Business climate deteriorates further as fears of the South Sudan conflict grips businesses in Uganda (April – June 2016)

Business climate deteriorates further as fears of the South Sudan conflict grips businesses in Uganda (April - June 2016)

The Uganda business climate index (UBCI) declined to 79.2 from 93.5, a persistence of the negative sentiment registered in last quarter (January – March 2016) and the worst decline since 2012. The negative sentiment in the business environment could be emanating from a number of sources such as; lag effects of the electoral cycle, the adverse effects of exchange rate depreciation and the re-ignition of political strife in South Sudan - a major export destination. In addition, less than favourable prices for goods and services, regional trade barriers, drought and poor regulatory environment were cited as possible drivers in the decline in business climate perceptions in the current quarter. The top five most important constraints to doing business for the current quarter changed marginally from the last quarter. The macroeconomic factors, particularly exchange rate volatility and high interest rates, challenges with electricity availability and cost, tax policy, substandard products, and insufficient demand for products and services continue to constrain businesses in the current quarter. However, the severity of constraints, especially electricity reduced significantly. Business sentiment in agriculture remained upbeat, while that in manufacturing and services was downcast. Businesses climate prospects remain optimistic in the next quarter (July – September 2016) on account of expected recovery in domestic demand and capacity utilization in the agricultural sector and favourable input and product cost in the manufacturing and service sector. 2 The Uganda Business Climate Index Issue 14, April – June 2016 weighted arithmetic mean of indices of the individual bus.

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• Published Oct 21, 2016