Cautious optimism in Uganda’s private sector as PMI rises

Kitungulu said Uganda is starting to see a resumption in trade activities prompted by the government easing lockdown restrictions.
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Uganda’s private sector was cautiously optimistic during May focusing on a recovery in consumer demand as […]

Uganda’s private sector was cautiously optimistic during May focusing on a recovery in consumer demand as the government began to ease lockdown restrictions which have limited the movement of people throughout the country due to the coronavirus pandemic.

The figure for the latest Purchasing Managers Index (PMI) rose to 41.9 in May from the 21.6 in April.  Although higher, the figure still represents a continued deterioration in business conditions across the private sector compared to say February when the pandemic began to accelerate across the world.

The PMI is a 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 show deterioration.

Jibran Qureishi, the Regional Economist East Africa, Global Markets at Stanbic Bank said early this week, “Following the sharp decline in April, the PMI rebounded to 41.9 in May. Crucially, underlying domestic demand still remains weak. However, business sentiment has been boosted, by the gradual easing of lockdown restrictions. That being said, disruptions to supply chains and regional cross-border transport complications, will still remain challenges for private sector firms over the coming months.”

In May there were further reductions in output, new orders and employment. However there were also hopes of an improvement in economic activity once management of the pandemic in Uganda is strengthened.

According to the survey, sponsored by Stanbic Bank Uganda and produced by IHS Markit, business activity decreased for the third month running as panelists worried about Covid-19. However, there were some reports of conditions starting to return to normal.

Commenting on the report the Stanbic Head of Global Markets Kenneth Kitungulu said optimism was signaled regarding the 12-month outlook for activity following the negative sentiment in April. “Economic activity is picking up as government continues ease the lock down. As China begins to open up, we are starting to see a resumption in trade activities,” he said.

To further support the recovery, Bank of Uganda has reduced the Central Bank Rate to the lowest ever level to date of seven percent, but also projected a slowing of Uganda’s growth for 2020 from 3.0-4.0 percent to 2.5-3.5 percent. The Monetary Policy Committee noted that average lending rates had dropped to 17.7% in April 2020 from 19.9% during January owing to the Central Bank’s decisive move to ease liquidity conditions.

According to the survey, a lack of customers and temporary company closures contributed to a further decline in new orders. Staffing levels were scaled back in line with lower workloads and efforts to reduce costs.

Data showed that these attempts were generally successful as both staff costs and purchase prices decreased in May. This was despite some panelists reporting that a scarcity of materials had led to price rises for certain items. Companies lowered their own selling prices for the second month running as part of attempts to attract new business.

Firms signaled a reluctance to purchase additional raw materials and suggested that current inventory levels were sufficient for output requirements. As a result, both input buying and stocks of purchases fell. Where purchases were made, companies had to wait longer to receive items amid delays caused by bottlenecks in transportation.

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