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Business confidence strengthened in 2018 – BoB

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.

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Business

Inflation will bounce back to objective range in 2022- BoB

25th October 2021
Moses Pelaelo

The Monetary Policy Committee (MPC) of the Bank of Botswana decided to maintain the Bank Rate at 3.75 percent at a meeting held on October 21, 2021.  Briefing members of the media moments after the meeting Bank of Botswana Governor Moses Pelaelo explained that Inflation decreased from 8.8 percent in August to 8.4 percent in September 2021, although remaining above the upper bound of the Bank’s medium-term objective range of 3 – 6 percent.

He said Inflation is projected to revert to within the objective range in the second quarter of 2022, mainly on account of the dissipating impact of the recent upward adjustment in value added tax (VAT) and administered prices from the inflation calculation; which altogether contributed 5.2 percentage points to the current level of inflation.  Overall, risks to the inflation outlook are assessed to be skewed to the upside.

These risks include the potential increase in international commodity prices beyond current forecasts; persistence of supply and logistical constraints due to lags in production; possible maintenance of travel restrictions and lockdowns due to the COVID-19 pandemic; domestic risk factors relating to regular annual price adjustments; as well as second-round effects of the recent increases in administered prices and inflation expectations that could lead to generalised higher price adjustments.

Furthermore, aggressive action by governments (for example, the Economic Recovery and Transformation Plan (ERTP)) and major central banks to bolster aggregate demand, as well as the successful rollout of the COVID-19 vaccination programmes, could add pressure to inflation.  These risks are, however, moderated by the possibility of weak domestic and global economic activity, with a likely further dampening effect on productivity due to periodic lockdowns and other forms of restrictions in response to the emergence of new COVID-19 variants.

A slow rollout of vaccines, resulting in the continuance of weak economic activity and the possible decline in international commodity prices could also result in lower inflation, as would capacity constraints in implementing the ERTP initiatives. Real Gross Domestic Product (GDP) for Botswana grew by 4.9 percent in the twelve months to June 2021, compared to a contraction of 5.1 percent in the corresponding period in 2020.

The increase in output is attributable to the expansion in production of both the mining and non-mining sectors, resulting from an improved performance of the economy from a low base in the corresponding period in the previous year. Mining output increased by 3 percent in the year to June 2021, because of a 3.2 percent increase in diamond mining output, compared to a contraction of 19.3 percent in 2020. Similarly, non-mining GDP grew by 5.4 percent in the twelve-month period ending June 2021, compared to a decrease of 0.7 percent in the corresponding period in 2020.

The increase in non-mining GDP was mainly due to expansion in output for construction, diamond traders, transport and storage, wholesale and retail and real estate.  Projections by the Ministry of Finance and Economic Development and the International Monetary Fund (IMF) suggest a rebound in economic growth for Botswana in 2021. The Ministry projects a growth rate of 9.7 percent in 2021, moderating to a growth of 4.3 percent in 2022.  On the other hand, the IMF forecasts the domestic economy to grow by 9.2 percent in 2021; and this is expected to moderate to a growth of 4.7 percent in 2022. The growth outcome will partly depend on success of the vaccine rollout.

According to the October 2021 World Economic Outlook (WEO), global output growth is forecast at 5.9 percent in 2021, 0.1 percentage point lower than in the July 2021 WEO update.  The downward revision reflects downgrades for advanced economies mainly due to supply disruptions, while the growth forecast for low-income countries was lowered as the slow rollout of COVID-19 vaccines weigh down on economic recovery.  Meanwhile, global output growth is anticipated to moderate to 4.9 percent in 2022, as some economies return to their pre-COVID-19 growth levels.

The South African Reserve Bank, for its part, projects that the South African GDP will grow by 5.3 percent in 2021, and slow to 1.7 percent in 2022.  The MPC notes that the short-term adverse developments in the domestic economy occur against a growth-enhancing environment.  These include accommodative monetary conditions, improvements in water and electricity supply, reforms to further improve the business environment and government interventions against COVID-19, including the vaccination rollout programme.

