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Outlook for 2018 robust

Publishing Date : 13 February, 2018

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Stock Brokers Botswana has projected that the domestic economy has a robust outlook for the year as the diamond industry is expected to ride tailwinds of the global economic recovery.


“Anticipation of increased performance of the services sector as well as the continued expansion in government spending (2018/19 projected budget deficit: BWP8.06 billion) also contribute to the outlook. With the current President’s term due to end in March 2018 and the Vice President set to step in the following month in the run up to next year’s general elections, this presents further upside to government spending. The Ministry of Finance and Development Planning has forecasted a 5.3% growth rate for 2018 on the back of these aforementioned factors. This is slightly higher than the IMF’s forecast of 4.8%, however both estimations point to robust growth.”


In its Market Outlook for 2018, SBB observes: “On the ground, businesses also expect an improved outlook for 2018 as per the Bank of Botswana Business Expectations Survey September 2017. Firms expect business conditions to improve in 2018 with an overall confidence level of 52% for H1 2018 (H2 2017: 46%) and 64% for the whole of 2018. The survey reveals that businesses cite constrained domestic demand as the biggest challenge to doing business, reflective of the subdued consumer environment reported by a number of the listed companies in 2017.”


The recent bank rate cut should serve to ease pressures on the fragile consumer, further observation by SBB. However, the recent increases in fuel prices as well as the prospect of further increases could hurt disposable income, which is showing sluggish growth. Unemployment remains high, with the latest figure estimated at 17.7%.


“This figure includes individuals engaged in the Ipelegeng programme, which is essentially short term employment mainly targeted at vulnerable members of society. Further, overall employment has been showing negative growth. In cognizance of these factors, the consumer is likely to remain under pressure.”


The SBB general outlook for the stock market in 2018 is neutral. While macroeconomic indicators point to an overall improved domestic economy, SBB sees limited upside for equity prices given the absence of catalysts to drive consumer spending.


 2017 in review – Mining recovery, fiscal stimulus, equities dip

“2017 saw the slowing of the economy from a macroeconomic front. Q3 Real GDP statistics show growth of 1.2% (Q3 2016: 6.9%). Although a rather subdued figure, all industries showed positive growth rates besides Trade, Hotels, and Restaurants (the largest contributor to GDP) which had a -9.3% growth rate on the back of negative contribution from downstream diamond industries. Real mining value added turned positive with a growth rate of 4.4% as the upstream diamond market continued firming.


Diamonds production increased 30% in carats as the Orapa and Jwaneng mines substantially ramped up production. With a buoyant diamond market, and the BCL effect on the mining figures expected to have disappeared in the Q4 statistics, government’s targeted GDP growth rate of 4.7% for 2017 could be realized.


Expansionary fiscal policy ensued in 2017 with the 2017/18 financial year marking the first year of implementation of National Development Plan 11. Government initiatives to stimulate the economy led to an estimated budget deficit of BWP6.56 billion for the 2017/18 financial year largely on the back of provisions for the Economic Stimulus Program (ESP) and water and power infrastructure projects.


With regard to monetary policy, the Central Bank ushered in further stimulus as well with a 50 bps cut in the Bank Rate to 5% in October 2017. Headline inflation came in at 3.2% in December and averaged 3.3% for 2017, just above the lower bound of Bank of Botswana’s 3 – 6% medium term objective range.
 

Despite the positive macros, equities underperformed. Given the capital intensive nature of the mining industry, growth in this sector has little spillover effects on the labor market. The fiscal stimulus measures had not trickled down to the consumer with employment numbers contracting and wages showing marginal growth.


On the backdrop of the strained consumer environment, the bear market ensued with the Domestic Company Index (DCI) closing the year 5.75% lower at 8860.13 points. Several blue chip counters shed a lot of value over the year with the delivery of either flat or dismal earnings. The correction of these counters outweighed the year’s gainers, resulting in the DCI’s negative performance.”

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