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Services, wholesale and retail sectors gain

As COVID-19 lockdown measures hit agriculture, construction and industry

Kampala, Uganda | JULIUS BUSINGE | For the first time since February, the headline Stanbic Bank Purchasing Managers’ Index (PMI) crossed into positive territory recording a reading of 50.3 during July, up from 46.5 in June.

This is a significant recovery from the 21.6 figure that was recorded in April after the lockdown was announced and it represents the change in sentiment since restrictions were relaxed, according to the report released on Aug.06.

However, the figure is still below the monthly average of 52.9 before the outbreak of the coronavirus (Covid-19) pandemic but above the 50.0 threshold.

The bank’s 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%).

The monthly survey involving some 400 respondents is sponsored by Stanbic Bank and produced by IHS Markit. It has been conducted since June 2016 and covers agriculture, industry, construction, wholesale/retail and service sectors.

Private sector boost

According to the report, the start of the third quarter of 2020 saw the Ugandan private sector return to growth following a downturn caused by Covid-19. Output and new orders both increased, but employment continued to fall.

Kenneth Kitungulu, the Stanbic Bank Uganda head of global markets said the easing of Covid-19 lockdown measures and reopening of public transport contributed to an increase in new orders during July, the first since February.

Output also returned to growth during the month, again helped by looser restrictions. The overall increase in activity was centered on the services and wholesale & retail sectors as shopping centers opened, with agriculture, construction and industry posting declines.

However, a second consecutive rise in overall input costs was recorded, with higher prices for purchases, transportation and utilities signaled.

The overall increase was registered despite a reduction in staff costs, as financial pressures led companies to lower employment levels and cut wages.

Meanwhile, selling prices increased for the first time in four months as companies passed on higher cost burdens to their customers which will further accelerate inflationary pressures going forward.

At the end of last month, the Uganda Bureau of Statistics (UBOS) announced that annual headline inflation had accelerated to 4.7%, the highest since October 2017 up from 4.1% in June despite a drop in prices of food crops.

Although new orders increased in July, the recent period of decline meant that spare capacity remained present in the private sector.

As a result, firms were able to deplete backlogs of work again and continued to scale back staffing levels and purchasing activity.

Jibran Qureishi, the head of Africa Research at Stanbic Bank said the first reading above the 50 mark since February does not come as a surprise given that domestic containment measures have been eased while external demand has also modestly picked up.

“The outlook still remains uncertain amidst the Covid-19 pandemic,” Qureishi said.

According to the July report, lower demand for inputs helped suppliers to speed up delivery times during the month. The improvement in vendor performance was the first since February.

Business sentiment remained positive, with hopes that the Covid-19 outbreak will subside and business conditions return to normal supporting confidence.

In June, while presenting the State of the Nation Address, President Yoweri Museveni said the ministry of finance planning and economic development had come up with a stimulus package aimed at keeping the firms afloat amid the economic downturn caused by the COVID-19 pandemic.

In the package, Museveni said, corporations including small and medium-sized enterprises, would be allowed to delay payment of corporation tax or presumptive tax due between April and June 2020.

For hard-hit sectors like tourism, manufacturing, and horticulture, Payment of Pay-As-You Earn tax by sectors which are most affected was also deferred until September. The other supporting measures were; allowing extension of repayment periods for loans, postponing loan repayment for a limited period, and relaxing the conditions for non-performing loans.

The ministry also proposed the reduction of reserve funds that commercial banks are required to keep with the central bank, and the creation of a special liquidity facility to rescue businesses that are not able to meet operational costs due to low demand or reduced production amid COVID-19.

Financial support in form of cheap loans, according to government officials would be extended to struggling companies/businesses through Uganda Development Bank. But this has not passed yet. Media reports quoted Finance Minister Matia Kasaija on July 29 as saying the first tranche of the funds, Shs500billion of the Shs1trillion earmarked for the recapitalisation of the UDB will be released in three months’ time.


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