Ugandan Economic slow-down: Reality or Perception

slowdownThere is a belief that those who studied economics and business are conscious of the goings-on in the world of business, finance and commerce. Whereas this may hold true for a few of the former economics graduate classmates of mine, majority are just like you and me wondering if the deciphering of the current slow-down in Uganda’s economy can possibly be further explained by the economics we studied in A’ Level.

In the world of African economies which seem to always slow-down after or rather during an election year, it is paramount that a nation’s Central Bank takes centre stage in ascertaining control of what it can in an economy and with its strong control of monetary policy, it uses this as a measure of controlling the level of liquidity in the economy. Through the use of the Central Bank Rate (CBR), the central bank through thick, thin and a lot of back and forth with the nation’s government usually does a stellar job in keeping money flows in check so as to keep the financial monster known as inflation at bay. Inflation although explained throughout the ages has its own unique principles that ensure that the purchasing power of a unit of currency falls. In simple terms inflation means 10 shillings today is equivalent to 8 shillings tomorrow.

Over the past two decades, Uganda has seen a remarkable turnaround in economic performance, with growth averaging about 7.7% a year over the 1995–2014 periods. Equally impressive has been the sharp decline in poverty rates, which fell about 15% points over this period. Improved macro-economic management and economic reforms contributed to the country’s strong growth performance. This growth has been known to be private sector led with increase in commercial activities stemming from the liberalization of the economy in the early 1990s. However, in a quest to avoid the recent talk about bail-outs to selected Ugandan entrepreneurs, the same talk is a part driver of this article. Besides the proposed bail-ees, numerous commercial ventures are stalling in the economy and there is a slow-down on bank loan repayments as evidenced by the increased defaults in almost all commercial lending operations in the economy. Is this not an indication of the slow-down in the economy if the reduced growth levels are compounded with an increase in delayed pay-back due to capacities being constrained?

For the case of Uganda, it should be known that just like similar economies, the same people who work are the same people who pay taxes and the same people who buy the goods and services and the cycle keeps going round and round. Against this backdrop, I want to ask these questions…

  • Is the economy actually slowing down?
  • Are we being deceived even when the same 50,000/= Uganda Shilling (approx. US$ 15) cannot do what it could 5 years ago?
  • Are you wondering who is as liquid as they used to be last year same time?
  • Even if you now earn more money than you did say 2 year ago, is it buying less?

Welcome to the rat race, where you always seem to be struggling and whatever is going on around you gives the impression that it is not about to get better and you do not know how you have made it through the past few months without the grace of God.

During a discussion with my former classmate who works as a senior economic advisor for a reputable international development based institution, he suspected that the way money has become scarce in our economy it is a sign that what there could be a clear reduction of the economic buffers across three fonts.

Real Sector

The part of the economy that is concerned with actually producing goods and services, as opposed to the part of the economy that is concerned with buying and selling on the financial market. The Gross Domestic Product (GDP) in Uganda was worth 26.37 billion US dollars in 2015 as opposed to reaching an all-time high of 27 USD Billion in 2014. With the projected increase in GDP for 2016 set to grow by an estimated 1.2% being driven by  infrastructural development primarily being funded by the Chinese, according to data released by the Uganda National Bureau of Statistics (UNBS), it is hoped that this projected growth will lead to a possible trickle-down effect in cashflow in the normal human beings.

Source: World_Bank

This may not prove the loss of the value of money per se, but gives a clear indication that the economy is slowing down.

External Sector

Uganda’s Balance of Payment figures (Millions of US$)[1]

Year 2010/11 2011/12 2012/13 2013/14 2014/15
Exports 2,297.77 2,667.43 2,912.11 2,706.33 2,738.37
Imports 4,671.12 5,241.48 5,035.07 5,073.51 4,988.01
B.O.P Position -2,373.35 -2,574.04 -2,122.96 -2,367.18 -2,249.64

Using Uganda’s Balance of Payments (BOP) figures above, what you can see is a steady trend in both imports and exports and no sign of the exports value rising in any way to reduce the current Balance of Payments gap otherwise known as a deficit. The gap is on its way again to widen though not drastically as we are becoming slightly more conservative in our spending; not with His Excellency’s new stand of “wacha mchezo” hopefully the nation can attempt to ease the burden for the next generation. The reduction in reserves too from 3,246.0Bn UGX in 2014 to 2,843.1Bn UGX in 2015 is also another indicator of this.

As we move along in 2016 however, the question to ask is… “Is the economy slowing down?

Financial Sector

Tight monetary conditions were imposed throughout most of 2015/16 by the central bank to counter the depreciation of the shilling as well as any expected rise in liquidity. This increased lending rates to an average of 25% on loans issued by commercial banks, thus increasing the cost of capital and slowing down investment in the period. Inflation rose throughout 2015 and peaked at 8.5% but has eventually been brought down to 5.1% as at end of August 2016. Uganda’s current account deficit stood at 5.2% of GDP in 2015. This is expected to contract further due to high imports of high value inputs for infrastructural development. Coffee accounts for 20% of total export earnings and a third of foreign exchange earnings.

