- Ukraine/Russia war expected to influence upward cost pressures
- Decline in business confidence expected to have negative impact on local economy
- Business conditions expected to improve in second quarter
Firms across all sectors of the economy are less optimistic about business conditions in the first quarter of 2022 as compared to the previous survey, the Bank of Botswana (BoB) says in its Business Expectations Survey (BES) dated March 2022.
BES notes that overall, businesses expect lower sales, inventories and profit, as well as reduced capacity utilisation, compared to the December 2021 survey. Further, firms anticipate tight access to credit across all markets. Firms expect cost pressures to be higher in the second quarter of 2022 than they were in the first quarter of 2022, mainly reflecting an anticipated upward adjustment in fuel prices due to challenges arising from the Ukraine-Russia war. “The decline in business confidence among both domestic market-oriented and export-oriented firms is expected to have a negative impact on the domestic economic performance” the survey highlighted.
The reduced level of optimism in the current survey is reflected by an anticipated deceleration in production, inventories, sales, profitability and import of goods and services mainly due to increased cost pressures arising from geopolitical crisis in Eastern Europe and second round effects of the COVID-19 pandemic. Firms anticipate improvement in business conditions in the second quarter of 2022 and the 12-month period to March 2023. Firms also said they expect inflation to remain above the upper bound of BoB’s 3-6 percent objective range in 2022.
Businesses told BoB that they expect cost pressures to continue rising in the first quarter of 2022, mainly attributable to the increase in input costs due to fuel price increases effected in December 2021 and reflected in the January 2022 inflation. Firms’ expectations about domestic inflation surpassed the upper bound of the Bank’s 3-6 percent objective with businesses expecting inflation to average 8.3 percent in 2022 and 7.5 percent in 2023.
Domestic demand and international demand were perceived as major challenges to doing business. Another most commonly cited impediment to operations was shortage of raw materials. “Favourable political climate adequate water and electricity supply, availability of external financing, effective regulatory framework and availability of skilled labour were viewed as supportive factors to doing business in Botswana in the first quarter of 2022,” BoB stated in the survey.
Sampled from 100 businesses from 13 economic sectors, the survey collects information on the domestic business community’s perceptions about the prevailing state of the economy and expectations during the survey period. In completing the survey, businesses respond to questions on the prevailing business climate, outlook for economic growth and inflation, and business performance in the survey horizon, among others.