- BoB survey shows firms’ reluctance to borrow
- Firms expect lending rates to rise locally & internationally
- Cost pressures expected to decrease
About 100 local businesses expressed reluctance to take credit from domestic and international (South Africa) lenders during the second quarter of 2023, according to the Bank of Botswana’s Business Expectations Survey (BES) for the June 2023 period.
As conducted by the central bank, the survey collects information on perceptions of the domestic business community regarding the prevailing state of the economy and expectations during the survey period.
In completing the survey, businesses respond to questions on, among others: the prevailing business climate; economic growth and inflation outlook; and business performance in the survey horizon. The survey coverage also comprises the quarter in which the survey was conducted, commonly referred to as the current period reviewed, the subsequent quarter, and the next 12 months.
“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, as depicted by positive net balances,” reads the survey. According to the survey, 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. The survey also gives expectations of businesses in credit rates.
It also states that firms in both the domestic and export-oriented markets anticipate tight access to credit in the second quarter of 2023, reflecting increase in interest rates by most central banks across the world, to combat high inflation. “Nonetheless, domestic market-oriented firms mainly prefer to borrow from the domestic market compared to other markets, perhaps due to accessibility considerations, while export-oriented firms prefer to borrow from the domestic market and South Africa, and are indifferent about borrowing elsewhere,” reads the BES.
In addition, the survey highlights that approximately 36 percent of the surveyed firms have indicated that their choice of credit market was predicated on accessibility, while 31 percent indicated that their borrowing decisions were influenced by availability of appropriate credit facilities.
Choice of funding
Meanwhile, the BES has found that firms mainly prefer to finance their business operations from retained earnings, as was the case in the previous survey. “This is followed by their loans, equity, and composite (combination of financing), in that order. Retained earnings as a preferred source of financing was prevalent among all sectors,” it adds. “On the other hand, most of the firms in the Finance, Professional and Administrative Activities and Retail, Accommodation, Transport and Communications sector preferred loans as a funding source.”
On the positive, the firms note that they expect cost pressures to decrease in the second quarter of 2023. “Firms expect cost pressures to be subdued in the second quarter of 2023, attributable to the expected downward pressure on utilities, materials and transport costs, mainly due to relatively lower fuel prices.”
Firms’ expect domestic inflation to decrease as compared to the previous survey, but still surpass the Bank’s 3 – 6 percent objective range in both 2023 and 2024, averaging 7.4 percent for 2023 (9.1 percent in the previous survey) and 6.5 percent for 2024 (7.7 percent in the previous survey). According to the BES, the downward revision of inflation expectations is in line with the Bank of Botswana’s downward revision of the inflation outlook in June 2023.