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Analysis & Opinions

Private Sector Demand Picked Up In April Despite Traders’ Strikes-Report

Christopher Legilisho, Economist at Stanbic Bank

Despite prolonged trader strikes over EFRIS, Uganda’s private sector saw a strengthening of demand after a brief weakness the previous month, with the April headline Stanbic Purchasing Managers’ Index (Stanbic PMI) crossing over into positive territory from 49.3 to 52.6.

Readings below 50.0 reflect a deterioration of business sentiment. Christopher Legilisho, Economist at Stanbic Bank said the renewed expansion reflected growth in output and new orders, as demand conditions strengthened amid a brief weakness in the previous survey period.

“Greater new business stimulated increased purchasing activity and efforts to build inventories. At the same time, we note that Ugandan businesses hired additional workers as they sought to continue to reduce backlogs of work and pressure on capacity,” he said.

However, the April survey also noted that overall input prices increased further, as purchase and staff costs rose simultaneously for the second month running, with firms forced to raise their prices again.

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 in the agriculture, mining, manufacturing, construction, wholesale, retail, and services sectors.

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%). The April reading signals a renewed upturn in the health of the Ugandan private sector. The monthly improvement in business conditions was the seventeenth in the last year-and-a-half.

Legilisho said, “The pick-up in customer demand helped drive output growth, as Ugandan firms indicated a renewed rise in business activity in April. In contrast to the wider trend, agriculture businesses saw a decrease in output on the month. Increases in staff and purchase costs, following higher raw material prices and greater starting salaries for new hires, pushed up overall input prices up at the start of the second quarter. Business expenses have risen in each of the last 33 months.”

Increases in staff and purchase costs, following higher raw material prices and greater starting salaries for new hires, pushed up overall input prices up at the start of the second quarter. Business expenses have also risen in each of the last 33 months.

A further rise in input prices and a stronger sales environment led Ugandan companies to raise their output charges again in April, as has been the case in successive months for just over a year.

Greater new order inflows encouraged firms to expand their staffing numbers in April. Hiring activity also reportedly stemmed from efforts to clear backlogs of work. In fact, outstanding business fell for the fourth consecutive month.

The increase in employment was also supported by confidence in the outlook for output over the coming year in April. Optimism was broad based by sector.

Despite higher purchase costs, Ugandan businesses stepped up their input buying again in April. Increased client demand and efforts to build safety stocks were widely noted as factors driving the expansion. Moreover, stocks of purchases rose for the second month running.

Expectations at Ugandan companies remained optimistic regarding the outlook for output over the coming 12 months during April. Anecdotal evidence suggested business confidence was linked to new client wins, hopes of improved demand conditions and increased advertising spending. As has been the case for almost four years, positive sentiment was broad-based by sector.

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