In addition, the successful implementation of ERTP should anchor the growth of exports and preservation of a sufficient buffer of foreign exchange reserves, which have recently fallen to an estimate of P47.9 billion (9.8 months of import cover) in September 2021.  Overall, it is projected that the economy will operate below full capacity in the short to medium term and, therefore, not creating any demand-driven inflationary pressures, going forward.

The projected increase in inflation in the short term is primarily due to transitory supply-side factors that, except for second-round effects and entrenched expectations (for example, through price adjustments by businesses, contractors, property owners and wage negotiations), do not normally attract monetary policy response. In this context, the MPC decided to continue with the accommodative monetary policy stance and maintain the Bank Rate at 3.75 percent.  Governor Moses Pelaelo noted that the Bank stands ready to respond appropriately as conditions warrant.

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Business

SEZA to boost investment through Mayors forum

25th October 2021
SEZA-CEO-Lonely-Mogara

The Special Economic Zones Authority (SEZA) recently launched the Mayor’s forum. The Authority will engage with local governments to improve ease of doing business, boost investment, and fast track the development of Botswana’s Special Economic Zones (SEZs).

The Mayors Forum was established to recognise the vital role that local authorities play in infrastructure development; as they approve applications for planning, building and occupation permits. Local authorities also grant approvals for industrial licenses for manufacturing companies.
SEZA Chief Executive Officer (CEO) Lonely Mogara explained that the Mayor’s Forum was conceptualised after the Authority identified local authorities as critical partners in achieving its mandate and improving the ease of doing business. SEZA intends to develop legal instructions for different Ministries to align relevant laws with the SEZ Act, which will enable the operationalisation of the SEZ incentives.

“Engaging with local government will bring about the much-needed transformation as our SEZs are located in municipalities. For us, a good working relationship with local authorities is the special ingredient required for the efficient facilitation of SEZ investors, which will lead to their competitiveness and ultimate growth,” Mogara stated.

The Mayors Forum will focus on the referral of investors for establishment in different localities, efficient facilitation of investors, infrastructure and property development, and joint monitoring and evaluation of the SEZ programme at the local level. SEZA believes that collaborating with local authorities will bring about much-needed transformation in the areas where SEZs are located and ultimately within the national economy. Against this background, the concept of hosting a Mayors Forum was birthed to identify and provide solutions to possible barriers inhibiting ease of doing business.

One of the key outcomes of the Mayors Forum is the free flow of information between SEZA and local authorities. Further, the two will work together to change the business environment and achieve efficiency and competitiveness within the SEZs. Francistown Mayor Godisang Rasesigo was elected as the founding Chairman of the Mayors Forum. The forum will also include the executive leadership of all city, town and district councils, among them Mayors, City or Council Chairpersons, Town Clerks and District Commissioners.

Mogara explained that initial efforts would engage the local government in areas that host SEZA’s eight SEZs: Gaborone, Lobatse, Selebi Phikwe, Palapye, Francistown, Pandamatenga and Tuli Block. Meanwhile, Mogara told WeekendPost that they are confident that a modest 150 000 jobs could be unleashed in the next two to five years through a partnership with other government entities. He is adamant that the jobs will come from all the nine designated economic zones.

This publication gathers that the Authority is currently sitting on about P30 billion worth of investment. The investment, it is suggested, could be said to be locked up in government bureaucracy, awaiting the proper signatures for projects to take off. Mogara informed this publication that the Authority onboard investors who are bringing P200 million and above. He pointed out that more are injecting P1 billion investments compared to the lower stratum of their drive.

SEZA’s mandate hinges on the nine Special Economic Zones – being Gaborone (SSKIA), whose focus is of Mixed-use (Diamond Beneficiation, Aviation); Gaborone (Fairgrounds) for Financial services, professional services and corporate HQ village; Lobatse for Beef, leather & biogas park; Pandamatenga designated for Agriculture (cereal production); Selibe Phikwe area which is also of a Mixed-Use (Base metal beneficiation & value addition), Tuli Block Integrated coal value addition, dry port logistics centre, coal power generation and export; Francistown is set aside for International Multimodal logistics hub/ Mixed Use (Mining, logistics and downstream value-adding hub); whilst Palapye is for Horticulture.

