The precipitous drop in commodity prices will most likely cause a budget deficit, this is according to Econsult, a local consultancy firm. In their quarterly economic review, they point to struggling emerging markets, particularly China, Brazil and Russia, which are experiencing sluggish economic growth as the cause of the problems. The negative impacts will be largely felt by resource based economies such as Botswana, which has failed to diversify its diamond led economy.
The weak demand for diamonds has resulted in DeBeers reducing prices as much as 10% to stimulate demand, which proved to be a futile move as manufacturers have already enough in their inventories. The slump in diamond sales is expected to persist until 2016, putting pressure on government revenues due to lowered mineral exports.
“Lower exports and government mineral revenues will most likely lead to balance of payments and fiscal deficits in the second half of the year, perhaps extending into 2016,” read part of the review, before adding that “As a result, our revised forecast for real GDP growth for 2015 is now only 1%, lower than the revised projection of 2.6% released by the Ministry of Finance and Development Planning in its Budget Strategy Paper in September.”
Despite the slump in diamond sales, the economy has noted growth in non-mining private sectors which impressed at a robust growth rate of 5%. The pula remained strong compared to its neighbouring countries which have seen their currencies tumbling on the face of falling commodity prices. This has provided relief as it put aside any fears of immediate crisis.
The Econsult review warns that the fall in commodity prices is not the only problem policymakers in Botswana should be concerned with. Instead they point to a series of maladies which continue to cast a dark shadow on the economic prospects of the country.
These include, the water and electricity crisis, lack of transparency in immigration, slow progress in implementing promised reforms to improve business climate, slow progress in establishing a framework for public private partnerships and no implementation of privatisation commitments. “All of these add up to an environment of increasing economic uncertainty, which is a deterrent to investment both local and foreign, and job creation,” warned the consultancy firm.
The Econsult quarterly economic report has indicated that the government’s effort to stimulate the economy through the Economic Stimulus Package would have a two pronged outcome. In the short term it will boost economic activity and some job creation, particularly in the construction sector. In the long term “it seems unlikely that the stimulus package will address underlying constraints or help move the economy onto a higher long-term growth path. The real causes of slowing growth are not a lack of government spending, but a lack of competitiveness,” noted Econsult.
The consultancy firm further noted that the stimulus package should be met with caution as it could make things worse. They pointed out that the package will move the budget to larger deficits, therefore government spending should be efficient and accompanied by proper project management that will ensure money is invested in projects that could justify the financial investment through high returns.
“A rush to implement projects under the stimulus package is unlikely to see these fundamental issues addressed. It is essential that a focus on additional short-term spending does not distract attention from the need for fundamental structural reforms that will addresses competitiveness and productivity issues, which are essential for sustainable long-term growth and job creation,” advised Econsult.
In another report that corroborates Econsult’s dim view on Botswana’s growth prospects, the International Monetary Fund (IMF) has painted a gloomy picture of weaker growth in Sub Saharan countries, including Botswana. Through their latest Regional Economic Outlook, titled Dealing with the Gathering Clouds, the IMF said growth in Sub-Saharan Africa has weakened markedly, and is now expected at 3.75 percent this year and 4.25 percent in 2016, from 5 percent in 2014.
“Of the three factors that have underpinned the region’s solid performance of the last decade or so—a much improved business and macroeconomic environment, high commodity prices, and highly accommodative global financial conditions — the latter two have become far less supportive. As a result, while activity remains more solid than in many other developing and emerging regions of the world, the strong growth momentum evident in the region in recent years has dissipated,” read part of the report.
The report goes on to note considerable variations across the region, with the region’s low-income countries experiencing growth due to ongoing infrastructure investment and solid private consumption. In contrast, the hardest hit has been on the region’s eight oil exporters — which together account for about half of the region’s GDP and include the largest producers, Nigeria and Angola — as falling export incomes and resulting sharp fiscal adjustments is taking their toll on activity.
The IMF warns that the situation could get worse before it gets better therefore a need for some fiscal and monetary policy adjustments. On the fiscal policy side, some countries might find it difficult to manoeuvre as they try to stimulate economy due to lack of access to cheaper capital. On the monetary policy front, IMF suggests that countries whose currency is not pegged should allow for the exchange rate depreciation to absorb the shock caused by decline in trade.
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.”
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.”
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.