Summary:

• In the third quarter, Uganda’s private sector faced decreased business activity across key sectors due to factors like reduced customer demand and increased operating expenses. Despite challenges, firms remain optimistic about future prospects.

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In the third quarter (January-March) of this financial year, Uganda’s private sector faced challenges with decreased business activity across key economic sectors.

The decline in business conditions, particularly noticeable in March, marked the end of a 16-month upward trend in the private sector’s health, as indicated by the Stanbic Bank Uganda Purchasing Managers Index (PMI) compiled by S&P Global. This decline was attributed to reduced output and new orders, stemming from constrained customer demand due to a decrease in circulating money and diminished purchasing power.

This trend coincides with reports from the Bank of Uganda and the Uganda Bureau of Statistics, showing a further drop in the consumer price index to 3.3 percent by the end of March. Factors contributing to this decline include the Central Bank’s high-interest rates aimed at controlling inflation and managing foreign exchange rates.

Nevertheless, there’s optimism among firms regarding future business activity, with expectations of increased employment and input purchases in the coming months. Despite improvements in lead times for inputs, rising demand for materials and increased employment have led to higher overall cost burdens, prompting firms to raise selling prices.

Christopher Legilisho, a senior Economist at Stanbic Bank, noted a decrease in the headline PMI to 49.3 in March, down from 51.7 in February, indicating a decline in the health of Uganda’s private sector at the end of the first quarter, marking the first downturn since July 2022.

While growth was observed in the industrial sector, the impact on the labor market varied, with staffing levels increasing in agriculture and services but decreasing in construction and industry. Despite these challenges, private sector firms in Uganda remain optimistic about future business prospects, with confidence extending across sectors.

On the purchasing front, private sector firms expanded their activities in March, anticipating growth in new orders in the coming months. Despite a subdued sales environment, businesses increased selling prices to offset higher costs.

The report further delves into the performance of the five monitored sectors, noting rises in employment in agriculture and services, declines in construction and industry, and stable staffing levels in wholesale and retail.

Additionally, the report highlights increased operating expenses attributed to higher prices of raw materials, rent, fuel costs, and utility bills.