Ugandan firms stay above PMI 50.0 in tough conditions

June 5, 2017 in Business, Companies by Editor

June 5— Private sector output as well as new orders increased for the fourth month in succession during May pegging the Stanbic Bank Uganda Purchase Managers Index (PMI) at 51.0 above the crucial 50.0 threshold, however new export orders fell last month amid reports of reduced demand from key international markets.

“The PMI still showed some growth in May, albeit at a slower pace than the previous month. Interestingly, a notable slowdown in new orders was perhaps the main trigger in May, which is not entirely surprising given that Uganda’s key export markets continue to face enhanced political risks,” Jibran Qureishi, Regional Economist East Africa at Stanbic Bank said. The survey is sponsored by Stanbic Bank and produced by IHS Markit. Every month it takes in the views of 400 private sector companies in Uganda.

Qureishi said, “This being said, aided by the easing of monetary policy, access to credit could begin to gradually improve in the second half of the year and thus ensure that the private sector’s recovery becomes more durable.”

Promotional activities by companies have continued to help generate domestic sales, but South Sudan, at one time a major customer of Ugandan goods, continues to be buffeted by instability that has adversely affected demand.

The latest PMI reading is below the average 52.3 recorded over 12 months of data collection since June 2016. All five of the sub-components underlying the PMI calculation (output, new orders, employment, stocks of purchases and delivery times) contributed to the downward movement of the headline index.

On the other hand, the upward trend of two of the monitored categories of economic activity (agriculture and construction) slightly outweighed the deterioration of business conditions in the remaining sectors (industry, service and wholesale & retail).

“Despite the challenging market environment steady gains are being registered in key sectors of the economy. The upward trend in agriculture and construction slightly outweighed the deterioration of business conditions in the remaining sectors Industry, Services, Wholesale and Retail,” Anne Juuko, the Stanbic Bank Head of Global Markets said.

She said roughly 21% of the survey panel recorded a rise in new export orders compared to 36%  who noted a decrease.

“The ongoing upturn in new work continued to feed through to the labour market, with firms raising their payroll numbers across all monitored sub-sectors,” she said.  Private sector employment was up for the twelfth month running in May.

Talking about changes in the price of inputs she said, “All five of the sectors observed in the study registered an upward trend in prices of raw materials, sugar and food items driven mainly by higher purchasing costs. Unfortunately for consumers these were generally passed on to clients in the form of higher selling prices.”

Despite purchasing activity falling for the first time in the survey’s history, stocks of purchases continued to rise. Expectations for further improvements in demand encouraged firms to increase their inventories, according to anecdotal evidence. Firms also noted an improvement in supplier lead times during May.

The PMI is a composite index, calculated as a weighted average of five individual sub-components: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%).  Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.