Tap regional trade to rebuild Uganda’s economic resilience

To overcome implementation challenges, improving the efficiency of expenditure and taxation policy, including factors that influence it, such as good governance, cannot be overlooked, particularly when becoming an oil producer.

International experience suggests that it is hard for a small landlocked country like Uganda to move alone along the path to economic development. That is the challenge the country faces today and what the World Bank’s first Economic Update on Uganda seeks to address.

Slated to be launched on February 14, the first of the six-monthly Uganda Economic Updates takes stock of the country’s economy by identifying challenges and proposing solutions to facilitate inclusive and healthy growth.

Its analysis suggests that the country has performed well over the past two decades, brushing aside one of the world’s highest population growth rates, to record an impressive 7 per cent average GDP growth, and halving the number of people living in abject poverty from 56 per cent of the population in 1992 to 24 per cent in 2010.

But lately growth has been below potential due to slower private investments. The external current account has been declining as the world economy suffered, and Ugandan exports remained driven by agricultural produce, which is sensitive to climate change and world commodity prices. So, the economy may have grown impressively, but it still needs to build resilience to withstand shocks.

Resilience will be achieved through a more rapid diversification of the economic base, chiefly through production of higher value products and the judicious exploitation of the country’s oil resources. A genuine transformation in what the country produces, how it produces it, and where it finds markets, will be required. Policies to improve the business environment, to develop human capital, and to raise the stock of infrastructure will remain key transformation drivers.

To overcome implementation challenges, improving the efficiency of expenditure and taxation policy, including factors that influence it, such as good governance, cannot be overlooked, particularly when becoming an oil producer.

Transparency can help to achieve these goals by facilitating access to new markets (demand-side) and by pushing firms to become more competitive (supply-side). Intensified regional trade will be a catalyst for a market-oriented growth strategy to accelerate this process.

Titled Bridges Across Borders, the Uganda Economic Update argues that Uganda has already greatly benefitted from being at the forefront of regional integration through growth in export trade, diversification of exports, and attracting foreign direct investment.

However, Uganda is still trading far less than optimal with its regional neighbours due to removable barriers. Though faced with many challenges related to geography, regional security, high transport costs and non-tariff barriers, Uganda’s strategy for maximising the existing opportunities must be along three lines.

First: thinking beyond the East African Community (EAC) region and hence strategically expand trade into the larger Great Lakes region. Uganda must position itself as the land bridge to link other landlocked countries to the coastal economies. The key to this land bridge is better connectivity and logistics, including in trucking, warehousing, and customs clearance.

Secondly: regional trade must go beyond food commodities. Uganda has potential to feed the region through more food exports, but it must also emphasise trade in manufactured goods and services. Transforming agriculture into production of sufficient quantities and quality, and at competitive prices, and ensuring easy access to markets, is the first point of action.

Beyond agriculture, the manufactured products that Uganda already exports, such as steel and plastics offer an opportunity for Uganda to expand into products of similar capabilities (including toys or other consumer products), and to participate in regional production chains.

Uganda has to choose its industries strategically in order to compete with Kenya. Better still Uganda must keep its competitiveness in strategic services, including tourism, education, transport &logistics and professional services.

As a landlocked country, the more services it exports, the more Uganda overcomes the distance disadvantage that it otherwise incurs when it exports physical goods. Uganda is currently a services-driven economy (with over 45 per cent of GDP coming from the services sector), but also a net importer of services.

Third: Uganda must do its homework quickly to be able to tap more regional trade. While deeper regional integration is no doubt the gateway to unlocking greater trade opportunities, Uganda should address the issues in its control as soon as possible - these include raising productivity in strategic sectors and getting products to the market at a competitive price. A regional integration process that can benefit Uganda better will come from stronger firms or businesses.

Lastly, deeper regional integration will allow for development of regional public goods and promote policies that support free flow of products, capital and labour, which in turn will help it address the key binding constraints to deeper regional trade.