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Why Uganda’s Economy Is Growing Without Creating New Jobs

The Ugandan Government is projecting the economy to grow by 6.2% in the FY2018/19 going Uganda Bureau of Statistics (UBOS) latest data.

This prediction is contained in the National Budget Framework Paper

2019/20 (BFP) published by the Ministry of Finance in December 2018.

According to a report by PwC titled ‘Uganda Economic Outlook – 2019’, Uganda’s economic outlook for 2019 is very positive, thanks to a recovery in the agriculture sector, the sustained growth in services, and the continued huge investment by the government into public infrastructure.

However, the report says that although the economy is on a rapid and sustained growth path, the number of new jobs arising from this growth has been disappointingly low.

“Sustained growth of the economy was expected to create jobs, drive poverty reduction and make growth more inclusive,” the report reads in part.

It adds that lack of growth in jobs has retarded poverty reduction in the country. For example, although the economy grew by an average of 4.5% year on year between FY15/16 and FY17/18, the number of people living in poverty increased in the same period from 19.7% in FY15/16 to 21.4% in FY17/182.

This means that whereas the economy is growing, this growth has not been inclusive enough as it has not translated into job creation, poverty reduction and significant wealth creation for Ugandans.

The report further explains why Uganda’s recent high economic growth rates have not been accompanied by high growth in jobs.

“One of the main reasons why the growth in the economy has not translated in massive growth in jobs is because, in the past ten years the growth has been originating mainly from investments in public infrastructure as well as the mining and oil and gas capital intensive sectors, rather than in traditional labor intensive sectors such as agriculture, manufacturing and tourism,” the report explains.

According to the report, during the last ten years the economy (measured at current market prices) has nearly trebled in size from UShs35 trillion in FY08/09 to UShs100.53 trillion in FY17/18.

However in that same period, average GDP per capita at current prices has increased by only 23% from USD 650 in FY08/09 to USD 799 in FY2017/183.

2019 growth factors

The government is projecting the economy to grow by 6.2% in the next Financial Year 2019/20, with agriculture, industry and services projected to grow at 3.8%, 5.6% and 7.8% respectively.

The projected growth will be driven mainly by the continued recovery in the agriculture sector, says the report.

“The agriculture sector largely benefiting from favorable weather conditions is currently the major driver of economic growth having recorded a 1.2% growth in the second quarter of FY18/19, up from the 0.6% growth registered in the first quarter,” the report says.

It adds: “This recovery in the agricultural sector and the associated exports has given a major boost to the economy.”

Domestic demand supported by healthy private sector credit (PSC), as well as investments in public infrastructure together with Foreign Direct Investment (FDI) inflows are also expected to drive growth of the economy in FY19/20.

“This positive outlook assumes continued good weather conditions, robust external demand, increase in FDI inflows as oil exports draw closer, and public infrastructure spending is properly executed as planned,” the report says.

At the moment, the report says, most macroeconomic fundamentals

in the country remain positive.

For example, foreign exchange reserves are adequate currently at 5.3 months of import cover; consumer price inflation is comfortably below the BoU’s medium term target of 5.0%; and public debt though increasing, is still considered sustainable.

Risks To the projected growth

Despite the positive 2019 outlook, the report says Uganda’s economy faces both external and internal risks.

The external risks include low commodity prices and demand for the country’s exports in major markets, the appreciation of the U.S. dollar due to the expected rise in interest rates in the United States, a slowdown and tightening of global financing conditions, which could discourage investment and development assistance.

Other external risks include adverse spillover shocks from some of the fragile regional neighbors, and the continued uncertainty in the global markets and trade as a result of the trade war between the US and China, and Brexit.

Major internal risks to the economy include reduced domestic revenue mobilization and higher public spending on contingencies, poor institutional capacity and governance, and weak public financial and investment management systems.

“The agricultural sector’s susceptibility to adverse weather conditions will always remain a major risk to the economy,” the report says.

In addition, the government’s continued failure to meet budget targets, together with the under-execution of the development budget remains a concern.

“The low GDP per capita, underpinned by high unemployment and growing population, together with the ever increasing un-planned rural urban migration will result in the projected growth not being felt by all Ugandans, especially the urban poor,” it adds.

Taddewo William Senyonyi
https://www.facebook.com/senyonyi.taddewo
William is a seasoned business and finance journalist. He is also an agripreneur and a coffee enthusiast.

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