Agriculture, mining sectors raise hope as economy struggles to recover

Ten days ago, Bank of Uganda (BoU) Governor Emmanuel Tumusiime Mutebile, while releasing the monetary report for April, revealed that whereas some level of economic recovery had been realised during the first quarter of 2021, the economy will remain subdued.
Mr Mutebile pegged the prospects of the economy’s vibrancy on how the campaign to immunise Ugandans against Covid-19 will pan out.
“Nonetheless, the recovery is expected to strengthen with above trend growth…as vaccine effectiveness increases,” Mr Mutebile said.

Whereas Mr Mutebile did not detail the extent of the havoc that was caused by the outbreak of the coronavirus pandemic and the subsequent lockdown introduced as a containment measure, it is now emerging that the pandemic actually wiped out the growth of yesteryears and caused the economy to shrink.

By how much has economy shrunk?
BoU director for research, Mr Adam Mugume, told Saturday Monitor that the estimated real Gross Domestic Product for 2020 had contracted by 1.1 per cent compared to a growth of 8.1 per cent in 2019. We are most probably talking of a reversal of 9.2 percentage points! The worst hit, he said, was the service sector.

“Services sector, which constitute about 43 per cent of GDP and comprise of activities such as transportation, financial services, trade, education, hotel, and entertainment, among others, contracted by 3.1 per cent in 2020 compared to a growth of 7.2 per cent in 2019,” Mr Mugume said.
Mr Mugume argues that if there is no economic growth worth writing home about, it is because the service sector has remained contracted.
“The services sector is still affected by social-distancing measures and, therefore, it is likely to recover once the Covid-19 effects fade away, either through inoculations or observing standard operating procedures (SOPs),” Mr Mugume says.

What is working?
Despite the contraction being felt in most sectors of the economy, several sectors such as agriculture, manufacturing and mining, which initially suffered spillover effects from contractions experienced in the service sector, especially during the lockdown, have since recovered, showing promises of things to come.

Agriculture
Mr Richard Ibengo, the business development manager at the Jinja-based Ago Ways Limited, who operate a grain warehouse, says whereas trade in produce was initially hit by the restrictions on internal and cross-border movements imposed under the lockdown, the lockdown had in itself sparked off an exodus into agricultural production.

“The lockdown meant that more people got into agriculture and the harvests were great. The weather and other factors were kind. Farmers had bumper harvests. The crop that came in from the second harvest found the one from the previous one. That is going to be repeated now. That is not going to be good as it will dampen the market. There is need for people to look for other markets,” Mr Ibengo said.
Despite the price drawbacks that are being experienced with some of the agricultural products, agricultural production seems to be doing very well.

Besides the informal cross-border trade being carried out by mostly Kenyans who drive into the country and purchase fruits such as jackfruits, water melons, pineapples, among others for onward transportation to markets in Kenya, agricultural products continue to contribute to the bulk of Uganda’s export earnings.
Agricultural products constitute the majority on the list of leading commodities exported by Uganda in the period between January 2020 and January 2021, which was published by Uganda Bureau of Statistics (UBOS) in March.

Coffee came second on the list, having earned Uganda $39.7 million (Shs143b), which accounted for 10.7 per cent of total exports in January 2021. 
Fish and fish products came third with $10.5 million (Shs38b), which accounted for 2.8 per cent of the total exports, cocoa beans, maize, tea, sugar and sugar confectionaries, animal and vegetable fats and oils, flowers and tobacco were the other leading agricultural exports.

Industry
Mr Mugume says whereas the industrial production sector, which includes manufacturing, construction, mining and quarrying, water and electricity subsectors contracted by nearly nine per cent in the second quarter (April-June) of 2020, it made tremendous recovery in the last two quarters of the year to register an average growth of at least 5.1 per cent.

It was not possible to obtain the latest figures on industrial production from the Ministry of Trade and Industry, but the World Data Atlas indicates that whereas industrial production for Uganda stood at $947 million (Shs3.4 trillion) as at the end of February 2020, it dropped to $868 million (Shs3.1 trillion) in March and dropped further to $707 million (Shs2.5 trillion) in April.
The sector has, however, been on a path of recovery since May when output rose to $882 million (Shs3.1 trillion), rose by another $40 million (Shs144b) the following month before peaking at $943m (Shs3.4 trillion) in September 2020.

Construction
Despite cash flow shortages that were attributed to the lockdown, the construction sector experienced a growth, which has also resulted into an increase in the prices of construction materials. 
The construction sector indices for February 2021 published by UBOS show prices of materials, equipment hire rates and wages for both residential and nonresidential buildings increased in February by 1.24 per cent and 1.51 per cent respectively.

That increase was attributed to an increase in the cost of roofing materials, other iron and steel prices, other electrical wires and cable and an increase in the prices of both diesel and bitumen.

Mining sector
That earnings from gold and gold components rank highest on the list of the commodities exported by Uganda, having earned Uganda $173.9 million (Shs626b) in January, shows how well the mining sector has been doing despite having experienced a slump in March and April 2020.

According to the list of Uganda’s exports, earnings from gold exports dropped from $89.3 million (Shs323b) in February to $61 million (Shs219b) in March and $60.4 million (Shs217b) in April, before springing back to $126.3 million (Shs454b) in May. That sent earnings back onto an upward trajectory that led to the January figures.
Other exports associated with the mining sector include petroleum products, which fetched $6.5 million (Shs23b), cement fetched $5.4 million (Shs19.4b) and iron and steel fetched Uganda $5.3 million (Shs19b) in January 2021.

