Trade is key for post-Covid economic recovery

Significant  uncertainties continue surrounding the economic outlook of Uganda as the economy emerges from the second lockdown. PHOTO/MICHEAL KAKUMIRIZI

What you need to know:

  • Uganda’s economy has experienced a sharp increase in unemployment, a massive loss of income and reversed the progress made poverty reduction

Trade is an engine of sustainable development that creates jobs, reduces poverty and unlocks economic opportunities. In the post Covid economic recovery, trade should be used as a mechanism to ameliorate the negative effects of the recession caused by the pandemic. 

Before the pandemic, Uganda’s gross domestic product growth was averaging 5.3 percent from fiscal year (FY) 2013/2014 to 2018/2019.  When the restrictions were imposed in order to contain the spread of covid, Uganda’s economy grew by 3.3 percent in Fiscal Year 2020/2021, according to the Uganda Bureau of statistics.  

Uganda’s economy has experienced a sharp increase in unemployment, a massive loss of income and reversed the progress made poverty reduction. The economy can make a rebound if trade is supported on multiple fronts. Trade will continue to be the largest source of public and private revenues flows in the post-Covid economic recovery.  A reliable revenue stream from trade is critical in surmounting development challenges. 

Trade disputes that have occurred in the recent past between Uganda and Kenya not only pose serious threats to realizing the objectives of the customs union, but also affect Uganda’s post-Covid economic recovery and the region as a whole. Uganda and Kenya got embroiled in trade feuds over several products including milk, maize, sugar and poultry. The two countries the biggest trade partners in the region.

Kenyan exports to Uganda in 2020 amounted to $673.66 million while Uganda’s exports to Kenya stood at $465.55 million during the same period. These trade disputes should always be addressed before spillover effects which hamper trade in the region.

The single market of the customs union continues to face setbacks as partner states continue to maintain non-tariff barriers, quantitative restrictions and other discriminatory measures. In this post pandemic recovery period, it would be of utmost importance to find ways of further eliminating restrictive measures to intra-regional trade. Relatedly, more focus should be put on reduction of trade costs, these pose serious risks on economic recovery. Cumbersome regulatory procedures and documentation adversely affect free trade.

The recent experience when cargo trucks clogged the border points of Busia and Malaba over Covid tests serves as a lesson, Uganda’s economy has not recovered from the spike in fuel prices.  Furthermore, the pandemic has revealed how e-commerce can play an instrumental role in lowering trade costs. The use of e-commerce platforms are important mechanisms for reducing the cost of exchange; connecting low-productivity segments with firms with higher productivity in the Global Value Chains (GVC); and linking people to more formal parts of the economy across sectors and geographies. E-commerce growth can also lower barriers to entry, creating new opportunities of market access and growth for the rural sector, micro, small and medium enterprises (MSMEs).

There is also need for Uganda’s economy to tap into the opportunities of Africa Continental Free Trade Area (AfCFTA). With a market of 1.2 billion people and gross domestic product (GDP) of $ 2.5 trillion across all 55 member states, AfCFTA is said to be to the largest free trade area since the formation of World Trade Organisation (WTO).

AfCFTA is expected to progressively eliminate tariffs within the trading partners under the free trade area. Intra African trade is still low currently makes up 14percent of total African trade, is expected to increase its share to 40percent of African trade by 2063. Ugandan businesses, traders and consumers should seize opportunities in AfCFTA so that they can paddle through the turbulent economic waves of the pandemic.

The long lockdowns, shutdowns and restrictions imposed by government in containment and control of the spread of the pandemic have had far reaching ramifications on the economy. But as the pandemic seemingly subsides and the government has lifted restrictions to allow the full re-opening of the economy, there is need to use trade as a tool for economic recovery. 

Michael Wabugo, [email protected]