BoB survey reveals growing business confidence

LEKOPANYE MOOKETSI
Correspondent | Friday July 9, 2010 00:00

 

Overall confidence in prevailing conditions for the survey period was 55 percent as compared to 47 percent in the previous survey and 40 percent in the same period in 2009.

The report says while confidence remains broadly constant at 54 percent, for the rest of 2010 it improves markedly to 71 percent going into 2011.

This suggests a positive attitude among businesses at a time when most indicators were pointing to a relatively smooth recovery from the global recession. The report says for most of the period covered by the survey, confidence among export and domestic-oriented businesses is broadly similar.

However, the resurgence in confidence in 2011, while strong in both categories, is more pronounced among exporters where confidence surges from 57 to 86 percent. This compares to domestic producers for which confidence rises from 53 to 69 percent.

With respect to profitability, although businesses continued to expect profits to stagnate or contract, there was a significant improvement in sentiment from the previous survey, with the net balance narrowing to -23.3 from 39.8 percent.  This trend continues going forward, with the net balance improving to -11.1 percent in the second half of 2010.

Regarding input costs, although there is little concern about rising property rentals, there are significant fears of increases in utility, transport and other costs during the second half of 2010.  This reflects solid expectations of electricity price increases in response to rising generation costs, as well as continuing concerns about trends in international oil prices. 

The report says going into 2011, there is a strong expectation of rising input costs across all categories, with the net balance in excess of 60 percent in all cases.  Production is expected to stagnate in 2010, with a net balance of -6.4 percent. However, the report talks about a marked improvement later in the year when the net balance rises to 38.8 percent.

Consistent with expectations regarding production, an increase of sales is widely anticipated in the second half of the year, while inventories may also increase. The survey shows that businesses expect national output to grow by 2.7 percent in real terms in 2010 and by 3.3 percent in 2011.  Thus, the outlook on national performance for 2010 remains more or less unchanged. 

Expectations also remain in line with the average annual growth rate of 3.1 percent estimated for NDP 10. In line with expectations of output growth, respondents are anticipating greater levels of capacity utilisation during 2010. In the second half of the year, the proportion operating at or close to full capacity rises from 22 to 27 percent.  Consistent with this, the level of investment spending in buildings, plant and machinery and vehicles and equipment and other investments is expected to rise through 2010.  However, there is no matching expectation of significant employment growth.

The report notes that the extent of business borrowing within the domestic economy is expected to increase in the second half of the year, although it may start to decline thereafter. This is in line with some renewed expectation of interest rate increases as the economy recovers to counter emerging price pressures. 

Negative net balances suggest some apprehension towards borrowing from South Africa.  This is despite a stronger expectation of increases in domestic interest rates and could be due to perceived currency risk following the recent depreciation of the Pula against the Rand. According to the study, improved ease of access to domestic borrowing could also be a factor.

The report says there has been a further downward revision of expectations for inflation in 2010 to 8.8 percent compared to 10.2 percent in the previous survey. It says this is inspite of the increase in Value Added Tax (VAT) from 10 to 12 percent. However, the report notes that in 2011, the expectation is that inflation will rise by 0.7 percentage points to 9.5 percent. It says expectations among businesses that inflation in 2010 and 2011 will exceed the Bank of Botswana's objective of 3.3 percent was nearly unanimous across all sectors at around 90 percent of firms that participated in the survey. 

'While consistent with expectations regarding input costs, this may possibly suggest that businesses had yet to be convinced that the impact of high VAT on inflation would be transitory,' it says. Results of the survey point to an improvement in perceptions about business conditions, especially regarding output and sales.

The Business Expectations Survey is conducted twice yearly, with the main objective of capturing perceptions concerning the economy among the local business community.