Uganda’s private sector activity expanded to a four-month high in May on a rise in new business, according to a survey of business managers.
The latest Stanbic Bank Uganda Purchasing Manager’s Index increased to 57.3, the second highest level in the survey’s 41-month history, up from 54.7 in April. Any figure above 50 indicates an improvement in business conditions from the previous month.
Most respondents linked growth in business activity to higher new orders, particularly due to stronger client demand, said IHS Markit, the global research firm that produces the survey. All five monitored sectors reported an improvement in conditions.
The survey also showed an increase in export orders in May, ending nine months of contraction. “This was signalled by the seasonally adjusted new export orders index moving back above the 50 no-change mark,” it said.
Last month, executives blamed ongoing tensions between Uganda and Rwanda for the decline in new export orders.
To meet the rise in new business, companies in the private sector increased their purchasing activity and inventories. However, they also reported a rise in input costs, although at a lower rate than in the previous month.
“As well as higher costs for purchases and staff, panellists also reported rises in electricity and water bills and internet rates. Overall input costs increased across all five monitored sectors,” IHS Markit said.
It added: “A number of items were reportedly up in price over the month, including cement, computer equipment, maize, paper and stationery. There were also some mentions of higher land prices.”
In response to the higher input costs, companies raised the prices of their output prices; this was also supported by the stronger customer demand.
On a positive side, the rise in staff costs follows an increase in employment as firms took on extra workers in response to the uptick in new orders and to make sure they were fulfilled on time. All five sectors also signalled an increase in wages and salaries, the first time this is happening since August 2018.
Jibran Qureishi, regional economist for East Africa at Stanbic Bank, said agricultural output could recover in the second half of the year, hinged on better weather, to support overall output.
He added: “This also may coincide with a rise in investment mainly in the energy sector which will indeed support growth in the private sector.”
Business executives told IHS Markit they expect activity to increase further over the next 12 months, with their optimism linked to business expansion plans, investment in equipment and marketing initiatives. They also expect growth in new orders.