litre for diesel. The drop in under-recoveries in October indicate that motorists carried a stronger burden of the fuel cost increases.
 The industry margin increased from NAD0.91 to NAD0.93 per litre accounting for some 6.7% of the total pump price at Walvis Bay.
 Average monthly Europe Brent oil prices – based on daily spot market prices published by the Energy Information Administration – increased to USD81.58 per barrel in October, the highest level since October 2014 (USD87.43). The price increased by 41.9% compared to October 2017. Using the average exchange rate of the NAD versus the USD for October 2018, the price of oil in NAD increased by 50.4% to NAD1,182.86 per barrel, which is the highest price since July 2014.
The re-imposition of sanctions against Iran by the US Government beginning of November 2018 that target the financial, shipping and oil sectors are likely to exert further pressure on oil prices, since other OPEC
member states might not be in a position to cover the shortfall. Furthermore, the winter in the Northern hemisphere will lead to rising oil demand for heating purposes. On the other hand, the Namibia dollar is currently stabilising against other major currencies, which could ease the price pressure.
The rising fuel prices will lead to higher transportation costs and over time to price adjustments for consumer products. The inflation rate will therefore continue to rise. On the other hand, local producers competing with imported products could gain a competitive edge due to shorter transport distances. Therefore, sourcing inputs and final products locally could help containing the upward price pressure.

EAN Commentary-Fuel price increase Nov18

Mid-year Budget Review – Fiscal consolidation on course despite economic headwinds

The Minister of Finance presented the fourth Mid-year Budget Review on 24 October 2018. The review serves two purposes, namely to propose internal re-allocation of approved funds and to provide some first hints about the next Medium-term Expenditure Framework. It is not a proposal for the allocation of additional funds.
Herewith a few highlights.
 Mid-year revenue outturn amounted to 51% of projected revenue for the Financial Year 2018/19 despite declining SACU transfers, a drop in VAT and increasing tax arrears.
 Tax arrears still amount to NAD3 billion despite a tax amnesty that was offered.
Expenditure: Initial teething challenges with the new Public Procurement Act resulted in delays in the implementation of planned programmes and projects. Hence, the so-called execution rate for development expenditure stood at 27%. This resulted in underspending of the development budget amounting to NAD1.79 billion that is being reallocated to various ministries.
 The budget deficit as a percentage of GDP increased in the last FY 2017/18 from a projected 3.6% to finally 5.0% owing to increased expenditure in order to settle outstanding invoices.
 Deficit has been continuously reduced from 8.1% in FY2015/16 to 4.4% in the current FY 2018/19 and is projected to remain at 4.4% in the FY2019/20.
 The deficit is expected to average 3.6% in the next Medium-term Expenditure Framework.
 Total public debt as a percentage of GDP was slightly below the projection of 42.1% at 40.4% in FY 2017/18.
 Public debt is expected to peak at 48.7%.
 The cost of debt servicing stood at 8.9% of revenue and hence remained below the threshold of 10%.
Economic growth: Government projects the economy to contract for the second consecutive year, but at a lower rate than in 2017. After contractions of 0.2% in the first and second quarter 2018, the economy is expected to contract by 0.2% for the whole of 2018. This would be the first time that for Namibia that economic growth contracts in two consecutive years. Growth is expected to pick
up in 2019 to 0.9%, which will still result in a decline of per-capita income since population growth exceeds economic growth.
Proposed measures to improve the fiscal balance include:
 Alternative forms of financing such as Public Private Partnerships
 Reforms of Public Enterprises
 Partial listing of state assets
 Curbing growth of the public wage bill by limiting salary increments to inflation
 Proposed tax amendments including phasing out of ineffective tax incentives
 Increased threshold of tax-deductible pension and annuity contributions.
A few comments:
Despite continuous economic headwinds that impact on revenue collection, Government stayed on course to rein in the fiscal deficit and total public debt. According to the Bank of Namibia, private sector activities expanded, while the contraction in public sector activities resulted in an overall contraction of the economy. The private sector expansion has helped stabilising Government’s income from income tax revenue.
While there are a number of factors that are beyond our control, there are others that we can influence and that we have to address more forcefully. The Minister of Finance made repeatedly reference to the need to improve our competitiveness. The recently released Global Competitiveness Report and the Doing Business Report both clearly indicate that there is room for improvement. Although becoming the most competitive economy in Africa has been a national priority since some time, very little has actually happened and consequently, Namibia is losing ground. Decisive action has to be taken to address issues that have been on the table since years. Improving the business and investment climate can attract domestic and foreign direct investment, create jobs and income for the employed in terms of salaries and for Government in terms of taxes.
In order to reduce or even eliminate over-pricing for large infrastructure projects, Government could consider contracting experts from the region that thoroughly review tender specifications and assist in the evaluation of tenders.
A clear prioritisation of expenditure needs to include an evaluation of the Ministry of Defence’s contributions to the economic and social development. The Ministry received the fifth highest reallocation in the Mid-Year Budget Review and 2.5 times more than the Ministry of Safety and Security.
There are additional measures Government could consider in consolidating the budget. They will not only cut expenditure or increase revenue, but also address issues such as inequality:
The cost of the Public Sector Employee Medical Aid Scheme amounts to about NAD2.5 billion this year, while contributions from public employees amount to some NAD378 million resulting in a subsidy of NAD2.2 billion. Moving over time to a cost-recovery percentage contribution instead of the current flat rate that burdens low-income earners more than the better off would provide additional funds in the short term of at least NAD1.5 billion for vital programmes.
A number of basic food items are zero-rated for Value Added Tax in order to protect low income earners and the poor. A review of the food items included is necessary, since the zero rating most likely benefits better-off households more than the intended beneficiaries that often do not have access or cannot afford these food items.
Government could consider to raise the tax threshold and reduce the tax rate for the lowest income brackets and to adjust these tax brackets for inflation (fiscal drag), while ensuring that these measures remain tax neutral for the highest income brackets. In addition, withholding taxes on interests earned on the Basic Bank Account could be abolished, since this bank account caters for persons earning less than NAD 2,000 per month. Both measures would bring some relief for low-income earners.
The reform of Public Enterprises should include a review of the fees for non-executive directors that are, according to media reports, often several times the monthly salary of, for instance, a teacher.
It is necessary to thoroughly review the structure of the public sector that consists of more than 600 entities including Offices, Ministries, Agencies, Public Enterprises, Traditional Authorities, Councils, Appeal Committees, Boards, etc. There is most likely room to streamline the structure and reduce the financial burden. Natural attrition alone will not address these structural issues.
Finally, strengthening regional cooperation and align responses to the current economic challenges could result in synergies and stimulate regional and domestic economic growth

