Taking stock of 2017, pondering 2018

Basson van Rooyen - As we shake off the dust from 2017 and take stock of the year that has passed, one can agree that it was definitely one of the more interesting and volatile years from recent memory with some unexpected developments: Namibia and South Africa flirting with credit ratings outside of the investment grade bands, new regulation developments channelling more funds into Namibian markets and some significant political changes to our neighbours here in Southern Africa. With all of this volatility and many market commentators being negative, 2017 favoured the investor holding more local assets especially in the equity space, even with the inclusion of the drop in value of Steinhoff shares. Looking down the road into 2018, one has to wonder if short-term trends will continue or if this market is positioned for more volatility and uncertainty.Positioning portfolios requires patience and commitment to long-term goals where one has to keep looking for well-positioned, positively valued investments and not get swept along by short-term profit-seeking investment decisions.InflationInflation both for Namibia and South Africa remained below 6% for the fourth quarter of 2017 with the local December year-on-year inflation rate standing at 5.2% and the average rate for 2017 at 6.2%. The contributors to the December inflation numbers were mainly housing, water, electricity, gas and other fuels at 9.2%, education at 7.8% and transport at 6.7% - while food, alcoholic beverages and tobacco ended the year on a downward trend after their large contribution to inflation numbers in the third quarter. We’re expecting NCPI to remain relatively in line with the South African inflation target band of 3% to 6%. Our forecast is for an annual average of 5.1% in 2018. The risk for an unexpected move in the inflation number stems from the potential for exchange rate volatility as well as the impact of commodity prices in the short term. GDPThe economic growth numbers continue to disappoint and together with revisions made by the Namibian Statistics Agency (NSA), we have had only one positive quarter in the last year and a half. The 2016 full year gross domestic product (GDP) growth stood at 1.1% and the Bank of Namibia’s current projection of growth for 2017 is at 0.6%. This means the fourth quarter growth of 2017 needs to come in at 7.1%, which seems to be a bit of a stretch. Construction remains one of the main detractors from growth. As it now stands, this sector has contracted for the 7th straight quarter, mainly due to the cut in government expenditure on construction projects. There is a strong likelihood that 2017 will be the first annual contraction that Namibia records in the last decade.Rates, budgetThe Monetary Policy Committee (MPC) of the Bank of Namibia (BoN) cited support for the domestic economic growth, slowdown in inflation and private sector credit extension as to keeping the repo rate unchanged for the last quarter of 2017 and in line with that of South Africa at 6.75%. Although we’ve seen a general upward trend from the US Fed Fund target rate since late 2016 and a recent increase in UK Bank of England repo rate, the market is still pricing in a drop of approximately 50 basis points towards the middle of 2018. The 2017/18 mid-term budget review did not bolster confidence in the objective of fiscal consolidation when we saw unbudgeted expenditure and additional strategic resource allocations not previously included in the budget.The current projected budget deficit for 2017/18 has been revised from N$4.04 billion to N$9.4 billion (3.5% of GDP), which were mainly attributed to outstanding invoices coming out of the 2016/17 period. Revenue collection seems to be on track with prior years and the much-relied on Southern African Customs Union (SACU) revenue of N$9.8 billion has been received to date. Unfortunately, the SACU revenue, which makes up more than 30% of government’s total revenue, is expected to remain under pressure in the medium term, due to the low growth environment across the SACU regions. Further cutting on expenditure will become very difficult as the public sector wage bill has steadily increased to over 40% of the total government expenditure. Cutting this could risk possible public unrest. Another option is further cutting of developmental projects which has already seen minimal allocations compared to previous year’s budgets. * Part 2 of the opinion piece will be published on Monday.

Taking stock of 2017, pondering 2018

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Republikein 2025-05-02

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Taking stock of 2017, pondering 2018

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