Uganda’s private sector activity growth rises to record high

Uganda’s private sector firms have reported their strongest month in three and a half years, shrugging off a protracted trade dispute with neighbouring Rwanda.

The Stanbic Bank Uganda purchasing managers’ index in June hit 57.8, its highest level since surveys began in January 2016, according to figures released on Wednesday. Any figure above 50 indicates expansion over the month.

The growth was due to greater volumes of output and new orders in the month across all five monitored sectors, respondents told IHS Markit, the global firm that compiles the survey. This followed improvements in demand and successful advertising campaigns.

The latest signs of vigorous growth in the private sector indicate that it has shrugged off a trade dispute with Rwanda which began in late February. Rwanda, one of Uganda’s key export markets, closed its borders and blocked goods from Uganda in a protracted diplomatic standoff.

The blockade led to a drop in new export orders from Rwanda, but businesses have “perhaps realigned their business models and looked for alternative markets,” said Jibran Qureishi, Stanbic Bank’s regional economist for East Africa.

The PMI survey is compiled from responses received from business managers in 400 private sector companies. It aims to provide a picture of the overall health in the private sector and is seen by policymakers as a useful early indicator of economic growth.

Companies said they took on extra staff in the month to complete projects on time, which resulted in a reduction in backlogs. Only industry did not report a rise in employment and staff costs.

Other than staff costs, there was also an increase in electricity and water prices. As a result, overall input prices increased, as has been the case in each month since June 2016, IHS Markit said. The higher cost burdens, however, were passed on to customers.

Business managers were also optimistic about the private sectors’ longer term outlook. “Predictions of further improvements in demand and business expansion plans supported confidence that output will rise over the coming year,” said IHS Markit.

“Indeed, the expansionary fiscal policy outlined in the FY2019/20 budget should continue to support activity especially if the absorption of the development budget improves,” Mr Qureishi said.

“Moreover, the good rains over the past couple of months will also probably bode well for the agriculture subsector in the second half of 2019.”