Coronavirus to dampen Uganda’s private sector optimism

March 18, 2020 in Business, Companies, Trade & Industry by Editor

Qureishi says the coronavirus outbreak remains the most notable downside risk to economic growth over the next six months.

The Stanbic Purchase Managers Index (PMI) for February indicates an improvement in underlying demand and higher customer numbers leading to sustained growth of Uganda’s private sector.

Although the headline PMI in February fell from January’s reading of 58.8 to 56.2, the latest survey showed employment and purchasing activity rose further midway during the first quarter of the year.

Business activity increased, amid reports of improving customer demand. Marketing efforts were also mentioned as having a positive effect on output.

Standard Bank Group Regional Economist East Africa Global Markets Jibran Qureishi, said: “The coronavirus outbreak remains the most notable downside risk to economic growth over the next six months. Not only could output prices rise due to importing raw materials and other finished goods from more expensive alternatives other than China, but general trade could also ease due to this outbreak. Of course, depending on how long it lasts, tourism arrivals may also reduce. Nonetheless, public investment in infrastructure projects in 2020 along with more favourable weather conditions for agricultural productivity is likely to underpin economic growth in 2020.”

New orders also rose, with survey respondents citing increased customer numbers. New business has now expanded in each of the past 37 months.

The survey is sponsored by Stanbic Bank and produced by IHS Markit, has been conducted since June 2016 and covers the agriculture, industry, construction, wholesale & retail and service sectors. The headline figure derived from the survey is the Purchasing Managers’ Index which provides an early indication of operating conditions in Uganda.

Despite ongoing growth of new orders imparting pressure on operating capacity, companies were once again able to reduce their backlogs of work. According to respondents, higher staffing levels helped them to keep on top of workloads. Employment has increased throughout the history of the survey which began in June 2016.

Stanbic Bank Uganda Head of Global Markets Kenneth Kitingulu said an improving demand environment also encouraged companies to expand their purchasing activity, extending the current sequence of growth to two years.

“Subsequently, stocks of purchases also increased. Higher input costs were recorded in February, with rising prices for crops, electricity, water and products from China all mentioned. The outbreak of coronavirus affected the supply of some goods from China, but vendor lead times shortened overall. Output prices continued to rise, with only the construction sector posting a reduction,” he said.

Plans for business expansion and greater marketing, alongside predictions of further new order growth, supported confidence that output will rise over the next 12 months.