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Business

Business Picks Up Amid Renewed Growth in Local Demand – Stanbic Index

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Caption: Traders carry on with business in Kikuubo, downtown Kampala

The operating conditions for businesses in Uganda improved over the past month on the back of renewed local demand which led to an increase in output, new orders, employment and the purchase of new stocks, according to the Stanbic Bank Purchase Managers Index (PMI) for the month of June.

While releasing the June Stanbic PMI results, Anne Juuko Stanbic Banks Head of Global Markets revealed, “The headline seasonally adjusted PMI posted a respectable 52.8 in June up from 51.0 in May indicating a further improvement in private sector business conditions for the fifth time in as many months.”

The upward trajectory of two of the private sector monitored categories namely Industry and Services performed so well they more than offset the worsening of the overall operating conditions in the remaining sectors.

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She further noted that “Ugandan private sector firms continued to raise their payroll numbers, with job creation seen in construction and services.”

Commenting on June’s survey findings, Jibran Qureishi, Regional Economist E.A at Stanbic Bank said, “The private sector continues to recover supported by the easing of the monetary policy stance for the better part of the last year or so. We suspect as inflationary pressures have subsided somewhat over the past couple of months; the MPC may still cut its key benchmark rate at its next meeting in August.”

However, Jibrani predicts that it could possibly be the last rate cut of the year.

“This being said, as economic activity improves in the second half of the year, imports may rise and put pressure on the exchange rate which could subsequently raise costs for firms.”

Ugandan firms generally faced higher cost pressures which were driven by operational costs such as utility bills, staff costs and higher purchasing prices.

Sugar, raw materials and food items were all reported to be up in price. All five sub-sectors monitored by the survey raised output charges, as they passed on higher cost burdens to customers.

According to the World Bank cost of doing business report for 2016, high overhead costs remain one of the major threats to private sector led growth in the country and are one of the primary factors making credit expensive.

Responding to the upward trend in new orders, “The Ugandan private sector observed a renewed rise in purchasing activity during June, following a fall in May. Subsequently, stocks of inputs held by firms rose for the thirteenth successive month.”

This is a very positive trend, Anne concluded.

The Stanbic 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%).

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration.

 

 

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