C-NEWS BUREAU CHIEF
KOLOLO JUNE 15, 2023 – The economy of Uganda has displayed resilience and is on a path of steady recovery. The projected growth rate for this year is 5.5%, compared to 4.6% last year, surpassing the average growth rate of 3.6% for Sub-Saharan Africa, Matia Kasaija, the Minister of Finance, Planning, and Economic Development, said, Thursday, in his budget Speech for the financial year 2023/2024
The theme of this year’s budget is the full monetization of Uganda’s economy through commercial agriculture, industrialization, expanding and broadening services, digital transformation, and market access.
Economy expands.
The estimated size of the economy is Shs. 184.3 trillion (equivalent to US$ 49.4 billion), compared to Shs. 162.9 trillion (US$ 45.6 billion) last year, Kasaija said.
The Services sector played a significant role in this expansion, growing at 6.2%, while agriculture recorded a strong growth of 5.0%, despite the challenges posed by a dry spell in the first quarter of the financial year. The industrial sector grew at 3.9%, mainly driven by manufacturing and construction activities, particularly in the oil and gas industry, he said.
Inflation has been decreasing steadily due to well-coordinated fiscal and monetary policies. Inflation rates have gone down from a peak of 10.7% in October 2022 to 6.2% last month. Essential items such as soap, sugar, and fuel have seen significant price reductions. However, commercial bank lending interest rates slightly increased to 19.3% in April 2023, caused by the rise in the Central Bank Rate to 10% in the fight against inflation.
To alleviate the cost of borrowing for the private sector, the minister said, the government has actively reduced domestic borrowing, a key driver of commercial bank lending rates. It has also provided affordable capital through institutions like the Uganda Development Bank, Emyooga, the Agricultural Credit Facility, and the Small Business Recovery Fund, with a total of Shs. 2.77 trillion provided to date.
Private sector credit has increased, reaching Shs. 20.5 trillion in April 2023, he said, with annual growth rates of 6.2% in industry and 3.3% in agriculture. Trade and personal lending also experienced significant growth during the same period.
Exchange rate stable
The exchange rate of the Uganda Shilling has remained stable against major global currencies, despite the strengthening of the US dollar. The Uganda Shilling depreciated by 5.8% against the US Dollar between April 2022 and April 2023, a lower depreciation rate compared to the average of 8% within the East African region. This stability is attributed to increased Foreign Direct Investment inflows, recovery in tourism, and improved export performance.
Uganda’s exports of merchandise goods showed a substantial increase of 35.5%, amounting to US$ 4.2 billion by April 2023, driven by gold, coffee, fish, sugar, beans, maize, and light manufactured products to regional markets. The government’s support for exports through initiatives like long-term and affordable capital, investment in transport infrastructure, energy, and industrial parks has yielded positive results, with manufactured exports emerging as major contributors.
However, imports have also risen by 22.4%, reaching US$ 7.1 billion by April 2023, mainly due to private sector imports, particularly in the oil and gas sector and manufacturing machinery. Efforts are underway to boost exports and enhance domestic manufacturing capacity to reduce the trade deficit.
Foreign investment inflows total $1.5 billion
Foreign Direct Investment inflows to Uganda totaled US$ 1.5 billion by April 2023, providing vital support for foreign exchange requirements, including imports and debt service. Workers’ remittances and tourism revenue also increased, demonstrating positive economic trends.
In terms of employment, the minister said the labor force in Uganda stands at 23.5 million people, with a 42% employment rate. Subsistence agriculture engages 35% of the labor force, while most employed individuals work in the informal sector. The government aims to create over 2.5 million jobs in the next five years, focusing on implementing the Parish Development Model, industrialization, wealth creation, and the full monetization of the economy.
The fiscal deficit for the current financial year is estimated at 5.1% of GDP, lower than the previous year’s 7.4%, thanks to reduced recurrent and development expenditure and increased grants. The deficit has been financed through domestic borrowing and external loans. Total domestic revenue collections reached Shs. 21.7 trillion by May 2023, projected to be Shs. 25.6 trillion by the end of the financial year, covering a significant portion of total expenditure, the minister said.
With a positive economic outlook and a focus on key sectors such as agriculture, industry, services, and digital transformation, Uganda is poised to continue its path of economic recovery and growth in the coming years.
Economic growth strategy
The economic growth strategy for the upcoming financial year includes increased domestic revenue mobilization and a reduction in non-concessional borrowing to ensure debt sustainability. The effective implementation of the Parish Development Model (PDM) and the Emyooga initiatives, which have already seen substantial disbursements, is also a key component. These initiatives aim to enhance local enterprise development and empower micro-enterprises at the parish and sub-county levels, the minister said.
