Political election cycle and subdued domestic demand affect business environment

The Uganda business climate index declined by 6.2 points to 93.5 during the January – March 2016 quarter from 99.7 during the October – December 2015 quarter. This indicates a slight slowdown in the conditions for doing business and is consistent with expectations from the previous quarter. The negative sentiment in the business environment was largely driven by some persistent challenges in doing business and some new emerging ones. In particular, the domestic political election cycle and concerns over waning domestic demand have elevated the perceived risks for doing business in the current quarter. In terms of business constraints, volatility in the macroeconomic environment, substandard products, tax policy, and concerns over the cost and reliability of electricity supply continue to constrain business competitiveness and their severity was perceived to have been elevated during the current period. Contrary to expectations, business sentiment in agriculture and industry was upbeat. However, business sentiment in the services sector was downcast. Perceptions about business sentiment in the next quarter (April – June 2016) are favourable on account of the expected recovery in domestic demand, macroeconomic environment, and improvements in domestic and regional political environment.