Sunday, July 3, 2022

Business confidence takes a nosedive

Businesses operating in Botswana are less optimistic about economic prospects as they expect lower sales, profits and reduced capacity utilisation, which has been compounded by the rise in consumer prices, suggests fresh information from Bank of Botswana’s quarterly Business Expectations Survey (BES) for the first quarter, released on Friday.

The survey collects information on the domestic business community’s perceptions about the prevailing state of the economy and expectations during the survey period.

The BES samples one hundred businesses from thirteen economic sectors, namely: Agriculture, Forestry and Fishing; Mining and Quarrying; Manufacturing; Water and Electricity; Construction; Wholesale and Retail; Transport and Storage; Accommodation and Food Services; Information and Communications Technology; Finance, Insurance and Pension Funding; Real Estate Activities; Professional Scientific and Technical Activities; and Administrative and Support Activities.

According to the survey’s findings, business confidence waned in the first quarter compared to results in the last survey conducted in the last quarter of 2021.

“The reduced level of optimism in the current survey is reflected by the anticipated deceleration in production; inventories; sales; profitability; and imports of goods and services, mainly due to the increase in cost pressures arising from geopolitical crisis in Eastern Europe and second round effects of the COVID-19 pandemic,” economists from the central bank said.

While businesses anticipate improvement in business conditions in the second quarter of 2022 and the twelve-month period to March 2023, they expect cost pressures to be higher in the same quarter than in the first quarter of 2022, reflecting the anticipated upward adjustment in fuel prices due to challenges arising from the invasion of Ukraine by Russia. With inflation rate currently hovering around 10 percent in March, firms expect inflation rate to remain above the upper bound of the Bank’s 3 – 6 percent objective range in 2022.

Furthermore, domestic and international demand were perceived as major challenges to doing business locally. The other most commonly cited impediment to operations was shortage of raw materials. Meanwhile, favourable political climate; adequate water and electricity supply; availability of external financing; effective regulatory framework and availability of skilled labour were viewed as supportive factors to doing business in Botswana in the first quarter of 2022.

The decline in business confidence among both domestic market-oriented and export-oriented firms is expected to have a negative impact on the domestic economic performance, with businesses forecasting that the economy will expand by 4.3 percent in 2022, higher than the projection of 4 percent by the Ministry of Finance and Economic Development. The forecast by businesses is in line with the recent forecast of 4.3 percent by the International Monetary Fund, which has cut the growth rate down from the initial 4.7 percent.

According to the survey, the three expected rates of growth align well with the envisaged global economic growth recovery in 2022.

“On quarterly basis, firms expect GDP to increase by 3.2 percent in March and June 2022. Growth expectations for the first half of 2022 are in line with the anticipated improvement in performance of sectors such as Mining and Quarrying; Manufacturing; Finance and Professional and Administrative Activities; as well as Retail and Accommodation and Transport and Communications,” part of the report said.

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