- But firms are worried by inflation and rise in access to credit
- Cost pressures continue due to Russia-Ukraine war
Local businesses are expecting business conditions to improve in the third quarter of 2022 despite persisting economic hardships such as inflation and an expected rise in lending rates, the Bank of Botswana (BoB) says in its Business Expectations Survey (BES) for September 2020.
According to the report, firms anticipate improvements in investment in plant, machinery, buildings, vehicles, equipment and other investments in the third quarter of 2022 compared to Q2 2022.
“These, in combination with the expectations of increased growth in the Mining and Quarrying, Manufacturing, and Finance, Professional and Administrative Activities sectors, contribute to the improved expectations about overall business conditions,” it says.
The BES report says firms anticipate tight access to credit across all markets as banks continue to increase the interest rates amid high levels of inflation. Businesses also expect cost pressures to remain high in the fourth quarter of 2022 mainly due to supply constraints arising from the Ukraine-Russia war. Firms expect inflation to remain above the BoB’s 3 – 6 percent objective range in 2022 and 2023. Overall, the increase in business confidence is expected to have a positive impact on domestic economic performance.
As inflation went down slightly to 13.8 percent in September 2022, it is anticipated that reduction in fuel prices will trigger businesses to reduce prices significantly. BoB governor Moses Pelaelo last week told the media that inflation should go down slowly. He underscored that the reduction in oil prices will play a pivotal role towards inflation cutting down. However, Pelaelo cautioned that there are emerging factors that could keep inflation rising.
Pelaelo singled out the China-Taiwan conflict as a major threat to price stability globally. China is one of Botswana’s key trading partners especially in diamonds. Through the survey, the central bank 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, the selected businesses respond to questions from the bank.
Meanwhile, Econsult Economist Kitso Mokhurutshe says inflation poses a big threat to the economy as it could curtail growth, given that production is weaker locally. Speaking at a Business Botswana seminar on inflation in Gaborone this week, he noted that the economy of Botswana, which is not industrialised, should adopt enabling monetary and fiscal interventions that can be instrumental in the fight against inflation.
Mokhurutshe stated that is important that supply bottlenecks are addressed. He is of the view that local supply value is weaker, hence high inflation has made the economy vulnerable. “The economic shocks such as Russia-Ukraine war have made the prices of key commodities such as fuel and food (to go up),” he said. “We are not an industrialised economy, hence we import more from the supply value chain which is affected by increases in production costs.”