Uganda’s private sector confidence about business conditions reached its highest level in almost two years, as the headline Stanbic Bank Purchasing Managers’ Index (PMI) for May reached 56.4, rising from 55.3 recorded in April. This is well above the 50.0 threshold for a positive outlook.
Christopher Legilisho, Economist at Stanbic Bank said, “Stanbic Bank Uganda PMI data for May was still stronger, expanding to the highest level in 23 months, implying sustained private sector momentum. Robust new orders and output were attributed to increased sales and strong customer demand across all monitored sectors. Ugandan firms increased staffing levels for a fourth month, both part-time and full-time, due to increased output. Staffing costs ticked up as some companies paid bonuses to motivate workers.”
The Stanbic PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers of around 400 local private sector companies. The sectors covered by the survey include agriculture, mining, manufacturing, construction, wholesale, retail and services.
The PMI 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%).
Expansions were driven by stronger client demand, as companies also raised their staffing levels and input buying. Expectations of greater output in the coming year also encouraged firms to accumulate stocks.
Meanwhile, higher purchase and staff costs drove overall input price inflation. In line with accommodative demand conditions, companies raised selling prices again in May.
Legilisho said, “With greater operational capacity, firms were able to reduce outstanding work, leading to a further decline in backlogs during May. Purchasing activity expanded, and inventories rose as firms increased input buying.”
He said, “Firms raised output prices in response to strong demand conditions, while overall input and purchase costs continued to rise. This was largely due to higher operating expenses and increased costs of key goods such as cement, soap, and food, pointing to a moderate build-up in inflationary pressures. Despite the cost increases, firms remained optimistic about business conditions, expecting growth in customer demand and output over the next 12 months.”
The latest data signaled a fourth consecutive monthly improvement in operating conditions in the Ugandan private sector.
Contributing to the overall upturn was a further rise in new business placed with Ugandan firms. The expansion in new orders was underpinned by stronger client demand and new customer wins, according to panelists.
Companies recorded continued growth in output during May, thereby extending the current sequence of expansion that began in February. The rise in activity was most commonly attributed to greater new orders.
At the sector level, upturns in both output and new sales were broad-based.
The rise in sales and increased business requirements spurred another round of job creation at Ugandan firms.
The latest upturn in employment was the fourth in as many months, with companies also noting that greater staffing levels reflected more temporary and permanent hires. All five monitored sectors recorded a rise in headcounts.
Employment growth enabled firms to work through their backlogs in May. The level of outstanding work fell for the fifth month running.
Ugandan firms remained confident of a rise in business activity in the coming year. Investment in advertising and promotional materials, as well as hopes of stronger demand supported optimism, according to panelists.
Concurrently, input prices continued to rise as panelists noted greater purchase and staff costs. Increased employment, alongside higher prices for materials including foodstuff and fuel reportedly drove the upticks.
Ugandan firms sought to pass through higher costs to customers, as selling prices rose again. That said, increases were confined to the service and agriculture sectors.
In spite of a slight decline in vendor performance, firms expanded their input buying and inventory levels amid strong customer demand and expectations of further increases in new business.
