New orders keep Uganda’s private sector output on upward trend

February 7, 2023 in Business, Trade & Industry by Editor

Companies in Uganda increased their purchasing activity for the third successive month at the start of 2023. Anecdotal evidence suggested that input buying had been expanded in line with higher new orders. Agriculture, construction, industry and wholesale and retail all posted rises in purchasing.

January saw continued growth of the Ugandan private sector with rising new orders supporting increases in business activity as the monthly headline Stanbic Bank Purchasing Managers’ Index (PMI) rose to 53.2 from 52.0 recorded in December.

Firms reported expansion in their employment and purchasing activity however, higher fuel, utility, raw material and staff costs pushed up input prices again, with output prices raised in response.

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration. This is the third month running that the Stanbic PMI has been above the 50.0 no-change mark.

Referring to the latest survey results, Mulalo Madula, Economist at Standard Bank Group said, “Evidence from the latest PMI shows continued growth in Uganda’s private sector, with headline numbers starting to outperform the series average. Private sector output increased for the sixth consecutive month on improved demand and successful advertising drive. Employment has been driven by a growing demand and the desire to manage workloads. Capacity was thus sufficient, and the work backlog was reduced. However, external demand fell for the first time in three months, creating a difficult external environment for the private sector.”

New orders expanded for the sixth successive month at the start of the year, with some firms indicating that success in securing new clients had helped them to boost overall new order inflows.

The Stanbic Bank PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies. The sectors covered by the survey include agriculture, mining, manufacturing, construction, wholesale, retail and services. Data was first collected June 2016.

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

Improving demand and advertising efforts led to a further rise in business activity. Output increased for the sixth month in a row. Four of the five broad sectors covered by the survey registered a rise in activity. New orders rose in the agriculture, services and wholesale & retail categories, but fell in industry and construction.

With new orders coming in and firms keen to keep on top of workloads, employment went up further in January. Staffing levels were up in the agriculture, construction and service sectors, but overheads also increased.

Madula said, “Another negative factor was that firms continued to increase selling prices in January, mainly due to rising input costs. However, inflationary pressures should ease this year, which will allow the MPC to adopt a more dovish stance later in the year. This will support private consumption in the medium term. Overall confidence improved in early 2023. The current positive business sentiment suggests that growth momentum will remain strong in the coming months.”

Companies in Uganda increased their purchasing activity for the third successive month at the start of 2023. Anecdotal evidence suggested that input buying had been expanded in line with higher new orders. Agriculture, construction, industry and wholesale and retail all posted rises in purchasing.

Around 16 pc of respondents signaled an increase in overall input prices, which they mainly linked to higher costs for electricity, fuel and water plus purchases and staff. Input prices rose across each of the five broad sectors covered by the survey. With input costs rising, companies increased their own charges accordingly. Output price inflation has now been registered in each of the past 17 months.

Hopes that more new customers will be secured over the course of the coming year supported optimism in the 12-month outlook for business activity. Around 74 pc of respondents predicted a rise in output, while just 4 pc were pessimistic.