A recent survey conducted by the Bank of Botswana (BoB) reveals a significant and concerning decline in business confidence among companies operating within Botswana during the fourth quarter of 2025. This downward shift in sentiment is primarily attributed to an increasingly fragile economic environment and a noticeable reduction in government expenditure, factors that collectively weigh heavily on the outlook for domestic commerce and investment.
The quarterly Business Expectations Survey (BES), a key indicator that gathers comprehensive insights from a broad spectrum of the domestic business community, provides valuable information on the current economic and commercial conditions businesses face, as well as their projections and plans for the year ahead. The latest survey results, released in October 2025, reveal that optimism among Botswana’s firms, which had shown some improvement in the third quarter following a dip in the second quarter, has sharply deteriorated. Previously buoyant sectors, including retail, accommodation, transportation, communications, mining and quarrying, manufacturing, finance, and professional and administrative services—have shifted from displaying marked optimism to a generally pessimistic outlook as the year draws to a close. This change in mood is expected to persist through the final months of 2025 and into the early part of 2026.
The Bank’s report highlights that expectations among firms oriented toward the domestic market deteriorated significantly in the fourth quarter, with business confidence turning decidedly pessimistic. This subdued outlook is anticipated to continue well into the middle of 2026, underscoring the prolonged nature of the challenges confronting the local economy. The survey points to several key drivers behind this cautious sentiment, including concerns about evolving trade barriers that could restrict market access, ongoing economic uncertainty both globally and locally, and persistent supply chain disruptions that complicate procurement and distribution. In addition, the slow pace of government spending, especially on vital development projects that often act as catalysts for growth, is a major source of worry for many business leaders.
Underpinning these negative feelings is the deteriorating economic outlook that Botswana now faces. The country’s economy experienced a sharp contraction of 5.3 percent in the second quarter of 2025, a deepening decline from the modest 0.4 percent contraction observed in the first quarter. Reflecting these challenging conditions, the Ministry of Finance revised its economic growth forecast for the full year 2025 drastically, from an initially optimistic 3.3 percent expansion down to a contraction of 0.4 percent. This downward revision signals a sobering reassessment that domestic economic momentum has weakened considerably, with the diamond sector slump playing a pivotal role. The diamond industry, long a cornerstone of Botswana’s economy, has endured prolonged difficulties due to both supply-side and demand-side factors. Meanwhile, subdued global economic growth and the risk of adverse impacts from U.S. trade tariffs have further dampened prospects, casting a shadow over export opportunities and investment inflows.
On the domestic front, limited government revenues and fiscal constraints have resulted in tight liquidity conditions. This scarcity of cash flow hampers the government’s ability to inject stimulus into the economy, further restricting economic activity. The Bank of Botswana points out that these conditions have prompted tighter monetary policies, as seen in recent increases in prime lending rates imposed by commercial banks. Such hikes in borrowing costs threaten to further curtail economic expansion, as businesses and consumers alike face higher expenses when seeking credit.
Despite some progress made under Botswana’s economic reform agenda—which has aimed to diversify the economy and enhance competitiveness—the overall growth outlook remains heavily clouded by numerous downside risks. These include slower-than-expected global demand, ongoing geopolitical tensions such as the prolonged Russia-Ukraine conflict, and structural changes in the natural diamond market. A shift in consumer preferences and synthetic alternatives have contributed to a long-term depression in diamond prices, deepening the challenges faced by this historically vital sector.
“The fragile economic conditions are clearly reflected in the current business sentiment,” the Bank observes. Firms surveyed expect the domestic economy to expand only marginally by 0.7 percent in 2025, compared to the slightly more optimistic 0.9 percent growth forecasted in the previous survey. This downward adjustment underscores a tangible erosion in private sector confidence. Many businesses specifically cite constrained government spending and an unfavorable exchange rate environment as major obstacles to growth.
Import-dependent companies voiced particular concern over the depreciation of the Botswana Pula against the South African Rand following exchange rate adjustments made in the third quarter of 2025. This currency change has made the cost of imports more expensive, squeezing profit margins and potentially pushing up prices for consumers.
Cost pressures also increased moderately during the third quarter, primarily driven by rising input expenses such as raw materials, rental costs, utilities, and transportation fees. Given these rising costs, domestic inflation is forecast to average around 3.5 percent in 2025, largely in line with the previous estimate of 3.4 percent, but is expected to accelerate to 4.4 percent in 2026. This projected inflationary trend will likely place additional pressure on both businesses and consumers, potentially dampening demand and consumption.
Interest rates on loans are also anticipated to rise steadily across all markets, including domestic, South African, and other regional markets, through to September 2026. This increase is largely driven by the prime lending rate hikes implemented by local commercial banks, which respond to monetary tightening and inflationary concerns. As interest rates climb, borrowing costs rise, which could discourage investment and spending, further weighing on economic growth prospects.
On a more positive note, the survey highlights several enduring strengths within Botswana’s business environment. Key among these are the reliable water supply that underpins many sectors, political stability which reassures investors and businesses, a predictable regulatory environment that facilitates planning and compliance, the availability of skilled labor supporting diverse industries, and steady domestic demand that sustains business activity. These factors continue to be viewed as significant contributors to the overall business climate, even as companies navigate a more challenging operating backdrop.
While the current economic environment in Botswana poses serious challenges to business confidence and growth, there remain foundational strengths that could help the country stabilize and eventually regain momentum. For businesses, the coming months will likely require careful navigation through tightening financial conditions, cautious planning around government spending patterns, and adaptability to evolving global economic uncertainties. The Bank of Botswana’s survey serves as a clear indicator that while optimism has waned, understanding these dynamics and preparing accordingly will be essential for firms aiming to weather this period of uncertainty.
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