2021 outlook: Which way for economy?

Tuesday January 12 2021
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A few traders open for business ahead of elections on Thursday, January 14. Most investors are still on a wait-and-see approach. PHOTO/RACHEL MABALA

By Dorothy Nakaweesi

At the beginning of 2020, several economists and experts Daily Monitor spoke to projected a difficult period that would stretch into 2021, mainly because of elections that usually carry along a lot of damage to the economy. This was before Covid-19 happened. Therefore, the mix of Covid-19 and a messy electioneering period are setting the stage with pointers that tell of how 2021 is going to pan out.

The two elements, experts have predicted, are likely to carry along some economic headwinds, which will impact the economy. There has been some hope built around vaccine trials and discoveries but because they are distant and not likely to arrive in Uganda before 2023 or there about, it will be a miracle to turn around 2021 that is likely to shoulder a lot of burdens carried forward from 2020.

Dr Fred Muhumuza, an economist and lecturer at the School of Economics at Makerere University, concurs with the expert analysis and says Uganda might not see so much growth in 2021. 

 “If you leverage other economies, we [Uganda] might not see so much growth this particular year. The hardships will continue, especially regarding household incomes for some time.”

Indeed, in a December report, Bank of Uganda said the economic outlook was extremely uncertain, due to the unpredictable course of Covid-19.

Therefore, by looking at specifics, we shall attempt to understand the prospects and challenges that are likely to shape 2021. 

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Political year

2021 being a political year, presents a number of uncertainties. Elections, particularly in Uganda often melt economic prospects, cascadimg into high inflation and low aggregate demand.

“The kind of politics that we are seeing, which we have not seen before, is marred with violence. The violence has gone down into communities which presents a likelihood of taking longer to solve,”  Dr Muhumuza says.

The violence, he says, could be a manifestation of deep-seated challenges that have created an uncomfortable social- economic pressure and agitated the youth population.

“People are angry for jobs, opportunities, corona just made it worse,” Dr Muhumuza says.

Daniel Birungi, the Uganda Manufacturers Association (UMA) executive director, says there had been great recovery since easing Covid-19 related restrictions.

However, he says, the electioneering, which started in October last year, is creating undue pressure on the economy and reversing gains that had been achieved.

“A lot of our clients are holding off expenditure up to or after the elections. Demand is subdued,” he says.

Manufacturing

Going forward, as far as the export market is concerned, there have been reports related to opening up, especially for sugar, with Kenya agreeing to take up 90,000 tonnes of sugar.

“Yes, this is a step in the right direction, but as UMA, we would like to know what is being done for other sectors,” Birungi says, adding: “It looks like we are on the right track but we wait to see what happens with everything else.”

Ugandan manufacturers had in 2020 suffered with export blockades placed, especially on sugar and milk.

However, 2021 promises to be better and UMA is hopeful that government will engage regional governments to create more market for Uganda products.

Revenue

With all sectors expected to struggle through this year, the eventual victim will be revenue mobilisation.

Experts say revenue will suffer due to subdued demand and low investment.

Uganda Revenue Authority has been reporting surpluses, especially in the last quarter of 2020. However, this is likely to change as the surpluses had been a result of taxes that had been differed and not necessarily an increase in collections.

In their end of year message, URA indicated they had by November 17, collected Shs973b, which was a proportion of 74 per cent of the official target and 64 per cent of the operational target.

Before that, net collections for October were above target, with a surplus of Shs147b. 

In October, URA collected Shs1.4 trillion against a target of Shs1.2 trillion, recording over 100 per cent performance. 

Dr Muhumuza says the surpluses are there because targets were revised in light of Covid-19.

“The best would be gathering what we collected in the three quarters last year and what we have collected, if you look at such comparisons, you begin to see the shortfall,” he says.

Investments

Private Sector Foundation Uganda executive director Gideon Badagawa in his prospects for 2021 said the country’s strength will largely lie in the capacity to create jobs and enhance export capacity.

“If Ugandans remain uncompetitive in the market place, our economy is challenged,” he says, noting that the country’s investment capacity has been low on account of drought, flood, Covid-19 and now political violence.

“We are seeing most investors are still on a wait-and-see,” he notes.

For a country already projected to grow at about 3 per cent, this implies that jobs, household incomes and exports are already on the line.

