Is Uganda’s economy doing well?

Trucks carrying goods to South Sudan at Elgu boarder market. The current economic stance depicts a slow economic activity strongly correlated to the population’s weak purchasing power. FILE PHOTO

What you need to know:

  • Uganda’s economy is struggling with slow economic activity in addition to weak purchasing power. While the government argue that Uganda is on its way to attaining Middle Income status by 2020, experts are not convinced that the economy is doing well, writes Ismail Musa Ladu and Tom Brian Angurini.

It seems at the moment it is only the executive arm of government that is convinced that the country’s economy is doing well.
Despite being confronted with the evidence pointing to the contrary, the government appears to believe that nothing is amiss with the economy and that the country is on its way to realising the middle income status in the next two years—by the year 2020.


State of economy
In fact, according to the minister of State for Finance, Planning and Economic Development, Mr David Bahati, while summing up his remarks at the national budget conference held recently in Kampala, said the economy is “doing just fine.”

Mr Bahati, who presented the government position on behalf of his senior minister Matia Kasaija who at the time was out of the country, disagreed with the gloomy assessment presented by both economic sector analysts and players.
In his presentation, Mr Bahati who was holding the portfolio of the minister of Finance said the economy is actually improving, citing a drop in prices of food, easing inflation and resurgence in investor confidence as well as reduction in the rate of non-performing loans.

He said: “The near term prospect are therefore promising. Growth for this financial Year 2017/18 is projected at five per cent and will move up to about seven per cent in the medium term as the dividends from infrastructure investments and associated commercialisation in agriculture and petroleum sectors become realised.”
He continued: “This will be a great step towards realising our development objectives.”


Private sector view
But the leadership of the private sector apex body in the country thinks differently.
The private sector statement on the Financial Year (FY) 2018/19 budget, issued by the Private Sector Foundation Uganda (PSFU), indicated that despite all the right things being done, a lot more remain to be implemented.
“The current economic stance depicts a slow economic activity strongly correlated to the population’s weak purchasing power which is driving financial distress and moral decay in the population hence discouraging investment by reduced production, productivity and inefficiencies,” reads the private sector statement.

Challenge
In his remarks at the budget conference, the board chair of PSFU, Mr Patrick Bitature, said the challenge the economy and by extension, the budget, is grappling with is the slow pace of implementation that is not commensurate with fast changing market dynamics.

For Uganda to achieve the middle-income status by 2020, the private sector apex body said economic activity needs to be increased by about $20 million (about Shs72 billion) in the next three years.
But this is only possible if local private sector contribution to the country’s economic activities (GDP) increases significantly.
This can be achieved through regulations, legal frameworks and policies as well as business development support to stimulate effective demand.

Worth noting is that the Implementation of various government programmes is not causing enough impact to the wider private sector because it is not well- coordinated.
The high levels of moral decay and insanity in the population especially in urban centres are increasingly becoming a disincentive to investment, according to the private sector statement. Yet this is something they want addressed before it gets out of hand.

Civil society’s take
“In line with the aim of transforming the country, Uganda set out to become a middle-Income economy by the year 2020. It remains highly unlikely that this target will be met,” the executive director of the Uganda National NGO Forum, Richard Ssewakiryanga said in his presentation.

Mr Ssewakiryanga, who represented the civil society, said: “The economy is estimated to have grown at a rate of 3.9 per cent during the FY2016/17 which was slower than the 4.1 per cent recorded in the previous year.”
According to the CSOs paper, the slower growth recorded during FY 2016/17 was attributed to the sustained decline in the performance of agriculture sector (due to prolonged drought) and delays in public development Investment growth.

Recommendations
Limited growth in private sector credit, youth unemployment, poor agricultural sector growth as well as limited inclusiveness of Uganda’s growth are some of the critical areas that should be considered for the FY 2018/19 National Budget Strategy because it is not responding to the current budget yet.
Planning Authority’s views
Earlier, the National Planning Authority (NPA) board chairperson, Mr Kisamba Mugerwa, expressed sentiments that a depressed economy may affect the possibility of achieving national development goals.

He said the contraction of Uganda’s economic growth from 4.8 per cent in 2015/16 to the current 3.9 per cent falls below their (NDP II’s) 5.7 per cent projected growth target.
“The lower growth is in part attributed to slow implementation and inefficiency in execution of public investments, prolonged drought which is as a result of climate change and variability, low private sector credit growth and falling international commodity prices, which affected exports,” he said.

