Apart from the local industries that remain operating under capacity, exporters are worried that the export markets are becoming harder to sell to, with some especially in Europe, reintroducing lockdowns amidst surges in new covid-19 cases.
The recovery of the Ugandan economy to the desired levels will depend on many factors, most of them beyond
the country’s control according to experts and the private sector.
These factors include
the rebound in the export sector, the developments in oil sector, the universal
availability of the Covid-19 pandemic drugs and how fast the pandemic effects are controlled in
Uganda’s export markets, among others.
Most, or all of these
are highly uncertain, and the forecasts are better be largely pegged on hope,
rather than planning.
Planning relies on the
expected size of the national resource envelop, which, in this case is expected
be smaller unless the expected external support comes by.
The Bank of Uganda has forecast a growth of between
3 and 3.5% this financial year, and rise to between 4 and 4.5% 2021/2022. After that, the economy is expected to grow at
rates between 6% and 7%, and this high growth is expected to be driven by
investments in the oil and gas sector.
A sustained growth rate not less
than 6% is desired for Uganda to attain a middle income status in the medium term
or five years. BOU realizes that the private
sector will need access to cheap and long-term capital and access to credit
will be vital, the reason the regulator has kept the Central Bank Rate at a low
The Bank has also extended
the credit relief measures for the private sector borrowers as well as support
for the financial institutions that might be in cash distress.
These would further boost
Charles Katongole, the Head
of Financial Markets at Standard Chartered Bank says that BOU’s move is welcome
because there are sectors that are yet to even start recovering from the effects
of the pandemic.
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Much as most of the sections
of the economy are now open, many are still closed and these have linkages to
the wider economy. Most of those open are also still
operating under strict preventive measures set by the government against the
Covid-19 pandemic, affecting their capacity to contribute to economic growth.
Marc Du Toit, the Head - Retail
Agency and Management at Knight Frank, for example, says the continued closure
of bars and night pubs affect many other sections of the economy, while the
curfew hours were not well designed for Uganda and this is killing trade.
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Apart from the local industries
that remain operating under capacity, exporters are worried that the export
markets are becoming harder to sell to, with some especially in Europe, reintroducing
lockdowns amidst surges in new covid-19 cases.
“If the impact of COVID-19
lasts longer globally, or the virus spreads more widely in Uganda, this could
deter the recovery in Uganda’s exports, adversely impact a rebound in foreign
direct investment, tourism and remittances, and further depress productivity
and hence the domestic economic recovery”, reports the World Bank.
Even with a growth recovery of
4.5, the poverty levels, as well as the average income will take longer to
reach the levels posted before the pandemic.
“Even if GDP growth rebounds
strongly by 2022, the level of per capita GDP is likely to remain well below
its pre-COVID trajectory”, the Bank says.
The economy’s growth
next year and the years after is pegged on the developments in the oil and gas
sector, with the Final Investment Decision set to be made in this quarter,
according to Petroleum Authority of Uganda.
It says most of the
negotiations are complete and the physical construction of the crude export
pipeline planned for later in the year 2021.
This is expected to
attract more investment inflows and creation of jobs linked to the project.
The World Bank fears
that oil and gas investors might not spend as much as it was previously
expected until they are sure of high oil prices in the next few years.
Other sections of the
Foreign Direct Investments into Uganda are expected to remain low, as with
other countries, which might also increase pressure on the Uganda shilling.
Experts however, expect
portfolio investments to remain stable and compensate for FDI to support the
A portfolio investment is ownership of a stock, bond, or other
financial asset with the expectation that it will earn a return or grow in
value over time, or both, with the owner not involved in the management, as opposed
to direct investment.
Standard Chartered Bank’s Katongole says the Central
Bank’s effort to influence the cost of borrowing is a positive one but that
there are many other factors that can hinder private sector credit growth,
especially government’s appetite for domestic borrowing.
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Much will depend of factors like how much the
government will manage to raise in local revenues, with URA already indicating
it will not meet the targets as well as government’s ability to meet promises
like clearing domestic arrears to boost local investments.
It will also do well if the government manages public
expenditure, with the cost expected to rise sharply as elective offices and
public agencies increase, as well as manage the politics to make the country
attractive to foreign investors.