New survey casts cloud on country’s business climate

The high cost of inputs, poor transport infrastructure and competition, electricity cost, high tax rate and inadequate capital are the biggest constraint in doing business. File Photo.  

By Martin Luther Oketch

In Summary

Slow recovery of economic activity in the European Union has continued to negatively affect Ugandan export-oriented sectors.

Uganda’s business climate during the first quarter of the year declined, casting a cloud on prospects for economic recovery this year.

Findings from the Economic Policy Research Centre (EPRC) Business Climate Survey for January to March 2013 for quarter one of 2013 show a decline in the business climate from 104.5 in quarter four of 2012 to 97.6, signifying a deceleration in the business activity.

The research released on Friday was collected from 150 firms with the aim of assessing business economic conditions.

EPRC economists told the Daily Monitor that the perceived reduction in business activity was due to persistence of some downside risks that ensured that both the current and expected business conditions are below potential.

The economists argue that between January and March, the business climate depreciated, albeit weakly, on account of reduced demand for products and services particularly for the retail and wholesale trade, perceived increased business competition coupled with the persistence of some binding constraints in doing business.

“These negative occurrences affected businesses despite an improving macro-economic environment characterised by stable inflation, exchange rates and falling interest rates,” said Mr Joseph Mawejje, a research fellow at EPRC.

Mr Mawejje said reduced consumer demand was the main reported driver of a weak business climate. “Business activity and turnover reduced across all sectors as compared to the previous quarter,” he said.

The survey shows that the balance scores which show the difference between the percentage of respondents who reported a positive outcome and a negative outcome for a given evaluation indicator, were negative for business activity and turnover across all sectors.

In the agricultural and agro-processing sector, 55 per cent of businesses reported declined turnover. The reduced demand is reportedly due to a downcast consumer sentiment for both the domestic and international markets.

Increased competition in the wholesale and retail trade sector was the second most reported driver of reduced business climate.

Donor aid cuts are also partly to blame. Following strong allegations of misappropriation of donor-funded public funds in some government ministries, numerous development partners agreed to freeze all direct budgetary support to Uganda. The aid squeeze may have delayed fulfilment of critical government duties including payments of civil servant salaries.