Saturday, October 31, 2020

Business upbeat on economy but fragile on profits

Business confidence, boosted by the recovery in the mineral sector, is strengthening considerably in the aftermath of the global financial crisis. But warning signs came out of a possible spike in output prices that might erode profits.

The Business Expectation Survey (BES) published twice- yearly by Bank of Botswana pointed out this week that business confidence is on the upswing mood for the remainder of the year, hitting sensation levels next year.

The overall confidence in prevailing business conditions for the current survey period was 55 percent, compared to 47 percent in the previous survey and 40 percent in the same period in 2009.
“While confidence remains broadly constant at 54 percent for the rest of 2010, it improves markedly to 71 percent going into 2011. This suggests a positive attitude among businesses at a time when most indicators were pointing to a relatively smooth recovery from the global recession,” the report said.

The mineral sector expected to reach near full recovery by next year with some of the new mines opening before the close of 2011. The sector was badly affected by the global economic crunch that was possibly the worst since World War II.

The report indicated   that while the resurgence in confidence in 2011 was expressed in all fronts, it was much more pronounced among exporters, where it surged from 57 percent to 86 percent.

“This compares to domestic producers for which confidence rises from 53 percent to 69 percent,” the report added.

However, exporters under the context of Botswana’s economy will largely mean mineral sector and to a smaller extent the beef industry.

While there is an improvement in business confidence  there is a general belief that profits will stagnate or contract this year, but ,  there is significant improvement in sentiment from the previous survey with the net balance narrowing to -23.3 percent from -39.8 percent.

This trend continues going forward, with the net balance improving to -11.1 percent in the second half of 2010.

The Central Bank said the business community is wary of a rise in property rentals, increase in utility costs, transport and other cost during the course of 2010.

“This reflects solid expectations of electricity price increases in response to rising generation costs, as well as continuing concerns about trends in international oil prices, and may help to explain the continuing concerns about profitability,” the Bank said.

“Currently, there appears to be a general expectation of stable costs for both raw materials and the wage bill. However, going into 2011, there is a strong expectation of rising input costs across all categories, with net balance in excess of 60 percent in all cases,” the Bank said in shocking revelation.

The report said businesses expect national output to grow by 2.7 percent in real terms in 2010 and by 3.3 percent in 2011. The outlook on national performance for 2010 remains more or less unchanged, compared to the 2.6 percent projected in the previous survey.

Expectations also remain in line with the average annual growth rate of 3.1 percent estimated for NDP 10, but somewhat below the 5 percent that was projected in the budget speech for financial year 2010/11.

However, business borrowing within the domestic economy is expected to increase in the second half of the year, although it may start to decline towards the close of the year.
The move will be in line with some renewed expectation of interest rate increases as the economy recovers and to counter emerging price pressures.

The report covered a range of economic variables, including GDP growth, inflation, prospects for their own businesses as well as overall business confidence.

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