Benoni Okwenje Stanbic Fixed Income Manager
ICT

Study shows improved business activity, employment in Uganda

The Stanbic Purchase Managers Index (PMI) for August posted a slight decline in its headline registering 57.5 in August, down from 58.2 in July. However, the PMI still scored above the average since the survey began in June 2016.

The survey, sponsored by Stanbic Bank and produced by IHS Markit, indicates that improving demand led to a rise in new orders in August, the thirty-first in as many months. As a result, business activity also increased. In both cases, expansions were seen across the agriculture, construction, industry, services and wholesale and retail sectors.

Jibran Qureishi, Regional Economist E.A. at Stanbic Bank commented: “The latest PMI reading continues to anchor our view that domestic demand in Uganda has been performing well. In fact, despite the likelihood that the Final Investment Decision (FID) on commercial oil production could be postponed into 2020, we doubt that economic growth will suffer just because of this postponement.”

Adding, “The on-going public investment in infrastructure, in addition to strong domestic demand driven by the private sector will continue to keep GDP growth on a multi-year basis above the 6.0% level.”

According to the report, companies responded to higher new orders by taking on additional staff hence leading to increase in employment. Construction was the only sector that did not record a rise in employment, and also the only category to see staff costs decrease.

Benoni Okwenje, the Stanbic Fixed Income Manager, while explaining the survey findings said that the private sector as a whole posted a rise in wages and salaries, linked to the increase in employment and the payment of bonuses to staff.

“Strengthening customer demand resulted in continued improvements in business conditions for Ugandan companies in August. Output, new orders and employment were all up, with panellists confident of continued increases in activity over the coming year. Expectations of further improvements in customer demand and business expansion plans supported confidence that activity will increase further over the coming year,” he said.

Purchasing activity rose in August, as has been the case throughout the past year-and-a-half. Reflecting this, stocks of purchases also increased, extending the current period of accumulation to five months.

However, higher staff costs, alongside purchase price rises and reports of increases in costs for electricity, fuel and water led to inflation of total input prices. Companies responded to higher input costs by raising their output prices accordingly. That said, there were some reports from panellists that competitive pressures had led to price discounting.

What PMI measures

The Stanbic PMI has been conducted since June 2016 and covers the agriculture, industry, construction, wholesale & retail and service sectors. The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI™) which provides an early indication of operating conditions in Uganda.

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%). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration.