Ugandan private sector firms have registered a deterioration in business conditions during March, thereby ending a 16-month upward improvement sequence in the health of the private sector.
The overall decline was driven by renewed contractions in output and new orders, as customer demand was reportedly hampered by less money in circulation and reduced purchasing power.
Nonetheless, firms remained confident that business activity will increase over the next months, with employment and input buying rising further. Despite an improvement in lead times for inputs, greater demand for materials and rising employment led to an increase in overall cost burdens. At the same time, firms continued to raise their selling prices.
According to Christopher Legilisho, a senior Economist at Stanbic Bank, the headline PMI fell to 49.3 in March, down from 51.7 in February, signalling a decline in the health of the Ugandan private sector at the end of the first quarter. The downturn in business conditions was the first since July 2022.
“The streak of strong activity in Uganda’s private sector tailed off in March. Output and new orders declined due to reduced money supply weighing on consumer demand. Only the industrial sector recorded growth. Still, Ugandan firms increased staffing levels for a twelfth month running, particularly in agriculture and services. However, construction and industry shed jobs in March. Backlogs nevertheless improved further in March as fewer orders allowed firms to clear outstanding work.” Legilisho said.
Legilisho further highlights that Ugandan private sector firms remained upbeat in their expectations regarding the outlook for the year-ahead. Confidence in future business activity was broad- based by sector.
“Purchasing activity in Ugandan private sector firms expended again in March, thereby extending the current sequence of growth that began in November 2022. Panellists linked greater input buying to anticipated growth in new orders over the coming months,” he said adding that firms in March remained positive about the outlook for customer demand and output over the next 12 months.
Despite a subdued sales environment, Ugandan businesses increased selling prices again, as firms sought to pass through higher costs to customers.
Output charges rose for the twelfth successive month putting the employment Workforce numbers at Ugandan private sector businesses expanding further in March, thereby growing the current sequence of job creation that began a year ago.
The report expounds deeper on the five monitored sectors, agriculture and services saw a rise in employment. Meanwhile, construction and industry recorded a fall in staffing numbers, while wholesale & retail saw headcounts unchanged on the month.
Backlogs of work at Ugandan firms contracted further at the end of the first quarter. With the exception of December 2023, the outstanding business levels have fallen in each month since data collection began in June 2016. Over a quarter (27%) of survey respondents registered a depletion, as lower new order inflows allowed companies to work through their backlogs.
According to the report, the anecdotal evidence stated that higher operating expenses were due to greater raw material, rent and fuel costs, alongside hikes in electricity and water bills. Increased input costs were broad-based by sector. The average cost burdens faced by Ugandan businesses rose further in March, with increases in input prices recorded in successive months since August 2021.
In line with increased overall cost burdens, Ugandan private sector firms raised their selling prices in March. Companies reportedly sought to pass-through greater costs to customers. Three of the five monitored sectors (industry, wholesale & retail and services) registered higher output charges, with agriculture and construction firms recording a fall.
