Saturday, June 6, 2020

Business sector has a dim view on the economy

BY BONNIE MODIAKGOTLA

Despite the expected rise in public workers’ salaries, a highly optimistic president who has vowed to wow investors and create jobs, local businesses have expressed a dim view about their prospects, according to Bank of Botswana’s new report released on Friday.

The Business Expectations Survey (BES) collects information from the domestic business community’s to get perceptions on the prevailing state of the economy and economic prospects. The central bank carries this survey twice a year, each in every half of the year.

The March 2019 report, which is the latest, reveals that local companies are less optimistic about economic performance this year ÔÇô while the country’s ministry of Finance and Economic Development has projected gross domestic product (GDP) growth  of 4.2 percent in 2019, local firms expect this growth at a lower 3.8 percent.

Although business conditions are anticipated to be positive during the first half of this year, business confidence has dipped to 25 percent compared to last year’s 28 percent in the corresponding period. The business confidence is expected to fall further in the second half of the year down to reduced levels of capacity, production, sales, inventories, profitability and lack of investments.

“The decline in investment on buildings is in line with the dampening effect arising from the tight access to credit, as perceived by the business community,” read part of the report.

The dim view of business prospects in the first half of the year has been attributed to declining optimism among domestic-oriented companies, which make up 91 percent of businesses surveyed. Meanwhile the export-oriented firms are optimistic about the first half of the year, but like domestic-oriented companies, perceptions have changed to negative about anticipated business conditions in the last half of 2019.

“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 utilization and investment in plant and machinery,” said the report.

Local businesses anticipate borrowing costs to increase because of higher lending rates and increased volumes of credit in the second half of 2019, and this is expected to continue in the first half of 2020. The increase in lending rates and credit volume is also expected in South Africa, the country’s main trading partner, and in line with this, the central bank’s survey says borrowing volumes in South Africa are expected to decline in the second half of the year, before rising in the first six months of 2020.

Recruitment of foreign skilled workers came on top as the biggest challenge facing businesses as they complained of unavailable skilled labour force. This challenge was mainly faced by the construction sector followed by trade, hotels restaurants and transport. Meanwhile, the report says political climate, domestic demand and regulatory framework are viewed as being supportive in doing business in Botswana in the first half of the year.

“Overall, 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,” concluded the report.

“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 ÔÇô 6 percent going forward.”

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