According to the most recent Namibian Budget for the fiscal year 2023/2024, the government’s expenditure on vehicle purchases is set to increase significantly from a spend of N$55 million to a spend of N$210 million this financial year.
This represents a 282% increase in expenditure on vehicles.
“The large growth in spending is due to the low base effect. If materialised, increased public spending on vehicles may assist vehicle sales to persist on an upward trend throughout 2023. This will be in addition to high demand from the private sector for both passenger and light commercial vehicles,” research firm Simonis Storm commented regarding this impending possibility.
Vehicle sales have been resilient since 2021, despite rising car price inflation. Car price inflation has averaged 4.3% y/y for every month in 2022 and we expect similar movements in 2023 owing to the weak Rand exchange rate.
Vehicle sales rose after a weak start to 2023, rising to the highest level since March 2022. 1103 units were sold in February 2023 compared to 883 units sold in February 2022 (up 24.9% y/y). On a monthly basis, units sold in February is 36.3% higher than sales in January 2023. Units sold in February 2023 exceed the 6-month moving average, which indicates that vehicle sales are recovering from the dip in sales observed towards the end of 2022.
“February 2023 performed the best since February 2018. February typically records the highest number of units sold compared to all other months in the previous year, most likely due to some financial recovery post festive season and tax purposes, as February is the tax year end,” said Simonis Storm.
Passenger vehicles – which accounted for 51% of units sold (559 units) in February 2023 – were again the main contributor to the annual increase, rising 27.3% y/y in February 2023 (compared to up 15.0% y/y in January 2023), followed by light commercial vehicles which accounts for 44% of units sold (486 units), rose 32.8% y/y in February 2023 (compared to up 10.5% y/y in January 2023).
Toyota, Volkswagen and Kia were the largest drivers of vehicles sales this month. Their sales represent 65% of total sales, with Toyota selling 509 units (up 50% m/m), Volkswagen selling 160 units (up 38% m/m) and Kia sell 53 units (up 13% m/m). Iveco had the highest monthly increase of 400%, but this only reflects 4 more vehicles sold in February than in January 2023.
Globally, JP Morgan reported that the average price for vehicles in the U.S. increased by 4.2% y/y in January 2023, TransUnion reported that new vehicle pricing increased from 2% in 4Q2021 to 7% in 4Q2022 in South Africa. Increasing prices are caused by inflationary input costs, such as diesel, freight, shipping, logistics and electricity.
“Local demand for new vehicles across the passenger and commercial segments is unlikely to be deterred by high interest rates. The repo rate has normalized to pre-pandemic levels and at the same time, vehicle sales remain at elevated levels.”
According to BoN data, instalment and leasing credit grew by 3.1% y/y in January 2023 (compared to 2.7% y/y in December 2022) for households and 12.7% y/y in January 2023 (compared to 13.8% y/y in December 2022) for corporates. Despite this growth, some local banks still view vehicle loans as risky, leading to a reduction in the availability of these loans for households.
“As a result, together with an increasing repo rate, households may be discouraged from using instalment loans to finance their vehicle purchases, leading to an increase in cash sales as confirmed by various local dealerships,” added Simonis Storm.
In January 2023, Namibia saw a surge in vehicle imports, with commercial vehicle imports rising by 58% y/y and passenger vehicle imports rising by 62% y/y. On a monthly basis, commercial vehicle imports increased by 13%, while passenger vehicle imports surged by 160%. This is indicative of supply chain pressures easing and it is expected by local dealerships that this will likely continue improving in 2023. Rising vehicle import values could naturally also be due to a weakening Rand exchange rate.
“Tesla and Ford have recently made headlines by announcing price cuts for their electric vehicles (EVs). This move comes as EVs continue to gain popularity in the automotive market. In fact, according to The Society of Motor Manufacturers and Traders (SMMT), pure EVs accounted for nearly a quarter of the market last month, with sales rising by 18.2% m/m in February alone in the United Kingdom. Locally, Puma, a global energy company, has recently announced plans to roll out electric vehicle (EV) charging stations in Namibia. This move is part of the company’s efforts to support the transition towards sustainable mobility in Africa. This is a growing trend in Namibia, albeit at a slow pace for now.
“The rollout of EV charging stations is essential to ensure that EV owners have access to reliable and convenient charging infrastructure. This, in turn, will encourage more consumers to switch to EVs, thereby reducing carbon emissions and improving air quality. Puma’s commitment to expanding EV charging infrastructure in Namibia is a positive step towards achieving this goal,” concluded Simonis Storm.