Consumer demand sustains Uganda private sector output during June

July 5, 2023 in Business, Trade & Industry by Editor

The June survey findings show that, output has now risen on a monthly basis for just under a year, with the latest expansion linked to stronger customer demand and some signs of economic conditions improving. Activity was up in the agriculture, construction, industry, services and wholesale & retail categories.

The monthly Stanbic Purchasing Managers’ Index (PMI), a measure of Uganda’s private sector business confidence, saw a slight drop from 57.4 in May to 56.4 in June, but optimism remains high on the back of improving customer demand which is sustaining growth of output due to new orders.

The Stanbic 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.

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%). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration.

Mulalo Madula, Economist at Standard Bank said, “Despite a little dip, the PMI indicated that the private sector remained in expansionary territory for the 11th consecutive month while remaining above the series average. The index’s persistence above the series average since March 23 corroborates other data showing robust growth.”

He said, “Rising new orders boosted economic activity in the face of a less favourable external environment, since new export orders have been in contractionary territory since the beginning of the year.”

According to the June survey, output has now risen on a monthly basis for just under a year, with the latest expansion linked to stronger customer demand and some signs of economic conditions improving. Activity was up in the agriculture, construction, industry, services and wholesale & retail categories.

In line with the picture for output, panelists reported success in securing new customers. Rises in new orders also encouraged companies to expand their workforce numbers and purchasing activity during June.

Employment was up for the third month running, with job creation seen across all five broad sectors. Increased workforce numbers meant that firms were able to keep on top of workloads and reduce outstanding business, despite some reports from panelists of new order growth beginning to impart pressure on capacity.

Madula said, “Indeed, personal consumption expenditures account for approximately 74% of Ugandan GDP, with net exports in the negative. Growth in output that is backed by rising demand is a sign of a robust business environment. The increase in purchasing activity that has caused inventories to rise may portend a potential increase in production in the short to medium term. Additionally, expenditure on investments in the oil sector should still underpin growth. Hence, firms continued to be optimistic about the upcoming 12 months based on increased demand.”

The latest expansion in purchasing activity and a quickening of deliveries from suppliers meant that inventories increased for the eighth consecutive month. However, input costs rose amid higher prices for construction materials, electricity and water, alongside increases in purchase prices and staff costs. Wages and salaries rose due to both the hiring of additional staff and higher pay offered to existing workers to help them deal with increases in the cost of living.

Purchase costs increased in June, with the current sequence of inflation now approaching two years. Cement, computing equipment, electronic products and land were all mentioned by respondents as having risen in price over the month.

The passing on of higher input costs to customers meant that output prices rose for the third successive month. Industry was the only sector to buck the wider trend and post a fall in selling prices in June.

Although outstanding business continued to decrease in June, there were some reports from panelists that growth of new orders had started to impart pressure on capacity. Backlogs of work have been reduced in each month since the survey began.

Companies in Uganda remain optimistic that output will increase over the coming 12 months, with positive sentiment often reflecting confidence in the securing of new customers. More than 87% of respondents predicted an expansion in activity.