Research experts, Simonis Storm have revealed that they expect the Central Bank, Bank of Namibia (BoN), to hike repo rate by a further 50bps in its next two meetings as the cost of borrowing for Namibians continues to sour.
Providing an analytical view of Namibia’s second quarter economic performance, Simonis Storm also noted that there is a possibility that this 50bps hike may come in the next meeting as opposed to being split across the next two meeting.
Going forward, we expect the Fed to hike by 25bps at each of their next two meetings, and for both SARB and BoN to follow suit. Given the dates of BoN’s meetings, it can be that they pre-empt hikes in South Africa and hike by 50bps at their next meeting in August,” the firm affirmed.
The South African Reserve Bank (SARB) hiked by 50bps end of May 2023, while the Fed hiked by 25bps in May 2023 and kept rates unchanged in June 2023 for the first time in the current US rate hiking cycle which started in March 2022. BoN followed SARB with a 50bps hike in June 2023, however our repo rate (7.75%) is still 50bps below that of South Africa’s repo rate (8.25%).
“In June’s MPC meeting, one member was in favour of a 75bps hike, whereas the other four members voted for a 50bps hike. It seems sentiment amongst most local MPC members has changed from being fairly conservative, to now being more in favour to move in lock step with SARB,” further explained Simonis Storm adding that the real repo rate turned positive in Namibia during the first two months of the second quarter of 2023 and now signals that monetary policy is restrictive and will weigh on economic activity going forward.
“South Africa has a monetary policy lag of 6 to 9 months and the same can be assumed for Namibia. This implies that the cumulative 225bps hikes that were implemented since September 2022 have not had a full impact on the real economy yet.”
Positive economic performance
Assessing economic performance, the firm said that economic activity is off to a positive start in 2023 – supported by resilient vehicle sales, increased foreign investment within the mineral (e.g. copper, gold, lithium, rare Earth minerals, oil, gas, etc.) exploration space, investments in green hydrogen pilot projects, ongoing expansion of major roads across the country, strong marketing of livestock, improved fish export earnings, the local transport sector taking advantage of logistical issues in South Africa, continuous growth in the mining sector, supporting some manufacturing activity as well and occupancy rates in the tourism sector continuing to improve from lockdown induced lows.
“The latest GDP print posted a 5.0% y/y expansion in first quarter of 2023 with almost half of all the industries surpassing pre-pandemic levels in terms of value. While 50% of all industries have surpassed their prepandemic value of economic output, 36% of all industries recorded annual growth rates in 1Q2023 that are below their long run averages. Growth was primarily supported by mining (up 34.3% y/y), electricity and water (up 16.8% y/y), transport (up 6.7% y/y) and hotels and restaurants (up 5.7% y/y). Industries that weighed on growth included financial services (up 4.9% y/y), manufacturing (down 2.7% y/y) and public administration (down 1.5% y/y).
Economic outlook
For the remainder of 2023, Simonis Storm said, economic growth drivers are likely to be mining, manufacturing, tourism, transport, water, electricity and financial services.
Sectors likely to weigh on growth this year include construction, retail and agriculture.
“Credit growth peaked at 3.9% y/y in March 2023 and has been on a declining trend since then. Credit growth averaged 2.7% y/y between January and May 2023, compared to 3.2% in the same period last year.
“Already some of the locally listed banks recorded double digit increases in their earnings, however affordability concerns are rising given high interest rates. Despite this, we remain positive on the local banking sector given the selective nature of loan books and new opportunities from the energy sector. Indeed, some banks indicated that they have a strong bankable project pipeline in the logistics, tourism, energy and mining sectors which should support higher credit growth in second half of 2023 and first half of 2024,” the firm explained adding that additional exploration activities continue to be announced across different commodities such as copper, gold and rare Earth metals.
“The government has banned the export of raw ore exports from the rare Earth metal space. According to the Chamber of Mines, mining companies are open to this and will pursue establishing their own processing plants in the near future. This should also benefit the local manufacturing sector which has these processing activities included in its GDP figures.”
Similarly, tourist inflows continue to improve, where nationwide occupancy rates averaged 42% between January and May 2023, compared to 29% in the same period last year.
“In the absence of a covid variant and economic recessions in Namibia’s tourist source markets, we do expect tourism and its wide value chain to benefit economic activity in 2023. This is despite living costs and recessions risks remaining elevated in Europe as we expect upper middle income and high-income families to still travel in this inflationary environment,” said the firm.