Elep ephant hant Book 3Q 3Q 15
Agenda Macro Economic Backdrop Namibian Macro Economic Environment Fixed Income
NAMIBIA REAL GROWTH RATES Namibia South Africa 8.0 7.0 6.0 5.0 MAJOR DECOUPLING SINCE 2009 4.0 PERCENT 3.0 2.0 1.0 - 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (1.0) Decoupling driven by three key factors
NAMIBIA INTEREST RATES FOREIGN DIRECT GOVERN- INVESTMENT MENT SPENDING N$ 67 bn N$ 13 bn N$ 10 bn NET PSCE NET FDI, 2014 Budget, 2015/16 ISSUANCE, 2014
Interest Rates 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Repo Prime • Interest rates increasing and expected to continue to do so, albeit gradually. • Still low by historic standards • Cheap credit still readily available to businesses and individuals
Government Expenditure • Sizable increase in Govt expenditure since 2011 80,000 40.0% • Close to 40% in personnel expenditure (directly) • Exceptionally large increase in 2014/15 70,000 35.0% • Growth slowing in 2015 60,000 30.0% 50,000 25.0% N$ Million 43,659 40,000 20.0% 30,000 15.0% 20,000 10.0% 23,433 10,000 5.0% - 0.0% 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Personnel Expenditure Other Expenditure Growth (RHS)
Macro Economic Backdrop PSCE and PSCE Growth 80,000 30% 70,000 25% 60,000 20% Growth Rate (YoY) 50,000 N$ Million 40,000 15% 30,000 10% 20,000 5% 10,000 - 0% Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Other Businesses Households PSCE Growth Businesses Growth Household Growth
Macro Economic Backdrop Household Debt Issuance 6,000 18% 16% 5,000 14% Percent Growth (YoY) 4,000 12% N$ Million 10% 3,000 8% 2,000 6% 4% 1,000 2% - 0% Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 12m Net Issuance Household Growth 12 per. Mov. Avg. (Household Growth)
Minerals
Beverage Production
Vehicle Sales
Unemployment Unemployment levels improving, largely on account of current construction boom in Nam Results in large cash injections into local households, many of which have strong multipliers
National Household Income 70,000 25% 60,000 20% 50,000 15% N$ Million 40,000 30,000 10% 20,000 5% 10,000 0 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Gross Income Disposable Income Gross Income Growth (RHS) Disposable Income Growth (RHS) What all this means: Household remain strong consumers, but buying power growth slowing
Imbalances
Macro Economic Backdrop Namibian and South African Inflation 10.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Differential Oct-11 Jan-12 Apr-12 Jul-12 SA CPI Oct-12 Jan-13 NAM CPI Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 3.0% Apr-15 4.6%
Macro Economic Backdrop Selected Services Inflation Levels July 2015 12 Month (YoY) Average Inflation Inflation Water supply, sewerage service and refuse collection 10.8% 11.6% Public transportation services 0.3% 8.5% Pre-primary education (ages 2 to 6 years) 6.7% 7.6% Electricity gas and other fuels 5.7% 7.6% Tertiary education 4.8% 7.3% NCPI 3.0% 4.3% Rental payments for dwellings (both owners and renters) 1.5% 1.8%
Macro Economic Backdrop International Reserves 20,000 2,500 18,000 16,000 2,000 14,000 12,000 1,500 N$ Million US Million 10,000 8,000 1,000 6,000 4,000 500 2,000 - 0 January June November April September February July December May October March August January June November April September February July December May October March August January 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Reserves (NAD) Reserves (USD) 12 per. Mov. Avg. (Reserves (NAD)) 12 per. Mov. Avg. (Reserves (USD))
Macro Economic Backdrop Government Deposits N$ Million 10,000 12,000 14,000 (2,000) 2,000 4,000 6,000 8,000 - Apr-02 Sep-02 Feb-03 Jul-03 Dec-03 May-04 Oct-04 Mar-05 Central Government Deposits (Cash Balances) Aug-05 Jan-06 Jun-06 Nov-06 BON Apr-07 Sep-07 Commercial Banks Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15
