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Seesaw economy: Local firms skeptical

Bank of Botswana’s quarterly Business Expectations Survey (BES), the latest document which represents Botswana’s business community economic perception in its entirety and published by the central bank, paints a gloomy picture of an economy than is bending down to a lukewarm 2019.

“The results (BSE) suggest that firms were less optimistic about economic activity in the third quarter of 2019 compared to the second quarter of 2019,” said the Business Expectations Survey. As they are already feeling the pinch of an already depressed economy according to them, local firms are already seeing a decrease in exports of goods and services; profits; and investment in buildings, plant and machinery, vehicles and equipment, and ‘other’ category in the third quarter of 2019.

The Bank’s quarterly Business Expectations Survey (BES) collects information on the domestic business community’s perceptions about the prevailing state of the economy and prospects. In the survey, businesses respond to a range of questions relating to, among others: the business climate; outlook for economic growth; inflation and business performance over the survey horizon. The survey horizon comprises the quarter in which the survey is conducted, also referred to as the current period, the subsequent quarter and the next twelve months to September 2020.

BES shows results of the survey carried out in the third quarter of 2019, covering the third quarter of 2019 (Q3:2019 – the current period); the fourth quarter (Q4:2019); and the twelve-month period (M12) from October 2019 – September 2020 (Q4:2019-Q3:2020). With the response rate of 84 percent, it samples 100 businesses from eight economic sectors: agriculture; mining; manufacturing; water and electricity; construction; trade, hotels and restaurants; transport and communications, and business services. The response rate for this Survey is 84 percent.

While the focus of BES is chiefly to look at providing survey questions in anticipation of direction of change in selected indicators, it usually extract qualitative survey responses which is believed to provide valuable information to facilitate analysis and inform policy. The Bank further explains that however responses to questions relating to GDP growth and inflation are quantitative and consolidated into simple averages.

The local firms economic forecast also shrunk the 2019 Budget Speech projection by expecting the economy to grow by 3.5 percent in 2019 which is lower than the 4.2 percent projection of the national treasury. Local firms expect inflation to be slightly below 4 percent, agreeing with Bank of Botswana that inflation will remain within the objective range of 3 – 6 percent in the medium term.

Furthermore there is expected cost pressure to rise in the fourth quarter of 2019, mainly reflecting the anticipated upward pressure on costs of materials, wages and transport. But firms expect inflation not to be perturbed but to remain stable and within the Bank’s medium term objective range of 3 – 6 percent going forward. According to BES, firms’ inflation expectations for 2019 average 3.8 percent, suggesting that inflation expectations are well anchored within the Bank’s objective range.

Seesaw year of 2019 to recover towards 2020

A seesaw year according to the economic perception of the Botswana business community as a decline in third quarter of this year which is mainly attributable to weak economic conditions is uninspiring when compared to the better slate of Q2:2019. The third quarter was painted with a brush of gloom by a drastic decline in exports of goods and services; profits; investment in buildings, plant and machinery, vehicles and equipment; and ‘other’ investments.

However as this month of October opens up the last quarter of 2019, BES expect business conditions to improve slightly in this quarter. This improvement is expected to crossover to 2020 and this is when consistent with the anticipated improvements in capacity or resource utilization; production or service capacity; sales; stocks or inventories; and investment on: plant and machinery; buildings; and ‘other’. Despite lower performance expectations, all other sectors, led by the trade, hotels and restaurants and the transport and communications sectors were optimistic about economic activity in the third quarter of 2019, compared to the previous quarter.

External factors made a huge negative impact in mining

In the third quarter of this year, the BES says there was weak performance in the mining and quarrying sector and this could be attributable to the negative impact of the heightened trade tensions between the United States of America and China, which is adversely affecting the diamond market. Mining companies which are mainly export market-oriented firms were less optimistic about the third quarter of 2019 compared to other periods of the survey.

There is however confidence in the domestic market-oriented firms and these businesses are the main source of the economy’s expected jump up in the fourth quarter of 2019 to 2020 and this positive gesture is all thanks to an economic drive by trade, hotels and restaurants, transport and communications and the finance and business services sectors.

