President Yoweri Museveni has said Uganda’s economy is doing well. While delivering the State of the Nation Address to Parliament and the country at large at Kampala Serena Conference Centre on Tuesday, Museveni said that a country with surplus electricity for the first time can’t be in a “a bad shape unless you have no eyes to see.”
He added that what has been appearing in the press about the economy being in a recession wasn’t true.
Although the President didn’t give other factors to support his view point, I must say that he’s living in denial or he was ill-advised.
Broadly speaking, Uganda’s economy is currently in bad shape and needs urgent fixing.
On May16, 2017, The International Monetary Fund (IMF) projected that Uganda’s economic growth would slow down to 3.5 to 4% in 2016/17 financial year, down from the earlier anticipated 5% due to drought and slow credit growth.
“The drought held back activity in the first part of the year. Private sector credit is an additional drag,” IMF said in a statement.
Given the increasing threats of climate change, an agricultural based economy like Uganda that depends on rain-fed water is doomed.
According to the 2014 National Population and Housing Census report, 69.4% of Ugandans are engaged in subsistence farming. This means that about 30% of Uganda’s population is in the money economy.
Given the high levels of income inequality, such a population can’t sustain a healthy economy.
On March 29, Oxfam International launched a report indicating that Uganda’s income inequality is on the rise. In simple terms, the rich are getting richer and the poor poorer.
According to the report, 10% of Uganda’s population (estimated at 36 million people) own 35.7% of national income -estimated at US$s27bn (about Shs97trn). This means that 3.6 million Ugandans own over Shs34trn of Uganda’s GDP.
The report adds that another 10% (3.6m Ugandans) of Uganda’s population composed of the poorest only own 2.5% (about Shs2.4trn) of the country’s national income.
Although the number of Ugandans living below the poverty line has declined to 19.7% in 2014, down from 56% in 1992, the report notes that income inequality has instead increased.
In fact, these poverty figures were based on one dollar being enough for a person a day. However, economists and analysts say, one dollar is no longer enough to cater for one’s daily needs.
They argue that for a person to live well a day, he or she needs over three dollars.
This means that poverty levels could actually be higher in Uganda than reported considering the fact that the cost of living has gone up over time.
In the last one year alone, Uganda’s economy has witnessed unprecedented volatility that has left many companies collapsed.
Crane Bank Ltd, the then 4th largest bank by assets in Uganda is no more. On October 20, 2016, the Bank of Uganda (BoU) took over the management of Crane Bank was after it became “a significantly undercapitalized institution.” The bank was regarded as one of the three most important banks in Uganda so much that its collapse would adversely affect the economy. Consequently, on February 27, 2017, BoU announced the takeover of the now defunct Crane Bank by dfcu-at an undisclosed fee.
Besides Crane Bank, as a result of a wobbly economy characterized by high interest rates and weak exchange rate, a number of companies have defaulted on their loan obligations, a thing that has not only left some of them collapsed, but also affected badly the banking industry.
The oldest private TV station in Uganda, WBS is no more. Companies including Steel Rolling Mills and Threeways Shipping Company have since been placed under receivership after failing to honour their loan obligations from banks.
Global brands including AIG and AON have quit the country in recent months, citing a small market (poor economy).
Other companies that have collapsed in recent years include the National Bank of Commerce, Global Trust Bank and Kenyan supermarket chain, Uchumi. A number of big supermarkets are also currently performing poorly due to limited demand.
Late last year, a number of companies became financially distressed so much that they were seeking financial bailout from government. Their financial problems were largely a result of a poor performing economy. The jobs lost due to these developments are in thousands.
According to analysts, the wobbly economy saw a number of tycoons and businesses defaulting on their loans, a move that led to high Non-Performing Loans (NPLs) in 2015 and 2016.
NPLs increased to Shs515.6bn in 2015, up from Shs397.7bn in 2014.
Total industry NPLs (excluding Stanbic) increased to Shs557.8bn in 2016, up from Shs515.6bn in 2015.
Additionally, in 2015/16, Uganda’s economic growth slowed down to 4.8%, lower than the projected growth of 5.8% at the beginning of the year.
Since 2010/11 when economy grew at 6.7%, Uganda’s economic growth hasn’t been impressive largely due to political and economic factors.
In 2012/13, the economy grew at 3.3% before slightly improving to 4.5% in 2013/14.
Worse still, in the past decade, Uganda has witnessed more economic volatility, and GDP growth has slowed to an average of about 5%, according to the World Bank.
It is therefore not surprising that late last year, ratings agency Moody’s downgraded Uganda’s economy to B2, from B1. The key driver for this rating was Uganda’s rising debt burden and failure to absorb borrowed funds.
Low Purchasing Power
Uganda remains a poor country with low purchasing power. According to the World Bank, Uganda’s per capita income stood at US$714.6 (Shs2.4m) in 2014, up from US$674.3 in 2013.
Additionally, the Poverty Status Report (PSR) 2014 released by the Ministry of Finance, Planning and Economic Development indicates that 21.4 million Ugandans are either poor or are vulnerable to slipping back into the poverty zone.
The report adds that although the poverty levels have improved in the recent years, those that have moved above the poverty line are insecure and risk slipping back into poverty in case of a shock. “In 2012/13, more than half of the non-poor population was classified as insecure, living below twice the income poverty line.
In total, 21.4 million Ugandans (63% of the population) were either poor or vulnerable to poverty,” reads the report in part.
“The poor and vulnerable households require support in order to exploit the emerging economic opportunities,” the report adds.
The gap between Uganda’s export earnings and expenditure is well documented. It’s good that in your address you admitted that we’re exporting our jobs and wealth.