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Jibran Qureishi, head of Africa Research at Stanbic Bank

In Uganda, business activity growth encourages companies to increase headcount

Growth of new orders encouraged firms to take on extra staff, which they did for the third month running in October, officials said.
posted onNovember 7, 2020

As continued easing of the coronavirus-prompted lockdown continues to shore up business activity, companies have regained confidence to hire more employees to meet production demands.

According to the Stanbic Bank Purchasing Managers Index (PMI), recent events like the re-opening of schools have led to a surge in demand for goods, implying companies had to step up output.

The headline Stanbic Bank Purchasing Managers Index (PMI) rose to 55.8 in October, up from 54.5 in September and above the 50.0 no-change threshold for the fourth successive month. The latest reading was also above the series average of 53.1.

“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,” said Jibran Qureishi, head of Africa Research at Stanbic Bank.

“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.”

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%).

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

The survey, sponsored by Stanbic Bank and produced by IHS Markit, has been conducted since June 2016 and covers the agriculture, industry, construction, wholesale & retail and service sectors.

This latest report contains the latest analysis of data collected from the monthly survey of business conditions in the Ugandan private sector involving 400 respondents.

Business activity in Uganda has expanded for four consecutive months, including October, with all the five monitored sectors registering output growth.

Growth of new orders encouraged firms to take on extra staff, which they did for the third month running in October, officials said.

A number of panelists noted that the reopening of schools had contributed to higher activity.

This expansion of capacity meant that companies were able to keep on top of workloads and reduce outstanding business.

Purchasing activity also increased, with prompt deliveries by suppliers helping to support a rise in inventory holdings.

However, costs of purchases increased for the fifth month running, with higher prices for a range of raw materials mentioned.

Although some firms noted pressure on capacity as a result of new order growth, this was outweighed by those that indicated that resources were more than sufficient to deal with current workloads.

As a result, backlogs of work decreased in October, as has been the case in each month since the survey began in June 2016. 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.

The covering of higher input costs led to a further rise in selling prices, the fourth in as many months.

Less stringent Covid-19 restrictions and predictions of further improvements in business conditions supported confidence that output will continue to rise over the coming year.

Optimism was signaled at more than 80% of firms.

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