Botswana mining firms caught up in US-China trade feud ….as trade war taking its toll on Botswana’s mining industry

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Mpho Tebele

Gaborone - Botswana’s mining firms are caught up in a heightened trade debacle between the United States of America which has reportedly affected diamond sales, a new report by the central bank has shown.

According to the Bank of Botswana’s quarterly Business Expectations Survey (BES) which collects information on the domestic business community’s perceptions about the prevailing state of the economy and prospects, firms are less optimistic about economic performance in 2019, with an expected output growth of 3.5 percent. This is less than the 2019 budget projection of 4.2 percent and the 4.5 percent growth in 2018.

Regarding quarterly performance, the report says firms expected a decline in economic performance in the third quarter compared to the second quarter of 2019, mainly attributable to weak economic conditions: a decline in exports of goods and services; profits; investment in buildings, plant and machinery, vehicles and equipment; and other investments.

“These prospective developments are mainly reflected in responses by firms in the mining and quarrying as well as the finance and business services sectors. The weak performance in the mining and quarrying sector could be attributable to the negative impact of the heightened trade tensions between the United States of America and China, which is adversely affecting the diamond market,” the Bank of Botswana report said.

Export market-oriented firms, particularly those engaged in the mining and quarrying business, are less optimistic about the third quarter of 2019 compared to other periods of the survey.

The China-US trade war is an ongoing economic conflict between the world’s two largest national economies, China and the United States. Reports show that President Donald Trump in 2018 began setting tariffs and other trade barriers on China with the goal of forcing it to make changes to what the US says are "unfair trade practices”.

In the Bank of Botswana survey, businesses respond to a range of questions relating to, among others the business climate; outlook for economic growth; inflation and business performance over the survey horizon.

The results suggest that firms were less optimistic about economic activity in the third quarter of 2019 compared to the second quarter of 2019. Overall, businesses expected a decrease in exports of goods and services; profits; and investment in buildings, plant and machinery, vehicles and equipment, and ‘other’ category in the third quarter of 2019.

 However, firms intend to increase investment in buildings, plant and machinery, and ‘other’ category in the fourth quarter of 2019, despite anticipating tight access to credit in the domestic market.

Meanwhile, firms expect cost pressure to rise in the fourth quarter of 2019, mainly reflecting the anticipated upward pressure on costs of materials, wages and transport. However, they expect inflation to remain stable and within the bank’s medium term objective range of 3 - 6 percent going forward.

The domestic market-oriented firms’ optimism falls in the fourth quarter of 2019 compared to the third quarter of 2019 before improving in the 12-month period to September 2020. Confidence in the domestic market-oriented firms is mainly driven by trade, hotels and restaurants, transport and communications and the finance and business services sectors. 

Bank of Botswana also found that unavailability of skilled labour was cited as the greatest challenge facing businesses mostly in the construction, trade, hotels, restaurants, transport and communications sectors in the third quarter of 2019, arising from the reported difficulties experienced in recruiting foreign skilled labour.

The second major business impediment is shortage of raw materials, commonly cited by firms in the manufacturing sector. Furthermore, a number of firms (predominantly domestic market-oriented ones) across various sectors, cited the difficulty in accessing financing from abroad as the greatest challenge to their business operations in the third quarter of 2019. 

 

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