EAN Commentary-Mid-year Budget review

Private sector credit extension September 2018 – demand by businesses remains strong

The Bank of Namibia has released selected statistical data for September 2018 that cover among others the extension of credit to the private sector (PSCE).
Herewith some of the highlights:
 Total credit extended to the private sector rose by 7.3% compared to September 2017- the fastest pace on an annual basis since May 2017 –to NAD95.3 billion in September 2018. Compared to August 2018, PSCE increased by 0.6%, which was below the increase in August (1.5%), but the fourth strongest this year.
 Credit extended to the business sector increased on an annual basis (compared to September 2017) to 6.0% from 5.2% in August, while credit extended to individuals slowed down slightly from 7.0% in August to 6.9%. On a month-on-month basis (September compared to August) credit extension slowed down from 0.8% to 0.5% (for individuals) and from 2.4% to 0.8% for businesses.
 Compared to the beginning of 2018, credit extended to businesses expanded faster (5.2%) than credit extended to individuals (4.0%). At the same time in 2017, credit extended to the private sector had increased by only 2.2% compared to the beginning of 2017, while credit extended to individuals had grown slightly stronger (4.3%) than so far this year.
 Individuals continue to absorb most of total credit extended (58.6%), while businesses absorbed 40.2%. The remaining 1.2% are extended to the non-resident private sector.
 Individuals have borrowed a total of NAD55.8 billion, up by NAD279 million compared to August, while businesses borrowed NAD38.3 billion, up by NAD308 million.
 Mortgages accounted for 52.1% of total PSCE, the same share as in August, totalling NAD49.7 billion. Mortgage accounted for 68.3% of total funds for individuals (NAD38.1 billion), while they accounted for 30.3% of total funds borrowed by businesses (NAD11.6 billion).
 The total amount of mortgages extended to individuals increased stronger (5.0%) than mortgages extended to businesses (3.1%) since the beginning of 2018. Compared to September 2017, mortgages extended to individuals rose by 7.9% and mortgages extended to businesses by 4.9%. Both increases are some of the lowest year-on-year increases during 2018.
 While mortgages extended to individuals rose slightly stronger since the beginning of 2018 (5.0%) than between the beginning of 2017 and September 2017 (4.9%), mortgages extended to businesses could not keep pace so far this year compared to the first nine months in 2017 – 3.1% compared to 4.3%.
The stronger growth in credit extended to the private sector compared to credit extended to individuals is in general a welcome sign since households (individuals) are already highly indebted. Furthermore, they often use loans for non-productive purposes. However, other loans and overdrafts advanced to businesses
have increased more rapidly – by 20.0% and 3.7% respectively – since the beginning of the year than mortgage loans. At the same time, leasing transactions dropped by 6.9% since the beginning of 2018. These figures are indicative of the economic headwinds businesses are facing in general and the cash flow challenges in particular that result in increasing overdrafts.

