- BoB special report reveals firms’ low appetite for loans
- Businesses expect cost pressures to ease in Q1 2025
A significant number of businesses in Botswana continue to finance their operations primarily through retained earnings, according to the recently released Bank of Botswana’s March 2025 Business Expectations Survey (BES).
The quarterly BES collects insights on business perceptions of the domestic economy, including current conditions, expectations for the following quarter, and outlook over the next 12 months.
In the latest report, the Bank said the trend of businesses preferring internal funding remained consistent with previous surveys. Retained earnings were cited as the most preferred source of funding, followed by loans, mixed sources, and equity.
“The preference for using retained earnings as a source of financing was prevalent among all sectors,” the report noted. “However, some firms in sectors such as Finance, Professional and Administrative Activities and Retail, Accommodation, Transport and Communications ranked loans relatively high as a funding source.”
Independent economist Lame Bothata said the reduced appetite for borrowing reflects difficult economic conditions faced by many firms.
“Different sectors of the economy are not doing well. Government, which is a large procurement entity, has also reduced spending, citing subdued coffers,” Bothata said. “The situation will be worse as mineral revenue is suppressed because of weak demand for rough diamonds.”
Bothata said many firms could be wary of taking loans they may be unable to repay as economic activity slows.
“Some businesses, such as SMMEs, wouldn’t be able to self-sustain their operations for a very long period of time as they could grapple with cash flow challenges and fail to stay afloat compared to big corporates or multinationals,” he said.
According to the survey, about 41 percent of respondents said the accessibility of appropriate credit facilities influenced their choice of credit market. Another 33 percent cited the availability of suitable loans, while 13 percent were influenced by the affordability of credit. A further 13 percent indicated that a combination of these factors guided their decision.
The report also showed that firms expect overall output to expand by 1.9 percent in 2025, a recovery from the 3 percent contraction in 2024. However, the projection falls short of the 3.3 percent growth forecast by the Ministry of Finance.
Firms in the Retail, Accommodation, Transport, Communications; Manufacturing; and Mining and Quarrying sectors were optimistic that business conditions would improve in the first quarter of 2025. However, those in the Agriculture sector remained neutral, while firms in Finance, Professional and Administrative Activities; and Construction and Real Estate expressed pessimism.
Cost pressures
Firms expect cost pressures to ease in the first quarter of 2025, largely due to anticipated declines in input costs, particularly for materials, wages, and other inputs.
Despite this, businesses expect domestic inflation to rise in 2025, averaging 3.9 percent, before easing slightly to 3.7 percent in 2026.
“Firms anticipate inflation to remain within the Bank’s 3–6 percent objective range in both 2025 and 2026, suggesting that inflation expectations are well anchored,” the report said.
