Wednesday, May 25, 2022

Absa does not see ‘red’ in the local economy

Absa Botswana has revealed that it is becoming increasingly optimistic about the country’s economic recovery, though it urges caution.

In its detailed financial statements for the year ended December 2021 released this week, the Bank said it notes with optimism a steady recovery in both the local and global market as economies begin to slowly recover from impact of COVID-19.

The Bank said the easing of COVID-19 containment measures allowed economic activity to resume boosting business sentiment and improved economic activity including resumption of global trade in diamonds.

It observed that mining sector expanded by 15.6% in the year to September 2021 compared to a contraction of 22.2 % in the year to September 2020. Absa Botswana said the construction sector growth was driven by the implementation of major infrastructural projects that had been delayed because of COVID-19 related containment measures. Non-mining GDP grew by 6.9 % in the year to September 2021.

Looking ahead Absa projects Botswana’s real GDP growth to soften from 12.5% in 2021 to 5.2% in 2022 as activity levels out following an initial rebound. Growth in 2022 will be underpinned by the recovery in key sectors such as mining as the effects of the pandemic recede and commodity prices rebound.

“The rise in diamond output will continue to be driven by additional investment in productive capacity and increased international demand for luxury goods caused by the continuing economic recovery in developed markets,” the Bank said. It said the non-mining sectors are also expected to improve supported by accommodative monetary conditions implementation of business environment reforms and government interventions against COVID-19 including the Economic Recovery and Transformation Plan (ERTP).

“Upside risks to the inflation outlook remain elevated in 2022. The rise in commodity prices particularly fuel and food prices remain a key threat to Botswana’s inflation outlook in 2022,” the Bank said. According to Absa Botswana, the country’s monetary policy will undergo a major overhaul as the Central Bank has revealed plans to make operational changes in order to improve the effectiveness of the transmission mechanism and its ability to influence monetary conditions.

It noted that the effects of COVID-19 continue to have an impact on the business performance.

“The rollout of COVID-19 vaccines in Botswana and its key source markets will be fundamental to the economy’s sustained recovery,” the Bank said.

“We anticipate that key sectors such as mining and tourism will continue to make headway which will ultimately lead to recovery of our local economy,” the Bank said.

Turning to its financial performance, Absa Botswana said “We are encouraged by the continued momentum of our business and its operational resilience which has culminated in recovery of our financial performance.” The Bank noted that although it was still in the recovery journey “our response strategy as a bank has yielded a pleasing set of financial results for the year under review signaling the recovery of both our financial performance and business environment.”

It said its digital strategy portfolio management strategies revenue diversification strategies together with operational efficiencies strategy have all contributed positively to our financial performance.

“To this end we saw a material recovery in our profitability by 81% compared to 2020. This translates to full year profit of P659 million,” the Bank said.

The Bank also said “We also saw the resuscitation of the property sector evidenced by several key infrastructure projects across the country” adding that “We remain encouraged by these recovery indicators as they will be beneficial in the future.”

It said a notable strain was evident in market liquidity with deposits constrained as Public Sector spending budgets reduced and fiscal policy adjustments were made to accommodate the economic impact of COVID-19.

“This led to tighter liquidity and margin compression in our market. We undertook deliberate efforts to attract the right deposits through our various strategies that delivered healthy growth in our deposit base,” the Bank said.

Going forward, the Bank said, its focus would be centered on supporting its customers rebuild their businesses and subsequently support economic growth. “This will be achieved through providing balance sheet optimization and fostering the Public and Private Sector Partnerships (PPP’s) to support government economic agenda for the delivery of key infrastructure projects,” the Bank said.

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