“We need to rebuild confidence in the economy for both locals and FDIs. But this will largely depend on the peace, security and stability after the presidential elections,” Badagawa says.

Performing sectors

One would ponder, is life going to be gloomy in 2021?

No! There are sectors that are going to continue to perform and these include banking and telecommunications.

Experts say these sectors are the ones you would call predatory, because they are means to an end and not an end to themselves.

So, people may be on the Internet but what are they doing? People may move money into and out of banks but what are they doing?

Uganda being an agrarian economy, agriculture is likely to thrive through 2021, although, it might suffer with low demand.

Agriculture, Dr Muhumuza says, will fair well with a possibility of good harvests due to the prospect of good rains.

“So I don’t know how well it will be distributed but the farmers will have low incomes because people will be buying cheaply,” he says.

However, Ms Agnes Kirabo, executive director Food Rights Alliance (FRA), thinks otherwise on the basis that the country since 2011 has been getting into a food crisis every after an election.

“There was a remarked food crisis in the country, after the 2011 and 2016 elections,” she says.

According to Kirabo, the 2017 food crisis was equally recorded after the 2016 elections, and the state of food insecurity in the country was evidenced by the integrated Food Security Phased Classification (IPC) Report of 2017.

“Therefore, as the country is trapped between Covid-19, the climate change emergency, and the election vibe, there is need for a unified voice, to address the food and nutrition security needs, of the the people during such emergencies,” she says.

Remittances

Remittances is the other industry experts have hoped to bring in some dollars, especially in terms of household incomes.

“As the developed world continuously vaccinates , they might begin to lift their lockdowns, so Ugandans who are working out there may begin to get opportunities and send some money home,” Dr Muhumuza says.

The beauty of remittances, he says, is money injected directly into the economy with recipients using it for onward expenditure.

“Remittances is one of the bright corners one can look forward to but we have up to February to see what happens in January,” Dr Muhumuza says.

Tourism

Tourism was one of the first and worst hit sectors in 2020 in Uganda and globally. Source markets went into lockdown before Uganda followed suit in April. Hotels closed shop, hundreds of jobs were lost. Even after lifting the lockdown, many facilities are struggling.

However, according to industrial players, 2021 is going to be a better year compared to 2020 because of the coming of vaccines in the source markets and massive vaccinations are underway, which will encourage international tourists to travel.

Ms Lilian Ajarova, the chief executive officer Uganda Tourism Board, sharing the year’s prospects, said: “The vaccinations underway we believe will allow more people to travel.”

She further added after the lockdown, domestic tourists partly supported the industry and this has given the sector courage to come up with more products that will drive up the numbers.

Trade

Before Covid-19, China was a leading destination for many importers/traders sourcing for goods. But 2020 has left many traders choking on loans, empty stalls while others had to close shop.

Many who talked to Prosper Magazine think this trend will continue since many cannot attempt to travel for fear of catching the virus.

Kampala City Traders Association (Kacita) spokesperson Issa Ssekitto giving the traders’ expectations said: “Because of Covid-19 many traders are scared of flying to China.”

According to Ssekitto, many of their members have suffered from Covid-19 silently and can not attempt to fly.

This anxiety has made many survive on the little savings they had as they watch for the vaccine’s success.

He says many have been forced to increase prices of the little stock of products they have and this is likely to trickle down to the consumers.

Ssekitto who is a dealer in electronic appliances that his business is stalling because of the uncertainty of the elections.

“My sales are down by over 75 per cent. I don’t expect any change at least in the first two quarters of the year,” he shares.

Risks to economy

A slowed growth

The Bank of Uganda Monetary Policy Report December 2020

“The economic outlook is extremely uncertain, due to the unpredictable course of the virus, election related factors, continued weakness in global economic activity, weather-related natural disasters and escalation of geopolitical tensions, trade policy uncertainty and technology fractions Bank of Uganda predicts that the downside risks to the economic growth projection include the possibility of an increase in new infections and a longer period to get the virus under control, periodic spouts of global financial market volatility.

Dr Fred Muhumuza, an economist and lecturer at the School of Economics at Makerere University.

The kind of politics that we are seeing, which we have not seen before, is marred with violence. The violence has gone down into communities which presents a likelihood of taking longer to solve. If Ugandans remain uncompetitive in the market place, our economy is challenged.

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