Has Uganda’s economy bounced back from COVID-19 & other crises?

by Business Times writer
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After four years of grappling with the economic shocks caused by COVID-19 pandemic and other crises, Uganda’s economy is on path to recovery. The pandemic severely disrupted key sectors such as tourism and hospitality, transport, manufacturing among others, causing significant setbacks.

The pandemic, coupled with other crises such as regional and international conflicts, including Russia – Ukraine war, climate change, and fluctuating global markets tested Uganda’s economy to its core foundations.

The COVID-19 shock caused the economy’s sharpest decline in thirty years, resulting in a significant slowdown. Household incomes dropped as businesses shut down and jobs were lost, especially within the urban informal sector. Consequently, Uganda’s Gross Domestic Product shrank by 1.1 percent in 2020 according to the World Bank.

However, the government now says that the country’s economy has fully recovered from various internal and external shocks that impacted performance in the past four years.

GDP is projected to grow by 6 percent this financial year 2023/24 compared to 5.3 percent in FY 2022/23.

“This year’s growth of 6 percent is even more impressive when compared to Sub-Saharan Africa’s average of 3.8 percent, and the global average of 2.9 percent projected for the year 2024. As a result of this robust growth, the size of the economy is now estimated at Shs 202 trillion (USD 53.3 billion) up from Shs 184.3 trillion (USD 48.8 billion) in nominal terms. If Ugandans agreed to share this GDP equally, each citizen would enjoy a GDP per capita of USD 1,146 compared to USD 1,081 registered last Financial Year 2022/23, ” said Finance Minister, Matia Kasaija while reading the budget at Kololo Independence Grounds on Thursday.

Finance Minister Matia Kasaija

Kasaija attributed the improved performance of the economy to higher growth in all sectors. Services, agriculture, and industry, are estimated to grow at 6.6 percent, 5.1 percent, and 5.8 percent, respectively, in FY2023/24.

In particular, growth in the services sector, he said, has been impressive, mainly driven by strong recovery in retail and wholesale trade, tourism as well as communication and real estate activities.

Growth in industry was mainly driven by manufacturing, construction and mining, while increased production of food and cash crops, as well as livestock supported growth in the agriculture sector.

Other factors which supported strong economic growth include: low inflation and relatively stable exchange rate which have allowed good investment planning and supported export competitiveness; increased investments in the oil and gas sector related projects supported by Foreign Direct Investment; higher external demand for Uganda’s products including agricultural and industrial products; recovery of tourism supported by increased investment in tourism infrastructure and marketing; and peace and security for persons and their property.

ECONOMIC GROWTH STRATEGY AND OUTLOOK

Kasaija said that Uganda’s economic outlook is positive and optimistic, adding that the country’s economy is projected to grow to 7% in the 2024/25 financial year.

“The economy has remained resilient and has fully recovered from a myriad of internal and external shocks. Next financial year, the economy is projected to get back to Uganda’s steady-state growth potential of between 6.4 and 7 percent, and double digit over the next five years,” he said.

Kasaija’s statement concurs with the World Bank’s latest Global Economic Prospects which indicate that Uganda and DRC economies will be the second fastest growing in the East African Community with a growth rate of 6% in 2024.

This growth will be driven by; increased oil and gas activities as the country moves towards first oil production in FY 2025/26; growth in exports supported by the increase in regional trade in the EAC and COMESA, intra-Africa trade, and harnessing existing and new trading partners in the Middle East and Asia, increase in tourism activities supported by investment in tourism infrastructure, branding and marketing.

Other drivers include; agro-industrialisation and light manufacturing supported by access to affordable credit through Uganda Development Bank (UDB), investments supported through Uganda Development Corporation (UDC); the Parish Development Model, Small Business Recovery Fund, Emyooga, the Presidential Industrial Hubs for Youth Entrepreneurs, continued investment in industrial parks, construction and maintenance of roads and bridges; and rehabilitation of the Metre Gauge Railway and commencement of the Standard Gauge Railway, expansion of ICT infrastructure, and provision of reliable and affordable electricity.

However, Jane Nalunga, the Executive Director of Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) Uganda – a Non-Governmental Organization that works to promote pro development trade, fiscal and investment related policies, disagrees.

“There are some contradictions there [in the budget] because when you look at the budget theme, it talks about market, industrialization, commercial agriculture. All those speak to trade and industry, but when you look at what has been put in the Ministry of Trade, it is very little money,” said Nalunga.

She added: “he (Kasaija) also emphasized that the drivers of the economy are; agro industrialization, tourism, mineral development, and ICT. But when you look at agro industrialization, very little money [has been allocated to it], 1.8 trillion. And we are talking about a budget which includes agriculture, fisheries, trade, industry and cooperatives – key sectors but the money is very little.”

The Ministry of Finance labelled the 2024/25 financial year budget a citizens’ budget. Under the budget, funds have been allocated to wealth creation programs such as Parish Development Model (PDM) and Emyooga.

Since its launch in 2022, a total of Shs 2.4 trillion has so far been provided under PDM.

In the same vein, the Government has provided a total of Shs 480 billion through Emyooga. In the next Financial Year 2024/25, government has provided an additional Shs 100 billion under Emyooga to support more Ugandans to create wealth and boost their incomes.

However, Nalunga said that the impact of these programs is not felt.

“The government has been allocating money to PDM but up to now, we don’t touch the impact. If we are going to get out of where we are now, get out of poverty, it is important to get some actions,” she said.

Uganda’s growth strategy for next financial year and in the medium term is anchored on four key growth drivers: Agro-industrialisation; Tourism development; Mineral development including oil and gas; and Science, technology and innovation (STI).

“These are the anchor sectors that are going to propel Uganda to a 500- billion-dollar economy in the next one-and-a-half decades,” Kasaija said.

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