Business Conditions Continue to Deteriorate - Stanbic Index

The Ugandan private sector moved towards stabilisation during June but business conditions continued to deteriorate during the month.
03 Jul 2020 11:39
Kenneth Kitungulu, Stanbic Bank Uganda Head of Global Markets
There has been a slow recovery of business since the President eased the COVID-19 lockdown restrictions in May, According to the Stanbic Purchase Managers Index (PMI) for the month ending June 2020.

The index shows that there is a slow recovery of business activities amid the coronavirus pandemic. The Headline Purchasing Manager’s Index posted in June was 46.5, up from 41.9 in May, but still below 50.0 which signifies a positive outlook. In comparison, the PMI figure for January 2020 reached a high of 58.8.

Business activities declined at a record low in March to due to the global coronavirus pandemic marked by a drop in new businesses and company.

Stanbic Bank Uganda’s Head of Global Markets, Kenneth Kitungulu said both business activity and new orders decreased for the fourth month running in June as Covid-19 continued to impact on the private sector operations.

“A PMI reading below 50 indicates that month on month we continue to see a decline in activity even as it's not as extreme as what we saw in April. However, 44 per cent of respondents predict a rise in output in the next 12 months – an increase from last month,” he said.

Adding, “Although some companies had been able to reopen during the month because of a loosening of the lockdown restrictions, others remained closed or had only just reopened at the time when the survey was conducted. The construction and services sectors posted rises in both output and new orders, but falls were recorded elsewhere. In fact, 14 per cent of respondents mainly from the Agricultural sector remain pessimistic about future business activity.”

The PMI is a composite index, calculated as a weighted average of five individual sub-components: New Orders (30 per cent), Output (25 per cent), Employment (20 per cent), Suppliers’ Delivery Times (15 per cent) and Stocks of Purchases (10 per cent).

The Ugandan private sector moved towards stabilisation during June, but that said, business conditions continued to deteriorate during the month.

The latest survey sponsored by Stanbic Bank and produced by IHS Markit, shows that companies reported difficulties in paying staff in June due to limited administrative funds as a result of cash flow problems. This resulted in a combination of job cuts and a reduction in salaries across the board.

Overall input prices increased for the first time in three months as purchasing costs moved higher. Respondents highlighted rises in transportation costs as well as higher prices for utilities and inputs such as fertiliser and paper. Despite a rise in overall input costs, firms continued to lower their selling prices amid a lack of demand and reduced spending power of customers.

Kitungulu said, “To compliment the recent measures taken by the Bank of Uganda to lower lending rates through lowering its own policy rate, a comprehensive fiscal intervention aimed at directly putting cash in the hands of the population is key to boosting demand and overall economic outlook.”

Restrictions on transportation and delays at the border due to the mandatory testing of drivers also meant that suppliers' delivery times were lengthened during June.

However, firms are hopeful that business activity will pick up again over the coming year as hopes as measures to restore some sense of normality continue.

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