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Business confidence declines

Publishing Date : 13 May, 2019


Botswana Firms are less optimistic about economic performance in 2019 than projections made in the 2019 Budget Speech. According to a Bank of Botswana Business Expectations Survey released this week, businesses expect the economy to grow by 3.8 percent in 2019, compared to the estimate of 4.2 percent in the 2019 Budget Speech and the 4.5 percent recorded in 2018.

It is expected that economic activity in the first half of 2019 will be mainly driven by mining and quarrying, trade, hotels, restaurants and transport, finance and real estate and manufacturing – the report says. The results of the Survey suggest that the level of optimism by firms regarding economic activity has declined, compared to the previous survey. Overall, businesses expect lower sales, reduced capacity utilisation and lower profits, compared to the September 2018 survey.

Investment in buildings also declined in the current survey, in line with the dampening effect of the tight access to credit in the domestic market, as perceived by the respondents. The anticipated deterioration in business confidence among both domestic-oriented and export-oriented firms with respect to future prospects is expected to affect economic activity.

The optimism in mining and quarrying, and the trade, hotels, restaurants and transport sectors could be attributable to the positive prospects for global demand for diamonds, which are likely to lead to a rise in sales and prices of diamonds as well as prospects for tourism.  Meanwhile, the BoB Survey notes that Construction is the only sector anticipated to produce less output in the first half of 2019, compared to the second half of 2018, possibly due to the completion of some of the construction projects under the Economic Stimulus Programme and some private construction projects, particularly in the Gaborone Central Business District (CBD) and Palapye, and he lower rate of increase in funds allocated for the development budget in the current financial year.

“Overall, business conditions are expected to remain positive during the first half of 2019, yet slightly weaker than in the final half of 2018. Optimism among businesses declined marginally from a confidence level of 28 percent in the second half of 2018 to 25 percent in the current survey period, and it is expected to fall to 21 percent in the second half of 2019.”

Furthermore, firms anticipate reduced levels of: capacity/resource utilisation; production/service capacity; sales; stocks/inventories; profitability; and investment on buildings and ‘other investment’ during the first half of 2019, compared to the second half of 2018. The BoB Business Expectations Survey reports that the decline in investment on buildings and ‘other’ is in line with the dampening effect arising from the tight access to credit, as perceived by the business community. On the other hand, intentions to invest in vehicles and equipment, and plant and machinery have strengthened, mainly among firms in consumer-related services, such as retail trade, hotels and restaurants.

But there is a reason as to why the decline – The Survey acknowledges that the slippage in perceptions about the overall business conditions in the first half of 2019 arises from the declining optimism among domestic-oriented firms, which comprise about 91 percent of the current survey respondents, compared to the second half of 2018. It states that this group of firms is also less optimistic about business conditions in the second half of 2019 and in the 12-month period to June 2020 (M12).

Meanwhile, export oriented firms are more optimistic about the first half of 2019 compared to the second half of 2018. However, their outlook on business conditions becomes negative in the second half of 2019 and in the 12-month period to June 2020, states the BoB report. “In general, the declining business confidence among both domestic-oriented and export-oriented firms is expected to negatively affect economic activity, as reflected in, among others, the anticipated decline in sales, capacity utilisation and investment in plant and machinery.”

Domestic lending rates expected to rise in both 2019, 2020

According to the BoB Business Expectations Survey, firms expect both lending rates and the volume of borrowing from the domestic market to increase in the second half of 2019 and first half of 2020. However, more firms expect both lending and borrowing rates to be higher in the first half of 2020 than in the second half of 2019.

“Similarly, in South Africa, lending rates are expected to rise in both the second half of 2019 and first half of 2020. The expected rise in lending rates in South Africa is consistent with the consensus forecast for market rates, obtained from Bloomberg3, for the same period. In line with this, borrowing volumes from South Africa are expected to decline in the second half of 2019, before rising in the first half of 2020”, reads the report.

The upward pressure on lending rates elsewhere (any market other than Botswana or South Africa) is expected to drop significantly in the first half of 2020, compared to the second half of 2019, while the expected increase in borrowing volumes over the period is marginal.

Inflation expected to remain within 3-6 percent objective range

The Bank of Botswana Survey further shares that although slightly higher in the current survey, firms’ expectations about the domestic inflation have generally been on a downward trend since 2013, and within the Bank’s inflation objective range of 3-6 percent since 2014.  Furthermore, uncertainty about future inflation has, on the whole, declined as shown by the smaller standard deviation from the average expectations despite the noticeable divergence in the current survey. “Firms’ inflation expectations have averaged 4 percent since 2016, suggesting that inflation expectations are well anchored within the Bank’s objective range.”

Factors Affecting Business Conditions

Unavailability of skilled labour is perceived to be a major challenge to doing business in Botswana, the BoB Business Confidence Survey has noted.  It says the unavailability of skilled labour was cited as the greatest challenge facing businesses in the first half of 2019, arising from the reported difficulties experienced in recruiting foreign skilled labour. The new administration of President Dr Mokgweetsi Masisi has pledged to ease business in this area.

According to this report, difficulties in sourcing skilled labour is more pronounced in the construction sector, followed by trade, hotels, restaurants and transport. Meanwhile the 2018 Global Competitiveness report has also highlighted lack of skilled labour among the main challenges of doing business in Botswana. Meanwhile, the political climate, domestic demand and regulatory framework are viewed as being supportive to doing business in Botswana during this half year.

However, the BoB Survey says the number of firms viewing lack of skilled labour as a challenge has fallen notably compared to the previous survey. An interesting observation from the survey is that, ‘other’, which from the previous survey was viewed as a major challenge to doing business due to the dominance of government spending, is no longer considered a major impediment as government spending is now viewed to be neutral.

The BoB Survey says his may be partly attributable to a reduction in responses from sectors, such as manufacturing and construction, which rely mostly on government as a major client. “Another observation is that water and electricity continue to be viewed as contributing positively to the business climate, reflecting ongoing efforts to improve the supply of these utilities through measures such as the implementation of the North-South Carrier 2 water project and the North-West Transmission Grid electricity connection,” reads the report.

Overall, the Business Confidence Survey notes that business conditions are perceived to have marginally weakened compared to the last survey, and are expected to decline further in the second half of 2019.  “The cost pressures are expected to decline in the second half of 2019, compared to the first half of the year. As firms’ inflation expectations seem to be anchored at rates of just below 4 percent, the survey responses are consistent with the official projection that inflation will remain within the Bank’s objective range of 3 – 6 percent going forward.”

The Business Expectations Survey (BES) was conducted by the Bank of Botswana in March 2019.  It covers local business community’s perceptions about the prevailing state of the economy and economic prospects up to June 2020.



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