A rise in new orders was the key driver of growth in Uganda’s private sector activity in March, according to a monthly survey of purchasing executives.
The purchasing managers’ index, compiled by IHS Markit, shows a reading of 53.2, above February’s 51.1, indicating a further expansion in activity and the overall health of the private sector. A PMI reading above 50 indicates expansion in activity, while one below signals a contraction.
Still, the average of the index of 52.1 in the first three months of 2018 is lower than the 54.0 average recorded in the last quarter of 2017, suggesting that the pace at which operating conditions in the private sector are improving is still sluggish, according to Jibran Qureishi, the regional economist for East Africa at Stanbic Bank.
March’s PMI rate is the highest in three months, and also above the series average going back to June 2016 when the survey was first conducted. The rise in business activity was due to a rise in new orders from both domestic and foreign sources, Markit said. Several surveyed managers said this was a result of targeted advertising campaigns.
The rise in new orders saw firms increasing their output, with both trends being observed across all five monitored sub-sectors for the first time this year. To fulfil the higher number of orders, firms hired more workers and also purchased more inputs.
The need for more employees and raw materials however led to a rise in operational costs across all the five monitored sub-sectors, Markit said. Raw material prices were also higher – which was not helped by fuel prices, which have gone up since the beginning of the year – while a rise in the general cost of living drove up wages and salaries.
Businesses transferred the higher production costs to buyers by raising the prices of their products and services. This continues a trend observed in all the months the survey has been carried out, according to Markit.
A rise in credit growth to the private sector due to the Central Bank’s accommodative monetary policy stance as well as improving domestic demand conditions could see operating conditions in the private sector improving further this year, Mr Qureishi said.
Bank of Uganda cut the central bank rate to 9% at its last monetary policy committee meeting in February on concerns about sluggish private sector credit growth and the cost of loans. The committee will meet again on Monday, 9 April, to determine the policy rate.
The survey informing the index is sponsored by Stanbic Bank Uganda and covers the agriculture, construction, industry, services, and wholesale and retail sectors. It measures companies’ orders, production, employment levels, and deliveries to gauge their condition.