Macro economic backdrop Money Supply 90,000 10,000 9,000 80,000 8,000 70,000 7,000 60,000 6,000 N$ Million N$ Million 50,000 5,000 40,000 4,000 30,000 3,000 20,000 2,000 10,000 1,000 - - Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Broad money liabilities (M2) Currency in circulation (M0) RHS Monetary base (MB) RHS
Money Multiplier Macro Economic Backdrop Money Multiplier (x) 10 15 20 25 30 35 - 5 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Money Multiplier (M2/MB) Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Money Multiplier (M2/M0) Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15
Macro Economic Backdrop Banking sector loan-to-deposit ratio 100.0% 98.0% 96.0% 94.0% 92.0% 90.0% 88.0% 86.0% 84.0% 82.0% 80.0%
Banking sector liquidity position Macro Economic Backdrop N$ Million (1,000) 1,000 2,000 3,000 4,000 5,000 6,000 7,000 - Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Data Jan-11 May-11 Sea Adj. Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15
Macro Economic Backdrop Government Debt and Debt to GDP 40,000 30% 35,000 25% 30,000 20% 25,000 Debt to GDP N$ Million 20,000 15% 15,000 10% 10,000 5% 5,000 - 0% Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1 2008 2009 2010 2011 2012 2013 2014 2015 Foreign debt stock Domestic debt stock Debt to GDP (RHS)
Budget Deficit Budget Deficit - 0.00% -1,000 -1.00% -2,000 -3,000 -2.00% -4,000 -3.00% -5,000 -6,000 -4.00% -7,000 -5.00% -8,000 -9,000 -6.00% -10,000 -11,000 -7.00% 2013/14 2014/15 2015/16 2016/17 2017/18 Budget balance Budget balance as % of GDP
Fixed income
Fixed Income Fixed Income Recap • GC15 Redemption • GC20, GC22, GC45 launched • ZAR bond issuance
Fixed Income GC15 Redemption • Outstanding Nominal N$995m • Coupon payments to be reinvested • N$895m allocated in corresponding auction • Thus not all of the proceeds from the GC15 redemption were reinvested • Last time GC18 was issued • Last time GC21 was issued • This leaves the GC20 as the only on the run bond in the 5 year space
Fixed Income GC20 and GC22 Issuance • Issued 29 April • Neither was fully subscribed at the initial auction • GC20 – 8.25% coupon – N$33.75m allocated at initial auction (N$60m available) • GC22 – 8.75% coupon – NS38.80m allocated at initial auction (N$60m available) • GC20 now only on the run issue in the 5yr space • Average debt maturity thus increasing • 5 – 10 year space crowded, GC21, GC22, GC24, and GC25 • GC22 has been undersubscribed in all subsequent auctions • Low demand for GC24 and GC25 as well • Pricing in this space is unattractive at present
Fixed Income GC45 Launched on the 21 st of May • • 9.85% coupon • All auctions have been oversubscribed thus far • Strong demand on the long end ZAR Bond Issuance • Weak local demand at present • Tap of current NAM01 issue for N$500m • Issued new 5yr NAM02 for a further N$300m • Issued at 180bp and 165bp respectively • Demand was strong at these prices • This should, over time, lead to the increase of local spreads
Fixed Income Yield Curve
Fixed Income Yield Curve • Currently close to 80% of Namibian Government debt, excluding TBs, lies within the 10 year part of the curve • GC24, GC25, and GC27 are particularly unattractive at current spreads • GC32 also suffers from a low spread at present • GC21 spread is unattractive although the spread is negatively affected by it being off the run and not trading on the secondary market • At present the GC22 represents a lot of value compared to the other bonds within the 5 – 10 year space • Bank of Namibia has recently been reluctant to issue away from market thus limiting spread movements on some issues • This has exacerbated the mispricing in certain parts of the curve
Fixed Income Spreads Spreads have widened over the 2 nd quarter as expected • • Large increase in issuance due to the large proposed budget deficit did not result in bond market participants moving spreads by as much as expected due to BoN reluctance to issue away from market
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