But players expect recovery due to easing of COVID-19 lockdown measures
Kampala, Uganda | JULIUS BUSINGE | Business captains are optimistic that activity will rebound once lockdown restrictions are lifted by government, according to the July Purchasing Managers’ Index (PMI).
Experts expect opportunities in form of new jobs and economic expansion as long as the government cautiously manage the current COVID-19 pandemic catastrophe.
Sponsored by Stanbic Bank, the monthly survey involving some 400 respondents is produced by IHS Markit and has been conducted since June 2016. The survey agriculture, industry, construction, wholesale/retail and the services sectors.
The latest survey indicates that the recently concluded nationwide 42-day lockdown intended to lessen the spread of a second wave of the Covid-19 pandemic across Uganda added to the continued economic slowdown.
The headline PMI slipped to 34.6 in July, down from 34.9 recorded during June. This is the second successive decline in business conditions since the lockdown was enforced on June 18.
The latest reading is well below the series average of 52.5. Output, new orders and employment were all down for the second successive month.
Ronald Muyanja, the head of trading at Stanbic Bank Uganda said “a reduction in prices was noted for the first time in 14 months.
Companies lowered their selling prices amid weak demand. Although on a more positive note, firms were optimistic that activity will rebound once lockdown restrictions are lifted”.
The headline figure derived from the survey is the Purchasing Managers’ Index (PMI) which provides an indication of operating conditions in Uganda. It 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.
Muyanja added that the recent Covid-19 lockdown resulted in further reductions in both output and new orders, with more than half of all respondents signalling declines in each case.
Output decreased across each of the agriculture, construction, industry, services and wholesale/retail categories.
In line with falling workloads, companies also scaled back their employment and purchasing activity for the second consecutive month.
Although transportation costs were up, panellists indicated that this was outweighed by lower charges for utilities, falling purchase prices and a reduction in staff costs resulting into a decline in overall input costs.
With input costs decreasing and demand weak, companies lowered their selling prices, the second month running in which this has been the case. Agriculture was the only sector to register a rise in charges.
Despite the lower prices, the lockdown further led to a reduction in purchasing activity during July, the second successive month in which this has been the case. Falls in input buying were recorded across each of the monitored sectors.
Exports also declined in July, continuing a trend that has lasted in the past 11 months, according to the index.
Anecdotal evidence suggests that reductions in business activity had affected the ability of companies to export their products. July data pointed to a second successive lengthening of suppliers’ delivery times.
Market analysts widely linked delivery delays to the effects of the lockdown, with travel restrictions and roadblocks being mentioned.
Economists like Augustus Nuwagaba have argued that peoples’ disposable income has been eroded by COVID-19 lockdown measures and, that has affected their purchasing power abilities, hence making businesses suffer.
“The government needs to work out a mechanism that can rescue businesses from total collapse,” he said.
The government, through the office of the Prime Minister recently disbursed the larger part of the Shs54bn to specific vulnerable households as COVID-19 relief to aid them go through the tough 42-day lockdown.
But the big question remains, can such a small amount of money injected in the economy stimulate the much-needed demand for goods and services to support recovery of business activities?
Plans by government to support businesses through Uganda Development Bank also appears to have not yielded much results as most companies continue to whine about the red tape for accessing the funds.
The other, current debate is on whether President Museveni’s support for mid-term access to savings by some National Social Security Fund members will be backed by the Members of Parliament through amending the law. If supported, it will somewhat boost aggregate demand in the economy.
PMI key findings
- Second successive fall in output
- Input costs decrease for first time in 14 months
- Companies confident of rebound following lockdown