September 11, 2018

Construction helps to shore up optimism in latest PMI index

September 5, 2018— Construction, industry and services continue to see improving business conditions in Uganda which have helped maintain private sector optimism, but the agriculture and wholesale & retail sectors have been less buoyant since July while a depreciating shilling has also caused prices to rise.

During the past five years there has been a construction boom in Uganda influenced by the government high expenditure on new infrastructure.

At 52.1, the latest Stanbic Bank Purchasing Managers Index (PMI) for August reveals the headline figure is down from 53.2 in July. However this still indicates a further improvement in business conditions across the private sector with the latest figure slightly below its average of 52.8 (since June 2016).

In his comments, Jibran Qureishi, Regional Economist East Africa at Stanbic Bank in Nairobi said, “While Uganda’s private sector is still growing, the pace of acceleration has been slowing down over the past three months or so. Back in June and July exchange rate volatility was largely culpable for this. However, the sporadic riots in parts of the country over the last month could have disrupted trade and business in various parts of the country. Going forward a more stable political environment could help the private sector return to more solid growth, similar to the early part of the year.”

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 a deterioration.

August data jointly provided by Stanbic Bank and IHS Markit showed a further improvement in the health of the Ugandan private sector last month. Firms frequently linked improving business conditions to stronger underlying domestic client demand. This led to expansions in output, new orders and employment during the most recent survey period.

The Stanbic Bank Uganda PMI is based on data 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.

Benoni Okwenje, the Stanbic Bank Fixed Income Manager said, “Increasing client demand from domestic sources led to a further rise in new orders across Uganda’s private sector during August. That said, only the industry and services sectors reported improvements. Meanwhile, new orders from abroad deteriorated in the latest survey period. Output continued to increase in August, with all sectors except agriculture reporting growth.”

However when Okwenje was queried this morning on what are the near term risks to sustained expansion, he said: “The near term risks would be a weakening exchange rate, an increase in inflation, and most importantly the socio-political environment.”

A soci0-political environment is crucial for maintaining private sector growth.

Output continued to increase in August, with all sectors except agriculture reporting growth. Despite a higher volume of incoming new work in August, private sector companies in Uganda were able to reduce the level of outstanding business. This partly reflected a further increase in employment. Staffing in the Ugandan private sector has risen throughout the survey history.

Companies supported workloads by increasing their purchasing activity in August. This led to a rise in inventories of inputs for the fifth month running. Supplier performance continued to improve during the latest period.

The latest survey results signaled further cost inflation in the Ugandan private sector. Both staff costs and purchase prices increased since July, the latter linked to raw materials and fuel. As a result, companies increased their own prices.

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