Traders in Kikuubo, Kampala.
Business conditions for Uganda’s private sector were unchanged at the start of the fourth quarter of the year, following two months of improvement, the latest Stanbic Purchasing Managers’ Index (PMI) released today reads in part.
The headline Stanbic PMI for October was 50.0, the no-change mark signaling stable business conditions during the month, but down from 51.6 recorded in September and below the average since the survey began in June 2016.
However, on a positive note, the October survey shows that output, new orders and employment all expanded.
The latter for the first time in five months and there were reductions in purchasing activity and inventories.
Meanwhile, input costs continued to rise, with firms increasing their own selling prices in response.
The headline PMI figure provides an early indication of operating conditions in Uganda. Sponsored by Stanbic Bank and produced by S&P Global, the monthly survey involves a questionnaire to some 400 purchasing managers and has been conducted since June 2016.
It covers the sectors of agriculture, industry, construction, wholesale & retail and services. 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.
Mulalo Madula, an Economist at Standard Bank said, “Business activity remained stable in October, with the current wave of expansion extending to three months of increased output, new orders and a renewed increase in employment. But then, despite an increase in new orders, reluctance to hold inventories underpinned the recent decline in both purchasing activity and inventories for the second month in a row.”
He said: “The economy could continue to face supply driven inflation pressures exacerbated by dry weather conditions and depreciating exchange rates which will stifle demand. Total input costs continued to rise in October, attributed to rising electricity, fuel and water prices, and staff costs. Firms that increased output charges associated this with higher input costs. Although the inflation outlook is highly uncertain, risks to the inflation outlook are to the upside.”
The index adds that a number of firms reported having been able to price competitively, helping to boost new business in an environment where money was sometimes in short supply.
Meanwhile, the improvement in demand led companies to expand their business activity. In line with the picture for new orders, the rise in output was the third in as many months.
Sector data signaled that the overall increase in activity was centered on service providers, with output down in agriculture, construction, industry and wholesale & retail. Higher new orders were also a factor behind a renewed expansion in employment, the first in five months.
There were still some reports, however, of firms remaining cautious with regards to hiring. Spare capacity remained evident in the private sector, with backlogs of work falling again.
Companies displayed a reluctance to hold inputs at the start of the final quarter of the year, with both purchasing activity and inventories decreasing for the second month running.
Overall input costs rose further in October, with companies reporting increases in charges for electricity, fuel and water alongside higher purchase and staff costs.
The rise in purchase prices often reflected increases in cost for a range of construction-related materials and various food products.
In line with higher input costs, companies raised their own selling prices. That said, some firms reported having lowered their charges as part of efforts to attract customers.
Looking ahead, companies remained optimistic that output will increase over the coming year, with optimism centered on expectations of ongoing growth of new orders.