Private sector report: Business was low in March

Kampala, Uganda | THE INDEPENDENT | Uganda’s private sector completed the third quarter (January-March) of this financial year on a lower note as firms reported lower business across the main economic sectors.

The deterioration in business conditions during March, marked the end of a 16-month upward improvement trend in the health terrain of the private sector, according to the Stanbic Bank Uganda Purchasing Managers Index (PMI) compiled by S&P Global, a global market information firm.

According to the index, there was an overall decline in the business environment driven by renewed contractions in output and new orders, as customer demand was reportedly hampered by less money in circulation and reduced purchasing power.

This coincides with the Bank of Uganda and the Uganda Bureau of Statistics reports on the consumer price index which fell further to 3.3 percent at the end of March this year.

It was partly a result of the Central Bank’s high-interest rates aimed at taming inflation and high foreign exchange rates.

Nonetheless, firms remain positive about business activity increase over the next months, with employment and input buying rising further.

Despite an improvement in lead times for inputs, greater demand for materials and rising employment led to an increase in overall cost burdens, while firms continued to raise their selling prices.

According to Christopher Legilisho, a senior Economist at Stanbic Bank, the headline PMI fell to 49.3 in March, down from 51.7 in February, signaling a decline in the health of the Ugandan private sector at the end of the first quarter.

The downturn in business conditions was the first since July 2022.

“The streak of strong activity in Uganda’s private sector tailed off in March. Output and new orders declined due to reduced money supply weighing on consumer demand. Backlogs nevertheless improved further in March as fewer orders allowed firms to clear outstanding work,” said Legilisho.

He added that growth was only recorded in the industrial sector, while the impact on the labour market was mixed.

“Still, Ugandan firms increased staffing levels for a twelfth month running, particularly in agriculture and services. However, construction and industry shed jobs in March,” he said.

Legilisho further highlights that Ugandan private sector firms remained upbeat in their expectations regarding the outlook for the year ahead. Confidence in future business activity was broad-based by sector.

On the purchasing side, the private sector firms expanded their activities again in March, thereby extending the current sequence of growth that began in November 2022.

Panelists linked greater input buying to anticipated growth in new orders over the coming months, according to Legilisho, who added that firms remained positive about the outlook for customer demand and output over the next 12 months.

Despite a subdued sales environment, Ugandan businesses increased selling prices again, as firms sought to pass through higher costs to customers.

The report expounds deeper on the five monitored sectors, agriculture and services, which saw a rise in employment, construction and industry where staffing numbers fell, as well as wholesale and retail which presented flat staffing levels.

According to the study, more than a quarter (27 percent) of survey respondents registered a depletion, as lower new order inflows allowed companies to work through their backlogs.

According to the report, there was some evidence of higher operating expenses due to higher prices of raw materials, rent and fuel costs, alongside hikes in electricity and water bills.

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