Car sales as a proxy reveal a host of underlying influences and trends not always so readily detectable
This graph showing new vehicle sales in South Africa, landed on my desk last week. The author is Reuters but the statistics come from the National Association of Automobile Manufacturers, or as it is known in the industry, Naamsa.
It is not a very reliable starting point to assume South African vehicle sales are pro-rata directly related to Namibian sales, but the graph serves as a good proxy to illustrate market trends. Applying it to a wider scope of enquiry, it is not farfetched to say that this same graph can be used as a proxy for the entire South African economy, at least as far as year to year comparisons go. I am using it also as a proxy for Namibian conditions because of the close correlation (up to the middle of last year) between SA and Namibian vehicle sales, and because of the very obvious linkages connecting the two economies.
The first observation is that there was a very significant low point in sales in the first half of 2009, mirrored by another low point in the first half of 2017. This is shown most clearly by the blue curve which is the plot based on actual sales. This is corroborated by local sales statistics.
The second observation is that the market was unprecedentedly robust from 2012 to 2015 with the largest amplitude somewhere close to the end of 2014. This is also revealed by the blue curve and again correlates well with the local market. From this observation, it is implied that 2015, or at least the second half of it, was already a downturn year.
This does not necessarily conform to our local market but it was corroborated by the growing spreads on the Namibian Rand-denominated Government Bonds listed on the JSE. It is also corroborated by another, often overlooked, statistic: – the precipitous plunge in our foreign reserves which began earlier in 2015 but which was politely ignored by our government. Remember, it was only on 27 October 2015 with the launch of our first Eurobond, that Namibians woke up to the fact that our foreign reserves were dangerously below the IMF-prescribed peer-country level, and that something may be amiss. It was however, another year before the Ministry of Finance realised it and slammed on the brakes.
But it is looking at the red curve, the smoothed line based on the one-year moving average, that a whole new birds’ eye view of the South African economy, and by extrapolation, ours, emerges. And this so-called bigger picture may just hold the clues to what we can expect for 2019.
If my view is correct that the downswing started in 2015 and accelerated during 2016, then it implies that the only true growth years were 2012, 2013 and 2014. Here it is necessary to bring in some more local detail, to put 2010 and 2011 in context.
At the beginning of 2010, our finance minister surprised us all with the novelty concept of counter-cyclical budgetting. This notion, to my mind, she defended well especially considering that our government debt was at a paltry 16% or 17% of Gross Domestic Product. The only thing she left out was to define the exit strategy.
At that time, it was my opinion that we will not see clear results from the additional budgetary stimulus, but that it will take at least 24 months to start having an effect, and 36 months before we would see a meaningful change in the statistics. This is also reflected in the car sales graph. Although there was a strong rising trend in 2010 and 2011, it was only in 2012 that the South African automotive market posted new record highs.
From an analysis point of view, it is academic whether I regard 2012, 13, 14 as the high end of the curve, or rather 2013, 14, 15. Overall the two segments from the curve show a very close correlation.
The red line also shows me that 2016 was the disastrous year, in other words, the year of biggest market retraction in a calendar 12-month period, and that is was only during 2017 that conditions settled somewhat with an upward blip towards the end of the year. Again, the validity of this graph as a proxy is confirmed by general economic activity, both here and in South Africa.
In 2016 we only suspected that we were in trouble and there were many proponents who argued that there was no reason for the finance minister to have slammed the brakes so hard at the end of 2016.
But indeed there were many good reason why he did that, or rather why he was forced to do it, to save the Namibian economy from a complete and total implosion. Again this is corroborated by the same graph. In 2017, we started realising, in a quantifiable way, that we were really in trouble, confirmed by the year-long sideways move of the red line in 2018.
The most important observation from the red curve, however, is that in 2017, the economy was basically back to its 2012 level with the only major difference being the incline. In 2012 it was upwards – easy to hide all sorts of sin, while in 2016, it was steeply downward, revealing all sorts of dark sins which could not longer be covered up by profits, over-pricing, tenderpreneuring, and all manners of financial manipulation.
What are we to make of this graph?
I can not tell how big or how fast the expected revival will be this year. Going by the macro side of the economy, it should have been there already in 2018 but it stubbornly refused to materialise. This indicates that there are variables on the micro side, the impact of which I underestimated, or the lack of proper statistics hiding their effect on the bigger economy.
Be that as it may. The only sound advice I can offer business owners and managers, is to use the graph as a proxy for a predictive tool; to assume that 2012 is a good budgetary and financial planning base, and to disregard the three back to back years of exceptional performance.
I am sure the finance minister sits with the same conundrum, i.e. the obvious discrepancy between what to expect in the economy based on the macro figures, and the sticky micro side which just do not want to get unstuck.
PS. – A comparable graph based on vehicle sales has been published by IJG. The major difference is that in their graph, the correlation is between 2018 and 2011, not 2012. But it is difficult to read this graph accurately as the progressive curves are so closely shaded.