Higher business activity in May boost optimism in Uganda’s private sector

Back-to-back expansions in both business activity and new orders resulted in Ugandan firms seeing a further improvement in performance during May with the headline Stanbic Purchasing Managers Index (PMI) rising to 54.1 from 52.6 posted in April.

Christopher Legilisho, Economist at Stanbic Bank said, “May produced a second successive month of buoyant private sector activity in Uganda. Output and new orders gained from robust consumer demand, referrals, and newly acquired clients. Almost all sectors recorded growth except for agriculture. Ugandan firms increased staffing levels for a fourteenth month now, including both part-time and full-time workers due to increased output. Staffing costs also ticked up as some companies paid bonuses to motivate workers.”

The monthly Stanbic PMI is compiled by S&P Global from responses to questionnaires sent to about 400 purchasing managers. The sectors covered by the survey include agriculture, mining, manufacturing, construction, wholesale, retail and services.

The index is a weighted average of the following five indices: 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.

Favourable demand conditions during May also underpinned optimism in the year-ahead outlook for output, with companies encouraged to expand staffing numbers again. Shorter lead times and greater new orders allowed firms to increase their input buying and build stocks of purchases.

On the price front, greater purchase and staff costs were recorded, pushing total operating expenses up. In turn, firms raised their selling prices further.

Legilisho said, “Further, greater employment allowed firms to handle outstanding work, thereby further clearing backlogs during May. Purchasing activity expanded, with inventories growing in May due to higher input buying and faster delivery times by firms.

“Firms increased output prices due to favourable demand conditions with input prices and purchase prices rising as operating expenses increased, with costs connected to raw materials and utilities remaining high. This implies increasing inflationary pressures. Still, firms remain upbeat on the outlook for customer demand and output over the next 12 months,” he said.

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A more upbeat sales environment contributed to the latest increase in new business in May. Ugandan companies suggested that new client wins stemming from increased customer referrals helped boost new orders.

As was the case for output, new sales rose in all monitored sectors bar agriculture.

Overall operating expenses rose further midway through the second quarter, as both purchase and staff costs increased again. Higher wage bills, in part stemming from performance-related bonuses to motivate staff, alongside greater utility and raw material prices, drove cost inflation according to panelists.

Nevertheless, sustained and upbeat demand conditions enabled firms to raise their output charges for the fourteenth month running in May. Businesses often sought to pass-through higher costs to customers, anecdotal evidence showed.

Confidence in the outlook for output over the next year encouraged firms to expand their workforce numbers and input buying during May. Four of the five monitored sectors signaled greater employment, with only construction bucking the wider trend and recording a decrease in staffing numbers.

Greater capacity allowed firms to work through their backlogs, which fell for the fifth month running. At the same time, another monthly upturn in purchasing activity and a further improvement in suppliers’ delivery times supported the building of stocks of purchases. Inventories rose for the third successive month in May.