EAN Commentary – PSCE Sep2018

Doing Business Report – Namibia down one place to 107

The World Bank has released its annual Doing Business Report 2019 on 31 October 2018. The World Economic Forum’s Global Competitiveness Report, released just a fortnight ago, and the World Bank’s Doing Business Report provide among others governments, investors and financial institutions with information on factors crucial for investors. The Doing Business Report covers ten areas, such as the ease of starting a business, dealing with construction permits, getting electricity or registering property, with a total of 45 indicators. The country receives a score for each of the indicators. The total score determines the ranking of the country compared to other countries.
The highlights:
 Namibia scored slightly better in the latest report than last year. The score improved by 0.24 to 60.53. However, the country dropped one rank from 106 to 107 out of a total of 190 countries.
 Namibia ranks seven out of 14 member states of the Southern African Development Community like last year. While five SADC member states improved the ranking by up to five places (Mauritius) and one country maintained the ranking (South Africa), most SADC countries dropped by up to seven places (Tanzania).
 Mauritius remained the top performer within SADC moving up five ranks to rank 20. Two other countries outside SADC, but in the region, showed impressive improvements, namely Kenya and Rwanda. Kenya moved up by 19 ranks to place 61 and Rwanda by 12 ranks to place 29. Rwanda is the second most competitive economy in Africa after Mauritius, a ranking it achieved over a relative short period of time.
 Namibia improved the ranking in three out of the ten indicators, namely in dealing with construction permits (up by 24 places to rank 83), enforcing contracts (up by one to rank 58) and in registering property (also up by one to rank 174). The country maintained the ranking regarding starting a business at 172 out of 190 countries.
 In contrast, Namibia lost ground in six categories: Getting electricity (down by three to 71), getting credit (down by five to 73), paying taxes (down by 2 to 81), protecting minority investors (down by ten to 99), resolving insolvency (down by two to 125) and trading across borders (down by four to 136).
 Namibia scored better in five out of the 45 indicators and slipped in one. The score in the indicator ‘ease of shareholder suits index’ dropped from seven out of ten to six. The time to register property decreased from 52 days to 44 and the quality of land administration improved from 8.5 to 9.5 out of 30. Likewise the score for the quality of judicial processes increased from 9.5 to 10.5 out of 18. The
building quality control index rose by two points to 8.5 out of 15. Finally, the cost of getting electricity as a share of per capita has continuously improved over the years to 304.4%.
 The improved scores in some indices, however, resulted in a better ranking in only three indicators, while despite declining costs for getting electricity Namibia dropped three ranks in this category.
Since NDP 4 in 2012, Namibia aims at being the most competitive economy in Africa. This target is repeated in the Harambee Prosperity Plan and NDP5. We have missed the target again by a wide margin. Even though Namibia maintained the score in most indicators, the country slipped ranks again, which clearly indicates that other countries have made more progress over the years. The number of days to start a business remains unchanged at 66 since 2010 despite the establishment of the Business and Intellectual Property Authority (BIPA). Despite the launch of the NamBizOne portal there is no progress with the single window facility, which would accelerate business registrations. New technologies are hardly used to ease business registrations. Registration applications cannot be submitted by email, neither proof of payment. Furthermore, opening hours at BIPA, for instance, are business unfriendly.
Namibia also aims at becoming a logistics hub for southern Africa. Although the country improved the ranking in trading across borders from 151 in 2010 to 136 now, the ranking has deteriorated from 123 out of 189 in 2016. The declining ranking is another example for progress by other countries, since Namibia maintained the scores in all indicators since 2016. The administrative processes that result in long times and high cost to comply with export requirements compared to import requirements need to be reviewed, not only to support the ambition to become the logistics hub, but in order to ease access to foreign markets for Namibian businesses.
Although the score in the quality of land administration improved, it remained in the lowest 30%. The speedy implementation of resolutions taken at the land conference concerning urban land reform and related matters could improve the access to urban land as well as the time and cost of registration.
Namibia performs better regarding paying taxes than in 2010 (rank 97), but the trend reversed since 2016 (rank 74). The roll-out of the integrated tax administration system and the establishment of the Namibia Revenue Agency could result in a better ranking for this indicator.
Overall, the results of both the Global Competitiveness Report and the Doing Business Report need to be analysed thoroughly and decisive steps need to be taken to address the poor performance. As the Minister of Finance stressed several times in his Mid-Year Budget Review Speech, improving competitiveness is vital to attract domestic and foreign direct investment that will create jobs and generate income. We cannot afford to continue with business as usual.

