The poor performance of the local currency, the Pula, against other foreign currencies such as the South African Rand (ZAR) has led to an increase in the cost of doing business.
This is a view held by local businesses in the latest Business Expectation Survey (BES), a quarterly study conducted by the Bank of Botswana that collects information on the domestic business community’s perceptions about the prevailing state of the economy and expectations during the survey period. The Pula has been performing poorly against major foreign currencies such as the US Dollar and the South African Rand during the first half of the year.
In April, the Pula suffered a 3.6 percent depreciation against the Rand but appreciated by 2.5 percent against the IMF Special Drawing Rights (SDR) and by 1.9 percent against both the US Dollar and the Euro. It followed that with a 1.2 percent depreciation against the Rand in May. However, the Pula appreciated by 1.3 percent against the US Dollar but depreciated by 0.6 percent against both the Euro and the Japanese Yen in the same month.
In June, the Pula appreciated against the Rand by 1.4 percent but suffered a 3.2 percent depreciation against the US currency. Given this performance by the Pula against the Rand, companies in the construction, manufacturing, and mining and quarrying sectors view the exchange rate between the two currencies as unfavourable and therefore costly to doing business in instances where the Pula weakened against the Rand.
This is largely compounded by the fact that these companies source most of their raw materials from South Africa. South Africa is a major trading partner for Botswana with the latter getting most of its goods from the former. For instance, in May alone – according to data supplied by Statistics Botswana – Botswana imported goods worth P8.4 billion, 63.4 percent or P5.3 billion of them from S.A. These were mostly fuel, food, beverages and tobacco, and diamonds, followed by machinery & electrical equipment and chemicals & rubber products.
Along with the volatile Rand-Pula exchange rate, other factors cited by local businesses as impediments to doing business include shortage of raw materials, mainly by the manufacturing industry, weak domestic demand and slow growth in government spending. But adequate water and electricity supply, favourable political climate, international demand and effective regulatory framework were viewed as supportive factors to doing business in Botswana in the second quarter of 2022.
Economist at First National Bank Botswana (FNBB), Gomolemo Basele, told The Business Weekly & Review in an interview that indeed the depreciation of the Pula against the Rand is painful for both businesses and the consumer. He explained that as businesses source most of their raw materials and finished products from SA, this means they get less value from what they import. “They are now paying more than what they used to pay for the same quantity and they pass that down to the consumer, which puts additional pressure on the consumer,” said Basele.
