February 6, 2019—In January, Uganda’s private sector was buoyant, but future optimism also hinges on whether the international oil companies will shift into the commercial phase of developing the country’s crude 1.5 billion recoverable deposits to spark renewed business confidence.
“Domestic demand is clearly picking up, and we suspect this trend will carry through for the most part of this year. Of course, if a Final Investment Decision (FID) is made for the oil sector, GDP growth could possibly expand by 6.5 percent year on year in 2019. However, for this to manifest, weather conditions need to remain favorable to sufficiently boost the agriculture sector,” Jibran Qureishi, the Regional Economist East Africa at Stanbic Bank said early this week.
The Stanbic Purchasing Managers Index (PMI) at the end of January stood at 57.5, up from 56.6 in December and well above the threshold 50.0.
Uganda is waiting for decisions by such companies as Total E&P, and China National Offshore Oil Company Uganda Limited concerning commercial drilling and raising cash for a new 1450 kilometre heated pipeline to the Tanzanian coast. Funding for a new $4 billion refinery to be located in western Uganda, is also still pending.
This is the twenty-fourth successive monthly improvement. The report attributed this performance to stronger customer demand. Output, new orders and employment also increased in the latest survey period.
The monthly 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 deterioration.
Latest findings show new orders increasing, with firms taking on extra staff accordingly. Job creation was registered across the agriculture, industry, services and wholesale and retail sectors. Increased operating capacity meant that companies were able to keep on top of workloads in spite of continued new order growth.
Overall input price inflation was recorded in January, with panelists linking the latest rise to higher prices for electricity, fuel and water. Overall input cost rises were recorded in four of the five broad sectors, the exception being agriculture where no change was signaled.
Benoni Okwenje, Stanbic Bank’s Fixed Income Manager said, “Signs of stronger customer demand resulted in a further expansion of new business in January, extending the current sequence of growth to two years. Ugandan companies raised output as a result. As a bank we expect Uganda’s growth trajectory will keep rising as macro-economic indicators remain bullish.”
Companies also responded to higher input costs by raising their output prices, however there were some reports of firms offering discounts in order to secure sales.
“Increasing customer demand encouraged Ugandan companies to raise both their purchasing activity and inventory levels at the start of the year. Despite rising demand for inputs, suppliers’ delivery times shortened again amid transport infrastructure improvements and timely ordering,” the report states.
Stanbic Bank Uganda is a member of the Standard Bank Group, Africa’s largest bank by assets. Standard Bank Group reported total assets of R2 trillion (about $165 billion) at 31 December 2017, while its market capitalization was R317 billion (about $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. It provides global connections backed by deep insights into the countries where it operates.