EAN Commentary – Doing Business Report 2019

Global Competitiveness Report – Namibia ranked 100 out of 140

The World Economic Forum has released its Global Competitiveness Report (GCR) 2018 on 17 October 2018. The GCR 2018 uses a new approach to capture the countries’ readiness for the 4th Industrial Revolution. The new Global Competitiveness Index 4.0 (GCI 4.0) therefore focuses on factors that are relevant for being at the forefront of the new industrial revolution, namely “human capital, innovation, resilience and agility”. The GCI is based on 12 pillars: Institutions, Infrastructure, ICT adoption, Macro-economic stability, Health, Skills, Product markets, Labour market, Financial system, Market size, Business dynamics and Innovation capacity, which are similar to the previous sub-pillars under the three main pillars. The GCI 4.0 introduces new scores ranging from 0 to 100. Therefore, the results – the rankings and scores – of the new GCR 2018 cannot be compared to the results of the previous Global Competitiveness Reports.
 Namibia is ranked 100 out of 140 countries, one rank down compared to 2017.
 Namibia is the 6th most competitive economy in Sub-Saharan Africa behind Mauritius (49), South Africa (67), Seychelles (74), Botswana (90) and Kenya (93).
 Except for Seychelles that moved up 10 places compared to 2017, all other of these countries lost ground in competitiveness: South Africa (-5), Botswana (-5), Namibia (-1). There are no results for Mauritius and Kenya for 2017.
 Namibia is the tenth most competitive country on the African continent, since four North African countries are ranked better: Morocco (75), Tunisia (87), Algeria (92) and Egypt (94).
 Namibia scored 52.7 out of 100 representing a slight improvement of 0.3 compared 2017. Seychelles improved the most in terms of the scores that went up from 55.2 to 58.5 resulting in a much better ranking, while Mauritius improved the score by 0.8 to 63.7. Botswana’s score dropped by 0.5 to 54.5 and South Africa’s by 0.1 to 60.8. Mozambique also lost ground in terms of scores – down by 2.1 to 39.8 – and ranking – down by eight ranks to place 133. All other African countries improved their scores.
 The decline in ranking for most of the African countries despite an improvement in the scores indicates that other countries improved faster resulting in the African countries being left behind.
 Namibia ranked best in the pillar ‘labour market’ (39), followed ‘financial system’ (47) and ‘institutions’ (51).
 However, the country is lagging behind in terms of ‘business dynamics’ and ‘market size’ (both 121), ‘health’ (117) and ‘ICT adoption’ (105).
 Namibia’s good ranking in the ‘labour market’ pillar is supported by the labour tax rate (rank 8), redundancy costs (rank 29) and workers’ rights (rank 32), while insurance premiums as % of GDP (rank 13) and non-performing loans (rank 19) support the positive ranking of the country’s financial system.
 Namibia performs well in the pillar ‘institutions’ regarding the efficiency of the legal framework and press freedom (both rank 24), budget transparency and judicial independence (both rank 27) as well as property rights (rank 31), while the homicide rate (rank 128), e-participation (116) and quality of land administration (110) are dragging the ranking down.
 Namibia ranks low in terms of life expectancy (rank 116), time to start a business (135), quality of research institutions (111), insolvency regulatory framework (110), as well as in indicators related to internet uses (between 101 and 103).

