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2019 business expectations

Publishing Date : 07 January, 2019

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Looking ahead, the pick-up in demand for consumer products and the sustained global demand for diamonds are expected to continue to support economic activity. Meanwhile, cost pressures are expected to increase slightly in the first half of 2019, largely owing to the anticipated increase in wages. However, firms expect inflation to remain stable and within the Bank’s medium-term objective range of 3 - 6 percent going forward.


Business conditions are perceived to have improved since the last survey, and are expected to become even better in the first half of 2019. Furthermore, firms anticipate improvements in capacity/resource utilisation; production/service capacity; sales; stocks/inventories; profitability; and investment on: plant and machinery, buildings and vehicles during the second half of 2018, compared to the first half of 2018.


These, in combination with expectations of continued growth momentum in the mining industry, have generally led firms to expand investment in various assets. Intentions to invest in buildings strengthened, mainly among firms in consumer-related services, such as retail trade, hotels and restaurants, in anticipation of a stronger domestic economic outlook and the expected wage increase.


Domestic lending rates expected to fall in 2019


Looking ahead, domestic lending rates are expected to decline, thus consistent with the anticipated rise in domestic borrowing in 2019. On the other hand, lending rates in South Africa are expected to rise, while borrowing from South Africa by Botswana firms is expected to fall in 2019. Meanwhile, lending rates elsewhere are expected to rise in 2019, alongside borrowing volumes.


Inflation is expected to remain within the 3-6 percent objective range

Firms’ expectations about the domestic inflation have been generally on a downward trend since 2013, and have been within the Bank’s inflation objective range of 3-6 percent. In addition, uncertainty about future inflation is diminishing, as shown by the smaller standard deviation (std dev) from the average expectations. Firms’ inflation expectations have averaged four percent since 2016, suggesting that inflation expectations are well anchored within the Bank’s objective range.


Factors Affecting Business Conditions

Slow growth in government spending a major challenge to doing business.
Slow growth in government spending (the largest constituent under “other”) was cited as the greatest challenge facing businesses in the second half of 2018. Unavailability of skilled labour was considered the second most impeding factor to business operations in the second half of 2018, and relates to reported difficulties experienced in recruiting foreign skilled labour. The challenge of lack of skilled labour is more pronounced for the construction sector, followed by manufacturing.


Lack of skilled labour is also one of the areas that are highlighted among the main challenges to doing business in Botswana by the recent Global Competitiveness reports. Meanwhile, the exchange rate and the political climate were viewed positively by businesses. An interesting observation from the Survey is that, water and electricity are now viewed as contributing positively to the business climate, reflecting ongoing improvements in the supply of these utilities.

Highlights of the Survey Results

The results suggest that economic activity has improved since the last survey, mainly attributable to the recovery in the mining sector, which is driven by global demand for rough diamonds. Overall, businesses reported higher sales, improved capacity utilisation and increased profits compared to the March 2018 survey. Investment also rose in the current survey despite the dampening effect arising from the tight access to credit, as perceived by some of the firms.


Looking ahead, the pick-up in demand for consumer products and the sustained global demand for diamonds are expected to continue to support economic activity. Meanwhile, cost pressures are expected to increase slightly in the first half of 2019, largely owing to the anticipated increase in wages. However, firms expect inflation to remain stable and within the Bank’s medium-term objective range of 3 - 6 percent going forward.

Conclusion

Overall, business conditions have improved since the last survey and are expected to improve further on account of a pick-up in demand for consumer products and sustained growth in global demand for mining output, as reflected in positive expectations about business conditions in 2019. As firms’ inflation expectations seem to be anchored at inflation rates of just below 4 percent, the survey responses support the official projection that inflation will remain within the Bank’s objective range of 3 – 6 percent going forward.

(Adopted from the Bank of Botswana Business Survey September 2018)

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