Under the PDM, a total of Shs. 590.2 billion has been disbursed to all 10,459 parishes nationwide, with Shs. 50 million allocated per parish, he said, adding that the remaining balance will be disbursed by the end of this month. For the next financial year, the PDM has been allocated Shs. 1.1 trillion. Additionally, the Emyooga initiative, which directly funds enterprise groups at the parish and sub-county levels, has disbursed seed capital worth Shs. 249 billion to 6,721 Emyooga SACCOs, benefiting over 600,000 individuals. In the upcoming financial year, Shs. 100 billion has been allocated to further support the Emyooga initiative.
Private sector growth
The government also aims to enhance private sector growth by reducing the cost of doing business. This includes the construction of the Standard Gauge Railway and the rehabilitation of the Meter Gauge Railway, the development of small-scale solar-powered irrigation schemes to address climate change and ensure food security, and the maintenance of both tarmac and murram roads. Investments in industrial parks, energy transmission lines, and the provision of affordable credit through the Small Business Recovery Fund, Emyooga, and the Uganda Development Bank will also be prioritized, the minister said.
The budget priorities for the financial year 2023/2024 encompass a range of objectives. These include boosting household incomes and micro-enterprises, commercializing agriculture to enhance production and competitiveness, supporting private sector growth, investing in the people of Uganda, improving infrastructure, and expediting strategic interventions in innovation, research and development, and the minerals, oil, and gas industry.
Ghetto cash
To support the skilling and development of the youth, 19 skilling centers have been established under the Presidential Industrial Hubs initiative, with over 28,750 trainees having successfully completed training and 6,110 currently undergoing training. Additionally, support has been provided to the ghetto and less privileged urban youths through skilling centers in Kampala Capital City Authority. A total of Shs. 60 billion has been allocated for skilling the youth in the next financial year.
The government emphasizes that peace, security, good governance, and the rule of law are fundamental to economic activities and will continue to be prioritized.
As a result of these interventions, Uganda’s economy is projected to grow at 6% in the financial year 2023/2024, with an average annual growth rate of 6.5-7% over the next five years. The government’s commitment to stimulating economic growth, supporting micro enterprises, and empowering the population sets a positive trajectory for Uganda’s economic development.
Shs 100 billion for Food security
To enhance food security and agricultural productivity, additional funding of Shs. 110 billion has been allocated to government institutions with farms, including the UPDF, Uganda Prisons, Ministry of Agriculture, the National Agricultural Research Organisation, and the National Agricultural Genetics Resource Center and Databank.
In the upcoming financial year, priority actions to commercialize agriculture will include supporting agricultural research for the development of climate-resilient crops and animal species. Environmental conservation and restoration, along with the protection of degraded water catchment areas and forest cover, will be promoted. The construction of small, medium, and large-scale irrigation schemes in water-stressed areas, such as Unyama in Gulu, Namalu in Nakapiripirit, Sipi in Bulambuli, and Kabuyanda in Isingiro, among others, will be undertaken. Large-scale mechanization and irrigation will be implemented, and farmer mobilization, education, and partnerships with large commercial farmers for the production of strategic commodities like coffee, maize, and tea will be improved.
A substantial budget allocation of Shs. 2.2 trillion has been earmarked for food security, irrigation, climate change mitigation, value chain development, agricultural research, and disease control, among other related initiatives.
In terms of supporting private sector growth, the government has prioritized industrial parks’ development, promotion of Small and Medium Enterprises (SMEs), and facilitation of tourism.
Currently, eight government-owned industrial parks are operational in Namanve, Jinja, Bweyogerere, Mbale, Soroti, Mbarara, Kasese, and Luzira. Additionally, three industrial parks have been developed under a Public-Private Partnership arrangement at Kapeeka, Mukono, and Buikwe. The Uganda Investment Authority has acquired 12 square miles across 18 zones provided by various Local Governments for industrial development.
Uganda’s reputation as an investment destination has significantly improved, with the country being named the number one investment destination in East Africa by the AIM Global 2023 Abu Dhabi. It has also been ranked among the top ten African countries for the best investment destination by the African Development Bank and first in East Africa for capital market growth by ABsa Bank.
The development of Small and Medium Enterprises (SMEs) in the manufacturing and export sectors will be supported by the US$200 million World Bank Investment for Industrial Transformation and Employment (INVITE) Project. This project aims to provide grants and concessional credit to qualifying SMEs, enabling access to new and innovative financing products with long-term financing of up to 15 years. The INVITE Project is expected to increase Ugandan manufactured export products, generate direct and indirect jobs for more than 200,000 workers, and safeguard existing jobs for 530,000 workers. An allocation of Shs. 209.3 billion has been provided for the INVITE Project in the next financial year.
Tourism
Uganda’s potential as a tourism destination has gained international recognition, with CNN ranking it as one of the top 10 best tourist destinations in the world. Efforts to promote domestic and inbound tourism, including the use of digital platforms, will continue. Uganda will also be marketed as a global and regional center for Meetings, Incentives, Conferences, and Exhibitions (MICE). Measures will be taken to enforce hospitality standards through licensing, grading, and classification of tourism facilities.