Future oil production is expected to turn the country’s deficit account into surplus, following the announcement that the proposed USD 4 billion oil export pipeline from Western Uganda would be constructed to pass through the Tanzanian port of Tanga.

Central Bank executed in raising its Treasury Bills rate over the past 12 months (with it rising to as much as 20% in February 2016 for 182 T-Bills and 18% for 91 day T-Bills[2]), the central bank has managed to successfully avoid having too much money (if any at all) staying in the economy.

Uganda’s Inflation rate[3]

Year 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15
Rate 9.4 6.5 23.5 5.6 6.7 2.7

Source: Bank of Uganda Statistics:

As you can see, the central Bank’s foresight to manage inflation has come to pass with the current rate (as at August 2016) being 4.8%.

 Source: Bank of Uganda Statistics:

According to the Central Bank, lending rates in commercial banks have increased from about 15% in September 2014 to 19% in August 2016. This was due to contractionary monetary policies that were implemented by the Central Bank to control inflation. CBR has increased from 11% to 19% in the same period. With inflationary pressures currently falling, the BoU‘s relaxation of monetary policy is required amid concerns over weak economic activity. By lowering its policy rate, the Bo U has endeavored to reverse these trends.

It should also not be forgotten that Ugandan Government debt in the financial year 2014/2015 stood at 34.7% of GDP and this is expected to increase significantly in 2015/2016 due to heavy depreciation of the shilling in the middle months of 2015 thus increasing the cost of borrowing. The stock of public debt was 23,708UGX billion as at June 2014 and was estimated to be 29,984 UGX as at June 2016. This is a clear rise in public sector borrowing. Notwithstanding the increase, our public debt remains sustainable and Uganda is not under debt distress. Over the medium term, the debt-to-GDP ratio is projected to peak at about 39.8% of GDP. However, this level of debt excludes pipeline borrowings in particular for the Karuma and Isimba hydropower and the Standerd Gauge Railway Projects.

What remains is that the money in the economy is scarce.

The theme for the Finance Year 2016/17 Budget speech was ‘Enhanced Productivity for Job Creation’. This is a very unique and hopeful stance since what I am attempting to explain is why the current cash flow problems are happening in our economy.

  • Off shoot reasons can be traced to a few external factors including Uganda being on the receiving end of the impact of global and regional economic slowdown. We are experiencing low commodity prices for exports exchange rate depreciation (depreciation of the shilling) because of global strengthening of the US dollar and decline in capital flows in Uganda.
  • This capital inflow decline is no joke as we have consistently failed to reduce the deficit gap over the past decade with a strong belief that purposive oil revenues beyond 2020 will help speedily reduce that deficit gap
  • Reduced effective demand as a result of economic slowdown has led to reduced cash in hands of the wanainchi with the few higher survivors enjoying slightly higher salaries than others and a few feeding off of travel per diems
  • These I feel are symptoms of the greater problem that Uganda is facing as an economic enigma. The delay (or is it reluctance) for the State to curb some of its spending habits into a more manageable and sustainable manner.
  • Squeezing the current tax base is possibly the greater source of the recent Shs. 11,598 billion equivalent to 13.2% of GDP. But looking forward, we need to widen the tax base otherwise the state will run out of options for it and our well-being as a nation
  • Facing the disease head-on of low export base is being attempted through His Excellency promoting industrialisation and the like which is hoping to yield a better product base from which to increase exports to which value has been added and this will hopefully bring better revenues from exports
  • Promoting Uganda as a high value tourist destination since Tourism as an income earner Tourism adds US$ 2.5 billion to our GDP and approximately USD 1.5 billion in foreign exchange earnings annually. This translates to 9% of national output and 26% of export earnings. That should tickle your minds. 26% of foreign earnings!
  • One other key thing that is often overlooked both in terms of operation as well as end result and its usage is the level of domestic savings in our country. We need to increase our domestic savings from the current level of 11% to beyond 20% to address the problem of lack of long term financing. The financing levels at UDB [asset base of Shs. 205.6 billion (US$ 60 million as at June 2016] as compared to Stanbic Bank Uganda [asset base of Shs. 4.5 trillion (US$1.3 billion) as at June 2016] are clear to see with UDB struggling to raise much needed affordable capital from the state.

Way forward is always a well-received section of any article/ report that one writes as it usually is intended to portray some form of hope for the current situation to improve. My opinions on this have been shared, maybe you can add or subtract.

[1] Source: Bank of Uganda Statistics:

[2] Source: Bank of Uganda Statistics:

[3] Source: Bank of Uganda Statistics:

By Edmund Kamugisha

Edmund Kamugisha Edmund is the Engagement Director at BLEGSCOPE®, and has 10+ years of   management consultancy experience notably in MSMEs, FMCG companies and in the service industry. You can follow him on twitter: @edmokmg



BLEGSCOPE is the brand name representing all BLEGSCOPE business and other initiatives that operate under BLEGSCOPE Capital Ltd (BCL).

BCL is an investment holding company based in Uganda that was set up to provide a valuable and unparalleled platform for like-minded entrepreneurs to exploit the numerous business and investment opportunities in the Great Lakes region.

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