3 December 2012

Namibia: Business Outlook Remains Rosy in October

BUSINESS confidence, as measured by the IJG Business Climate Index (BCI), remained strong in October, dipping from 141,7 points in September to 141,6. September’s reading was the highest in 12 years.

The Institute for Public Policy Research (IPPR), publishers of the index, on Thursday said “although the global economy continued to show mixed fortunes, the local leading indicator performed rather well and was up 35 basis points in the month”.

The leading indicator, used to predict economic trends in the near future, climbed from 154 points in September to 188,9 in October. The indicator takes into account commercial vehicle sales, the real value of building plans approved, the Local Index of the Namibian Stock Exchange (NSX), the average prime lending rate, the future oil price, deflated average metal prices and defensive company name registrations.

The IPPR said the higher leading indicator in October was underpinned by a 340% increase in building plans approved during the month.

“These construction plans were worth N$577 million and were mainly additions to existing residential properties. As a result, the prospects for the construction industry are good for the next 12 months,” the IPPR said.

“Consumers were back on the front foot again – buying more cars, borrowing more money and extending their homes – and thus taking advantage of favourable interest rates which are at an all time low,” the IPPR said.

The Consumption Index rose from 97,5 points in September to 101,3 in October.

“But inflation remains a concern and interest rates might start climbing as early as December if inflation continues unabated and consumers continue to splurge on new cars,” the IPPR said.

Annual inflation rose to 7,1% in October, up from 6,7% in September and the highest since February this year.

The BCI’s Export Index for October remained unchanged at 124,4 points.

However, the IPPR said there were “early signs of headwinds ahead as international leading indicators continued to contract, indicating difficult business conditions abroad”.

“These depressed conditions have already started to show in the metal markets where unweighted futures and spot prices fell 7% through October, while uranium prices fell 11%, their lowest level since June 2010.”

A glimmer of hope for exporters were the weakening of the Namibia dollar, which “softened the blow from the lower export prices”, the IPPR said.

“Fish exporters were fortunate with smaller hake prices jumping by 78% through October, while beef prices continued to strengthen on the back of supply tightness and good demand, a trend which is expected to continue leading up to the festive season,” the IPPR said.

Investment was on the “back foot” despite the strong showing of the NSX Local Index, which grew by 8% month-on-month. The Investment Index dropped from 205 points in September to 195,1 in October.

“Generally the Investment Index was down because of the downturn in commercial vehicle sales and a decline in the building plans actually completed during October,” the IPPR said.

“But given the healthy state of the leading indicator, the overall outlook for the economy remains favourable if most of the building plans are implemented,” it concluded.

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