COVID-19: Stanbic Bank’s Purchasing Managers Index sinks to a historic low of 21.6 as business conditions deteriorate The biggest uncertainty facing private sector firms, is the fact that planning has become awfully difficult, especially when you don’t know how long the Covid-19 pandemic will last.

The Stanbic Purchase Managers Index (PMI) survey report for April has shown a deterioration in business conditions following the Covid-19 induced lockdown that started on 24^th March 2020.

The lockdown was brought in to try and prevent the spread of the coronavirus disease 2019 (COVID-19) in Uganda; first for 14 days, then an extra 21 Days. The President this week extended it for another 14 days.

The headline PMI registered 21.6 in April, down from 45.3 in March- the lowest reading since the survey began in June 2016. This is is also the second consecutive month it is falling- in March it fell below the 50.0 no-change mark to 45.3, down from 56.2 in February. This was the first deterioration in business conditions in the private sector since January 2017. 

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%). The sectors covered by the survey include agriculture, mining, manufacturing, construction, wholesale, retail and services. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.

According to a media statement released by Stanbic Bank, the fall is attributed to company closures, a lack of new orders and restrictions on travel.

Commenting about the April index, Jibran Qureishi, Regional Economist E.A., Global Markets at Stanbic Bank, said:

“Owing to the ongoing cross border travel restrictions, domestic lockdown to flatten the curve and subdued external demand, the PMI declined sharply to 21.6 in April from 45.3 in March. The biggest uncertainty facing private sector firms is the fact that planning has become awfully difficult, especially when you don’t know how long the Covid-19 pandemic will last.”

Stanbic Bank Uganda, Head of Global Markets, Kenneth Kitungulu commenting on the PMI said company shutdowns amid the COVID-19 lockdown led to a further drop in output during April, with most respondents signalling a fall. All five broad sectors covered by the survey recorded decreases in business activity.

“Negative Business sentiment is not necessarily a surprise given the restricted movement during the past 45 days of the lockdown, which has led to a decrease in aggregate demand and in turn a decrease in output. However, we should expect a return to normalcy once the pandemic subsides. We have seen a number of our clients adapt their business models to deliver goods and services to the clients directly – through adopting digital solutions as well as increase the shelf life of some perishable goods whose demand has been impacted by border closures,” he said.

Adding, “Import substitution will go a long way in stimulating local companies to produce goods that were imported. The government should also support the Buy Uganda Build Uganda policy as a way of stimulating economic activity in the economy. Furthermore, the Annual inflation report released by the Uganda Bureau of statistics for the end of April indicates that whereas the cost of cereals and processed foods such as maize flour and rice have gone up, there has been a marked drop in prices of perishable food such as fruits, vegetables and bananas partly due to difficulties in exporting. This further reinforcing the need for local value addition not only to increase shelf life but also to increase our export earnings.”

Overall input costs decreased for the first time in the survey’s history, with both purchase prices and staff costs down. Ugandan companies also reduced their own selling prices for the first time on record amid a lack of demand.

“Companies were pessimistic regarding the outlook for business activity for the first time in April. A number of respondents expressed concerns around the lasting impacts of COVID-19 on the economy. That said, some panellists expect a return to normality once the pandemic is brought under control,” the report said.   The PMI report contains the latest analysis of data collected from the monthly survey of business conditions in the Ugandan private sector.