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Private sector firms report improved business activities

Growth is attributed largely to government’s move to relax second lockdown measures

Kampala, Uganda | JULIUS BUSINGE | The business community has reported an improved business environment that has seen them somewhat recover from the negative effects of the 42-day lockdown, according to a monthly survey report sponsored by Stanbic Bank.

Released on Sept.03, the headline Stanbic Purchasing Managers’ Index (PMI) moved back above the 50.0 mark in August, posting 50.2 from 34.6 in July. Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

Respondents said, the partial lifting of the 42-day COVID-19 lockdown in Uganda helped spur a return to growth of both business activity and new orders in August, with companies confident of further growth over the coming year.

Ronald Muyanja, the head of trading at Stanbic Bank Uganda said, “a return to growth in output and new orders recorded in August gives hope that as lockdown restrictions are eased further, that will spur growth in business activity in the coming months.

However, Muyanja calls for ‘cautious optimism’ noting that despite the growth seen in August, the PMI reading is still below the series’ average as businesses remain reluctant to raise staffing levels or input purchases.

“Notably, the employment sub-index is yet to recover,” Muyanja said.

The PMI notes that while demand is recovering, post the June lockdown, it remains weak, with little indication that capacity is under pressure. It is likely that stronger demand in coming months will also drive the recovery of the employment sub-index.

Despite the lifting of the lockdown and renewed increases in output and new orders, companies continued to lower their staffing levels, purchasing activity and inventory holdings during the month.

There was little sign of capacity coming under pressure as backlogs of work fell again.

Focus on August

The August PMI report indicated a growth in both business activity and new orders following the loosening of some of the COVID-19 lockdown measures.

It was a refreshing development that will buoy the market through September, following two successive months in lockdown which had caused reductions in output and new business.

A look at sectors showed that construction was the only one to remain in contraction territory, with growth recorded elsewhere.

Output prices decreased for the third month running, although some companies raised charges in line with higher input costs, others lowered selling prices as demand remained relatively soft.

The lifting of the lockdown is expected to lead to further growth in business activity over the coming year with more than 80% of respondents optimistic in the year ahead outlook.

August also saw an overall rise in input prices following a reduction noted in July. This trend

matched the picture seen for purchase costs where product shortages led to higher prices for a range of materials. But staff costs continued to fall.

Sponsored by Stanbic Bank, the monthly PMI survey involving some 400 respondents is

produced by IHS Markit and has been conducted since June 2016. It covers the agriculture,

industry, construction, wholesale/retail, and the services sectors.

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%).

The August index came at a time a section of traders under their umbrella organisation, Kampala City Traders Association were involved in a confrontation with the government over what they called ‘unfair’ taxes levied on some goods and treatment some landlords over rent amidst COVID-19 hit.

Meanwhile, Bank of Uganda last month kept its benchmark lending rate, the central bank rate unchanged at 6.5% citing controlled inflation, and projected an optimistic view on growth.

“The outlook for inflation is, however, uncertain and is subject to both downside and upside risks…nevertheless, we view these risks as broadly balanced,” said, Governor Emmanuel T. Mutebile.

In the medium-term, as demand recovers and the release of pent-up demand, inflation is forecast to rise but stabilize around the 5% target, Mutebile said.

Beyond inflation, he said, outlook is highly uncertain, conditional on the availability of vaccines, the potential emergence of vaccine-resistant virus strains and a balance between containment measures and economic recovery.


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