Local firms wary of rising costs
Mbongeni Mguni | Monday May 2, 2022 06:00
The latest edition of the Bank of Botswana's (BoB) quarterly Business Expectations Survey indicates a drop in overall optimism among businesses between the fourth quarter of 2021 and the first quarter of this year. The survey was carried out across 100 businesses from thirteen economic sectors, with a 55% response rate.
“The results suggest that firms are less optimistic about business conditions than they were in the previous survey,” the BoB said in an update recently. “Overall, businesses expect lower sales, inventories and profit, as well as reduced capacity utilisation, compared to the December 2021 survey. “Furthermore, firms anticipate tight access to credit across all markets. “Firms expect cost pressures to be higher in the second quarter of 2022 than in the first quarter of 2022, mainly reflecting the anticipated upward adjustment in fuel prices due to challenges arising from the Ukraine/Russia war.”
Russia’s invasion of Ukraine entered its third-month last week and has disrupted global markets, particularly the prices of crude oil. The Botswana Energy Regulatory Authority cited the conflict in a recent revision of petrol and diesel pump prices by an average of P1.33.
“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 central bank said. “Firms expect inflation to remain above the upper bound of the bank’s three to six percent objective range in 2022.”
The BoB’s data shows that while general business optimism prevailed across the various survey questions in the first quarter of the year, firms were less confident about indicators such as employment, production/service capacity, sales volume and overall business confidence.
While firms had an overall negative outlook on their profitability in the first quarter, they were marginally more positive in the second quarter, the data indicates.
Generally, the surveyed firms expect to continue investments in vehicles and equipment in the second quarter of the year, with most expecting to use their retained earnings, followed by loans and equity as funding options.
“Retained earnings as a source of financing was prevalent among the manufacturing, retail and accommodation, transport and communications as well as mining and quarrying sectors. “Meanwhile, most of the firms in the finance and professional and administrative sector preferred loans as a funding source,” the BoB reported.
Firms expect the economy to expand by 4.3 percent in 2022, a figure that tallies with government’s projections as well as the recent revisions by the International Monetary Fund.