Sunday, April 21, 2024

Botswana investor confidence drops in 2013

Local businesses remain unenthusiastic about the current state of the local economy, citing the availability and cost of key inputs (electricity and water, a Bank of Botswana’s latest Business Expectations Survey has stated.

The survey indicates that overall confidence on current business conditions has declined compared with the March 2013 survey but improvement is expected in subsequent periods.
The overall business confidence in the prevailing business conditions (H2-2013) is at 45 percent, 2 percent lower than the level that prevailed during the March 2013 survey.

This was much lower than the 74 percent expected for this period at the time of the March 2013 survey, a clear indication that expectations have been revised downwards, states the survey. However, the survey says the level of optimism rose again for the first half of 2014 to 57 percent and to 64 percent over the next 12 months.

“The confidence among domestic-oriented businesses has held on at 49 percent, the same as in the March 2013 survey, despite ongoing challenges. This is consistent with continued growth of the non-mining sectors indicated in the latest GDP estimates and the positive outlook presented in the Budget Speech in February 2013,” states the survey.

In contrast, there has been a decline in the current confidence levels of export-oriented businesses from 44 percent to 38 percent, although, as with those focused on the domestic market, there is a significant rebound in confidence later in the survey period, when export volumes are expected to increase.

Business confidence deteriorated from 47 percent to 45 percent in September 2013, and remains on the low side when compared to the average of previous surveys, when confidence had typically exceeded 50 percent.

According to the survey, looking ahead, there is some increase in optimism. However, the protracted modest global growth and uncertain prospects, as well as expectations of sluggish domestic demand and uncertainty surrounding the availability and cost of key inputs (electricity and water) undermine business confidence.

The survey shows that firms are hesitant in their production objectives due to the prevailing uncertain economic environment. While an increasing proportion of respondents anticipate improvement in their utilisation of production capacity, expectations of capacity utilisation were adjusted downwards since the previous survey. It then suggest that intentions to significantly increase the number of people employed and other elements of investment compared to the previous period are at variance with projections for capacity utilisation, sales volumes and modest growth of the economy.

Negative sentiments regarding rising costs of all inputs, including utilities, transport and wages are very strong compared with the March 2013 survey. Such sentiments, the survey says, could be due to anticipated increase in utility costs, especially electricity, where the Government subsidy to consumers is sizable. Businesses may also consider the possibility of increase in salaries of civil servants given projected improvement in the Government financial position.

The survey says economic growth prospects are constrained by drought conditions, (which have led to the imposition of restrictions on water usage), power supply interruptions and the uncertain global economic outlook.

Estimates of GDP released during the survey period indicate that the economy grew by 4.6 percent in the 12 months to June 2013, up from 3.6 percent in the previous quarter.

“This improvement mainly reflects a stabilisation in the mining sector which contracted by only 0.7 percent, compared to 6.1 percent in the previous quarter. Non-mining GDP expanded by 5.5 percent compared to 5.3 percent increase in the previous quarter,” states the survey.

Subdued demand for commodities will continue to constrain prospects for mineral exports. However, the survey says, the successful transfer of sales by the Diamond Trading Company (DTC) to Gaborone should have a positive impact on economic activity.

The planned increase of development spending by Government of 18.7 percent should also support domestic demand, although this has yet to be seen in actual spending levels. The survey was undertaken in the period immediately following three successive interest rate cuts by the Monetary Policy Committee.

On borrowing, the survey says in line with their capital investment plans, there is increased appetite for additional borrowing from local and regional markets, despite the anticipated higher interest rates in regional financial markets.

“There is, however, some anticipation, albeit limited, of lower interest rates in Botswana, in both the current and future periods. Expectations of lower borrowing cost in the domestic market could be due to the reduction of the Bank rate from 9.5 percent to 8 percent during the survey period,” states the survey.


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