Experts predict a mixed bag for Uganda’s economy in 2016
Posted Tuesday, January 5 2016 at 02:00
Economists say, the new year 2016, will be a troubling year gauging from the past tumultuous 2015. They forecast that the same tone - serious challenges and real opportunities- is evident. Ismail Musa Ladu & Dorothy Nakaweesi sought the views of key market players on how the next 12 months will play out economically.
As Uganda prepares for general elections next month, some experts predict that 2016 will be better than 2015, while others think otherwise.
Major economic indicators for the last quarter of 2015 were bent on a weak Shilling, high interest rates and high costs of production. These had a knock-on effect on businesses.
There is a unanimous consensus across the board that the just concluded year—2015, presented both serious economic challenges and real opportunities—all in equal measures.
Trade ministry counts on value addition
The economy is yet to fully recover from the decline of trade as a result of South Sudan instability since December 2013.
According to the Trade, Industry and Cooperative minister Amelia Kyambadde, trade between the two neighbouring countries, Uganda and South Sudan, has since fallen by at least 60 per cent.
The Burundi situation, according to Kyambadde, will also cause some shocks, especially if it is not resolved quickly. Burundi is a key market for Uganda’s manufactured goods and produces.
Kyambadde is positive about 2016 prospects.
“Beginning this year (2016), we want to formalise the grain industry, add value to our minerals, work towards improving our balance of payment—export more, consolidate on the opportunities in other industries beside oil,” Kyambadde says.
She continued: “We are also going to streamline value addition, trade in services and strengthen standards as we continue to promote Buy Uganda, build Uganda policy.
Macro-economy predictions for 2016
Bank of Uganda director research Adam Mugume says 2016 is projected to be a better year than 2015 as global growth is more likely to gain momentum.
“Global inflation is likely to remain subdued due to excess capacity and the projected low commodity prices, especially oil prices,” he noted.
With global economic conditions improving, this will impact on the stability of EAC currencies.
“Overall, we expect stable EAC currencies in 2016 compared to 2015, though occasional currency turbulences cannot be ruled out given the differences in monetary policies in major global economies,” Mugume said.
He, however, adds that there is nothing much that can be done to currencies that are floating in a global economy that is undergoing turbulences.
“All the countries can do is to ensure stronger international reserve buffers that could be called upon in the case of aggressive currency movement that does not reflect economic fundamentals,” he advised.
Coming back home, Mugume says Uganda’s economy will be favoured by exports, foreign direct investment, workers’ remittances could strengthen in 2016 compared to 2015.
He adds: “Together with inflation that is projected to be around 5 per cent, this will favour economic growth and confidence in the domestic economy.”
Investment: UIA seeks to woo African investors in 2016
Uganda Investment Authority executive director Frank Ssebowa expects to see a surge in investments, especially around the second quarter of the year because this is when the political tensions will have eased.
“We don’t expect a government policy to change via investments. Instead, we hope to improve it better to encourage more investments into the country,” Ssebowa noted.
He is optimistic that 2016 is closer to the expected oil production year 2019. This means that more investors will be coming into Uganda.
As far as attracting foreign direct investment is concerned, Sebbowa says UIA will explore new countries on this continent from the traditional countries in the European Union.
“Trading with other African countries is going to be on our agenda. We are looking into attracting Nigerian investors to invest in the service sector. South Sudan is the other country we are targeting to invest into Uganda.
Unfortunately, with the happenings (political turmoil) going on there, we have received a lot of inquiries from South Sudan investors,” Sebbowa said.
The message for government in the new year is to invest in agro-business.
“We want investors who produce and process agricultural commodities into finished goods. This will create more jobs and bring in more revenue,” Ssebowa said.
East Africa economies feel spill-over effects from conflicts
Ally Khan Satchu, a Nairobi – based equity markets analyst with focus on East Africa, sharing his predictions said “The world is as fluid as I have ever seen it.”
He said external forces will continue to take a toll on the regional economy, including Uganda. Commodities, China slow-down [I think China is, in fact, growing at half the official rate], the dollar and hyper-tense geopolitics come to mind.
“... We have to consider the election cycle and particularly Uganda. Typically, we have seen serious pump-priming and a concomitant impact on the economy,” he notes.
Much as the talks to resolve Burundi conflict have not shown any sign of agreement with the warring parties, experts say this, if not handled well, might spill-over to other regional states.
The Burundi conflict started early in April when President Pierre Nkurinziza sought a third-term. As a result, thousands of people have been killed while others have fled the country.
“Burundi, whilst an insignificant part of the EAC’s GDP equation, could still reverberate across the region and represent significant spill-over risks,” Satchu observed.
South Sudan, which had prospects in the region because of its trade with the neighbours, has also not stabilised.
Satchu thinks South Sudan will not be a bankable prospect in 2016.
Planning and economic development on course
2016 will be much better than the just ended 2015, according to the Secretary to the Treasury, Keith Muhakanizi.
“We expect high economic growth because we are already seeing more investor confidence in our economy even before we conclude our elections,” Muhakanizi said.
He said despite the volatility, the local currency will be stable given that the economy has been able to withstand much tougher shocks before.
“We are going ahead with plans for all our infrastructural projects, among them Karuma and Isimba power dams. We shall manage inflation unless something terrible happens. Things are getting better. Do not be taken by rumours,” he says.
Oil: Experts predict lower oil prices in 2016
Global oil prices which hovered near 11-year low on abundant supply and slow demand are predicted to reach $29 per barrel in 2016 according to reports from Saudi Arabia one of the leading oil producing countries.
Satchu thinks this is going to be a Silver Bullet for the region to sharply lower oil price which and thus saving billions of dollars in hard currency across the region.
It means the poor people in oil exporting countries will be affected especially in Nigeria. Commodity dependent economies will suffer acutely.