As a firm specialising in market research and data analysis, we bring valuable insights to the forefront of today’s article, focusing on expectations of the business community for the period 2023/2024 based on a survey conducted by the Bank of Botswana (BoB).
Every three months, BoB conducts the Business Expectations Survey (BES) to learn what the local business community thinks about the state of the economy and what they anticipate for the coming quarter. In this survey, businesses are asked questions on, among other things, the current business climate, the likelihood of inflation and economic growth, and business performance over the survey period.
A total of 100 businesses across 13 different economic sectors were contacted for the June 2023 Business Employment Survey. These include agriculture, forestry and fishing, manufacturing, water and electricity, construction, wholesale and retail, transportation, storage, lodging and food services, information and communications technology, finance, insurance, pension funding, real estate, professional scientific and technical activities, as well as administrative and support services.
Lending rates to increase:
Lending rates and borrowing volumes are expected to across all markets in the year to June 2024. Firms expect lending rates and the volume of borrowing from all markets (domestically, in South Africa, and elsewhere) to increase in the 12-month period to June 2024. This is consistent with the expected rise in investment, production capacity, sales volume, and profitability, supported by the anticipated improvement in domestic economic performance during the period.
According to The Global Economy, the average lending rate for 2022, based on 86 countries, was 11.74 percent. The highest value was in Zimbabwe with 131.81 percent and the lowest in Italy with 2.26 percent per annum while Botswana was at 6.14 percent. However, BoB records highlight that the rate rose to 6.760 percent in May 2023.
Effects of lending rate on business:
An increase in the lending rate has the following effects on business:
- The costof borrowing increases, hence individuals and businesses will refrain from borrowing money.
- Debt payments become higher leaving people with less money to spend on other goods and services and resulting in lower consumption. Consequently, lower consumption reduces business revenues, which leads to decreasing output and demand for labour.
On the other hand, lower lending rates cause the price of borrowing to go down. This in turn encourages borrowing money for investments or consumption by both individuals and businesses. Less money is paid in debt, and this stimulates consumption by giving consumers more money to spend on goods and services. Businesses generate more money because of increased consumption, which boosts their productivity and demand for labour.
Source of funds:
Approximately 36 percent of the firms surveyed for BES in June indicated that their choice of credit market was influenced by accessibility while 31 percent were influenced by the availability of appropriate credit facilities.
Meanwhile, 27 percent of the firms cited affordability of suitable loan products while 5 percent cited both availability and affordability of the required loan products as determinants of their preferred credit market. BES findings also reflect that 52 percent of the firms prefer to finance their business operations from retained earnings. This is followed by loans (34 percent), equity (12 percent), and composite, which is a combination of financing, at 2 percent.
There is growth in the businesses that prefer loans as a source of their funding from 28 percent in the first quarter to 34 percent in the second quarter of 2023. This poses as potential business growth for banks and other credit service providers. We hope this article added value to you and your business.
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