Outlook
Mr Mugumya says BoU is optimistic that growth will be gradual, but like Mr Mutebile, pegs those hopes to the vaccination drive.
“Uganda will benefit from global economic recovery through Foreign Direct Investments (FDI), tourism, exports and personal transfers by Ugandans in the diaspora. Although economic growth is still projected in the range of 4.0-4.5 per cent in financial year 2021/2022, it will rise to above seven per cent in the years ahead as the economic activity normalises, assuming Covid-19 is eventually controlled,” Mr Mugumya says.

Government unveiled a stimulus package that it said was aimed at helping the economy recover. The private sector, BoU and the Uganda Revenue Authority (URA) also put in a shift.
The Private Sector Foundation of Uganda (PSFU), in conjunction with the Master Card Foundation, came up with a $8.4 million (Shs30b) Covid-19 Economic Recovery and Resilience Response programme that aimed to help private sector firms impacted by the virus to either recover or survive.

BoU implemented a debt service suspension initiative through which financially-distressed firms were helped to get their loans with the commercial banks restructured to enable borrowers deal with the pandemic’s effect on their ability to pay and to reduce the lenders’ exposure to the possibility of ending up with defaulting payers on account of the pandemic. 

Questions about stimulus package
The problem, though, is that there are questions about what else that Uganda is trying to do in order to help the economy recover.
Mr Fred Muhumuza, an economist attached to Makerere University’s School of Economics, argues that there can only be gloom given the flawed nature of the stimulus package that government unveiled as part of the effort to help it recover.

“The stimulus package did not have anything meaningful. It did not target sectors that drive growth…The question that should have informed the stimulus package was, ‘how do we beef up household incomes?’ Extension of loan repayment periods cannot work unless you have the power to make purchase from the affected firms. How will they sell their products if the communities have no power to purchase?” Mr Muhumuza wonders.

Tourism missing out
Mr Muhumuza has a point. Tourism earned Uganda $1.6 billion (Shs5.8 trillion), contributed approximately 7.7 per cent of GDP and about 6.7 per cent of the 2018/2019 budget.
The Ministry of Tourism, Wildlife and Antiquities estimates that Uganda lost up to one million visitors and approximately $1.1 billion (Shs4 trillion) in revenue as a result of the pandemic. 
Hotel occupancy fell from 670,732 beds out of 894,310 beds per month to less than 20 per cent by the end of March and zero in April. Hotels had to lay off workers.

Sources within the Uganda Tourism Board (UTB) say the organisation had in June sought Shs148 billion to fund the creation of a tourism emergency and recovery credit line for actors in the sector to access low interest development loans with long repayment periods, have half the skilled work force back in the hotels, and fund restoration of tourism sites, facilities and stopovers.
“Currently, the cheapest development financing on the market comes at an average of 14 per cent interest rate from Uganda Development Bank (UDB), which may not facilitate recovery… The Covid intervention assessment/need is about Shs148 billion, which should be lent at an interest rate below 10 per cent to facilitate recovery of the sector,” the source says.

Tourism’s raw deal
UDB was availed funds to make it easy for actors in the manufacturing, agribusiness, tourism and other sectors to access credit and enable those with turnovers of less than Shs 500 million ($136,300) get VAT and Corporate tax exemptions.

In light of what it had been earning, what it had lost and its potential to make the country money, one would have thought it would be given priority, but when UDB finally approved credit amounting to Shs444b, the tourism sector was allocated only Shs20.1b (three per cent of available funds).
Matters have not been helped that a funding that would have seen actors in the sector access packages that combine grants from a Shs27b package put forward by the European Union (EU) and affordable credit from a Shs40b kitty put forward by UDB, has never materialised. 
UTB chairperson Daudi Migereko says funds have never been released.

“My information is that the bank (UDB) invited firms to submit letters of expression of interest, but I have not heard of anyone who has received either the grant or a loan under this arrangement,” Mr Migereko says.
It was not possible to establish from UDB’s corporate affairs manager Stellar Kanyike, or her assistant Carol Asiimire, the status of this particular funding portfolio.

Mr Ian Muhimbise Rumanyika, the acting assistant commissioner of public and corporate affairs at URA, says the tax authority introduced an initiative that postponed the payment and decrement of others as government sought to try and prevent firms from laying off workers.
He says URA also extended periods in which monthly returns for Value Added Tax (VAT), Pay As You Earn (PAYE), withholding tax and taxes under the Lottery and Gaming returns. 
The tax body also extended the periods by which penalties for late filing had to be paid. It also waived some taxes on imports such as face masks and raw materials required in the making of sanitisers.

Trade ignored?
However, if people in the tourism sector have been pushed to the periphery, Mr Everisto Kayondo, the chairperson of the Kampala City Traders Association (Kacita), says no consideration was given to actors in the trade and commerce and real estate sectors as they sought help in paying rent arrears and interest on bank loans accumulated during the lockdown. 
Government, he says, should not have introduced new taxes. That, he says, would have helped them to recover.
“Instead, as we are struggling to pick up the pieces, they introduced new taxes. That will lead to the closure of many more businesses,” Mr Kayondo warns. But is anyone listening?