KAMPALA – For the first time in the past seven months, the headline Stanbic Purchasing Managers’ Index (PMI) has dipped below the 50.0, posting a reading of 49.8 from 51.2 in December 2020.
The PMI is a composite index, calculated as a weighted average of five individual sub-components like New Orders (30%); Output (25%); Employment (20%); Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%).
The readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration.
Business conditions deteriorated for the Ugandan private sector during January due to a reduction in new orders which caused a fall in employment as the country went through the general elections period.
However, in spite of some signs of weakness at the start of the year, firms remained confident that output will rise over the next 12 months.
For Instance, in the agriculture and industry sectors, outputs rose whereas construction, wholesale and retail services saw a decrease.
Ms Ferishka Bharuth, an economist with Africa Regions at Stanbic Bank says new orders dropped in January, thereby ending a six-month sequence of expansion.
“The election period also dampened activity at some monitored companies, but overall output continued to increase. Growth was recorded in the agriculture and industry categories, but falls were seen in construction, services and wholesale and retail,” she said.
According to the January report, with new orders down, companies scaled back their staffing levels and purchasing activity.
Using findings from about 400 respondents, the report contains the latest analysis of data collected from the monthly survey of business conditions in the Ugandan private sector.
The survey covering the agriculture, industry, construction, services, wholesale and retail sectors is sponsored by Stanbic Bank and produced by IHS Markit.
According to respondents, lack of client activity around the election period was one factor acting to reduce new business.
The uncertainty and a lack of customer activity around the elections also reportedly led to the reduction in new orders.
On the other hand, some panelists saw their customer numbers increase. The industry, services and wholesale and retail categories all saw new orders decline.
In line with lower employment, firms in the survey also noted a drop in staff costs as purchase prices continued to rise, driving an eighth successive monthly increase in overall input costs.
The report outlines that as has been the case in each of the past eight months, purchase costs rose in the Ugandan private sector at the start of 2021.
It also shows a range of raw materials reportedly cost more in January, including cement, paper, stationery, sugar and other food products.
The efforts to pass on higher cost burdens to customers resulted in a rise in selling prices, following a fall in the previous month and stocks of purchases rose, increasing for the sixth time in the past seven months.
The report further shows that the latest increase in part reflected the fall in new orders, which meant that fewer inputs were used to support output.
The confidence around new order inflows, particularly following the elections period, supported optimism that business activity will increase over the coming year and close to 84% of respondents expressed a positive outlook at the start of the year.