Improved local capacity can boost trade deficit

August 10, 2017 in Business, Markets, Policy, Trade & Industry by Editor

August 10—Uganda’s negative balance of trade, with imports outweighing exports, is unlikely to improve soon until its economic infrastructure is more fully developed. For more than a decade now, the country’s exports are on average half the value of its imports.

Today much of the materials used in building new dams, roads and bridges are  imported due to lack of local capacity to produce industrial inputs that are of the international standards and quality. Near the top of the imports list are petroluem products, pharmaceuticals, vehicles and spares, crude vegetable oil and wheat.

“We need to strengthen the capacity of our firms to improve their capacity to improve on the quality of their products so that the government does not have to import almost everything especially during construction of big projects,” Paul Okitoi, the Manager, Economic Strategic Planning at the National Planning Authority has said.

However according to Bank of Uganda, the current account deficit for 2015/16 improved slightly from a deficit of $1.9 billion to $1.4 billion, largely driven by a decline in the private sector import bill, reflecting a combination of low global crude oil prices and subdued domestic demand.

Okitoi said as much as the government is pushing for efforts to promote exports and create a trade balance between exports and imports, there is a great limitation on the capacity of Uganda to produce materials that can replace the expensive imported items  especially construction materials and new technology.

He said during 2016, the government’s direct imports increased by 120% from $2.2billion in 2015 to $4.9 billion while the private sector reduced its imports by 17% from $4.6 billion to $3.8 billion.

Okotoi said “I am optimistic that this trade imbalance will be controlled once our infrastructure is fully developed. Our growth rate is not bad compared to other developing countries and once we take off, Uganda will become a middle income country.”

Elly Twineyo, the Executive Director of the Uganda Export Promotion Board said although controlling  imports is difficult, being a liberalized economy, something can be done about exports.

“If we want markets for our goods, we need to do research about available markets, what is the problem with our goods and what we can do to improve them. Our local producers lack information on the available markets. All these can be achieved if we make a commitment to promote our exports,” Twineyo said.

He however admitted UEPB also had limitations.”We are underfunded as a body that is mandated to promote exports. We have a lot of potential especially in the regional market of the East African Community and the Economic Community of West African States. We have the goods to export especially our agricultural goods. There is a lot of potential. We just need to develop it,” he said.