The private sector has continued to register positive growth with the eighteenth successive improvement in business conditions according to the latest Purchase Managers Index (PMI) for July.
At 53.2 recorded in July, the private sector maintained the same positive performance score card that was seen in June and remaining above the average since the survey began in June 2016.
According to the latest statistics released for July, there was a further improvement in business conditions across the Ugandan private sector, reflecting ongoing expansions in output and new orders amid reports of strengthening client demand.
Commenting on July’s survey findings, Jibran Qureishi, Regional Economist E.A at Stanbic Bank said: “Private sector activity remains solid and could further benefit from the ongoing public investment in infrastructure, in addition to the government’s intentions to clear domestic arrears over the course of the fiscal year.
Headline inflation however could continue rising over the coming months owing to new tax measures and the lag pass through impact of the weaker exchange rate from May and June. That being said, the aggressive intervention by the Bank Of Uganda (BOU), in addition to rising inflows from foreign portfolio investors has been supportive of the UGX over the past month. Yet, BOU may choose to be pre-emptive in order to mitigate risks of rising inflation expectations and thus a token Central Bank Rate hike is a possibility in the second half of 2018. ”
Central to the latest improvement in operating conditions was a further increase in output amid reports of improving client demand and successful marketing. Stronger demand was also mentioned by those firms that saw a rise in new business, which has now expanded on a monthly basis for a year-and-a-half.
Stanbic Bank’s fixed Income Manager Benoni Okwenje said overall costs of production continued to rise in the Ugandan private sector amid higher purchase prices and staff costs.
“The introduction of new taxes in the new financial year has contributed to the overall rise in input prices. Higher costs for fuel, electricity, stationery and water, alongside unfavorable exchange rate movements, further encouraged an increase in prices,” he said.
Everest Kayondo, the chairman of the Kampala City Traders Association (KACITA) said the recent introduction of taxes by government have impacted the general price structure in the economy.
“The prices on fuel for instance have led to increase in transport costs which have impacted on general prices of goods and services in the economy which has increased the cost of production hence increasing the final price of goods and services,” he said.
The survey, sponsored by Stanbic Bank and produced by IHS Markit, has been conducted since June 2016 and covers the agriculture, construction, industry, services and wholesale & retail sectors. The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI™) which provides an early indication of operating conditions in Uganda.
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.