The Harambee Prosperity Plan envisages Namibia to be the most competitive country in Africa by 2020. Although Namibia improved her scores, while better ranked countries such as South Africa and Botswana lost some ground, and slipped only one place compared to other African countries that ended up much lower, much more efforts are needed to turn around the loss of competitiveness and catch up with other countries on the continent. Despite the launch of the NamBizOne portal and the establishment of the Business and Intellectual Property Authority (BIPA), business registration remains cumbersome and time consuming. New technologies are hardly applied and business persons have to drop hard copies of application and registration forms still at various institutions instead of emailing soft copies including proof of payment to a one-window institution.
More also needs to be done to improve ICT skills and access to fast ICT services in the country that are vital for businesses to compete on a regional and global scale and to attract domestic and foreign direct investment. New technologies, such as renewable energy sources, provide an opportunity to accelerate access to electricity and hence to ICT services, which will open new business opportunities. Private investment into these sectors should therefore receive much stronger support, which would in turn reduce the reliance on public funds.
Some of Namibia’s weaknesses are relatively low hanging fruits that have been discussed since quite some time and could be turned around in a short period of time, including the hiring of foreign labour, while others in the area of health and education in particular need longer-term, implementable strategies. Overall, Namibia needs to introduce and embrace new technologies and the use thereof more aggressively.

Global Competitiveness Report 2018

September 2018 inflation rate – high oil prices start to bite

The Namibia Statistics Agency has released the Consumer Price Index (CPI) for September 2018 on 11 October 2018. The CPI is being used to calculate the month-on-month (compared to the previous month) and year-on-year (compared to the same month in the previous year) inflation rates. The annual inflation rate rose from 4.4% in August 2018 to 4.8% in September 2018. It is the highest inflation rate so far this year, although it remained below the inflation rate in September 2017 of 5.6%.
On a month-to-month basis, inflation accelerated from 0.03% in August to 0.8% in September. This is the highest month-on-month inflation rate after a 1.6% rise in January 2018.
Below are some of the main highlights of the September inflation data:
 The inflation rates for both goods and services increased in September 2018, but price rises for goods remained the key driver for the higher inflation rate. Prices for goods rose by 4.9% in September compared to 4.6% in August, while prices for services increased by 4.7% compared to 4.1% in August. Prices for both categories accelerated at the fastest pace this year. While the inflation rate for goods exceeded the inflation rate a year ago (3.6%), the inflation rate for services remained below last year’s inflation rate of 8.4%.
 The strong increase in public transportation fares that resulted in an inflation rate of 18.0% compared to September 2017 was the main driver behind the rise in service inflation. The transportation fare increase contributed 0.4 percentage points to the increase in service inflation or two third of the overall increase.
 After a peak of 4.1% in June 2018, food price inflation continued to slow down to 2.6% in September from 2.7% in August. Bread and cereal prices, however, rose at the fastest pace in September (3.8%) after actual price reductions during the first four months this year. In contrast, meat prices increased by only 4.6%; the lowest increase not only for this year, but since November 2016, when prices rose by 4.4%. Bread, cereals and meat account for 51% of the food price inflation and have therefore a strong influence on the overall inflation rate for this category.
 After a decline by 2.7% in August, prices for milk, cheese and eggs eased by 0.6% in September. It is the third consecutive month of price declines; something Namibian consumers have not experienced since the end of 2010 and beginning of 2011. Fruit prices jumped by 15.3% in September 2018 compared to September 2017 after an increase by 7.9% in the previous month. It is the highest fruit price inflation since January 2017 (15.8%). Prices for vegetable rose by 5.2% after increases by 6.0% and 8.0% in August and July 2018, while prices for sugar, jam etc. continued the downward trend and dropped by 2.5% – the largest decline so far this year. These four category account for about a quarter of the food price inflation.
 Prices for alcohol and tobacco increased at different paces. While alcohol prices showed a stronger increase than in August – 6.3% in September compared to 5.8% in the previous month – tobacco prices rose by only 2.6% compared to 3.8% in August 2018. Overall, the inflation rate for this category increased from 5.4% to 5.6%.
 Price increases for housing, water and electricity slowed down to 3.8% after an increase by 4.4% in August. While price rises for rental payments and for the maintenance of dwellings remained unchanged at 2.6% and 3.4% compared to August, the inflation rates for water supply and for electricity dropped from 6.2% to 5.6% and from 13.2% to 9.0% respectively.
 Transport inflation provided the main push for the higher inflation rate. Transport inflation rose from 9.7% in August to 12.9% in September. It is the highest inflation rate for this category since 2010. Since transport contributes 14.3% to the overall inflation rate, this increase by 3.2 percentage points translates into on overall increase of the inflation rate by 0.5 percentage points. Without price declines or below average price increases in other categories, the inflation rate would have been even higher due to price rises for transport.
 Prices for vehicles increased faster in September (8.5%) than during any month since February 2017 (9.4%). The price for the operation of transport equipment, which refers mainly to fuel prices, rose by 13.3%, a level last seen in May 2012 (13.9%). As mentioned above, the taxi and municipality bus fare increases resulted in prices being 18.0% higher than a year ago.
 While price increases for health services slowed down to 5.0% – the slowest rise since May 2015 – the inflation rate for education remained slightly below double-digit figures at 9.9%.
 Prices for clothing and footwear remained on a downward trend (-3.2%), but did not drop as much as in August (-5.6%). Parents with children had to fork out less for children’s clothing, since prices declined by 8.4%, mainly driven by lower prices for girls’ clothing (-15.1%), while boys’ clothing became slightly more expensive than a year ago (1.0%).
 Prices for communication services were also lower in September 2018 compared to September 2017 (-1.2%) after they dropped by 1.4% in August.
As expected, the combined effect of higher fuel prices and fares for public transport services is exerting upward pressure on the inflation rate. Namibia currently experiences only the direct impact, but higher transportation costs will have an impact on the prices of other goods soon – so called second round effects. Furthermore, the weaker currency compared to a year ago, even so it has gained some ground again since  the middle of September, will result in higher prices for goods imported from outside the rand area. Sourcing goods to the extent possible locally will protect producers and consumers from increasing transportation costs and a weaker currency. Furthermore, both consumers and producers need to use transport equipment more efficiently. Moreover, motorists need to explore alternative modes of transport  (non-motorised transport, car sharing, etc.) and need to move to electric vehicles that can be charged from locally available, renewable energy sources. In the meantime, however, consumers have to tighten the belt, not only because of rising price levels, but also because of a tight labour market.

