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Botswana inflation rate lowest in SACU

Botswana’s inflation rate has been recorded as the lowest amongst other Southern African Customs Union (SACU) member states. SACU is a customs union among five countries being Botswana, Lesotho, Namibia, South Africa and Swaziland.


According to Statistics Botswana’s ‘Prices Stats’ brief released this week, Botswana’s inflation rate was the lowest comparatively. The Brief compared Botswana’s Consumer Price Statistics with that of her trading partners in SACU.
The succinct Statistics latest report made a comparison of Botswana and SACU Headline Inflation and observed that comparatively, “Botswana’s annual average inflation rate of 2.8 percent in 2016 was the lowest among the SACU member states”.


It further points out that the highest annual average inflation rate was recorded in Swaziland with a rate of 7.8 percent whereas South Africa, Lesotho and Namibia recorded annual average rates of 6.3, 6.6 and 6.7 percent respectively. “This is feasible, considering the fact that Botswana’s rate was cushioned by stable fuel pump prices of petrol and diesel which was reduced in February 2016 and was kept at that price for the whole year,” states the Statistics report.


In addition, it posits that there was a sustained strength of the Botswana Pula relative to its counterparts for most of the year under review. Notwithstanding that, the annual average inflation rate of 2.8 percent recorded in 2016 was on the lower side of the inflation target range of 3 – 6 percent set out by the Bank of Botswana.


In terms of the Consumer Price Index, the Statistics Brief states that, on average, the All Items Index which is conventionally referred to as Cost of Living Index or Consumer Price Index (CPI) was 99.4 in 2016, which is an increase of 2.8 percent on the 2015 average index of 96.6. This means that the cost of a fixed basket of goods which cost 96.6 units in 2015 cost 99.4 units in 2016.


“The average inflation rate was 2.8 percent in 2016 compared to 3.1 percent realized in 2015. This means that consumers on average paid 2.8 percent less for the goods and services in the Consumer Price Index (CPI) basket in 2016 compared to 2015 (3.1 percent). The 2.8 percent inflation rate recorded in 2016 was the lowest since 1970,” it further points out.  


Moreover, the Briefs explain that applying significant downward pressure on the inflation between 2015 and 2016 were the declining prices of major components in the CPI basket especially Transport group index (-2.7 percent) which accounted for 20.65 percent of CPI basket weights.


Transport


In terms of transport, the report stresses that all group indices experienced positive increase between 2015 and 2016 except Transport which recorded a decline of 2.7 percent. It states: “the deceleration was mainly attributable to a decline in the constituent section index of Operation of Personal Transport (1.3 percent). The decrease in the Operation of Personal Transport section index was due to the drop in retail pump prices of petrol by P0.15 and diesel by P0.45 per liter, which effected on the 1st February 2016, following a drop in global oil prices which had eased to an average of 50 US Dollar in 2016.”


Housing, Water, Electricity, Gas & Other Fuels


The Housing, Water, Electricity, Gas & Other Fuels group index stood at 98.8 percent on average in 2016, an increase of 6.3 percent from the 2015 average of 93.0. The Statistics briefs mentions that this “was due to overall increase in the constituent section indices except for water and electricity which remained constant for the rest of 2016”.


Food & Non-Alcoholic Beverages


According to the SB, the Food group Index registered an increase of 2.7 percent, from an average of 96.8 in 2015 to 99.4 in 2016. “Given the fact that the weight of Food & Non-Alcoholic Beverages is 16.51 in the CPI basket and the frequency at which a consumer purchases food items, high food prices can have a large impact on consumer confidence particularly, those individuals in the bottom income level, for whom food, as a share of total expenditures, is much larger.”


Clothing and Footwear


With regard to the Clothing and Footwear Group Index, it registered an increase of 6.5 percent, from an average of 93.1 in 2015 to 99.1 in 2016. The rise was attributed to a general increase in the section indices.


Other Group Indices


Other section groups recorded on average less than 5 percent inflation rate in 2016. It is said that Restaurants & Hotels Group Index stood at 4.0 percent whereas Alcoholic Beverages, Tobacco & Narcotics Group Index recorded 2.5 percent in 2016. The Education group index increased by 3.7 percent.


“Health and Furnishing, Household Equipment & Routine Maintenance group indices both recorded 3.0 percent. The Recreation & Culture increased by 3.0 percent while Communications group index rose by 0.2 percent.”
Cost of living Index and Inflation Rates by Strata


The report highlights that Consumer Price Indices (CPI) is also compiled by strata, meaning, CPI is recorded according to Cities/towns, Urban villages and Rural villages. In 2016 it is understood that products were generally costly in rural villages compared to cities/towns. In rural villages consumers needed 100.8 units in December 2016 to buy the same basket which would cost 100.4 units in Cities/towns. This implies that it was expensive to buy goods in rural areas compared to cities/towns as reflected by average inflation rate in 2016, the report emphasised.


Meanwhile, the Stats Brief presents a brief summary of Botswana Consumer Price Indices (CPI) and Inflation rates for 2016. According to Statistician General Anna Majelantle, Price Statistics information is useful for formulation of socio-economic and monetary policies, quantifying the purchasing power of the Pula in relation to goods and services over time in Botswana.


In order to produce statistics that reflect the current situation in the economy, she says Statistics Botswana has rebased the Consumer Price Index from September 2006 to September 2016. She also pointed out that the CPI rebasing covers a number of issues which includes the revised basket and weights, area coverage as well as the methodology.


“Area coverage was largely extended to areas in the western side of the country i.e. Shakawe, Gumare, Charleshill and Hukuntsi. Other areas were removed due to proximity to other areas where prices were already collected,” she explained.
CPI is an index which measures price changes in goods and services with reference to a base period. The current Botswana CPI series has a base period of September 2016.

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Business

New study reveals why youth entrepreneurs are failing

21st July 2022
Youth

The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.

The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.

University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.

According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.

The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”

The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”

According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”

The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.

Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”

According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”

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Business

BHC yearend financial results impressive

18th July 2022
BHC

Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.

The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.

Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.”
He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.

It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.

He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.

The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.

On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.

BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”

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Business

Commercial banks to cash big on high interest rates on loans

18th July 2022
Commercial-banks

Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.

In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.

Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.

Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.

The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.

The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.

“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.

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