Businesses in Botswana have been urged to strengthen their risk management frameworks as economic uncertainty, exchange rate volatility and rising borrowing costs continue to weigh on corporate performance.
Speaking at an Absa Botswana Risk Management Seminar in Gaborone on Thursday, Absa Regional Senior Specialist Trader Kabelo Bogopa said companies should move beyond reacting to market developments and adopt structured risk management policies to safeguard earnings, cash flows and profitability.
Bogopa said the objective of risk management is not to eliminate risk entirely, but to ensure that businesses understand their exposure and have appropriate measures in place to manage it.
“Risk management is about understanding your risks and putting controls in place to reduce uncertainty around your business operations,” he said.
He noted that companies exposed to foreign exchange fluctuations, interest rate movements and commodity price volatility must first identify and quantify those risks before determining the level of exposure they are willing to accept.
According to Bogopa, the current economic environment is prompting more businesses to explore alternative funding sources, including offshore borrowing, as government spending slows and domestic liquidity conditions tighten. While foreign borrowing can provide access to capital, it also exposes firms to exchange rate risks that can significantly increase debt-servicing costs if currencies move unfavourably.
He said businesses should establish clear risk appetite frameworks, implement appropriate hedging strategies and regularly review them to ensure they remain aligned with changing market conditions.
Absa also highlighted a range of financial instruments available to help firms manage foreign exchange exposure, including forward contracts, currency options and cross-currency swaps.
Absa’s Head of Global Markets, James Ontoyi, said risk management has become increasingly critical as businesses navigate an operating environment shaped by geopolitical tensions, fiscal pressures and volatile financial markets.
“Risk management is no longer optional. Ignoring risk does not make it disappear. Businesses need to be proactive and put strategies in place to protect themselves,” Ontoyi said.
The seminar also heard from Absa Fixed Income and Currency Strategist Nikolaus Geromont, who offered a cautious assessment of Botswana’s economic outlook.
Geromont said the economy continues to face significant headwinds from the prolonged downturn in the diamond sector, which has weighed on growth, government revenues and foreign exchange earnings.
He noted that weaker diamond production, rising fuel prices and increasing government borrowing requirements are placing additional strain on public finances and financial markets.
The economist warned that Botswana’s fiscal deficit is likely to remain elevated, forcing the government to rely more heavily on domestic and external borrowing to close funding gaps.
He also cautioned that continued geopolitical tensions in the Middle East could push fuel prices higher, adding inflationary pressures and increasing import costs for Botswana, a net fuel importer.
Despite these challenges, Geromont said there were emerging signs that Botswana’s economy may be approaching the bottom of its current downturn. Foreign exchange reserves have begun to stabilise and economic activity is expected to recover gradually.
However, he stressed that fiscal sustainability remains a key concern as policymakers grapple with declining diamond revenues and rising financing requirements.
The seminar formed part of Absa Botswana’s efforts to help corporate clients better understand market risks and develop strategies to navigate an increasingly uncertain economic environment.
