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Country Commercial Guides for FY 2000: Uganda Report prepared by U.S. Embassy Kampala, released July 1999   Note*

II. ECONOMIC TRENDS AND OUTLOOK

Major Trends and Outlook

The economy of Uganda has shown a steady recovery since 1987 when the Government of Uganda put into place an Economic Recovery Program Plan with assistance from the World Bank and the IMF. As a result of the GOU's commitment to reforms, Uganda's annual Gross Domestic Product (GDP) growth averaged six percent during fiscal years 1986-1994 and eight percent in 1995 and 1996. In 1997, GDP growth slowed to five percent. Current announced GDP growth of 7.8 percent is subject to some dispute. Recent lower GDP growth rates are attributed to poor performance in the agriculture sector due to bad weather, and smaller increases in direct foreign investment, most of which has come from expatriate Asians investing in repatriated property. Growth over the past ten years has occurred across in many sectors such as manufacturing, mining, transport, communications, and construction - nearly doubling the size of the Ugandan economy.

However, Uganda remains one of the poorest countries in the world (ranking 159 out of 175 nations in the UNDP's 1997 Human Development Index), with low per capita income and high rural poverty, which has not been significantly ameliorated despite good growth figures. The country is favored with a mild climate and fertile soil, but the economic mismanagement that accompanied the civil war in the 1970's and early 1980's debilitated the country. The economic programs followed by the GOU during the past thirteen years have put Uganda on the right track, but it is still a long way from providing a high standard of living for its people. Access to health and sanitation services is poor, and large numbers of Ugandans suffer from malnutrition. With massive donor assistance, the GOU has embarked on a program of Universal Primary Education (UPE) and has increased public expenditure on other social and health, and economic services. Uganda was recently involved in the conflict in the Democratic Republic of the Congo (DROC). This war diverted resources from social programs and resulted in the IMF suspending disbursements in February 1999. The GOU has addressed many IMF concerns, and the country is likely to be declared back on track in the near future.

Inflation, which ran at 240 percent in 1987 and 42 percent in mid-1992, was 11.8 percent for fiscal year 1996/97 and under five percent for 1997/8 and 1998/9. Temporary shortages of food pushed caused a spike in prices in late 1997 and early 1998. The exchange rate has been somewhat volatile in the past year. Overall, the Uganda shilling declined about 30 percent against the dollar in the past year. Uganda benefited from the HIPC Initiative (Heavily Indebted Poor Countries), receiving over $650 million in debt relief spread over 30 years (with $200 million occurring in the first five years) starting in 1998. Although Uganda boasts 13 years of political stability and economic reform, continued high growth will depend on the GOU's ability to limit corruption, attract foreign investment, promote NTAE's, improve infrastructure, deepen regional integration in East Africa, and extricate itself from the conflict in the DROC.

Principal Growth Sectors

Agricultural production represents a considerable proportion of Uganda's GDP and generates over 90 percent of export earnings. Coffee provides between 60 and 70 percent of export earnings. There is significant potential for substantial increases in agricultural production in a wide variety of areas, including non-traditional exports such as flowers, vanilla, silk and traditional exports such as cotton, tobacco and tea.

Construction and infrastructure are also principal sectors. Uganda plans to build one to three hydroelectric projects on the Nile River through the next decade in order to address Uganda's increasing shortage of electric power. Uganda currently exports electricity to nearby countries, and this market will likely expand. On the supply side, one dam built in 1953 currently supplies all of Uganda's electric power.

The GOU is also putting emphasis on construction and maintenance of truck and feeder roads. Uganda's rural feeder roads cover about 13,000 miles but maintenance continues to be a major problem. Uganda's communications infrastructure has been growing rapidly with the establishment of a privately owned second national operator (SNO) and the pending privatization of Uganda Telecoms Limited (UTL).

Government Role in the Economy

The Government of Uganda is actively liberalizing the economy. The GOU's budget priorities for FY 1999/00 are defense, primary education, roads, and poverty alleviation. Foreign exchange, based on a market-determined exchange rate, can be freely purchased. Many public enterprises have been privatized or are scheduled for privatization. Nonetheless, the privatization process has slowed due to several failed deals, an overall lack of transparency, and rampant asset stripping. The GOU has failed to properly scrutinize buyers and has sometimes expected unrealistic prices for government enterprises. Moreover, the Bank of Uganda must increase its regulatory regime. Two major banks have recently been closed, others face possible closure, and instances of bankers making undisclosed, uncollateralized loans are common. The GOU is committed to reforming privatization procedures and is strengthening banking supervision.

Balance of Payments Situation

Uganda's balance of payments position deteriorated slightly in 1998/99, due to flat investment inflows and erratic coffee exports. Thus, the Bank of Uganda (BOU) experienced a decline of foreign exchange reserves US $740 million in July 1998 to US $692 million in July 1999.

Infrastructure Situation

Roads are in disrepair, and improvements are sporadic, despite GOU and international donor road programs. The network of feeder roads in rural areas is inadequate. The primary east-west road from the Kenyan border to Kabale is generally good, and the road from Kampala to Entebbe is being substantially improved.

Telephone service is poor with 50,000 ground lines for 20 million people. However, in the past year, the mobile GSM phone market has grown from about 8,000 subscribers to about 50,000 subscribers, as the old monopoly GSM provider was challenged by the Second National Operator (SNO), MTN of South Africa. The vast majority of Ugandans still do not have a telephone. Ugandan Telecom Ltd. (UTL) is selling a 51 percent share to a private buyer. Pay phones are increasing in number. Two companies, one a U.S. firm named StarCom, have brought cellular and mobile trunk radios to Uganda. UTL's long distance service is expensive. StarCom, along with another American Firm, Swift Global, offer internet service.

There are a number of airfields in Uganda, but apart from Entebbe International Airport, they are served only by charter or private airplanes. Uganda's most troublesome infrastructure problems lies in Kenya - the corrupt and inefficient port of Mombassa and the poor condition of the road between Mombasa and Kampala. The vast majority of Uganda's exports and imports travel through this port and road. Generally, transporting a container of goods between Mombasa and Kampala will take twice the time and expense as transporting that same container between London and Mombasa.

Uganda's electricity deficit increases monthly. Load-shedding and power surges are common and can cause computers and other business equipment to have problems. Homes and businesses require a generator. The Uganda Electricity Board (UEB) is due to be privatized. It currently suffers from inefficiency, corruption, and frequent management turnover.