May 2—The April results for the Stanbic Bank Uganda Purchasing Managers’ Index (PMI) are expected to be released this week.
The PMI has recently joined the monthly inflation figures and the Central Bank Rate as a key indicator to show the prevailing business environment. A reading above 50.0 suggests an improvement, while a reading below 50.0 suggests deterioration. In March, Uganda’s economy fared better than Kenya’s according to their respective PMI figures (53.5 versus 48.5).
It may seem hard to believe, but two decades ago, many a potential investor used to sought out newspaper editors for reliable data about Uganda’s economy on which they would then partly arrive at a decision to invest or not.
This was not as silly as it sounds. Sensible investment plans are based on having as much dependable information as possible. Following the turmoil of the 1970s and first half of 1980s you were likely to find valuable statistical documents used as wrapping paper for vegetables instead of being safely tucked away in a file cabinet.
At the turn of the century, it was difficult to find the quantity and quality of data we very much take for granted today. Apart from perhaps Bank of Uganda, there were few other government institutions that an investor could rely on.
The country has come a long way since then. Today, in a nice office block, we have the Uganda Bureau of Statistics who regularly release all sorts of reports in line with whatever inflation figure is prevailing. They also handle the household survey. Bank of Uganda has its Business Confidence Index. Numerous government ministries, departments and agencies now issue reports and if one wants a neutral point of view they can always turn to the annual World Bank Ease of Doing Business survey.
But something has been missing. Investors and analysts needed a snapshot figure that one could look at, compare with other countries and use as a reliable barometer of the current business climate.
With the Stanbic Bank PMI, Uganda has moved up a step. All the advanced economies and many of the emerging market ones, use the PMI. However, in Africa, Uganda has just joined a select few comprising of South Africa, Egypt, Nigeria and Kenya who have the index.
It is an extremely important indicator for international investors looking to form an opinion on economic growth. In particular, many investors use the PMI as a leading indicator for Gross Domestic Product (GDP) growth or decline.
Some central banks, including the United States Federal Reserve, also use the results of PMI surveys when formulating monetary policy.
When it comes to predicting GDP growth, a sustained reading of higher than 42.0 is considered to be the benchmark for economic expansion. On the other hand, a sustained reading of below 42.0 could indicate that an economy is heading into a recession.