Uganda’s economic activity on the decline

In Summary

Factor. The low growth of Uganda’s economy arose from the drastic fall in international commodity prices of exports.

Kampala. Economic activity in Uganda has declined due to a fall in commodity prices which has had a negative impact on export earnings, a new report has revealed.
The report titled: “The Institute of Chartered Accountants in England and Wales (ICAEW) Economic Insight: Africa Quarter 2,” notes that, in an attempt to limit the acceleration in price growth, central banks in the region adopted tighter monetary policies, with some countries such as Uganda and Kenya aggressively raising interest rates.

“Kenyan authorities increased the country’s benchmark interest rate by 3 pp over a two-month period in mid-2015, while Uganda’s policy rate was increased by a cumulative 6 pp through 2015. While this was beneficial in containing imported inflation, it exerted downward pressure on these countries’ foreign currency holdings,” the report said.

According to the 2016/2017 Uganda national Budget, the lower growth of Uganda’s economy arose from the drastic fall in international commodity prices of exports such as coffee, tea, minerals; and the decline in borrowers as a result of high interest rates, constraining domestic activity. The strengthening of the dollar as a result of the recovery in the US economy also led to depreciation of the Shilling, causing domestic inflation.
Dr Fred Muhumuza, an economist in Kampala, said: “The government needs to encourage people to demand for more commodities, encourage extra marketing, increase on the salaries and motivate production.”

Low productivity vs strong GDP
Strong Gross Domestic Productivity (GDP) growth in Africa has masked disappointing productivity, according to the ICAEW report.
Dr Muhumuza said: “For the low productivity to reach the GDP level there should be better training of professionals, provision of better equipment and improvement on the technology in the country.”

Over the last 15 years, trade and investment have cushioned the continent against the global financial crisis. However, according to ICAEW, this has hidden low productivity figures – despite much greater potential for economic ‘catch up’.
Mr Michael Armstrong, regional director at ICAEW Middle East, Africa and South Asia, said: “Matching the performance of some other emerging market regions might, at face value, seem respectable enough. But the truth is that Africa is starting from a much lower level of economic development than these economies.”

Favourable competition
African economies should be in a position to improve productivity in the agriculture sector, thanks to low cost labour and climate. Solving these problems would enable African producers to compete more effectively with farmers from other parts of the world.

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