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Economists say Uganda, Kenya prospects assuring

Activity in Kenya’s manufacturing sector grew for the first time in two years in January this year, on the back of improving business conditions, according to the latest Stanbic Bank Purchasing Managers’ Index.

Uganda recorded a slight drop of 2.3 points to 52 points, reflecting notable growth in construction activity and rising employment levels across various sectors, except the services segment. It is also a reflection of resilience under difficult economic conditions.

This index offers a regular assessment of business confidence levels within key sectors, including manufacturing, construction, services and agriculture, while the survey data is collected from a sample of firms, Stanbic Bank executives said.

The latest study shows that Kenya’s private sector activity slid 52.9 points in January from 53 points in December.

“Output rose to its highest level since January 2016, a trend likely to persist over the coming year. Notably, the contraction we saw in the agriculture sector in the first half of 2017 is likely to be reversed in the half of 2018, which should subsequently provide tailwinds for other sectors to flourish, said Jibran Qureishi, regional economist East Africa at Stanbic Bank.

“Horticulture and floriculture should also perform well in the coming months largely underpinned by the ongoing recovery in the eurozone as well as the recent appreciation of the euro. We retain our GDP estimate for 2017 at 4.8 per cent, but we see a recovery to 5.6 per cent in 2018,” said Mr Qureishi.

According to Stanbic, Kenya’s growth was underpinned by increase in output, with the upturn in new orders remaining strong.

“The business operating conditions across the Kenyan private sector improved at a solid rate. Although the latest index reading was slightly lower than the previous month, it was nonetheless the second-highest figure in just over a year,” said Mr Qureishi.

In Uganda, the increased purchase orders registered in January stimulated a rise in employment levels as companies responded to the growing demand from customers. But delivery times for raw materials declined.

Spillover effect

Consequently, input prices for various items procured in wholesale and retail, agriculture, construction, industry and services sectors rose last month, coupled with increased staff costs, triggering higher selling prices charged by various local firms.

Despite the fairly upbeat movements noticed in the PMI since late 2017, the spillover effect of increased economic activity is yet to be felt by many ordinary consumers.

“Private sector output expanded, driven mainly by an increase in expenditure within the construction sector. New orders continued to rise, brought about by stronger domestic and global demand. Greater purchasing activity also enabled further growth in operating capacity.

“Suppliers also coped with higher volumes of new orders, with delivery times shortening in January,” said Stanbic Bank Uganda’s fixed income manager Benoni Okwenje.

Robust PMI trends documented since last year have spurred optimism among government economists, with some hinting on upward revisions of growth forecasts for this financial year.

“The Stanbic PMI seems to reflect our own findings on the state of the economy. Most of the key economic indicators, including inflation have improved while the Kenyan political risk factor has also become subdued.

“Weather conditions though, remain a lingering source of worry. Nevertheless, we are hopeful about economic growth projections this financial year and we feel it is time to upgrade our growth forecasts,” said Dr Albert Musisi, commissioner for macroeconomic policy at Uganda’s Ministry of Finance, Planning and Economic Development.

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