Business confidence in Uganda slumps as PMI drops below 50

April 4, 2020 in Business, Companies, Markets by Editor

Qureshi said tourism and manufacturing are already feeling the pain as global supply chains are disrupted and cross border travel is restricted.

The global coronavirus pandemic has sent Uganda’s private sector confidence plummeting in March as the latest Stanbic Purchasing Managers Index (PMI) slumped below the threshold 50.0 for the first time in three years.

The headline PMI dropped from 56.2 in February to 45.3 in March and marked the first deterioration in business conditions for the private sector since January 2017.

Jibran Qureishi, Regional Economist East Africa, Global Markets at Stanbic Bank said: “The first sub-50 reading since 2017 was perhaps not a surprise, given the ongoing concerns associated with Covid-19. The impact is likely to be broad-based across the economy.”

The monthly survey, sponsored by Stanbic Bank Uganda and produced by IHS Markit, covers agriculture, industry, construction, wholesale & retail and services sectors.

Qureshi said, “Sectors such as tourism and manufacturing are already feeling the pain as global supply chains are disrupted and cross border travel is restricted. But of course, diaspora remittances could also decline as global growth slows. Furthermore, given the sharp fall in international oil prices, it’s quite likely that the Final Investment Decision on oil will also be postponed into next year. Admittedly, the impact of Covid-19 and the possible delay in the FID, will materially weigh on economic growth this year.”

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 deterioration.

The global coronavirus disease 2019 (Covid-19) pandemic led to falling new business, company shutdowns and issues with the supply of materials in March, thus pushing the Ugandan private sector into contraction.

Central to the decline in business conditions were reductions in both output and new orders. In both cases, the falls were the first in 38 months.

Panelists reported that new orders suffered due to Covid-19 and an associated lack of customers. Lower tourist numbers were mentioned, and new export orders were also found to have fallen during the month. Declining new orders and company shutdowns contributed to a reduction in output.

A marked drop in new orders meant that firms were able to work through outstanding business. This was despite a reduction in employment, the first since the survey began in June 2016.

Covid-19 also caused issues in supply chains, with difficulties securing materials mentioned, particularly from China. Lower activity requirements also contributed to declines in both purchasing and inventories, while suppliers’ delivery times lengthened in part due to border closures.

Shortages of some products led to a rise in purchase costs at the end of the first quarter. In contrast, staff costs decreased. Overall input prices increased, leading companies to raise charges despite some reports of discounts being offered to attract clients.

Companies predicted a rise in output over the coming year amid hopes of a swift recovery from the epidemic. That said, a number of firms reported concerns that the effects of the pandemic will be prolonged.