February 13-Uganda’s prospects for 2017 are unlikely to be much better than the sluggish growth seen in 2016 and could even be worse if the expected rains fail which could push up inflation as prices for basic foodstuffs begin rising.
Main speakers at the annual Stanbic Bank Uganda (SBU) Economic Outlook Breakfast agreed that Uganda’s economy was not doing well, but there was room for optimism as the slowdown in the global economy bottoms out. This year’s theme was ‘Achieving Inclusive Growth: What Structures does Uganda Need?’
Getting the event underway, Patrick Mweheire, the SBU Chief Executive said, “2016 was a very difficult year. What was hair-raising for us was that credit growth at 3% was lower than GDP growth at 5%,” he said.
Credit growth is a good indicator of business confidence. This is the money that banks lend to companies, business people, individuals and institutions, either in the form of retail loans or institutional loans or any other form of loan or credit.
Adam Mugume, the Executive Director, Research at Bank of Uganda (BoU) said economic growth had slowed from the previous average 7.8% per annum recorded in the 1990s and the first decade of the 2000, to about 4.5% in recent years. However the BoU will not let up on its inflation-targeting monetary policy of keeping it below 5% and he reminded invited guests that higher inflation hurts the disadvantaged and results in higher interest rates.
He said per-capita income (total national wealth shared among total population) will continue to rise only slowly unless Uganda curbs its rapid population growth rate, presently at 3.3%. Dr. Mugume said during the previous financial year, there were reduced earnings from agriculture and services, Uganda’s leading GDP contributors. “Part of the story is the global downturn. For example, foreign investment in Uganda is down by half at $500 million compared to $1 billion the previous year (2015).”
Referring to the foreign exchange regime, Dr. Mugume stressed that unless Uganda steadily increases its export earnings, the shilling will remain vulnerable to US dollar swings. However he noted with some amusement that Uganda last year exported $339 million worth of gold, but BoU had no idea where this gold was coming from.
He said 70% of Uganda’s imports are made up of raw materials and capital goods and he suggested that more concerted efforts are made to look into locally sourcing these inputs.
Jibran Qureshi, the Chief Economist East Africa, Standard Bank told the well attended function. “We think Uganda’s growth rate will be at 4% this year based on the numbers we have seen in 2016. But we expect a rebound in 2018 depending on the weather. If the drought worsens, it will drag down agriculture,” He said both Kenya and Tanzania are expected to grow faster than Uganda this year.
Dr. Mugume said what would help ease Uganda’s situation is the government continuing to reduce the costs of doing business and better execution of public expenditure because currently, public investment in such projects as new roads and railways, is the main driver of economic growth. He said it was also vital that public investments generate financial spin-offs for the rest of the economy.