Households change consumption patterns

Boitshepo Majube | Friday March 21, 2014 16:16

 

Due to low domestic demand, retailers have also increased prices at a slower rate resulting in the prevailing low inflation environment.

At the presentation of the group half-year results, Choppies CEO Ramachandran Ottapathu said consumers are no longer spending on luxuries.

“For  three years there has been no significant public  servants salary increase and it is affecting consumer spending,” he said. He refused to dwell much on salaries, saying it is the issue between government and the employees. “People have got no money to buy,” he said.

 Despite a marginal February annual inflation increase, the annual rate of 4.6 percent was lower than the 7.5 percent recorded during the same month in 2013. The decrease on the overall annual inflation rate between February 2013 and February 2014 was influenced by stable prices of commodities especially major components such as transport and food and non-alcoholic beverages.

As inflation falls to historic low levels, domestic  demand remains weak with government, the biggest player in the domestic market, cutting down spending while personal incomes remained static leading to the erosion of disposable incomes.

In an effort to inject some life into the economy, the Bank of Botswana, backed by a favourable low inflation rate, cut interest rates by a cumulative two percentage points last year.

Worldwide, rates are cut to spur economic growth with the growth coming through increased consumer demand for goods financed by cheaper personal loans while businesses increase supply to meet the demand by resorting to cheaper business and manufacturing loans.

However analysts feel the rate cuts alone are not sufficient to reignite the flagging economy, arguing that such reviews are usually effective in countries like the USA where a big part of the demand comes from consumers.

The main expenditure in Botswana was coming from government all along. Now the expenditure has been significantly reduced and no further fiscal measures have been initiated. The rate cuts in Botswana have not been successful to increase credit for productive purposes because the producers are not finding effective demand.

Consumer demand is not sufficient for the producers who have all along been seeing large demand from government and consequently have set up facilities which are now under utilised due to lack of demand. There have been several rate cuts from 15% in February 2009 to 7.5 percent now. How much economic activity has increased, quizzed one analyst.