Uganda’s economy at 56

When Mr Fred Muhumuza, development policy analyst at Makerere University, is asked to give his thoughts on the economy, he finds it hard to tell the progress made both as a country and its people.
Very often, he thinks Uganda is quick to reflect on progress made as a country in terms of physical infrastructure.
“What progress have people made because independence is about both? You might tell us that we have more hospitals, kilometres of roads but how are the people now and then (1962)?” he asks.
Well, there may not have been enough hospitals or tarmacked roads, but the population was small. People had land where they could farm. With a good climate and fertile soils, the country was sufficient in food and agriculture as the single largest export earner beefed up the country’s financial fortunes.
Over 90 per cent of the population lived in rural areas eking a living mainly from agriculture. Farmers were organised in cooperatives which played an instrumental role in ensuring access to agricultural inputs and marketing of agricultural products.
“All these institutions have kind of been eroded. If you ask a Ugandan then, they would tell you they would get delayed payments for their coffee but this is what educated their children,” he says.
“As a people, you see there is deterioration in terms of life yet that is the core of development. In terms of physical infrastructure, the country is better off.”
Fifty six years ago, after several decades of British rule, Uganda was considered one of the most vibrant and promising economies in Sub-Saharan Africa by the World Bank. According to the Economic Policy Research Centre (EPRC) 2012 assessment report, the regime under President Milton Obote was applauded for a mixed economy. But by 1968, the state dominated economic growth and development. Poverty, disease and ignorance topped the list of the country’s problems; so emphasis was placed on service delivery. Government made plans to manage the economy and soon, corporations were nationalised and the creation of public enterprises shrunk private sector participation in the country’s economic progress.

EPRC’s report headlines that during this period, Uganda’s economy grew modestly at 5 per cent per annum. However, the benefits of the progress made were short-lived because of the military take-over led by Idi Amin Dada in 1971. Years leading to 1979 were characterised by negative economic growth. This was partly down to the expulsion of Indians that made up a huge chunk of Uganda’s budding private sector yet the state lacked capacity to sustain state-economic led growth policies. Economy is estimated to have shrunk by 25 percentage points.
By the early 1980s, commodities had become scarce and inflation grew to a three digit level by 1986. When President Museveni came into power in 1986, his was a huge task. A lot of work was done including liberalisation of the economy, easing investment processes, privatisation of public enterprises, reforms that saw Uganda start to enjoy reasonable economic growth and a reduction in poverty levels. Ministry of Finance today reports that economic stability has been maintained with the economy growing at an average annual rate of 6.5 per cent for the last 30 years, with fairly low inflation.
The size of the economy is now Shs101.8 trillion thanks to growth in the service, industry and agriculture sectors. The growth has been a major gain for government which has, over the years, pushed through developing the country’s infrastructure including roads and electricity.
Ahead of the 2018 budget reading, President Museveni noted that these investments in roads and electricity are translating into the resumption of the country’s usual high growth rates which had been interfered with by the shortage of electricity and more recently the drought. He indicated that there was good news of a fast growing economy ahead.
“This year, the economy will grow by 5.8 per annum. This will rise to over 7 per cent per annum by the financial year 2019/2020,” he said during the State of Nation Address. He described predictions of the country’s economy as hardly startling.
“Indeed a Centre at Havard in the USA recently predicted that Uganda will be one of the fastest growing economies in the world by 2026. The fact that our economy would grow fast was not surprising for me given the deliberate steps we have taken,” he said.

GDP growth
But not so fast for economists. Mr Samuel Sejjaaka, country team leader Abacus Business School, says between independence and now, the population has grown but the Gross Domestic Product (GDP) has not grown at a rate which would have taken a country of 37m people to middle income status.
“Income per capita remains low. Some people are slipping back to poverty. Unfortunately, we are still primary producers of the same products but on a per capita basis, we are producing less because the population has outstripped the rate of increase in production,” Mr Sejjaaka talks challenges.
Economists fault government for not focusing the economy on people and assuming people’s incomes should grow as a consequence.
“You hear of middle income status; but what is the strategy when you are displacing street vendors instead of having a way of transforming their lives. You build a market in Wandegeya but you do not know whether you should be doing it,” Mr Muhumuza says.
Mr Sejjaaka notes that the interventions have to be managed professionally and some of the interventions done cannot be borne by the private sector. So government should deal with the high cost of doing business.

Transport
Mr Kisamba Mugerwa, former chairman National Planning Authority, says when one looks at the basics required for the economy to evolve, the minimum has been done so far.
He points to labour and infrastructure as readily available. Rail and air transport infrastructure is yet to be improved.
Government has been borrowing money for these plans to come through as analysts warn that there is need to be careful.

Access to credit
In terms of capital, access to affordable credit remains a big problem. He says for the last six years, the socioeconomic transformation has been growing at a slower pace than anticipated and his displeasure is with the inefficiency and delays in implementation of programmes which in turn cost the economy lots of money.
“In terms of GDP, income per capita, growth of industries, we are lagging a bit behind than anticipated,” he says.

Opportunities?
Mr Muhumuza believes opportunities in the economy are shrinking and technology is one of the reasons. However, he says youths should be creative and leverage technology as they are tech savvy.
“Stop counting on government statements. Plan with what is available. If oil comes, it finds you along the way,” he says.
For Mr Mugerwa, opportunities can be utilised as long as a mindset change is addressed and some sectors are exploited for their full potential.
“What is required is to look into how we can exploit those potential areas like agriculture value chain, processing, information technology, mineral exploitation and processing so that they create industries and jobs. We should exploit tourism industry and the oil industry of which we hope that the funds from there will be used to invest and finance infrastructure so that the debt is reduced and money is invested in other things,” Mr Mugerwa says.
Government sees opportunities in its public investment programs but concerns loom as to whether the country is deriving the right benefits in return.
“We need to rethink as these are some of the threats we face,” Mr Sejjaaka says.

Industrialisation
There are other issues like the pressures of a growing population, which he suggests must be put under control. If strides are to be made to answer the big question around poverty in this growing population, industrialisation must be a deliberate effort to address the trade imbalance.
In between, the country has experimented with nationalisation, privatisation and decentralisation initiatives Mr Sejjaaka says seem to not have worked and require going back to the drawing board.
“Industrialisation must move away from value addition to producing high value products that can compete on the international market. We cannot go to middle income status if we continue being primary producers. We must create a skilled labour force and invest in vocational skills which we had ignored during the years,” he says.

Size of economy
The size of the economy is now Shs101.8 trillion thanks to growth in the service, industry and agriculture sectors. The growth has been a major gain for government which has, over the years, pushed through developing the country’s infrastructure including roads and electricity.

Pace of job growth
Job creation. Job growth has been slow, pushing many into the informal sector to survive. The number of Ugandan employees in the formal sector grew at an average annual growth rate of 6 per cent between 2010 and 2013 and the national unemployment rate declined from 11 per cent in 2013 to 9 per cent in 2017.
Government ministers argue they are creating an environment for job creation but economists say that hardly helps the economy if that environment is not translating into real jobs.
Support. Financial support has been given to groups that wish to start small businesses such as under the Women Fund, the Youth Fund and Operation Wealth Creation Fund. But economists say these initiatives are not speaking to the realities of people according to evidence so far.
“Entrepreneurship is a very risky business where few people succeed. Many youth are unable to convert those resources into lasting capital base. Those things are not working,” Mr Sejjaaka says.