Botswana Busineses pessimistic about economic activity

A report by the Bank of Botswana suggests that businesses from various economic sectors were pessimistic about the prospects of economic activity during the second quarter of 2020, a deterioration from the optimism business had during the first quarter of 2020. The pessimism is consistent with the anticipated decline in production, sales, profitability, exports and imports of goods and services; and investment in buildings, vehicles and equipment, plant and machinery associated with the COVID-19 pandemic.

A report on the Bank’s quarterly Business Expectations Survey conducted in June, and published recently, gives a general perception by the various sectors about the prevailing state of the economy and its prospects.

Although conducted during the second quarter, which was current then, the survey horizon covers the subsequent quarter and the next twelve months.

The survey was conducted during the lock down period with its travel restrictions and the social distancing measures to contain the spread of the pandemic, but also having dire consequences on the economic activity both at domestic level and globally, affecting different businesses in various ways.

The survey covered companies in eight areas of the economy, being agriculture, mining, manufacturing, water and electricity, construction, trade, hotels and restaurants; transport and communications: and finance and business services.

Chief among the outcomes of the survey the report indicates that the COVID-19 health protocol measures have negatively affected business operations in the second quarter of 2020, with the most affected firms being in thee, hotels, restaurants, transport and communications; mining and quarrying; finance and business services, and the construction sectors.

“In general, firms anticipate that it will take a year from June 2020, for their businesses to recover from the impact of COVID-19,” the report states.

“By design, the survey responses are predominantly qualitative, and provide valuable information to facilitate analysis and inform policy decisions. However, responses to questions relating to COVID-19, GDP growth and inflation are quantitative and are consolidated into simple averages,” the report further states.

According to the survey results, firms are less optimistic about economic activity in the second quarter of 2020 compared to the previous quarter. Overall, businesses expect a deterioration in all business condition indicators while deterioration in access to credit was anticipated to be much tighter in the domestic market compared to other markets.

“Meanwhile, firms expect cost pressures to fall significantly in the third quarter of 2020, mainly reflecting the anticipated reduction in costs of wages, transport, rent and materials. Firms also expected inflation to remain stable and within the Bank’s medium-term objective range of 3 - 6 percent, in 2020 and 202,” the report states.

However, though painting a gloomy outlook, businesses expect overall output to contract by 0.2 percent in 2020, compared to a larger contraction of 8.9 percent projected by the Ministry of Finance and Economic Development (MFED), and lower than the 3 percent growth in 2019.

“On quarterly basis, firms expect GDP to contract in the second quarter of 2020, consistent with the anticipated decline in production; sales; profitability; exports and imports of goods and services; and investment in buildings, vehicles and equipment, plant and machinery, and ‘other’ investments,” the report states.

The perceptions of lower economic growth in the mining mining and quarrying, the trade, hotels and restaurants and the transport and communications sectors, as well as the finance and business services sectors between the first and second quarters of 2020 have influenced the expected weak performance in the second quarter of 2020.

“Notably, the mining and quarrying sector, which predominantly targets the export market, was significantly pessimistic about economic growth prospects in the second quarter of 2020 compared to an expected stagnation in the first quarter. This is consistent with the unfavourable market conditions, especially with respect to the diamond industry, occasioned by, among others, weaker global demand for rough diamonds associated with the US-China trade war (since September 2018) and the interruption of trading due to the recent outbreak of the COVID-19 pandemic,” the report observes.

The next highly pessimistic sectors are the trade, hotels and restaurants and the transport and communications sectors, which have also been hard hit by the travel restrictions and social distancing requirements.

The finance and business services sector, which expects poor economic performance consistent with firms’ predicted decline in production and investment during the second quarter of 2020 are also third on the list of these pessimistic sectors.

All is not gloom as the mining, manufacturing, water and electricity sectors are optimistic about economic performance, in the third quarter while the rest of the sectors are pessimistic.

“In general, firms expect the cost of credit to decrease across all markets, and a few cited the need for affordable credit to stimulate economic activity in the wake of the adverse impact of COVID-19 pandemic, as the main reason. A few other firms based their expectation of lower lending rates on the recent policy rate cut by the Bank. Regarding borrowing volumes, firms broadly expect an increase in domestic credit, and a reduction in credit from South Africa and elsewhere in the twelve-month period to June 2021.”

On a positive note, local businesses are of the view that the local political climate, government spending and the current regulatory framework as being the most supportive factors to doing business in Botswana during the second quarter of the year. Another observation is that the water sub-sector contributed positively to economic activity, reflecting improvement in the supply, which had previously been a serious challenge.

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