Uganda’s business rebounds, but fragile

 

Businesses are still struggling with higher costs caused by global events, including renewed conflict in the Middle East, which has disrupted energy markets and pushed up fuel prices

Kampala, Uganda | JULIUS BUSINGE | Ugandan businesses are feeling more confident about the months ahead, but rising fuel prices, high operating costs and global uncertainty are threatening to slow the recovery.

After a difficult start to the year, companies across the country reported a sharp improvement in business confidence between April and June 2026, according to the latest Uganda Business Climate Index published by the Economic Policy Research Centre (EPRC).

The Business Climate Index rose by 20.1 points to 124.9 during the quarter, up from 104.8 between January and March.

A reading above 100 indicates that businesses expect conditions to improve, while a score below 100 suggests a decline in confidence.

The latest figures suggest that many companies are looking beyond current challenges and expecting stronger economic activity in the second half of the year.

But economists warn that optimism alone will not be enough. Businesses are still struggling with higher costs caused by global events, including renewed conflict in the Middle East, which has disrupted energy markets and pushed up fuel prices.

For companies in Uganda, the impact has been felt through higher transport costs, more expensive imports and increased production expenses.

The result is a mixed picture: businesses are more hopeful about the future, but many are still operating under pressure.

Confidence rises as demand expected to improve

The strongest improvement came from businesses’ expectations for the July–September quarter.

Companies surveyed by EPRC said they expected customer demand to increase, business activity to improve and product prices to become more favourable.

The positive outlook was partly linked to seasonal changes in Uganda’s economy. The country’s first harvest season is expected to increase agricultural production while creating more activity for transport companies, traders, wholesalers and retailers.

Agriculture remains a central part of Uganda’s economy, supporting millions of households and supplying raw materials to other industries.

However, the report cautions that the recovery remains fragile because many businesses are still facing higher costs.

The increase in global oil prices has affected everything from fuel purchases to the cost of moving goods across the country.

For small businesses, which often operate with limited financial reserves, rising expenses can quickly reduce profits.

The services sector leads recovery

The recovery has not been the same across all parts of the economy. The services sector recorded the biggest improvement in business confidence.

Sentiment among service providers moved from negative 28.0 percentage points in the previous quarter to positive 21.9 percentage points.

The improvement was supported by stronger customer demand and increased commercial activity.

Businesses involved in transport, trade, hospitality and other services reported better expectations as economic activity picked up.

Agriculture also showed signs of improvement, although confidence remained negative. The sector’s sentiment improved from negative 43.0 to negative 27.9 percentage points.

EPRC attributed the improvement to better weather conditions, increased availability of irrigation water and government-supported financing programmes aimed at helping farmers.

But manufacturers continued to struggle. The industrial sector recorded a slight decline in confidence, falling from negative 41.7 to negative 42.2 percentage points.

Manufacturers cited high production costs, weak demand, low utilisation of factories and reduced profitability as major concerns.

Rising fuel prices and higher transport and shipping costs were particularly damaging for businesses that depend heavily on imported materials.

Despite the improved outlook, companies say several challenges continue to hold back growth.

Competition among businesses emerged as the most common concern. This was particularly challenging for small and medium-sized enterprises operating in retail, wholesale trade, education and transport.

Reduced consumer demand was another major issue, especially for medium-sized businesses in accommodation and information and communication services.

Companies also pointed to taxes, unreliable electricity supply and wider economic pressures as obstacles affecting daily operations.

Some businesses said difficulties in accessing electricity connections and inconsistent power supply were increasing their costs and affecting productivity.

The report also highlighted the impact of currency depreciation. A weaker Ugandan shilling makes imported goods and raw materials more expensive, adding pressure on businesses that rely on international suppliers.

Nearly four out of every 10 businesses surveyed said reduced demand, economic uncertainty and corruption had become worse compared with the previous quarter.

Around three in 10 businesses said electricity-related challenges had increased.

However, there were some improvements. Businesses reported fewer problems related to shortages of skilled workers, customs procedures, crime and unfavourable weather conditions.

Companies remain cautious about hiring

Although confidence has improved, businesses are still hesitant to expand their workforce. The survey found that 86.8% of firms kept their employee numbers unchanged during the quarter.

About 10% reduced their workforce, with construction companies accounting for many of the job losses.

Only 3% of businesses hired additional workers. The figures suggest that companies are waiting for stronger evidence of a sustained recovery before making major hiring decisions.

For workers, this means that improvements in business confidence have not yet translated into significant employment growth.

The report also examined the economic impact of Uganda’s Ebola outbreak in May 2026.

It found that 40.7% of businesses were affected by the outbreak, with accommodation, transport and health-related services among the hardest hit.

Nearly half of the affected businesses reported losing customers, while 19% faced additional costs as they introduced public health measures.

The findings highlight how quickly health emergencies can disrupt economic activity, especially in sectors that depend on movement and face-to-face interactions.