Latest PMI shows slight dip in Ugandan business sentiment

March 5, 2019 in Business, Companies, Markets, Trade & Industry by Editor

Business sentiment in Uganda remains positive into the new year although the Stanbic Bank Purchase Managers’ Index (PMI) for February fell to 54.4 down from 57.5 in January. However the figure is still above the threshold 50.0 for the 25^th consecutive month.

Jibran Qureishi, Regional Economist East Africa at Stanbic Bank based in Nairobi said: “Despite the PMI declining to 54.4 in February from 57.5 in January, overall activity in the private sector remains robust. Improving domestic demand hasn’t been a coincidence considering that banking sector non-performing loans have eased which has in turn boosted private sector credit growth. Oil related investments later on in the year, will only add to this stronger growth.”

Sponsored by Stanbic Bank Uganda and produced by IHS Markit, the monthly survey has been conducted since June 2016 and covers the agriculture, industry, construction, wholesale & retail and services sectors.

The PMI provides an early indication of operating conditions in Uganda.  It is 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 reflect deterioration.

According to Bank of Uganda, private sector credit was steadily recovering from shocks due to improved economic activity, improvement in asset quality and associated easing of credit conditions.

The latest PMI reading continues to point to a recovery in the private sector economy although the repercussions of the current border closure between Rwanda and Uganda can only be factored in for the March survey.

The February PMI report released shows a stronger client demand and the securing of additional customers resulted in a further rise in new orders during February.

In turn, business activity also increased, extending the current sequence of growth to 25 months. Activity and new orders rose in the construction, industry, services and wholesale and retail sectors, but fell at agriculture companies.

Benoni Okwenje the Stanbic Fixed Income Manager said although new orders continued to increase, companies were again able to deplete backlogs of work, aided by rising staffing levels.

“Employment has increased throughout the 33 months of the survey so far, with the latest expansion linked to higher output requirements. As was the case with business activity, only agriculture saw a reduction in staffing levels,” he said.

Overall input costs rose in February, with increasing operating expenses widespread across the five broad sectors covered by the survey. The PMI panelists reported increases in electricity and water bills, alongside further rises in both purchase prices and staff costs. The rise in purchasing costs reflected higher prices for items including cement, food, fuel and stationery.

With input costs increasing, companies raised their output prices accordingly. Around twice as many respondents indicated an increase in selling prices as posted a decrease.

The current run of purchasing activity growth was extended to one year in February, with the latest rise linked to higher new orders. Stocks of purchases also increased as a result.