Higher overhead costs fail to dampen Ugandan business optimism in June

July 3, 2024 in Business, Companies by Editor

Higher cost burdens were reportedly due to hikes in utility bills, including electricity and water, alongside increased metals and animal feed prices. All five monitored sub-sectors recorded an uptick in input prices.

Higher utility, rent, material and staff costs pushed overall input prices up again last month, however Uganda’s private sector remained optimistic about business conditions as the headline Stanbic Purchasing Managers’ Index (PMI) declined from 54.1 in May to 51.9 in June. Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration.

The Stanbic PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers of around 400 local private sector companies. The sectors covered by the survey include agriculture, mining, manufacturing, construction, wholesale, retail and services.

The PMI is a weighted average of the following five indices: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%).

According to the latest findings, supporting the June growth were the continued upturns in output and new orders, with panelists reporting strong demand conditions. In turn, companies increased their input buying and took on additional staff in a bid to continue working through backlogs. Job creation and purchasing activity was in part driven by optimism in the year-ahead outlook.

Christopher Legilisho, Economist at Stanbic Bank said, “June produced a third successive month of strong private sector activity growth in Uganda. Output and new orders increased from healthy consumer demand, referrals, and newly acquired clients. Ugandan firms increased staffing levels for a fifteenth month now, including both part-time and full-time workers due to strong output. Consequently, staffing costs ticked up due to expanding workforces.”

The June data indicated continued expansions in output and new orders, with sequences of growth for both being extended to three months. Increased client numbers and favourable demand trends also drove the latest rise in new business. Of the five monitored sectors, wholesale & retail, industry and construction registered greater business activity and new orders.

Legilisho said, “Further, firms cleared backlogs during June due to sufficient capacity. Purchasing activity expanded, with inventories growing in June due to increased orders and increased competition amongst firms.  Inflationary pressures persisted during the month as firms increased output prices due to solid demand conditions, with input prices and purchase.”

Ugandan companies reportedly recruited permanent and temporary staff in order to build capacity. Moreover, backlogs of work fell for the sixth month running, however companies highlighted the increases in both staff and purchase prices during June. Although greater wage bills were linked to job creation, hikes in utility, rent and material costs also drove the rise in purchase prices.

Higher costs were broad-based by sector. Despite increased cost burdens, Ugandan firms stepped up input buying in June. Competition among suppliers also drove a further improvement in delivery times, as firms engaged in stock-building efforts amid hopes of further growth in client demand.

Overall input prices faced by Ugandan businesses increased further at the end of the second quarter. Higher cost burdens were reportedly due to hikes in utility bills, including electricity and water, alongside increased metals and animal feed prices. All five monitored sub-sectors recorded an uptick in input prices.

June data indicated a further increase in purchase costs at Ugandan firms. Alongside increased utility bills, firms commonly stated that land rents, and prices for cement, cocoa, paper and toiletries had all risen on the month. At the sub-sector level, all monitored segments recorded an increase in purchase costs.

Businesses were also confident of a rise in output over the coming year and hoped for stronger demand conditions together with further upticks in new business. Although agriculture and services companies registered a decrease in business activity in June, optimism in the outlook was broad-based by sector.