As lockdown eases, economy faces long walk back to health

Tuesday June 2 2020

A deserted Wilson Road in Kampala. The street

A deserted Wilson Road in Kampala. The street was one of the busiest places in the capital city before the country was put on a lockdown to curb spread of Covid-19. Businesses countrywide have suffered as a result of the restrictions. Photo by Rachel Mabala 

By ISMAIL MUSA LADU

A few days to the end of March, Safe Boda, the motorcycle ride-hailing platform, announced a milestone of 100,000 rides per day. A few weeks later, with the economy in lockdown mode, they were down to 10,000.

Although Uganda began to relax some of the lockdown rules last week, including allowing private vehicles to return to the roads, the country faces an uphill ride back to economic normalcy, a wide-ranging survey by this newspaper shows.

Some of the worst affected sectors are those directly linked to the global economy, including tourism and exports of key crops including coffee, fish, and horticulture products.

On a typical weekday, the Kampala Serena Hotel is a bustling hive of activity as patrons check into the $360-dollar-a-night rooms or tuck into the buffet lunch at the Lakeside Restaurant, at Shs125,000 per person.
Business reduced to a trickle soon after the first of the lockdown measures were announced, and then dried up, forcing the hotel to temporarily close its doors and send its workers home. Last Thursday it remained closed, like hundreds of other hotels dotted across the country.

Mr Jean Byamugisha, the chief executive officer of the Uganda Hotel Owners Association, an industry lobby group, estimates her 500 members across the country will lose about $900 million (about Shs3.4 trillion) to the pandemic and the resultant lockdown. About 450,000 jobs are also on the line in the tourism and hospitality sectors.

One of those affected is Mr Amos Wekesa, the owner of Uganda Lodges, which operates at least four hotels, including the $600-a-night Elephant Plains lodge in the Queen Elizabeth National Park.

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Summer is usually peak season with international tourists flocking in but with international travel badly hit by the impact of the coronavirus disease, for hoteliers like Mr Wekesa, the pain is being felt at home, and will impact other sectors, including agriculture, if it drags on for more months.

“The impact of coronavirus will cost the sector more than $800 million (about Shs3 trillion),” he said. With the airport still closed to commercial aeroplanes and many countries still enforcing lockdowns of their borders or mandatory quarantines for arrivals,many fear that the tourism season is done for this year.

Government is yet to announce measures to revive the economy. In his 14th address to the nation on Covid-19, President Museveni said: “We have lost $1.6 billion from tourism and there is nothing we can do about that…”

Some business have resumed in Kikubo, downtown,
Some business have resumed in Kikubo, downtown, Kampala. PHOTO BY ALEX ESAGALA.

Industries of pain
Apart from tourism, other economic sectors such as manufacturing, construction, trade, transport and services are also suffering from the economic slowdown.
Officials from the Uganda Manufacturing Association (UMA), an umbrella body governing manufacturers, say they are currently collecting data from their members to establish the impact of the pandemic on jobs and revenues.

Apart from reduced domestic demand for their goods, manufacturers say disruptions in the global supply chains owing to closure of factories abroad and logistical challenges had made raw materials more expensive.

A separate report presented to the Parliamentary Committee on National Economy by a segment of beverage manufacturers shows that the closure of bars, restaurants and social gatherings has already cost government at least Shs25 billion in revenue in the last three months alone.

A recent report from the Ministry of Finance, Planning and Economic Development shows that domestic revenue collections in April were Shs937.64b, a shortfall of Shs648.2 b from the monthly target. Grants had a shortfall of Shs141.6 b due to delays in project execution and the Uganda Revenue Authority is now projected to close the financial at the end of June with a trillion-shilling deficit.

For small businesses battling to stay afloat, social distancing measures and hygiene requirements, including the need to provide hand-washing facilities and hand sanitisers, have reduced revenues and increased operating expenses.

Overall, nine out of 10 businesses have reportedly experienced increase in operating expenses due to preventive measures instituted by government to curb the spread of the virus.

In addition, the Business Tendency Index (BTI), a sentiment tracker, dropped to 49.9 in April from 51.2 in March, as investors’ sentiments about business conditions for the next three months became more pessimistic.

Trade loses
Officials from Kampala City Traders Association (Kacita) say they are yet to quantify their members’ losses from the lockdown. Kacita chairperson Everest Kayondo estimated the losses in billions of shillings in spoilt stocks and unclaimed cargo containers.

In a recent survey, the Economic Policy Research Centre (EPRC), a policy think tank, said wholesale and retail trade were some of the hardest hit sectors. Also affected are small businesses, which, with about 2.5 million people across the country, are the biggest employers.

Small businesses have seen activity drop by more than half, according to EPRC. This is a bigger decline than in medium and large firms because smaller firms were less likely to implement measures required to keep their doors open, such as the provision of on-site accommodation for employees. In addition, their workers rely more on public transport, which has been suspended since March 25.

Nine out of 10 small businesses reported higher operating expenses and half reported a 50 per cent severe decline in demand for their goods.
“In particular, majority of micro and small businesses indicate that they would exit business in one to three months in the event the current situation persist. On the other hand, majority of the medium and large firms do not foresee closure,” the EPRC’s survey noted.

Agriculture impacted
Government officials say they expect the agricultural sector to remain resilient but this optimism appears based on hope, for instance of favourable weather, rather than expectation. Coffee exports rose from $34 million last March to $45 million this year but then plunged by almost a quarter when the lockdown happened.

Fish exports also dropped from $18m to $11m year-on-year in March, the month for which the latest public figures are available. The extent of the economic reversal on agriculture will become clearer when Bank of Uganda releases its next commodity report next month.

The EPRC notes that businesses in agriculture experienced the largest decline in activity; 76 per cent reported severe decline and 12 per cent moderate drops. This could be largely attributed toCovid-19 containment measures such as transport restrictions, quarantine, social distancing and ban on weekly markets, which have hindered farmers’ access to input and output markets.

Demand for agricultural products dropped sharply due to loss of income-earning opportunities and decline in consumption, in addition to risk aversion due to fear of contamination, as well as reducing visits to food markets that were allowed to operate. Also, the restrictions on vehicle movements reduced purchases by the urban middle class.

Furthermore, the closure of institutions such as schools and hotels has highly contributed to decline in demand for food. Inresponse, consumers stocked dry rations, which has reduced demand for other fresh agricultural produce.

The latest monthly report on the state of the economy in the wake of the coronavirus pandemic indicates that prices for processed foods such as maize flour and rice all increased in April.

Prices for maize flour were affected by increased demand. In addition, Energy Fuel and Utilities (EFU) Inflation also increased in April to 8.3 per cent from 7.7 per cent in March 2020, due to a rise in prices of solid fuels, specifically charcoal.

Jobs fears
About three out of four businesses report a cut in jobs as a result of Covid-19. The report projects that if Covid-19 persists for the next six months, about 3.8 million workers would temporarily lose their jobs and 600,000 would do so permanently. Most of the latter are in service jobs around Kampala.

In a survey by the Private Sector Foundation, a lobby group, 90 per cent of firms said they were uncertain about employment if the current situation did not improve in the next six months.

ISSUES
UMA proposals
Relaxing access terms to raw materials
Settle domestic arrears
Restructure loans
Accelerate Value Added Tax and Withholding Tax refunds
Lower the Central Bank Rate
Promote the Buy Uganda Build Uganda policy
Lower electricity tariffs
Suspend Pay As You Earn (PAYE) and NSSF mandatory contributions

sotage@ug.nationmedia.com

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