Confidence among businesses strengthened in the first half of 2018 compared to the second half of 2017, and is expected to rise further in the survey horizon. This is according to Business Expectations Survey (BES) conducted by the Bank of Botswana between March and April 2018.
The BES summarises views of the business community regarding their perceptions about the current and future state of the economy. The response rate stood at 89 percent in the current survey. “This higher confidence is also reflected in the forecast of a higher domestic growth rate of 5.3 percent for 2018 announced in the 2018 Budget Speech. Furthermore, in line with previous trends, more firms expect better business conditions going forward, with an overall confidence level of 68 percent for the second half of 2018 and 79 percent for the twelve-month period to June 2019. The improved confidence is reflected in both domestic-oriented and export-oriented firms,” reads the Survey report.
Furthermore the BES report notes that confidence amongst domestic-oriented businesses is 58 percent in H1:2018, compared to 46 percent in the second half of 2017, attributable to the estimated increase in Government spending in 2018/19 and the new leadership in the country.
Looking ahead, the BES report states that the level of optimism for domestic firms improved to 69 percent in H2:2018 and 78 percent in the year to June 2019. “Similarly, the confidence level of export-oriented businesses increased from 50 percent in H2:2017 to 55 percent in H1:2018 and is anticipated to increase to 60 percent in H2:2018, before rising markedly to 82 percent in H2:2018-H1:2019, reflecting the anticipated improvement in global trading conditions.”
Businesses expect domestic output growth in 2018 to be higher than in 2017 but lower than that anticipated in the 2018 Budget Speech. On average, businesses expect real GDP to grow by 4.1 percent in 2018. The projection is lower than the government forecast of 5.3 percent or 2018 announced in the 2018 Budget Speech.
However, the expected economic growth rate for 2018 by the business community is broadly in line with overall government expectations of an improvement in economic activity for the year and higher than the growth of 2.4 percent realised in 2017. According to the report modest economic growth is expected globally in 2018 and 2019. For the domestic economy, growth is expected to be driven improvements in the mining and non-mining sectors.
Global output is projected to expand by 3.9 percent in 2018 and 2019, an upward revision of 0.2 percentage points relative to the October 2017 forecast, and slightly higher than the 3.8 percent growth in 2017. “The upward revision to the forecast of global output growth reflects anticipated developments in advanced economies due to supportive financial conditions and the spillover effects of expansionary fiscal policy in the United States (US), as well as the expected increase in output growth in emerging market and developing economies,” reads the BES report.
In addition, it reflects the sentiment that growth momentum of 2017 will be sustained. Advanced economies are forecast to grow by 2.5 percent in 2018 and 2.2 percent in 2019, compared to 2.3 percent realised in 2017. Meanwhile, output growth in the emerging market and developing economies is expected to increase from 4.8 percent in 2017 to 4.9 percent and 5.1 percent in 2018 and 2019, respectively. The prospective improvement in performance in emerging market countries is due to recovery in commodity prices and continued fiscal support.
However, inward-looking policies, the rising financial vulnerabilities and increasing geopolitical and trade tensions, present downside risks to global economic performance. 86 percent of businesses expect to utilize atleast 50 percent of their productive capacity in the first half of 2018, consistent with the optimistic outlook for 2018. Despite the perceived challenging business environment, survey respondents are relatively optimistic (compared to the previous survey) about the demand for their products in 2018.
The improved optimism, in turn, has led to higher expectations regarding production, as reflected by the net balance of 31 percent in H1:2018 against 7 percent in H2:2017. Meanwhile, businesses are expecting an improvement in profitability as reflected by the net balance of negative 14 percent profitability for H1:2018 against negative 22 percent in H2:2017. The improved outlook is attributable to strong growth in agriculture, higher commodity prices and recovery in investor sentiment, which is reflective of the recent political developments in the country.
In the domestic economy, real GDP grew by 2.4 percent in 2017, lower than the growth of 4.3 percent recorded in 2016. The lower increase was partly attributed to a slower growth of non-mining GDP, mainly reflecting the deceleration in output growth for trade, hotels and 3 restaurants, as a result of lower quality of diamonds sold by De Beers Global Sightholder Sales (DBGSS) in the third quarter of 2017. Moreover, the larger contraction of 11.2 percent in mining output during 2017 compared to a decline of 3.5 percent in 2016, mainly due to the closure of the BCL and Tati Nickel mines in October 2016, also stifled overall economic growth.
The 2018 Budget Speech presented a forecast of output growth of 5.3 percent for 2018. The positive outlook is largely attributable to the projected improvement in the mining sector. The mining sector is expected to recover due to improvement in demand for diamonds as a result of favourable global economic prospects.
Furthermore, the projected accommodative monetary conditions in the domestic economy, the anticipated expansion in government spending in the 2018/19 fiscal year and other activities promoted by government initiatives such as promotion of dam tourism, continued efforts to develop Information Communication and Technology through broadening network coverage, including by rolling it out to secondary schools, and continued implementation of measures to improve the ease of doing business in Botswana), as well as stability in water and electricity supply, are expected to support growth of the non-mining sectors. Regionally, South Africa GDP is projected to grow by 1.5 percent in 2018 and 1.7 percent in 2019, slightly higher than 1.3 percent in 2017.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”