Business

Stanbic Index: Economic Activity Rises for Second Month Running

Kenneth Kitungulu

Uganda’s private sector continues to recover from the impact of the coronavirus pandemic (Covid-19) as business conditions improved in August after a near standstill of activities during the series of lockdowns between March and the end of May.

The latest headline Stanbic Purchase Managers Index (PMI) posted 54.6, up from 50.3 in July. This is the highest since February, just before the first case was reported in Uganda. The latest reading is above the positive threshold of 50.0 and substantially higher than the 46.5 reported for June.

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%).

Kenneth Kitungulu, the Head Global Markets at Stanbic Bank Uganda attributed the steady improvement to fewer restrictions on business activities throughout the country compared to previous months.

He said, “The survey findings not only showed improvement in general private sector activity, but also recorded growth across all the five sectors that are normally monitored. Rising new orders encouraged companies to expand their staffing levels and purchasing activity midway through the third quarter, in both cases for the first time in six months. The increase in employment was recorded in spite of some firms indicating that the Covid-19 downturn had left residual spare capacity at their units, thereby reducing the need for additional staff,” he said.

Growth of purchasing activity helped to support a second successive increase in inventories. Suppliers’ delivery times lengthened, however, following an improvement in vendor performance in July. Issues with transportation were often mentioned.

The PMI report contains the latest analysis of data collected from the monthly survey of business conditions in the Ugandan private sector. The survey, sponsored by Stanbic Bank and produced by IHS Markit, has been conducted since June 2016.

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Jibran Qureishi, Head of Africa Research at Stanbic Bank said, “Business confidence is gradually returning to the market, amidst looser lockdown restrictions nationally. However, input costs for firms continue to remain elevated, primarily due to rising transport prices. But then again, we suspect that these prices pressures could prove to be temporary, especially as the exchange remains stable and economic activity, despite recovering since June, still remains moderate.”

However, higher transport costs contributed to an increase in overall input prices, with higher costs for electricity, water and purchases also signaled. On the other hand, staff costs continued to fall.

Selling prices rose for the second successive month amid the passing on of higher input costs to clients. Companies remained optimistic that output will rise over the coming year, with expectations of a gradual return to normal business conditions supporting confidence.

Th writer is Stanbic Bank Uganda’s Head of Global Markets

 

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