Brian Benza
9 January 2008
Owing to higher input costs and subsequent inflationary pressures, the Botswana business sector can expect subdued overall economic growth in 2008.
A Business Expectations Survey carried out by the Bank of Botswana late last year shows that although general business confidence in the economy remains high, respondents tended to be less optimistic about overall economic activity, expecting (on average) real GDP to grow by 4 percent in 2006/07 (previously 7.5 percent), increasing to 4.5 percent (previously 7 percent) in 2007/08.
The survey, which is carried out biannually, covers 100 businesses in different sectors of the economy, including agriculture, mining, manufacturing, water and electricity, construction, trade, transport and banks, insurance and business services.
Another disturbing feature of the survey is expectations of higher inflation spurred on by continued increases in oil and food prices, currency movements and power tariff and rental increases.
Expectations about average inflation have remained almost unchanged at 8.2 percent in 2007 (compared to 8 percent in the March survey) and 8.6 percent (8.2 percent) for 2008.
Reflecting concerns about rising input costs, notably oil prices, inflation expectations currently appear to be entrenched above the upper end of both the Banks short- and medium-term objective ranges, the report on the survey says.
The survey also reveals less optimism among exporting companies. Business confidence among this group for the second half of 2007 fell from 75 percent to only 38 percent, although it improves to 50 percent in the first half of 2008.
The BOB has attributed the drop in confidence among exporters to factors such as the recent policy tightening in South Africa, the continued turmoil in international financial markets and uncertainly over future international trade arrangements.
However, the central bank says that although businesses may have a greater awareness of constraints that could hold back their ambitions and growth plans, their pessimism should be treated with caution as they are out of touch with other expectations such as higher business confidence in 2008.
Despite the lowered expectations regarding growth, overall business confidence for the second half of 2007 remained high, easing only slightly from 75 percent in the previous survey to 71 percent. Moreover, the confidence level improves markedly for the first half of 2008 (80 percent) and further for the entire year (85 percent).
It is probable that confidence among these firms has been heightened by the evidence that measures put in place by Government to improve implementation of spending programmes are starting to take effect, the BoB report says.
The survey also shows that the level of employment is set to rise this year, with net balances of 48.7 percent in the first half of 2008 and 34.5 percent over the next twelve months, while businesses expect a rise in inputs costs, led by the cost of materials for 2008.
The increased demand for materials, especially in South Africa, fuelled by the needs of the massive projects being undertaken in preparation for the 2010 World Cup, are likely to be a major factor underlying these sentiments, the report adds.
Businesses also expect higher transport, rent and power costs in the year although surprisingly, despite increased inflation and economic activity, expectations of higher wage rates have declined since the last survey.
The outcome of the just-completed salaries review might also result in upward pressure on private sector wages.
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