Uganda’s attempt to economic recovery in 2017

The economic distress that became more apparent through 2016 can be traced to as far back as 2011 when inflationary pressures ravaged the country after a controversial election

Friday January 6 2017

The vendors sell their merchandise in an open

The vendors sell their merchandise in an open street market in Kampala Photo by Stephen Wandera 

By Frederic Musisi

The economic distress that became more apparent through 2016 can be traced to as far back as 2011 when inflationary pressures ravaged the country after a controversial election. Although the bleeding stopped as wounds were hurriedly stitched through a number of interventions, the scars that remained have started reopening.

Finance Minister Matia Kasaija acknowledged only last October that the economy “is struggling”, but for long, the majority Ugandans have been surviving under harsh economic conditions.

But Mr Richard Byarugaba, the National Social Security Fund (NSSF) managing director, speaking at the Uganda Parliamentary Press plenary on November 3, 2016, said: “The economy has been limping for a very long time.”

Appearing before Parliament over the same on November 15, last year, Mr Kasaija said the economy had “remained resilient despite several unfavourable conditions” and summarised the situation as “deceleration in the execution of public infrastructure investment” amid a “difficult global environment.”

However, the minister insisted that the economy would survive the slide into recession, but admitted that a review by the International Monetary Fund (IMF) noted that there existed “risks” to the economy hinged on the pace of recovery of the global economy.
What is the problem?
A common saying goes that if you ask three economists the same question, you will get three different answers. This is true with Uganda right now.

Asked what exactly is ailing the economy, the deputy Secretary to the Treasury, Mr Patrick Ocailap, said: “The economy grew slower than was projected.” Does that sound to you like an answer?

The economy, he said, had been projected to grow at 5.2 percent in 2015/16, but the results returned by Uganda Bureau of Statistics (Ubos) showed it would grow dismally at 4.2 percent, which could rise to 4.8 percent. This is down from the 5 per cent growth registered in 2014/15.

This revision in GDP was attributed to economy volatilities such as the high interest rates, depreciation of the Uganda Shilling and skyward inflationary pressures, which stood in way of foreign direct investment flows, savings and investments. The situation was compounded by the high uncertainty that engulfed the country in the run up to the 2016 election.

According to World Bank, “the electoral cycle held back economic activity, as would be expected. Over the first half of the year, economic indicators have been downbeat – suggesting much lower aggregate demand than anticipated.”
After elections, Mr Ocailap said there came the fresh crisis (in July) in South Sudan, one of Uganda’s biggest export markets. It is estimated that Uganda previously raked out a weekly Shs28b ($8m) from business in the now troubled country.

The third “crucial factor” he cited were the ongoing reforms (fiscal and others) instituted to contain the high frequency leakages (corruption) in the sectors for which the government was borrowing heavily and recently incensed the World Bank to withhold new lending of up to Shs5 trillion ($1.5b) in new lending until further notice. As a result of fiscal budgetary reforms, the Treasury said it saved in the range of Shs150 billion, “monies which would have otherwise been swindled.”

“So people are crying because of our tightening on their liquidity,” he said. “The effect of this has been slowly building since 2012/2013 but in the one or two years should have been neutralised.”
Version two
In an article published recently, Prof Augustus Nuwagaba of Makerere University, while partly buying into the above official narrative, said the biggest problem of the economy is the way it is structured. The country’s GDP is estimated at $25b (Shs89 trillion). But where does this GDP come from?

“It is from the service sector, largely telecommunications (44.3 percent), but ironically, the service sector employs less than 1 per cent of the population. The agricultural sector, which employs 76 per cent of the population ironically contributes only 23 percent. This means that the sector, which is clearly the most economically endowed and therefore capable of creating jobs and broad-based growth, is surprisingly incapable of doing so.”

He said it is a contradiction that while the economy continues to grow, it leaves the majority in the low income category, making them unable to provide a sizeable market to anchor further growth. For example, one can argue that the UK, or USA economy has agriculture contributing less than 2 percent of the GDP. But it is important to note that the population engaged in agriculture in those countries is less than 1 per cent, justifying their contribution to the economy.

If anything is to be fixed, Prof Nuwagaba argues, the starting point is the need “to restructure the economy, provide long-term financing in the agricultural sector through increased investments, improved seeds, fertilisers, irrigation and production infrastructure, marketing, research, land access, agricultural mechanisation and value addition” all of which cannot be done by the private sector. “The scientific laws dictate that water flows by gravity along a slope, but if you want it to ascend a hill, you pump it.”

The other challenges Prof Nuwagaba identifies are limited access to cheap financing, limited ability of Ugandans to save – with the saving to GDP ratio standing at a paltry 13 per cent and only 8.3 per cent of the population engaged in the banking sector while 68 per cent remains in the non-monetary sector, producing for consumption and not the market.
These issues, of course, have been pointed out by a number of other economists and social critics. The government is also accused of competing for credit with private borrowers through extensive domestic borrowing, among other things.
Why does it feel worse?
The explanations aside, it is clear that ordinary people have remained so unhappy with their own economic prospects after all the economy is inextricably tied to people; it is them who make money, spend it and or are taxed by the government.

1/2 next