KAMPALA – The wave of the Covid-19 pandemic that hit the country and the world at large early this year left many businesses collapsed and others limping.
The overview of small business optimism index that is released every quarter by the Federation of Small and Medium-Sized Enterprises (FSME) in Uganda revealed the findings.
The SME Optimism Index can be considered to be a mood meter for small businesses. When the Index is high, it means that SMEs are optimistic about their businesses.
The index compiled from a survey of a sample of 1000 enterprises showed that the outlook for annual headline and core inflation for the next quarter is negative and annual headline and core inflation to remain in the 4.7-5.0 and 5.8-6.0 ranges respectively in this quarter, due to a possible re-imposition of some lockdown measures and an increase in the price of imported products.
The exchange rate is expected to remain stable this quarter or experience a slight weakening due to the Country’s weak current account balance and the overall economic growth is estimated to be subdued
The COVID-19 pandemic has significantly affected both demand and supply side of the economy. As such, the economic outlook this quarter is very uncertain
The index further revealed that gradually, the economy is expect to recover, as the lockdown measures are further eased and households and firms resume spending
However, we expect Uganda’s credit outlook to remain negative.
Around 96% of the respondents expect sales and profits to experience a decrease in Q3 of 2020 due to subdued demand as a result of the COVID-19 pandemic and the unwillingness by consumers to spend.
11% of the SMEs interviewed expect sales and profits to remain unchanged, while 6% expect sales to increase. The education sector is the least optimistic about increased sales, followed by the Tourism sector.
Around 72% of the respondents expect a moderate increase in the selling price for their products.
While 22% of the respondents expect no change, 6% expect a decrease. This is consistent with the Google Mobility Report which shows a decline in visits to retail shops and groceries in July and August of 2020.
With regard to borrowing costs and interest rates, 87% of the respondents expect their borrowing costs to experience a moderate decrease in Q 3 of 2020.
This expectation is informed by the decision by the Central Bank to cut the central bank rate (CBR) by 200 basis points to 7% in June 2020 and its subsequent instruction to Commercial Banks to lower lending rates.
11% of the respondents expect an increase. Overall, most SMEs expect a slowdown in the growth of Private Sector Credit due to an increase in non-performing loans, credit relief, the loan restructuring measures and the overall economic uncertainty.
With employment, 96% of the respondents expected to either lay off or make redundant some of their employees this quarter, due to cash flow constraints.
The SME Optimism Index is a survey-based index designed to measure the pulse of the Ugandan SME It is a quarterly survey, wherein the growth expectations of the SME sector are gauged to determine the business conditions in the short run.
The survey gauges optimism regarding six parameters namely: volume of sales, net profits, selling prices, new orders, inventories and employees. The Index is widely recognized as an indicator that measures the pulse of the SME sector and serves as a reliable benchmark for investors, researchers, academicians and policy makers.
It is conducted on a sample of 100 entrepreneurs that are selected from the FSME membership. Respondents to the survey are asked six standard questions on six specified parameters namely: net sales, net profits, selling prices, new orders, inventories, and employee levels. The composite index is calculated as a weighted sum of these six parameters.
