Supermarkets struggling to stay in business – Report

Supermarkets struggling to stay in business - Report
Nakumatt is among the supermarkets that collapsed

Kampala Uganda | URN | A new report by Makerere University based Economic Policy Research Centre (EPRC) says supermarkets in Uganda are struggling to stay in business.

The report, “Supermarkets struggle to stay in business in Uganda dampening the business climate,” explores the ongoing struggles by supermarkets, and looks into the business climate, challenges in doing business as well as the business outlook for the period between July and September 2017.

It says unfavorable business performance largely explained by low demand leading to collapse of some retailers, key among them Nakumatt supermarket.

The report says the supermarkets like other businesses have become victims of the declining business climate index.

The business climate index, according to the report, declined and remained well below potential by 22.12 percentage points to 70.93 during April – June 2017 from 93.05 in the preceding quarter of January – March 2017.

This according the report suggests that conditions for doing business are in decline and remain well below potential.

The decline in the perception on doing business in Uganda came in the face of the collapse of three large supermarkets, Nakumatt and Uchumi and persistence of the effects of the army worm attack on Uganda’s agricultural sector, posing a major threat to food security and agricultural trade.

This is the eighth consecutive quarter that the business climate index has indicated unfavorable business performance. The EPRC says there is need for monetary policy responses to improve aggregate demand.

Despite the Bank of Uganda’s efforts to reduce the central bank rate (CBR) from 11.50 per cent at the end of January – March 2017 to 10 per cent at the end of April – June quarter, the report says the prime lending rates remained high at 21.1 percent. These according to EPRC suggest that commercial banks have significant risk perceptions of Uganda’s economy.

The report says retailers need to improve suppliers’ credit management in the face of falling consumer demand.

Retailers are also advised to adjust to the risk aversion amongst consumers in Uganda, which has put pressure on the retailers’ revenues leading to default on debt and subsequent closure of some of the largest supermarkets in the country.

It says consumers are not basing their decisions on affordability alone, but also on familiarity, trust and brand loyalty.