Consumer lending unsustainable - Louw
Consumer activist and writer Milton Shaanika Louw has decried high consumer lending levels as unsustainable warning that this may see lower interest rates only saving to allow for the payment of debt with little savings being made.
“We are using overdrafts for day to day expenses. Now when the interest rates come down, the problem is, are we going for more overdrafts using the money and paying less money for more money? It just means we are going to be higher in debt, and that’s one of the biggest problems we have to look at,” he tells The Villager in an exclusive engagement.
He says while debts accrued by the general Namibian have become unsustainably high the falling in?ation which currently stands at 5.4 percent should give people ample time to pay their debts. “I see in?ation going down; it sounds good for the consumer. It means we are going to have more disposable income, but hopefully, that means we will use that money to pay our debts.
Our debts are extremely high especially our lending on the overdraft sector; it’s just increasing year on year. Nobody is reporting about that, and we tend to think that credit is going down in general because the Bank of Namibia says it has decreased.
Now if you look at the individuals out there, people are taking overdrafts, and those are some of the most expensive ways to ?nance something,” he says. With regards to the position of GRN about the in?ation ?gures, Louw says, “We still have to come to that point where Schlettwein speci?cally has to say which of these capital projects are going to be completed by when? Remember that while we are saving, we are also borrowing from private people in the south.
But I think from the government side, they showed themselves to be prudent, and that’s important.” However, the Economic Association of Namibia (EAN) sees it differently, “This (low in?ation) is good news for Government meeting its ?scal targets such as the budget de?cit since slower cost increases for purchasing goods and services makes it easier to stay within the budget ceilings.”
On the lower interest rates, EAN af?rms that they will indeed provide some comfort for the consumer who is mired in an economy with weakening jobs. “This is good news (falling in?ation) for the consumer in times of high unemployment who bene?ts already from lower interest rates – at least if s/he is a net borrower,” af?rms the economic think tank.
Louw says the Bank of Namibia (BoN) might have to bring up interest rates to put a lid to the “lending orgy”. “What I see is yes there is monetary easing in South Africa, but for the ? rst time our bank here (BoN) might have to ?nd the option of increasing the interest rates to bring down the level of lending. The standard of credit is unsustainable,” he says.
He adds, “If you have a credit card at the moment you are repaying debt. You are not using your money for future growth. I wrote a book called “Future Namibia”, and I believe we want to go into a future where we spend money on it, we can’t issue money in the past.”
Annual in?ation remains the lowest since January 2016 (5.3%), and latest indications are that monthly in?ation rate increased to 0.09% compared to July 2017, up from a monthly in?ation rate of 0.04% in the previous month. “Yes, I do expect the in?ation to go down especially because the cost of housing is going down, the cost of rentals is going down, not so much home ownership, so that will bring it down,” he acquiesces. He, however, observes a rise in the supply of housing which he says has prompted a drastic reduction in the cost of renting.
“The case we have now is an oversupply of accommodation in the middle -income group. What I am talking about are people who can afford to pay rent from about N$7 000 to about N$15 000, and these ?gures are coming down. Those at N$15 000 are dropping to N$9 000, those at N$7 000 have to drop to N$5 000, and suddenly the lower incomes earners can also afford,” he says.
He adds that the dice will land to the favour of low-income earners in the housing sector much to the frustration of property magnates who have been enjoying an upper hand for some time. “So we are going to see a lot of movement in the housing industry. The wealthy people own property, and they are renting it out at higher rates.
To put it bluntly, high-income people are giving to the previously disadvantaged poor. So that group of the poor will be ?nding themselves being able to negotiate. Those things of 10 percent increase per year in a rental agreement are over,” he says.
Will that be sustainable? Louw says, “Our lower income earners, the black youth middle class have been buying a second home, renting it out to help pay for the ?rst home and the next one. So that is going to disappear, the housing crisis is going to hit us, it’s the middle-class ownership that is causing the bubble. It’s not the poor.”