Uganda’s private sector experienced a modest improvement in business sentiment during the second quarter of 2025, according to the latest Uganda Business Climate Index (UBCI) report released by the Economic Policy Research Centre (EPRC).
The index rose to 92.5, up from 88.8 in the first quarter, reflecting cautious optimism among businesses.
While the uptick signals positive movement, the index remains below the neutral benchmark of 100, indicating that business conditions are still weaker than the long-term average.
The report attributes the improvement to increased business activity, higher sales turnover, better selling prices, and improved profitability, especially during the Easter season and the second-term school reopening.
Rehema Kahunde, a Research Analyst and co-author of the report, noted that although businesses benefited from seasonal demand, sustaining the momentum will require addressing the deep-rooted structural challenges that continue to affect many firms.
Performance across economic sectors remained mixed in the second quarter. The services sector registered an improvement, with its index increasing to 94.7 from 92.3.
This growth was mainly driven by large enterprises in education, financial services, warehousing, and logistics, which saw stronger sales and profitability.
On the other hand, the agriculture sector recorded a slight decline, with its index falling to 98.3 from 99.3.
The downturn was largely due to reduced activity and turnover among agribusinesses, particularly those affected by the decline in global coffee prices.
The manufacturing sector faced the steepest drop, with its index falling to 79.9 from 81.6, as firms continued to struggle with high input costs, unstable electricity supply, and limited access to skilled labor.
In addition to sector-specific issues, several recurring challenges continued to weigh on overall business performance. Among the most frequently cited obstacles were multiple taxation and increasing competition from informal businesses.
These issues were particularly acute in most regions outside the north, where businesses also faced poor transport infrastructure, weak demand, and limited access to finance.
Macroeconomic factors such as high interest rates and inflation added further pressure on operating conditions.
One of the most significant developments affecting businesses in Q2 was the transition of electricity distribution from UMEME to UEDCL on April 1, 2025.
According to the report, 42% of businesses reported a negative impact from the transition. Among them, 74% cited more frequent power outages, while others experienced fewer electricity units for the same price and increased voltage fluctuations.
The disruptions were especially severe for larger firms, with nearly half of large manufacturers reporting significant effects on productivity.
One Kampala-based manufacturer stated that power cuts had forced them to rely more heavily on generators, increasing their operational costs and disrupting output.
The EPRC urged UEDCL to stabilize the electricity supply quickly to prevent further setbacks to industrial productivity.
Despite these ongoing issues, the outlook for the third quarter of 2025 is largely optimistic. The EPRC projects that the UBCI will rise to 100.3 between July and September, crossing the neutral threshold and indicating above-average business conditions.
This improvement is expected to be driven by greater consumer demand, anticipated political spending related to the upcoming election cycle, and a projected decline in input costs.
The agriculture sector is forecast to rise to an index of 109, buoyed by the harvest season, while services are expected to reach 101. The manufacturing sector is also projected to improve slightly to 82.
In conclusion, while the UBCI’s climb to 92.5 in Q2 2025 reflects resilience among Ugandan businesses, the operating environment remains challenging.
Power supply instability, multiple taxation, informal competition, and macroeconomic pressures continue to undermine business growth.
Nevertheless, optimism for the months ahead is strong, and if anticipated political and seasonal economic activity materializes alongside targeted policy reforms Uganda’s private sector could be poised for a stronger recovery in the latter half of the year.
