New orders keep business owners upbeat in October

November 5, 2018 in Business, Companies, Markets, Policy by Editor

November 5, 2018—Sustained new orders are helping to maintain optimism in Uganda’s private sector as the Stanbic Bank Purchasing Managers’ Index (PMI) for October reached 56.6. This is compared to 54.2 in September and marks the highest reading to date.

Jibran Qureishi, the Regional Economist East Africa for Stanbic Bank in Nairobi said, “The Stanbic PMI rose to a survey record high of 56.6 in the month of October as the Ugandan economy remains on course to grow above 6.0% in 2018. Good rains expected in the fourth quarter could support the agrarian sector and subsequently economic activity. Despite rising output costs for firms, the strong momentum of domestic demand is counterbalancing this.”

The survey, sponsored by Stanbic Bank Uganda and produced by IHS Markit, 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 a deterioration.

Four of the five monitored sectors saw business conditions improve during October, the exception being industry. New orders continued to expand at the start of the fourth quarter of 2018, extending the current sequence of growth which began in February 2017. Panelists linked the latest rise to higher customer numbers and improving demand in the economy.

Rising customer numbers also supported growth of output, which increased for the twenty-first month in succession. Each of the five monitored sectors saw activity rise.

“Ugandan companies raised their purchasing activity for the eighth successive month in October, linked to rising new orders. This is interesting because it indicates Ugandans’ purchasing power is still strong despite inflation. This activity contributed to another monthly increase in stocks of purchases. Meanwhile, the timely placement of orders helped suppliers to speed up their deliveries, in spite of the increase in demand for inputs,” Benoni Okwenje, the Stanbic Head of Fixed Income said.

Despite increases in new orders, backlogs of work continued to decrease. Panelists indicated that this was due to the expansion of workforce numbers. Employment has risen throughout the 29-month survey history so far. Agriculture, construction and services all posted increases in staffing levels in the latest survey period.

Overall input prices rose again in October. Alongside higher purchase prices and staff costs, respondents also noted increases in prices for fuel, water and electricity. The latest rise in purchase costs reflected higher prices for materials such as food, ink and stationery.

The passing on of higher input prices to customers resulted in a further monthly increase in output charges. Selling prices rose in the industry, services and wholesale & retail sectors, but fell in agriculture and construction.

Stanbic Bank Uganda is a subsidiary of South Africa’s Standard Bank Group, the largest African bank by assets which by the end of December 2017 topped $165 billion and a market capitalisation of $28 billion. The Group has direct, on-the-ground representation in 20 African countries. Standard Bank Group has 1 221 branches and 8 815 ATMs in Africa, making it one of the largest banking networks on the continent.

The PMI data is compiled from monthly replies to questionnaires sent to purchasing executives in approximately 400 private sector companies, which have been carefully selected to accurately represent the true structure of the Ugandan economy, including agriculture, construction, industry, services and wholesale & retail.