Borrowings by the business community

It has also been revealed in the BSE that mining firms prefer to borrow money from international markets and they intend to reduce borrowing from the domestic market. The survey which gathered together business community minds shows that about 73 percent of the domestic firms cited the availability and accessibility of the required loan products as the basis for their borrowing decisions. Some businesses, representing a fraction of 27 percent, borrowing was influenced by affordability of credit facilities and this was irrespective of whether funds are to be sourced from Botswana or abroad.

Last year’s BES showed that majority of firms prefer to finance their business operations from retained earnings and loans and this was the case in the survey for September 2019. Retained earnings as a source of finance is more prominent in the trade, hotels and restaurants, and the transport and communications sectors, according to BES. But the firms in manufacturing, finance and business services and the construction sectors plan to fund their businesses through loans.

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China’s GDP expands 3% in 2022 despite various pressures

2nd February 2023
China’s Gross Domestic Product (GDP) expanded by 3% year-on-year to 121.02 trillion yuan ($17.93 trillion) in 2022 despite being mired in various growth pressures, according to data from the National Bureau Statistics.

The annual growth rate beat a median economist forecast of 2.8% as polled by Reuters. The country’s fourth-quarter GDP growth of 2.9% also surpassed expectations for a 1.8% increase.

In 2022, the Chinese economy encountered more difficulties and challenges than was expected amid a complex domestic and international situation. However, NBS said economic growth stabilized after various measures were taken to shore up growth.

Industrial output rose 3.6% in 2022 over the previous year, while retail sales slightly shrank by 0.2% data show that fixed-asset investment increased 5.1% over 2021, with a 9.1% hike in manufacturing investment but a 10% fall in property investment.

China created 12.06 million new jobs in urban regions throughout the year, surpassing its annual target of 11 million, and officials have stressed the importance of continuing an employment-first policy in 2023.

Meanwhile, China tourism market is a step closer to robust recovery. Tourism operators are in high spirits because the market saw a good chance of a robust recovery during the Spring Festival holiday amid relaxed COVID-19 travel policies.

On January 27, the last day of the seven-day break, the Ministry of Culture and Tourism published an encouraging performance report of the tourism market. It said that domestic destinations and attractions received 308 million visits, up 23.1% year-on-year. The number is roughly 88.6% of that in 2019, they year before the pandemic hit.

According to the report, tourism-related revenue generated during the seven-day period was about 375.8 billion yuan ($55.41 billion), a year-on-year rise of 30%. The revenue was about 73% of that in 2019, the Ministry said.

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Jewellery manufacturing plant to create over 100 jobs

30th January 2023

The state of the art jewellery manufacturing plant that has been set up by international diamond and cutting company, KGK Diamonds Botswana will create over 100 jobs, of which 89 percent will be localized.

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Investors inject capital into Tsodilo Resources Company

25th January 2023

Local diamond and metal exploration company Tsodilo Resources Limited has negotiated a non-brokered private placement of 2,200, 914 units of the company at a price per unit of 0.20 US Dollars, which will provide gross proceeds to the company in the amount of C$440, 188. 20.

According to a statement from the group, proceeds from the private placement will be used for the betterment of the Xaudum iron formation project in Botswana and general corporate purposes.

The statement says every unit of the company will consist of a common share in the capital of the company and one Common Share purchase warrant of the company.

Each warrant will enable a holder to make a single purchase for the period of 24 months at an amount of $0.20. As per regularity requirements, the group indicates that the common shares and warrants will be subject to a four month plus a day hold period from date of closure.

Tsodilo is exempt from the formal valuation and minority shareholder approval requirements. This is for the reason that the fair market value of the private placement, insofar as it involves the director, is not more than 25% of the company’s market capitalization.

Tsodilo Resources Limited is an international diamond and metals exploration company engaged in the search for economic diamond and metal deposits at its Bosoto Limited and Gcwihaba Resources projects in Botswana.  The company has a 100% stake in Bosoto which holds the BK16 kimberlite project in the Orapa Kimberlite Field (OKF) in Botswana.

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