Botswana firms face uncertain growth prospects amid mixed sentiment

As 2025 drew to a close, Botswana’s business community approached the final quarter with cautious restraint, mirroring widespread uncertainties shadowing the national economy. This portrait emerges from the Bank of Botswana’s most recent quarterly Business Expectations Survey (BES), which canvassed 100 firms spanning 13 pivotal sectors, from Manufacturing and Construction to Finance and Agriculture. The survey captures not only current business conditions but also projections for the coming quarters and the full year ahead.

The mood is complex: near-term expectations remain subdued, yet a flicker of optimism glimmers for 2026’s broader horizon. The BES, conducted every quarter, gauges whether firms foresee business conditions improving, stagnating, or deteriorating; these responses are distilled into net balances weighted by each sector’s GDP contribution, offering a directional pulse rather than precise forecasts. The December 2025 iteration, reflecting the fourth quarter of that year and the first quarter of 2026, achieved a 50 percent response rate.

Compared with September 2025, the survey reveals a palpable shift. Sectors such as Construction, Real Estate, Finance, and Retail expressed clear pessimism about the near-term outlook, citing limited government expenditure and an unfavorable exchange rate environment as key headwinds. Meanwhile, Manufacturing maintained a buoyant stance, and Mining and Agriculture sectors hovered around neutrality.

[paywall]

Despite these immediate concerns, the consensus leans toward improvement over the next twelve months, buoyed by anticipated government programs aimed at economic recovery and transformation under the Botswana Economic Transformation Programme (BETP) and the twelfth National Development Plan (NDP 12). Economic forecasts echo this tempered optimism. Overall output is projected to inch up by 0.5 percent in 2025, a modest rebound from the 2.8 percent contraction in 2024, suggesting a stabilizing economy rather than a vigorous upswing.

For the final quarter of 2025 and the first quarter of 2026, growth expectations are modest but positive—0.4 and 0.9 percent, respectively. Manufacturing stands out as a beacon of hope, with firms in the sector anticipating favorable conditions across the survey’s timeline. Conversely, Construction, Real Estate, and Finance sectors anticipate softer conditions in the short term, while those in Retail, Accommodation, Transport, and Communication remain wary.

Export-driven enterprises expressed confidence throughout the survey period, buoyed in part by the July 2025 exchange rate adjustments designed to enhance export competitiveness. Conversely, domestically focused firms adopted a more conservative stance, mindful of fiscal tightening, diminished government revenues, and spending constraints linked to reduced diamond export earnings. Yet, the expected impact of government initiatives and ongoing diversification, particularly in green and digital sectors, manufacturing, agriculture, and tourism, holds promise for a more optimistic medium-term outlook.

On the financing front, firms foresee lending interest rates climbing across both domestic and international markets in 2026, with domestic rates anticipated to rise most sharply. Still, borrowing volumes are expected to grow, driven chiefly by working capital requirements rather than expansionary investments. Retained earnings remain the primary source of finance for most firms, though Manufacturing and Finance sectors demonstrate greater engagement with formal credit markets through loans.

Equity financing continues to play a minor role, reflecting prudent capital-raising strategies amid a constrained fiscal climate. Cost pressures are projected to intensify moderately in late 2025, driven by rising input prices, rent, utilities, and transportation expenses. Inflation is forecast to average 3.8 percent in 2025 and rise to 4.6 percent in 2026, remaining well within the Bank of Botswana’s target range of 3 to 6 percent, indicating that inflation expectations remain firmly anchored.

In sum, the December 2025 BES paints a picture of cautious near-term sentiment among Botswana’s businesses, tempered by a hopeful outlook for economic recovery further down the road. While immediate challenges persist, particularly due to restrained government spending and global uncertainties, firms remain optimistic that policy support, transformative economic initiatives, and sector-specific opportunities will foster moderate growth and stability through 2026.

[/paywall]