Wednesday, June 23, 2021

Businesses project slower growth, rising costs

Though local businesses had expected better fortunes this year compared to the disaster wrecked by Covid-19 in early 2020, latest data shows that businesses are still struggling to recover. 

According to the Business Expectations Survey (BES) released by Bank of Botswana on late Friday, businesses are still hampered by the coronavirus containment measures, with the first three months of the year characterised by decline in production, inventories, sales, profitability, and investment. 

The survey is undertaken quarterly by the central bank to collect information on the domestic business community’s perceptions about the prevailing state of the economy and prospects from a sample of 100 businesses across the key eight economic sectors that make up Botswana’s gross domestic product output (GDP):  agriculture; mining; manufacturing; water and electricity; construction; trade, hotels and restaurants; transport and communications; and finance and business services.

The hardest hit businesses in the first quarter were in the in the trade, hotels, restaurants, transport and communications sector, consistent with the continued periodic COVID19 movement restrictions, which led to cancelled tourist activity and bookings of accommodation and restaurant facilities. 

Still, businesses remain optimistic, hoping that economic performance will pick up in the second quarter of 2021, resulting in improved business conditions. The level of optimism rises further in the twelve-month period to March 2022, with the expectation based on anticipated domestic economic recovery and the gradual easing of COVID-19 pandemic containment measures.

The survey revealed that the confidence in the domestic market-oriented firms is mainly driven by firms in mining industry, mainly the diamond trade which has seen sales volume picking up.

Though the Ministry of Finance and Economic Development MFED projects that gross domestic product (GDP) will expand by 8.8 this year, businesses were still much pessimistic, forecasting that the economic recovery will be slow and lower at 2.2 percent. Last year the country’s GDP contracted by 7.9 percent, compared to 3 percent growth in 2019. 

On inflation, companies expect cost pressures to rise substantially in the second quarter of 2021, mainly attributable to the expected increase in all input costs, in line with the expected increase in inflation, following the recent upward adjustment in some tax rates such as value added tax (VAT) and withholding tax on dividends to residents, increase in fuel levy, as well as introduction of levy on sugar sweetened beverages effected in April 2021. 

Businesses’ expectations about domestic inflation have generally been on a downward trend since 2013, and within the central bank’s inflation objective range of 3-6 percent. 

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