Uganda Economy In Coma

SOURCE: THE RED PEPPER, 10 AUGUST 2011

Experts predict further hard economic times. Uganda’s low productivity leaves country uncompetitive.

Uganda’s economy will continue to struggle amidst high cost of living and doing business, economists have warned. Essential commodity prices have been skyrocketing for the last six months forcing consumers to dig deep into their pockets to live a descent life.

This has been fueled by the persistent runaway inflation which soared to 18.7 per cent recently, high fuel prices, depreciating Shilling and emergency load shedding which have sliced the economy like a shape razor.

Uganda Bureau of Statistics recently announced that the annual headline inflation for July hit a record high of 18.7 per cent from 15.7 per cent in June due to low food supplies to most markets and the general expectation of price rises in the country. The headline inflation rose due to a sharp increase in food prices, in particular prices for maize flour, sugar and sweet potatoes.

The rise was also blamed on the continued importation of consumer goods from countries with high inflation and reduced supplies of consumer goods in the country.

The worst part of it is that farmers have registered low farm yields due to looming drought in most parts of the country hence failing to feed the markets and eventually people’s plates. This means the country will continue to have low food supplies at a time when more drought is being predicted.

Uganda to Suffer Malnutrition

A united Nations report revealed that Uganda could be the next country to be hit by alarming malnutrition rates and famine due to drought.

Food and Agriculture Organisation (FAO) confirmed that food insecurity has already been detected in drought-hit northern areas of Uganda.

Prices for maize, Uganda’s main crop, went up by 67 per cent between June and July due to a delay in the harvest and the effect of greater demand from neighbouring Kenya and southern Sudan, according to Shukri Ahmed, Senior Economist at the FAO.

By the end of last week, Sugar was a scarce commodity with leading supermarket rationing the much needed sugar which is now selling between Shs5000 to Shs8000 across the country.

To add misery to the current situation, the shilling has continued to struggle against major international currencies forcing the central bank to intervene periodically.

Most notably the introduction of a monthly Central Bank Rate, a monetary policy instrument is targeted to curb inflation and support the exchange rate in the interbank interest rates. The Shilling performance has been facilitated by the increasing need for the dollar as more imports are brought into the country.

 Prof. Balunywa Explains the Bruised Economy

In an Interview with Business Sense about the current economic situation in the country, Prof. Wasswa Balunywa, an economist and Principal of Makerere University Business School (MUBS) described it as worrying. He noted that inflation and exchange rate provide the framework of the general performance of the economy.

He said that the factors causing inflation in the country are primarily food prices caused by drought, food export and oil prices. He noted that inflation is a big disease and a disincentive to people who want to save money hence the need to manage it well.

“There is no intervention in the market right now that can solve the problems Uganda is facing; it can only be addressed by increasing agriculture productivity. Government should give people an income by enabling them produce something,” Balunywa said.

He added”  “Mutebile (Governor Bank of Uganda) cannot control the export of food and bad weather. He can only point out what’s happening and he leaves it to the ministry of finance together with other line ministries like that of trade, energy and agriculture who need good policies for action.”

Ssempebwa, an economist speaks out

Economists have blamed government for over relying on the private sector which finds it cheaper to import than to manufacture for export. “That happens when the state withdraws from business and solely relies on the private sector to produce.

The private sector follows profit. Importing is more profitable than exporting or manufacturing combined,” John Ssempebwa an economist and former director of trade at PSFU said.

He explained that because the National Export Strategy being implemented by

Uganda Export Promotion Board hasn’t delivered, Uganda’s trade deficit has been increasing steadily.

“It’s like a house that consumes more than it produces. Sooner or later, it will get into serious debt,” Ssempebwa added.

He questions why in Uganda manufacturing and exporting is expensive at a time when costs of production and energy are high. “Why is importing more profitable in-spite of the 25 per cent import duty?

why has government left the private sector to operate in such an environment of high production costs?, why are imports escalating? Why are illegal immigrants allowed to import from their home countries?

“The chaps are not investors and we don’t have common market agreements with their home countries,” Ssempebwa asked. To him these are issues government should address fundamentally for long term economic benefits.

He advises government to put in place a functional National Export Strategy, a tourism plan that brings in at least a million tourists annually, an education export plan that can bring at least 200,000 students from the region and a processed maize export plan that feeds the region.

IMPROVE AGRICULTURE OUTPUT

Agriculture employs the biggest chunk of Ugandans but in the recent years it has slumped due to insufficient government funding and urban migration.

However there is need for renewed effort to revitalize farming on a large scale and taking on irrigation to swat drought.

This, together with value addition will spur export efforts.

“Government should encourage people to go into farming at a large scale. We have so much water in this country but you cannot irrigate small farms,” said Balunywa.

Right now, food is so expensive some families are living on a single meal per day. The little food available is being exported to South

Sudan and DR Congo causing bigger demand yet supply is small, something that has caused prices to go up.

He explained: “The demand in South Sudan is a blessing; we only have to grow more and earn more revenue. It’s an indicator that our productions are demanded.”

The continued export of food and sugar has got people calling for government to halt the sell of these commodities so that domestic market is satisfied. “In terms of inflation the key thing is to increase the incomes of these peasants.” The professor points out.

However, putting a cap on food exported out of the country is not a wise decision; all that needs to be done is to produce more food for export.