By Samuel Muhimba
As the Ugandan private sector continues to recover from the negative impacts of COVID-19, the latest Stanbic PMI shows that business activity continued to improve in October following the relaxation of restrictions which saw demand, output, new orders and employment expand.
According to survey by Stanbic, companies indicated that more normal business conditions and greater customer numbers helped support an increase in new orders during October. In turn, business activity expanded, the fourth month running in which this has been the case. All five monitored sectors saw output increase.
The PMI is a composite index, calculated as a weighted average of five individual sub-components: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%).
The survey shows that the headline PMI rose to its highest since February to 55.8 in October, up from 54.5 in September and above the 50.0 no-change mark for the fourth successive month. The latest reading was also above the series average of 53.1.
With the relaxation of Covid-19 restrictions, there was also growth of new orders in the month of October which encouraged firms to take on extra staff, which they did for the third month running in the October . This expansion of capacity meant that companies were able to keep on top of workloads and reduce outstanding business.
Commenting on the Headline PMI, Jibran Qureishi, Head of Africa Research at Stanbic Bank noted; “The PMI trend and other leading economic indicators all point to a recovery in GDP growth in the third quarter of 2020 from the contraction in the previous quarter. Of course, in addition to second wave risks both nationally and globally which could result in further domestic containment measures, there is always the risk that private sector economic activity could ease ahead of the February 2021 elections.”
Furthermore, the Index shows that purchasing activity also increased, with prompt deliveries by suppliers helping to support a rise in inventory holdings.
Meanwhile, costs of purchases increased for the fifth month running across the five sectors, largely attributed to higher prices to rising costs for raw materials including cement, food, fuel, and paper.
Staff costs also rose, while there were reports of higher prices for utilities such as electricity and water. As a result, overall input cost inflation was recorded.
Also, expansion in total new business was recorded despite a reduction in new export orders at Ugandan companies at the start of the fourth quarter. New business from abroad has decreased in two successive months.
The survey predicts that with Less stringent COVID-19 restrictions and further improvements in business conditions, output will continue to rise over the coming year. Optimism was signalled at more than 80% of firms.
About Stanbic Bank Uganda PMI
The Stanbic Bank Uganda PMI is compiled by IHS Markit from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. The sectors covered by the survey include agriculture, mining, manufacturing, construction, wholesale, retail and services. Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month. Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.