Uganda’s private sector sustains robust growth amidst buoyant demand in July

Uganda’s private sector continued its impressive growth trajectory in July, marking the sixth consecutive month of expansion, driven by buoyant demand and leading to increased business activity, purchasing, and hiring.

While the headline Stanbic Bank Purchasing Managers’ Index (PMI) saw a slight dip to 53.6 from 55.6 in June, the figure remains well above the 50.0 threshold, signaling a sustained and healthy improvement in business conditions.

The PMI, compiled from a monthly survey of approximately 400 firms across diverse sectors including agriculture, mining, manufacturing, construction, wholesale, retail, and services by S&P Global, serves as a key indicator of economic health.

A reading above 50.0 denotes an improvement, while below 50.0 indicates deterioration. The index is a weighted average of New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%), and Stocks of Purchases (10%).

Drivers of Expansion: The sustained upturn was largely attributed to strong demand conditions, new client acquisitions, and increased customer referrals, panelists reported. This robust demand spurred Ugandan businesses to significantly adjust their output levels upwards to meet the rising tide of new orders across all surveyed sectors.

Increased Activity and Capacity Strain: The heightened activity necessitated increased purchasing, with firms expanding inventory levels for the fifth consecutive month, partly to build safety stocks. To manage the influx of new work, companies also scaled up their staffing levels, adding both temporary and permanent workers.

However, the manufacturing sector was the only segment to record a fall in employment. Despite these efforts, the surge in demand led to a fresh accumulation of backlogs of work in July, marking the first such rise in seven months, signaling a strain on existing capacity.

Inflationary Pressures and Cost Pass-Through: This period of growth was not without its challenges. Firms faced rising overall input costs driven by higher purchase prices and escalating wage bills. Companies stated that inputs including utilities, fuel, timber, and cereals all saw price increases.

Consequently, Ugandan firms largely passed these greater costs onto customers by raising their output charges in July, with construction companies being the only exception to this trend, noting a drop in selling prices. Separately, vendor performance saw a renewed decline.

Expert Outlook: Christopher Legilisho, Economist at Stanbic Bank, affirmed the positive outlook. “The Stanbic Bank PMI signaled further expansion in July amid healthy economic conditions in the private sector. Further, quantities purchased increased, and inventories were positive. Current and anticipated output growth culminated in robust employment conditions in July. Backlogs of work increased for the first time since December 2024 – likely due to strong new order demand.”

He further added, “Inflationary pressures remained amid increases in input prices, purchase costs, and staff costs. Ugandan firms are optimistic about future business conditions across all sectors of the economy, implying strong economic growth in the upcoming months.”

Looking ahead, optimism remains high among Ugandan firms, with expectations of a growing customer base and continued favorable demand conditions fueling positive output forecasts. This consistent growth, now spanning six months, paints a picture of a resilient and expanding private sector in Uganda, poised for continued economic advancement.