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Ugandan private sector experiences first downturn in over a year amid declining demand

The private sector in Uganda witnessed a setback in business conditions in March, interrupting a continuous 16-month streak of improvement. This downturn was attributed to a decrease in output and new orders, a consequence of diminished customer demand driven by lower cash flow and reduced buying power.

Despite the current challenges, companies maintain a positive outlook, expecting business activities to pick up in the coming months.

Despite the current challenges, companies maintain a positive outlook, expecting business activities to pick up in the coming months.

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This optimism is reflected in increased employment and input purchasing. However, these expansions have also led to heightened overall cost pressures for businesses, even as they continue to adjust their selling prices upward in response.

Christopher Legilisho, a senior economist at Stanbic Bank, noted that the Purchasing Managers' Index (PMI) dropped to 49.3 in March from 51.7 in February, marking the first sign of weakening in the sector since July 2022. The downturn was mainly noticeable in reduced output and new orders, except the industrial sector which saw growth.

Employment levels rose for the twelfth consecutive month, especially in the agriculture and services sectors, although the construction and industry sectors experienced a reduction in workforce numbers. The decrease in orders allowed firms to address backlogs, improving backlog situations further in March.

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Legilisho emphasized the sustained positive sentiment among Ugandan firms regarding future business prospects, with expectations of increased customer demand and output over the next year. This optimism is supported by continued growth in purchasing activities, marking an ongoing trend that began in November 2022.

Despite challenges in sales, businesses have been compelled to increase their selling prices to cope with rising costs, continuing a trend that has lasted for twelve months. This price adjustment strategy is seen across various sectors, albeit with variations in the impact on output charges.

The report also detailed sector-specific trends, noting employment growth in agriculture and services, while construction and industry saw a decline. The wholesale & retail sector remained stable in terms of staffing.

A significant portion of the companies surveyed reported working through backlogs due to reduced order inflows.

An increase in operational expenses was highlighted, driven by higher costs for raw materials, rent, fuel, electricity, and water. This uptick in input costs, which has been consistent since August 2021, has pressured businesses to adjust their pricing strategies, with most sectors opting to pass these costs onto consumers.

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This content was created with the help of an AI model and verified by the writer.

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