Weak exports slow Uganda’s private sector activity in May

Weak exports slow Uganda's private sector activity in May
Jibran Qureishi, Regional Economist East Africa at Stanbic Bank. Courtesy Photo.

The month ending May 2017 registered slow expansion of private sector activity in Uganda due to weak exports to the regional markets as well as European Union.

According to Stanbic Bank Uganda Purchasing Managers’ Index (PMI) survey results released on Monday, May had a slip in activity from 53.5 in April to 50.0 from 53.5 in April.

The drop in May was attributed to reduced demand from key markets like the neighboring DRC who trade with Uganda has been disrupted by the ongoing civil conflict.

The Purchasing Managers’ Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

The Stanbic Bank Uganda Purchase Managers Index (PMI) for May indicates there have been further improvement in Business conditions in the country.

At 51.0 the seasonally adjusted PMI remained above the crucial 50.0 threshold for the fourth month in succession signaling a continued expansion of the private sector.

Jibran Qureishi, Regional Economist East Africa at Stanbic Bank said, the Purchasing Managers’ Index still showed some growth in May, though at a slower pace than the previous April.

He says the slowdown in new orders was perhaps the main trigger in May. He says the drop in new orders is not surprising given that Uganda’s key export markets continue to face enhanced political risks.

Stanbic Banks Head of Global Markets Anne Juuko said despite the challenging market environment steady gains are being registered in key sectors of the economy.

She explained that the upward trend in agriculture and construction slightly outweighed the deterioration of business conditions in the remaining sectors Industry, Services, Wholesale and Retail.

Turning to trade she revealed that, new exports fell during May amid reports of reduced demand from key international export markets including South Sudan, Kenya and the European Union.

Twenty one percent of the survey panel recorded a rise in new export orders, whereas 36% noted a decrease.

“The ongoing upturn in new work continued to feed through to the labour market, with firms raising their payroll numbers across all monitored sub-sectors.” She added.

Private sector employment was up for the twelfth month running in May according to the survey.

Juko said all five of the sectors observed in the study registered an upward trend in prices of raw materials, sugar and food items driven mainly by higher purchasing costs. “Unfortunately for consumers these were generally passed on to clients in the form of higher selling prices.” Said Juko.

Despite purchasing activity falling for the first time in the survey’s history, stocks of purchases continued to rise. Expectations for further improvements in demand encouraged firms to increase their inventories, according to anecdotal evidence. Firms also noted an improvement in supplier lead times during May.

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 show a deterioration.

The Stanbic Bank Uganda PMI is released in the first week of every month.