Business community buoyed despite growth rate cuts

Andrew Maramwidze - BG reporter
Thursday, 18 July 2019
Electricity production has improved lately. Electricity production has improved lately.

Positive business atmosphere is expected to envelop the country in the second quarter of the year, the central bank’s   quarterly Business Expectations Survey has revealed. Published last week Wednesday, the analysis said firms are confident about business conditions in the second quarter of 2019.

“However, the level of optimism declines in the third quarter of 2019, consistent with the anticipated higher cost pressures.  “Firms expect the economy to grow by 3.8 percent in 2019, lower than the 4.2 percent projection stated in the 2019 budget speech,” reads part of the survey. Business Survey indicates that the political climate, domestic demand and the current exchange rate are viewed as being the most supportive factors to doing business in Botswana during the second quarter of 2019. The water and electricity subsectors are also expected to contribute positively to economic activity.  “There are ongoing efforts to improve the supply of utilities through measures such as the implementation of the North-South Carrier 2 water project and the North-West Transmission Grid electricity connection.”

In addition, confidence in the domestic market-oriented firms is mainly driven by trade, hotels and restaurants, transport and communications and the finance and business services sectors. And the export market-oriented firms are more optimistic about the third quarter of 2019 compared to other periods of the survey especially those engaged in the manufacturing business. The study further points out that on average, firms expect inflation to be slightly below four percent, which is consistent with the Bank’s projection that inflation will remain within the objective range of 3 - 6 percent in the medium term.

Though there is a strong expectation of cost escalation in the third quarter of 2019, attributable to the expected rise in wages and cost of materials and transport.  The firms’ expectations about 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 generally declined as shown by the narrowing standard deviation from the average expectations. Firms’ inflation expectations for 2019 average 3.6 percent, suggesting that inflation expectations are well anchored within the Bank’s objective range,” said the report.

Some of the factors anticipated to affect doing business include lack of external financing, as perceived by a number of firms, predominantly market-oriented ones, across various sectors. Another challenge is shortage of raw materials, commonly cited by the manufacturing sector, followed by construction and trade, hotels, restaurants and transport and communications. The local economy posted positive figures for gross domestic product (GDP), according data from Statistics Botswana (SB). SB reported that P48, 728.9 million worth of goods and services was produced in the first quarter compared to P48, 491.6 million during the previous quarter, translating to a 4.3 percent economy increase in the first quarter of 2019, compared to a rise of 4.5 percent recorded in the same quarter of 2018.

The report show that non-mining sectors trade, hotels and restaurants remained the major contributor to GDP by 19.1 percent, followed by mining and quarrying, general government and finance and business services at 16.6, 14.5 and 14.3 percent respectively.
Economist at Barclays Bank Botswana, Naledi Madala said though the first quarter GDP is lower than the 4.5 percent recorded in 2018, it is a welcome development given the current global and regional economic conditions.

“The on-going trade disputes between the US and China, geo-political tensions, risks of a no Brexit deal and other factors have led to a significant slowdown in global growth making institutions such as the IMF to revise down expectations for global expansion to 3.3 percent. Regionally, South Africa which is Botswana biggest trading partner continues to underperform,” Madala highlighted. She said South Africa’s first quarter national accounts data came in worse than expected, adding that it was its worst quarterly contraction since the height of the global financial crisis in 2009.

Madala cited that the services sector should continue to play an increasing role in the economy, a development she welcomes. “Over the past few years, there has been a difference in performance between the buoyant services sector and the slowing primary (mining, agriculture) and secondary (manufacturing) sectors,” said Madala.

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