Inflation rate September 2018

Private sector credit extension August 2018 – strong demand by businesses

The Bank of Namibia has released selected statistical data for August 2018 that cover among others the extension of credit to the private sector (PSCE).
We cover some of the highlights:
 Total credit extended to the private sector rose by 1.5% from NAD93,409 million in July to NAD94,783 million in August 2018. This is the strongest month-on-month increase since almost three years. In November 2015 PSCE increased by 1.9% compared to October 2017. In absolute terms, PSCE grew by NAD1,375 million in August compared to July after an increase by NAD293 million in July compared to June.
 The overall increase in credit extension was driven by businesses. After a decline in credit extended to businesses by NAD159 million in July compared to June, demand by businesses increased strongly by NAD886 million or by 2.4% in August compared to July. It is the strongest month-on-month growth since November 2015 (2.6%).
 Credit extended to individuals grew by NAD452 million in August, which was slightly below the growth in July by NAD473 million. On a month-on-month basis credit extension slowed down from 0.9% in July to 0.8% in August.
 PSCE to businesses increased by 4.3% since the beginning of the year and to individuals by 3.5%. Both growth rates exceed growth experienced in August 2017 of 3.7% and 2.6% for businesses and individuals respectively.
 Credit extended to individuals accounted for 58.6% of total credit extended to the private sector compared to 40.1% extended to businesses.
 Mortgages absorbed 52.1% of total credit extended, which is below the average so far this year. Mortgages were driven by individual demand that increased by 1.1% month-on-month to NAD37,921 million, while demand by businesses dropped minimally by 0.01% to NAD11,481 million. Mortgages extended to individuals rose by 4.6% since beginning of the year, which is above the growth rate experienced over the first eight months of 2017 (2.4%). In contrast, mortgages extended to businesses grew by 9.7% until August 2017, but by only 2.2% until August 2018.
 On a year-on-year basis (August 2018 compared to August 2017), the value of mortgages increased by 7.2% – the second lowest growth rate since eight years. In August 2010 mortgages rose by just 4.9%, while in July 2018 they increased by 6.7%.
The overall stronger increase of credit extended to businesses than credit extended to individuals is good news, since credit to individuals is often used for consumption that does not yield an economic return. However, it remains to be seen, whether the demand for credit by businesses can maintain the momentum, since the economy is still facing headwinds in terms of rising fuel prices, depreciation of the currency and lower commodity prices (with the exception of oil).

