Inflation

Credit to: Kutlo Lebogang Tshambane (Founder of Noble Fields Consultancy)

Hi there and a wonderful welcome back to another chapter in our journey towards achieving our entrepreneurship goals. Today’s topic is especially dedicated to numbers junkies but also insightful to all entrepreneurs regardless of the nature of business/ company. A kind reminder to all first-time readers to take time to have a look at previous articles to better fathom the lap we are on today. Happy reading!

BOTSWANA, INFLATION AND COVID-19

Inflation is the rise in commodity prices; this reduces the consumers? purchasing power. What is purchasing power? It is the ability of a consumer to buy particular quantity of items or pay for a service at a given time.

Purchasing power is an indicator of the current market position because it allows businesses or individuals to project how far the currency would go.

Purchasing power can be helpful in setting budgets since it is measured by the quantity of items and services during a period. Here?s an example of purchasing power in Botswana regarding combi fare prices and bread prices between the years 2010 and 2021;

 COMBIBREAD
Year 2010P2.50P3.50
Year 2021P4.00P5.50
Increase in PulasP1.50P2.00
Increase in %37.50%36.36%
Table1.0: combi fare and cost of bread in 2010 vs in 2021

Inflation in Purchasing Power

Inflation is a result of the decrease in purchase power of consumers. This happens over a period of time where there is an increase in the printing money of a country.

Hyperinflation happens in situations of upheaval and uncertainty, such as Zimbabwe?s situation in 2008 leading to the abandonment of the currency. According to Economists, it had the second highest incidence of hyperinflation rate for November 2008 at the rate of 79,600,000,000%.

Causes of Hyper-inflation in Zimbabwe

  1. Government printing money to finance the war in the Congo.
  2. Increase of government officials and soldiers salaries.
  3. Sharp downfall in output in the agriculture and manufacturing industries resulting in a collapse in bank landing.
  4. Land reforms introduced in the 1990s. This involved redistributing farmlands from white farmers to black farmers. This resulted in low production due to a lack of skills and knowledge by the black farmers.
  5. Increase of printing of money to pay off already increasing government debts.
  6. The decline in output pushed prices up.
  7. Price controls with exacerbated shortages. That is, the government setting the price of particular goods to make them affordable but unfortunately, the cost of production increased faster than prices. Suppliers had little to no reason to supply items due to their production not reaching break-even (where costs of production are equals to sales income).
  8. Lack of credit; the financial system became horribly undermined. Banks refused to lend sectors and individuals money. Day-to-day business activities closed down and investment was cut.
  9. Citizens switching to a barter economy system; because money was becoming useless, the exchange of goods with goods, or goods with services or services with services became a norm.
  10. People and businesses with savings lost their savings; the only way for them to access their money was to exchange the amounts with banks with foreign currency.
  11. Damage to business confidence to trade and offer services. The fall in agricultural and industrial production resulted in the fall in the falling of Gross Domestic Product (GDP). It is the sum of market prices of all goods and services produced in an economy during a period of time, normally a year.

How to calculate Gross Domestic Product

Gross Domestic Product=private consumption+ gross investment+ government investment+ government spending+ (exports ? imports).

Botswana’s Gross Domestic Product and COVID-19

Botswana?s gross domestic product constituted at least 0.02% of the world economy in 2020 according to World Bank. Mining and trading of Diamonds made up at least one third of the GDP. It has experienced an 8.9% decrease from the year 2019 to 2020 due to the March 2020 lockdown.

The covid-19 lockdown and other movement restrictions constrained economic activity. Mining activity declined significantly, due to falling demand of diamonds. Non-mining activities also declined; these include tourism, transport, agriculture, manufacturing industry to name a few. It was and still is very worrying sight in the eyes of economists and civilians at large. Were we headed for the same fate the 2008 economy experienced? Were we going to understand what our fellow neighbour Zimbabwe experienced?

  1. Tax levies are being increased; VAT is being increased from 12% to 14%, petrol prices have increased to an extra P1.00 to name a few. Are we going to be able to afford the cost of living?
  2. Private, public and non-governmental employees are demanding an increase in salaries in order to meet their daily expenses.
  3. There is a high level of unemployment across all sectors; there are more graduates than there are employment opportunities.
  4. Companies are crashing under the pressure of rising costs of production and day-to-day activities.

On A Positive Note

According to Economists, Botswana?s real GDP growth is projected to recover to 7.5% in 2021 and 5.5% in 2022 considering the government keeps the economy out of lockdown. We see the government providing covid-19 relief funds through the following;

  1. Local Enterprise Authority (LEA)-Industry support facility for the non-informal sector where small businesses are funded with P1, 000.00 that is non-refundable. This is to help cover the day to day small costs
  2. Citizen Entrepreneurial Development Agency (CEDA) – It provides funding to Agribusinesses, property, manufacturing, service-based businesses, joint ventures to name a few. It also provides discounting/factoring invoices to assist the cash flow of citizen businesses. It has extended its loan repayment facilities up to a period of 20 years.
  3. Youth Development Fund (YDF)-funds out-of-school people between the age of 15 years and 36 years. Their fund is 50% grant and 50% loan.

In conclusion, entrepreneurs in Botswana can guard against the potential negative effects of inflation if they take advantage of the facilities made available. We can also make it a priority to budget and use the little we have to get what we need.

Miss Victoria Marumo is a journalist with a distinctive and creative voice. Her avid reading complements well with her writing in providing captivating information on business topics.

Writer: Victoria Marumo

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