Business

Business activity continues to fall in May – Stanbic Bank PMI

The downturn in the Ugandan private sector as a result of the coronavirus disease 2019 (COVID-19) continued in May, with further reductions in output, new orders and employment registered. That said, business sentiment returned to positive territory amid hopes of an improvement in activity once the pandemic subsides.

The headline Purchase Managers Index (PMI) rose to 41.9 in May from the reading of 21.6 in April. Although higher than in the previous month, the figure still represented a deterioration in business conditions across the private sector. The reading was also below the average since the survey began four years ago.

Jibran Qureishi, Regional Economist E.A., Global Markets at Stanbic Bank commented: “Following the sharp decline in April, the PMI rebounded to 41.9 in May. Crucially, underlying domestic demand still remains weak. However, business sentiment has been boosted, by the gradual easing of lockdown restrictions. That being said, disruptions to supply chains and regional cross border transport complications, will still remain challenges for private sector firms over the coming months.”

According to the survey, sponsored by Stanbic Bank and produced by IHS Markit, business activity decreased for the third month running, with panellists linking the latest fall to COVID-19 and associated lockdown measures. That said, there were some reports of conditions starting to return to normal.

Stanbic Head of Global Markets Kenneth Kitungulu commenting on the report said optimism was signalled regarding the 12-month outlook for activity following the negative sentiment in April. “Economic activity is picking up as government continues ease the lock down. As China begins to open up we are starting to see a resumption in trade activities.”

To further support a recovery in activity, the Bank of Uganda has lowered the Central bank rate to the lowest ever level of 7% while lowering Uganda’s growth projections for 2020 to 2.5-3.5% from 3.0-4.0%. The monetary policy committee noted that average lending rates had dropped to 17.7% in April 2020 from 19.9% in January owing to the Central bank’s decisive easing in Liquidity conditions.

A lack of customers and temporary company closures contributed to a further decline in new orders. Staffing levels were scaled back in line with lower workloads and efforts to reduce costs. Data showed that these attempts were generally successful as both staff costs and purchase prices decreased in May. This was despite some panellists reporting that a scarcity of materials had led to price rises for certain items.

Companies lowered their own selling prices for the second month running as part of attempts to attract new business.

Firms signalled a reluctance to purchase additional materials and suggested that current inventory levels were sufficient for output requirements. As a result, both input buying and stocks of purchases fell. Where purchases were made, companies had to wait longer to receive items amid delays caused by restrictions on transportation.

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