On the Ugandan economy

By Rafiq Raji, PhD

Growth this year would not likely be as robust as earlier expected. This much has been acknowledged by the authorities. Finance minister Matia Kasaija announced in his recent budget speech for the 2017-18 fiscal year that growth would be about 3.9 percent for the 2017-18 fiscal year, 1.6 percentage points below the authorities’ 5.5 percent target. In the government’s defense, Mr Kasaija was quick to point out that at least the Ugandan economy was not in a recession. (Africa’s two largest economies, Nigeria and South Africa, are in one.) Even so, major sectors of the Ugandan economy slowed quite significantly over the past year. Agricultural output underwhelmed by almost half the preceding year’s rise. Industry, mining and construction were also laggards. There are a couple of reasons for this. For one, drought in the region has been weighing on agricultural production. Key export markets, whether in faraway Europe or its war-torn neighbour, South Sudan, have also been battling troubles of their own.

Price pressures call for easing pause
High interest rates have also been a factor, motivating the Bank of Uganda (BoU) to start easing monetary policy once the inflation outlook began to show improvements; most recently by 50 basis points to 11 percent. There is now a strong case for a pause though. Consumer inflation rose to 7.2 percent in May, from 6.8 percent the month before. More importantly, core inflation ticked higher than the BoU’s 5 percent target in the month at 5.1 percent from 4.9 percent previously; albeit it is not expected too far afield subsequently. Still, the headline figure may remain on an upward trend for a couple of months more.

Long wait for oil
Mr Kasaija’s budget was more aspirational than realistic in some aspects though. It is laudable that Ugandan hopes to be a middle-income country in the next three years. Considering the economy would need to have grown by more than half its expected 2017 size of US$26 billion over the period to 2020, this seems a little farfetched. Adding $17 billion over 3 years at an average annual nominal GDP growth rate of 22 percent would be, to say the least, a tall order. Ambition should always be lauded, however. If Uganda is able to quicken the pace of its oil and gas exploration, it could achieve this goal in the next 6-7 years, say. Unlike its bigger neighbour, Uganda has not been similarly aggressive in developing its oil and gas fields: Kenya hopes to export its first barrel of crude oil this year, five years after its discovery in 2012. If everything goes according to plan, Uganda’s could be by 2020: fourteen years after crude deposits were first discovered in 2006. In light of its developmentalist approach, however, it could take longer: Uganda wants to be able to cater for its domestic fuel needs from its oil. (Africa’s largest producer, Nigeria, exports its crude oil and imports refined petroleum products.) Mr Kasaija says the government is in the process of selecting a lead investor to build the refinery. Getting investors for the project has been difficult hitherto. There is greater focus now on the export pipeline. Thankfully, regional politics, which initially stalled its construction seem to be less of a concern now: In February 2016, Uganda changed its mind about piping its oil via Kenya and chose to go with Tanzania instead.

Old man talk
As if to refute arguments suggesting the security services were increasingly lax, especially in light of recent high profile murders, Uganda’s president, Yoweri Museveni, kicked off his recent 2017 state of the nation address (SONA) by first highlighting his government’s defeat of the Lord’s Resistance Army (LRA) and Allied Democratic Forces (ADF) rebel groups and cattle rustlers in the northeastern part of the country. President Museveni however failed to highlight some of the very deplorable excesses of the security forces: the army killed more than 100 people at a royal’s palace in November 2016, it is alleged. His main critic and leading opposition politician, Kizza Besigye, was quick to rebuke him on social media about this and other security failings. To be fair, Mr Museveni acknowledged the gaps in the security architecture that have allowed the criminals have their way. His excuse then? Funding. He wishes the government could put cameras in towns and highways for instance. But there is a competency problem as well. A greater factor is corruption, however, with the police repeatedly criticized by the public for being in cahoots with criminals. The old man says they have the capacity to ensure nobody disturbs the peace.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/on-the-ugandan-economy/

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