Namibian economic commentary
By Basson Van Rooyen
Portfolio Manager at Sanlam Investment Management
After a promising start to 2018, the second quarter was a bit of a damper as we have seen the general outlook for Southern Africa and world economies deteriorate somewhat. The headlines have been filling up with negative developments on the international front which has weighed negatively on local emerging markets in general. Our currency did not go unscathed through this period where we saw the Namibia Dollar weaken from 11.82 to 12.70 against the US Dollar this quarter.
Inflation seems to have moved past the lowest point in February/March when Namibian Statistics Agency recorded inflation at 3.5% y-o-y and has been slowly moving up since then to the 4% recorded in June. The big drivers for the positive trend have been Education which is up almost 10% y-o-y and Transport which is up over 7%. With the South African VAT hike this year and record fuel prices, as well as our own 25c/l hike in fuel levy we expect inflation to continue on a gradual walk up into the 5 to 6% range in the next 18 months.
On the interest rate side it seems the Namibian Monetary Policy Committee has taken to again holding a bit of a buffer over the South African rate after the South African Reserve Bank cut the SA rate by 0.25% in March and we did not follow the move, we’ve been effectively matching the SA rate since early 2016. The reason given to keep the rate on hold was communicated to prop up the level of foreign reserves and support local economic growth. On the South African side the swap market is projecting the next move on the rates to be upwards in the region of 0.25% in the next 6 months, which seem to make this a very shallow rate cut cycle from the South African Reserve Bank.
The local growth numbers continues to disappoint with the first quarter GDP number released for Namibia showing a further contraction to our economy of 0.1% and brings the last 8 quarters, or 2 years, of our economy being in a recessionary environment. Bank of Namibia is still projecting an overall GDP growth figure of around 0.6% for 2018 citing a more supportive global economy, contained local inflation, accommodative monetary policy and low base effect created with the depressed figures.
Unfortunately with the worries in the construction industry, conclusion of large scale mining and infrastructure projects, worrying figures being released by wholesale & retail trade, public administration and fishing as well as soring public debt we seem to be stuck in low growth environment for the medium term.
The last quarter was quite a negative one for the locally listed shares on the Namibian Stock Exchange with almost all locally listed shares ticking down. Both banks, FNB and Capricorn Investment Groups dropped over 3%. The asset manager Namibia Asset Management dropping 7% and lone property company, Oryx, down 1%. This brings the total index return for the second quarter to -0.9%. The dual listed shares did not fare much better and the Overall Index including the dual listed shares was down 4.3% for the quarter.
As expected the South African Equity market has had a volatile 2018 so far and although the year to date return (6 months) is down around 1.7% for the All Share Index. At one stage in March the market was down around 8% on the year to date numbers while for the last quarter markets delivered a return of 4.5% mostly propped up by the resources sector.
The general trend of strengthening yields we have seen up to March has been effectively reversed this quarter when we saw the Namibian 10 year yield move back up from 9.97% to 10.83%, the same levels as during the uncertainty experienced during the run up to Ramaphosa’s appointment as SA President. The result of this was that local bond index contracted around -1.1%, underperforming cash which delivered 1.9% over the same period.