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Economy grows by 4.3 percent

The Botswana domestic economy registered positive growth in 2016 following a slump in 2015. The latest release from Statistics Botswana show that the Real Gross Domestic Product (GDP) in the fourth quarter grew by 0.1 percent on quarterly basis as it made a recovery from the 1.1 percent decline in the third quarter. The growth in the fourth quarter added to other quarterly growth to give the commodity depended country its largest real GDP growth since 2014.

The estimated GDP at current prices for the fourth quarter of 2016 was P43.7 billion compared to a revised level of P44.1 billion registered in the third quarter of 2016. GDP at current prices  also known as nominal GDP measures GDP using the current price level. As a result, nominal GDP will often appear higher than real GDP

The estimated GDP at constant 2006 prices for the fourth quarter of 2016 was P22.42 billion compared to P22.41 billion registered in the third quarter of 2016. GDP at constant prices is known as the real GDP as it is adjusted for inflation, that is, it adjusts GDP for changes in inflation.

On a year to year basis, the domestic economy increased by 4.2 percent in the fourth quarter of 2016 compared to a decline of 3.5 percent recorded in the same quarter of 2015. The increase was attributed to real value added of Trade, Hotels & Restaurants and Transport & communications which increased by 12.4 and 6.5 percent respectively.

 All other industries recorded positive growths of more than 0.5 percent with the exception of mining which decreased by 6.2 percent. Trade, Hotels & Restaurants growth of 12.4 percent was attributed to the increase in real value added of Wholesalers, Vehicle dealers and Hotels & Restaurants by 95.5, 7.1 and 5.8 percent respectively. Wholesaler’s value added increased significantly because downstream diamond industries contributed more to the industry.

The decrease in the real mining value added of 6.2 percent was because of closure of the copper/nickel mines during the fourth quarter of 2016. In the quarter under review, copper/nickel production was zero due to the provisional liquidation of the BCL mine in October 2016. The closure of BCL mine also affected the Tati Nickel copper mine. On the other hand, diamond valued added increased by 14.3 percent during the quarter under review due to positive recovery in the global markets, particularly in the major markets for diamonds. During 2016, diamond prices have remained relatively stable and therefore the diamond industry has not been significantly impacted by the commodity price downturn.

Statistics Botswana’s fourth quarter GDP data shows that Non mining GDP increased by 5.5 percent in the fourth quarter of 2016 compared to 1.7 percent registered in the same quarter of the previous year. The increase is mainly due Trade, hotels and restaurants particularly the wholesale sub industry. Water and Electricity value added at constant 2006 prices for the fourth quarter of 2016 was P232.6 million compared to P122.3 million registered in the same quarter in 2015, recording an increase of 90.1 percent. Even though the sector registered the highest growth, its contribution to GDP is still the lowest.

In the end, the diamond rich nation recorded the largest annual GDP growth in over three years following growth of 4.1 percent in 2014 and a contraction of 1.7 percent in 2015. The economy emerged from 2015’s recession after registering positive growth in the first and second quarter of 2016, followed by contraction in the third quarter before making a recovery in the fourth quarter. In 2016, nominal GDP stood at P169.7 billion compared to P145.9 billion registered in 2015, recording an increase of 16.3 percent. Real GDP increased by 4.3 percent in 2016 compared to a decrease of 1.7 percent registered in 2015.

The impressive economic growth in 2016 was underpinned by consistent growth in Trade, Hotels & Restaurants and Transport & communications industries which recorded an increase in value added of 13.5, and 5.6 percent respectively. An increase in the real value added of the Trade, Hotels and Restaurants was mainly due to the significant growth from downstream diamonds industries due to the recovery in the global markets. In 2016, diamond production increased by 0.3 percent as opposed to a decline of 15.6 percent recorded in 2015.

All other industries recorded a positive growth with the exception of Mining and Agriculture which declined by 3.7 and 1.0 percent respectively. The data collecting agency says a decrease in the real value added of the Mining industry was attributed to a decline in copper/nickel value added by 21.2 percent in 2016. In the year under review, copper production decreased by 22.4 percent due to provisional liquidation of BCL mine in October 2016. A decrease in the real value added of the Agriculture industry was attributed to a decline in Other Agriculture value added by 0.6 percent in 2016. The sub sector is mainly driven by horticulture activities. In 2016, production for both fruits and vegetables decreased by 19.5 percent.

The positive GDP growth in 2016 has surpassed the 4.2 percent that was forecasted for 2016. Botswana’s economy ended 2016 strongly with a trade surplus of P13.4 billion, a stark reversal from the P9.7 billion trade deficit recorded in 2015. This was the largest yearly trade surplus in over sixteen years. Botswana’s rough-diamond exports bounced back last year after a plunge in 2015, helping the country return to economic growth. The nation shipped about P40 billion of rough diamonds in 2016, a jump of 54 percent, according to the Bank of Botswana. The country’s total exports, of which 83 percent are diamonds, grew by an estimated 26.4 percent in 2016.

According to the World Bank, Botswana’s economy is expected to keep up the momentum with projected GDP growth rates of 4.1 percent in 2017, driven mainly by an expected improvement in the mining sector as demand from developed economies stabilizes. Continued fiscal stimulus is expected to drive the non-mining activity thus contributing to the positive performance. However, SACU transfers will remain soft mainly due to a weak near-term economic outlook for South African growth.

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New study reveals why youth entrepreneurs are failing

21st July 2022

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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BHC yearend financial results impressive

18th July 2022

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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Commercial banks to cash big on high interest rates on loans

18th July 2022

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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