What keeps Ugandan entrepreneurs & business leaders optimistic despite the slowdown in economic growth?

by Mmeeme Leticia Luweze
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Despite the slower pace of economic growth, Ugandan entrepreneurs and business leaders maintain a persistent sense of optimism. The latest monthly report on the economy’s performance for January 2024 reinforces this positivity, highlighting ongoing improvements in economic activity and business conditions. 

According to the report, this is evident through key high-frequency indicators such as The Composite Index of Economic Activity (CIEA), the Purchasing Managers’ Index (PMI), and the Business Tendency Index (BTI).

The report highlights that the CIEA increased from 160.13 in November 2023 to 160.37 in December 2023 signalling a further improvement in economic activity. This, however, represented a slower growth of 0.15% in December 2023 compared to a growth of 0.3% in November 2023. Despite the deceleration in growth momentum, the increase in the CIEA signifies continued progress in economic expansion, though at a reduced pace.

Furthermore, the Purchasing Managers’ Index, remained above the threshold of 50, signalling ongoing improvement. Strengthening outputs, new orders and consumer demand were evident, although the index slightly dipped to 54.0 in January 2024 from 54.8 the previous month, primarily due to escalating input costs.

The report notes that sentiments about doing business in Uganda remained optimistic and continued to improve. This was evidenced by the Business Tendency Index, which increased to 60.15 in January 2024 from 59.58 the previous month, remaining above its threshold of 50.

Despite the challenges posed by rising input costs and inflationary pressures, businesses are still operating and adapting to these challenges. They may view these hurdles as temporary obstacles that can be overcome in the short run.

In January 2024, annual headline inflation rose to 2.8% from 2.6% the previous month, driven by increases across all three components of inflation: annual core, food crops, and Energy Fuel and Utilities (EFU) inflation. Specifically, the uptick in annual headline inflation was primarily attributed to rising costs in services and food crops, along with increased prices of liquid fuels compared to the same period a year ago.

During a media interview, Ramathan Ggoobi, the Permanent Secretary and Secretary to the Treasury, noted that the economy’s fundamentals remain strong, despite the recent slight shock experienced in the foreign exchange market. This shock is characterized by a recent uptrend in the price of the dollar over the past weeks, primarily attributed to external factors

Furthermore, the Business Tendency Index (BTI) for January 2024 showcases a positive outlook, remaining above its threshold of 50 and rising to 60.15 from 59.58 the previous month. This optimism is echoed across sectors, including construction, manufacturing, wholesale trade, agriculture and other services. However, the agricultural sector displayed relatively lower optimism compared to the previous month, particularly concerning the business situation in the next three months.

Speaking with business owners, it becomes clear that despite the economic slowdown, a sense of hope and determination prevails. They acknowledge the personal struggles they endure, such as financial strain and difficult decisions. However, they draw strength from their communities, families and their belief in innovation’s transformative power. Despite the challenges, there’s a collective commitment to overcoming obstacles and emerging stronger.

Charles Ddamba, a shop owner in Ndejje Municipality, emphasizes the importance of saving, not just for personal needs but also for sustaining business operations during challenging times. Another resident of Ndejje, Eva Lugya, said, “While economic growth may be slowing down temporarily, we have seen the Ugandan economy bounce back from challenges in the past. This resilience, coupled with our natural resources and untapped potential, keeps us optimistic about the long-term outlook for businesses in Uganda.”

During his address to mark the 38th Anniversary of the NRM’s victory, President Yoweri K Museveni remarked, “On the economy, despite the effects of climate change on agriculture and our infrastructure by the floods, the conflict in Eastern Europe, which led to a rise in the prices of some strategic commodities such as oil, the recent rise in interest rates globally, which made access to capital very expensive, the economy has continued to expand.”

He continued to express that Uganda’s economic prospects are highly optimistic. This optimism primarily stems from consistent support to the private sector through favourable policies, fostering a business-friendly environment. Infrastructure investments in energy, transport, and ICT further contribute to this positive outlook. Moreover, improved access to credit, facilitated by initiatives like the Parish Development Model, Small Business Recovery Fund, Emyooga, Agriculture Credit Facility, UDB, UDC, etc., plays a crucial role. Additionally, he noted that a swift and comprehensive response to the impact of previous health crises and regional geopolitical security issues has played a crucial role in bolstering economic resilience.

In the financial year 2022/2023, Uganda’s economy grew to UShs184.89 trillion (US$ 49.5 billion), a notable increase from the previous year’s figure of Shs162,750 billion (US$ 45.6 billion) recorded in the financial year 2021/22. This growth represents a real-term expansion of 5.2 percent, surpassing the 4.6 percent growth recorded in the preceding financial year. The economy is projected to continue its upward trajectory, with its size expected to reach UShs204.9 trillion (USD55 billion) by the end of the financial year 2023/24.

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