The knowledge economy buzz speaks to SEZA’s agenda, according to Mogara. The CEO is determined to ensure that SEZA gets the buy-in from the government, parastatals and the private sector to deliver Botswana to a high economic status. “This will ensure more jobs, less poverty, more investment, and indeed wealth for Batswana,” quipped the enthusiastic Mogara. SEZA was established through the SEZ Act of 2015 and mandated with establishing, developing and managing the country’s SEZs. The Authority was tasked with creating a conducive domestic and foreign direct investment, diversifying the economy and increasing exports to facilitate employment creation.

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Business

De Beers Q3 production up 28 %

25th October 2021
De-Beers

De Beers rough diamond production for the third quarter of 2021 increased by 28% to 9.2 million carats, reflecting planned higher Production to meet more robust demand for rough diamonds. In Botswana, Production increased by 33% to 6.4 million carats, primarily driven by the planned treatment of higher-grade ore at Jwaneng, partly offset by lower Production at Orapa due to the scheduled closure of Plant 1.

Namibia’s Production increased by 65% to 0.4 million carats, reflecting the marine fleet’s suspension during Q3 2020 as part of the response to lower demand at that time. South Africa production increased by 34% to 1.6 million carats due to the planned treatment of higher grade ore from the final cut of the Venetia open pit and an improvement in plant performance. Production in Canada decreased by 13% to 0.8 million carats due to lower grade ore being processed.

Demand for rough diamonds continued to be robust, with positive midstream sentiment reflecting strong demand for polished diamond jewellery, particularly in the key markets of the US and China. Rough diamond sales totalled 7.8 million carats (7.0 million carats on a consolidated basis) from two Sights, compared with 6.6 million carats (6.5 million carats on a consolidated basis) from three Sights in Q3 2020 and 7.3 million carats (6.5 million carats on consolidated basis) from two Sights in Q2 2021.

De Beers tightened Production guidance to 32 million carats (previously 32-33 million carats) due to continuing operational challenges, subject to the extent of any further Covid-19 related disruptions. Commenting on the production figures, Mark Cutifani, Chief Executive of De Beers parent company Anglo American, said: “Production is up 2%(1) compared to Q3 of last year, with our operating levels generally maintained at approximately 95%(2) of normal capacity.

The increase in Production is led by planned higher rough diamond production at De Beers, increased output from our Minas-Rio iron ore operation in Brazil, reflecting the planned pipeline maintenance in Q3 2020, and improved plant performance at our Kumba iron ore operations in South Africa. “We are broadly on track to deliver our full-year production guidance across all products while taking the opportunity to tighten up the guidance for diamonds, copper, and iron ore within our current range as we approach the end of the year.

“Our copper operations in Chile continue to work hard on mitigating the risk of water availability due to the challenges presented by the longest drought on record for the region, including sourcing water that is not suitable for use elsewhere and further increasing water recycling.”
On Wednesday, De Beers announced the value of rough diamond sales (Global Sightholder Sales and Auctions) for the eighth sales cycle of 2021. The company raked in US$ 490 million for the cycle, a slight improvement when compared to US$467 million recorded in 2020 cycle 8.

Owing to the restrictions on the movement of people and products in various jurisdictions around the globe, De Beers Group has continued to implement a more flexible approach to rough diamond sales during the eighth sales cycle of 2021, with the Sight event extended beyond its normal week-long duration.   As a result, the provisional rough diamond sales figure quoted for Cycle 8 represents the expected sales value from 4 October to 19 October. It remains subject to adjustment based on final completed sales.

Commenting on the cycle 8 sales De Beers Group Chief Executive Officer Bruce Cleaver said that: “As the diamond sector prepares for the key holiday season and US consumer demand for diamond jewellery continues to perform strongly, we saw further robust demand for rough diamonds in the eighth sales cycle of the year ahead of the Diwali holiday when demand for rough diamonds is likely to be affected by the closure of polishing factories in India.”

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