Uganda's PMI Dips Slightly but Private Sector Shows Resilience with Continued Growth

In February, a marginal slowdown in certain sectors caused the headline Stanbic Purchasing Managers’ Index (PMI) to decrease to 51.7, down from 54.0 in January.

Despite this, the Ugandan private sector still experienced overall improvement in business conditions, with continued growth in output and new orders. This growth led companies to boost both employment and their purchasing activities.

Conducted monthly by S&P Global, the Stanbic PMI survey gathers insights from approximately 400 participants across sectors like agriculture, mining, manufacturing, construction, and services.

The PMI, a composite index, factors in New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%), and Stocks of Purchases (10%) to provide a snapshot of economic health. A PMI above 50 indicates business expansion compared to the previous month, while a figure below 50 suggests contraction.

Christopher Legilisho, an Economist at Stanbic Bank, commented on the report, noting that despite a slight dip in private sector activity in February, Uganda has maintained a robust streak of growth for 19 months, driven by an uptick in customer demand. Significant growth was observed in the construction, industry, services, and wholesale and retail sectors.

The report highlighted that new client influx contributed to the expansion of business activities, although some sectors reported a temporary weakening in demand. Excluding agriculture, all monitored sectors reported an increase in output.

Legilisho added that despite a reduction in agricultural activities, overall backlogs were effectively managed, with companies adjusting their workforce for 11 consecutive months to manage excess work. Even as companies faced rising costs, especially for fuel and materials, they managed to keep staffing costs down by increasing output prices and controlling expenses. Businesses remained positive about future demand and output prospects.

The report also indicated that while higher customer numbers drove current growth and are expected to fuel future output increases, optimism about the business outlook remains high, with 83% of respondents feeling positive.

Although purchasing activity grew in February, there was a noticeable decrease in input stocks for the first time in three months, with variations across sectors.

Employment continued to rise, helping companies reduce backlogs. This has been a trend since April of the previous year, with February's employment growth varying across sectors.

Furthermore, while companies increased their purchasing and observed shorter delivery times from suppliers, input stock levels dropped for the first time in three months, indicating a strategic adjustment to fluctuating demand.

Rising costs for fuel, materials, and utilities pushed up overall input costs, leading firms to adjust their selling prices. This has led to a continuous increase in charge inflation over the past 11 months, with construction being the only sector not to raise output prices in February.

The ability to clear backlogs for the second consecutive month indicated ongoing adjustments within businesses, despite the construction sector experiencing an increase in outstanding work during the survey period.