Although there was a dismal rise in size of the economy, by Shs83 billion in 2015/16 to Shs90.5 billion in 2016/2017 financial year, this performance is below the NDP II target.
For the country to attain the middle income status in the next two years, the size of the economy will need to expand to $42 billion from the current $ 25.5 billion.
If that happens, then attaining middle income status where on average each Ugandans earn $1,039 could be within reach.

Traders transacting business in Kikuubo, a city business centre in Kampala. For Uganda to achieve the middle-income status by 2020, the private sector apex body said economic activity needs to be increased. FILE PHOTO.

Budget implementation
Parliament observed that the economy has faced a number of shocks including uncertain global environment, regional uncertainty, lower international commodity prices, climate change effects and deceleration in the execution of public infrastructure investment.
All that combined, according to the House Budget Committee in a report presented on behalf of parliament MP Ignatius Mudimi (NRM; Elgon County), have slowed down economic growth below.

According to the parliament report, the economy grew by 3.9 during the FY 2016/17 which was below the projected NDP II target of 6.3 per cent and is projected to grow by 5 per cent in FY 2017/2018.
The committee report also noted that “weak” implementation of budget priorities, wasteful expenditure and lack of accountability by government place Uganda far from attaining a middle-income status by 2020, fears that even donors envisaged.

Poor release of funds
The committee vice chairman identified late or inadequate release of funds, low absorption, lengthy procurement process, human resource gaps and unmotivated staff as handicaps to achieving national budget targets.

The theme of the Shs29 trillion 2017/18 Financial Year budget is “industrialisation for job creation and shared prosperity”, and its implementation is still in the first quarter.
“While Parliament recognises the government’s effort through effective budget implementation reforms, however, the continued inadequate release of funds negatively affects implementation of government projects and programmes,” MP Mudimi said at the national budget conference in Kampala.

FINANCE MINISTER ON ECONOMY

Finance minister Matia Kasaija, who was speaking during the 18th budget breakfast of the Institute of Certified Public Accountants of Uganda (ICPAU) in Kampala recently, said much emphasis has been put on the operation side of the economy by making big allocations and less on production and productivity in the economy.

“The emphasis has been on the operation side of the economy characterised by the views that make allocations here, there and sign here with little focus on increasing production and productivity in the economy,” he said.
Former Finance minister Maria Kiwanuka said emphasis should be put on the outcome of the budgetary allocations government is making to various sectors of the economy.
“Ugandans should be focusing on the outcome of the budget allocations being made to sectors to understand whether progress is being made or not,” she said.

Ms Kiwanuka said at the moment people are putting a lot of emphasis on how much allocation has been given to a particular sector of the economy.
She also advised the accountants to work together with government in data collection and analysis and point out any anomalies that may arise in the statistical data that may be presented by the government.

Donors’ worries
Representing the development partners, Ms Jennie Barugh, the chair of Local Development Partners Group, said they observed a mixed performance of the economy whose 2016/17 projected growth slackened by 1.6 per cent.
She said: “This is below that of its (Uganda’s) regional counterparts and its historical average.” Uganda’s economic growth, before the 2011 slowdown, had averaged 7 per cent per annum.
According to the donors, sound public investment management is critical and so is boosting ability to collect and fund the country’s budget.

WAY FORWARD

Dr Albert Musisi, the Commissioner in charge of Macroeconomic Policy at the ministry of Finance, in his paper titled ‘Accelerating Uganda’s economic growth momentum’ cites a number of things that can be done to improve Uganda’s economy.
First, the country needs increased efficiency in public investments. This can be achieved through increasing direct returns from public investments.

“Currently, returns are less than would be expected due to inefficiencies in project execution, inefficiency in management of public investments and poor absorption of available resources especially borrowed funds, Mr Musisi says.

Additionally, Uganda should Increase as much as possible local content in such investments.
In terms of private investment, Dr Musisi advises that Uganda should raise firm-level productivity. This can be through reducing the cost of doing business such as costs associated with bureaucracy, corruption, essential business services.

Government needs to invest in infrastructure needed by the private sector to reduce costs for instance, industrial parks, export processing zones to lower costs of producing manufactured exports.
Dr Musisi also advises government to: “Undertake reforms in the financial sector to enable the closing of the gap in the availability of long-term capital.”