Private Sector Credit Extension

Fuel price increase Oct. 2018 – Large under-recoveries result in price hikes

The Ministry of Mines and Energy announced on 28 September 2018 a fuel price increase of NAD0.50 per litre for petrol and diesel countrywide with effect of 3 October 2018 midnight.
Two factors continue to contribute to the upward price pressure: the depreciation of the Namibia dollar against the US dollar and rising global oil prices.
 Based on daily South African Reserve Bank exchange rates, the Namibia dollar weakened by 4.8% against the US dollar between August (monthly average of NAD14.063 per USD) and September 2018 (monthly average of NAD 14.7904 per USD). In addition, monthly average oil prices in US dollar for Europe Brent oil increased by 7.8% to USD78.09 per barrel between August and 24 September 2018. It is the highest monthly average oil price since November 2014 and 39.1% higher than a year ago.
 The combined effect of currency depreciation and higher global oil prices resulted in the cost of oil in Namibia dollar increasing in September 2018 by 13.0% compared to August 2018 and by 56.6% compared to September 2017.
 The steep increase in the cost of landing refined oil at Walvis Bay resulted in under-recoveries, meaning the actual cost of oil exceeded the pump price at Namibian service stations. The under-recoveries amounted to NAD131.505 cents per litre for petrol and NAD144.494 per litre for diesel 50ppm. These are the largest under-recoveries so far this year, bringing total under-recoveries to NAD440.507 cents per litre and NAD418.879 cents per litre for petrol and diesel 50ppm respectively since May 2018.
 The fuel price increases cover only 38% (petrol) and 34% (diesel) of the under-recoveries. The largest share of the under-recoveries is absorbed by the National Energy Fund that is amongst others funded by the NEF fuel levy and over-recoveries (see EAN Commentary 2018/06, 2 Aug. 18 for more details). Since May 2018, the NEF has subsidised the fuel price by NAD255.507 cents per litre and NAD233.879 cents per litre for petrol and diesel respectively. In other words, without the NEF petrol prices would be some NAD2.56 per litre and diesel prices some NAD2.34 per litre higher than they will be from 3 October 2018.
 Petrol prices will be 15.4% higher than at the beginning of the year and 24.7% higher compared to October 2017. The increases amount to 17.8% and 29.5% respectively for diesel 50ppm.
 While Namibians are facing the highest petrol and diesel prices so far, they are still below prices in South Africa. South Africans have to pay ZAR15.49 per litre at the coast and ZAR16.08 per litre in Gauteng for petrol.
The Namibia dollar has regained some ground against the US dollar since the first week of September and hold steady despite the interest rate hike on 26 September 2018 by 25 basis points in the USA. Further interest rate increases are expected on a quarterly basis, which will maintain pressure on in particular emerging market currencies.
Oil prices have exceeded USD80.00 per barrel towards the end of September, despite pressure by the US administration in particular through Saudi Arabia on OPEC to increase output in order to prevent prices to rise further. However, Saudi Arabia and Russia, a non-OPEC oil exporting country, are cooperating more closely and are withstanding the pressure. The USA might release some strategic oil reserves before the mid-term elections in order to please their motorists. The main root causes of rising oil prices are the withdrawal of the USA from the Iran deal and the re-implementation of sanctions against the country as well as the turmoil in Venezuela that resulted in a drop in oil production.
The strong price increases on the global market and the domestic market put substantial pressure on businesses due to cost increases and on consumers that have to spend more on fuel, unless they change their behaviour, and have therefore less disposable income. There are already concerns globally that the pace of oil price increases could result in a significant slow-down of the global economy, since both producers and consumers have little time to adjust production and consumption to these hikes.
As in the past months, the fuel price increase will push transport inflation higher into double-digit figures, which will ultimately contribute to rising inflation rates. Motorists need to explore ways to use transport equipment more efficiently in order to cushion against rising costs of transport.

Fuel price hike October2018