KAMPALA – In August 2024, Uganda’s merchandise trade balance displayed significant shifts, reflecting the complex interplay between rising export earnings and an expanding import bill. The merchandise trade deficit surged by 16.6 percent to USD 314.10 million compared to the previous month. Despite this monthly increase, a year-over-year comparison showed an 8.4 percent reduction in the deficit, from USD 342.77 million in August 2023 to USD 314.10 million in August 2024 as reported by the Ministry of Finance in the “Performance of the Economy Macroeconomic Policy Department Monthly Report” for September 2024. This narrowing, largely attributed to elevated export receipts from coffee and mineral products, hints at the potential for export-driven deficit reductions—albeit offset by rising imports for national infrastructure projects.
Export Performance and Its Key Drivers
Uganda’s export earnings rose slightly in August, reaching USD 789.58 million, a 0.6 percent increase from July’s USD 785.03 million. Key contributors to this rise were coffee and mineral products, which have been bolstered by both global market conditions and local production dynamics.
Coffee Sector Contributions
In August, coffee exports surged by 5.3 percent to USD 221.63 million. This growth is largely attributable to the Robusta coffee harvest season, which coincided with a rise in global coffee prices. Both Brazil and Vietnam, Uganda’s main competitors in the coffee market, faced reduced yields due to prolonged dry conditions, leading to higher prices that benefited Ugandan coffee. As a result, Uganda’s coffee sector, a long-standing pillar of its economy, has been able to capitalize on these market shifts, driving an increase in both export volumes and revenue.
Mineral Products and Export Destinations
In addition to coffee, mineral products and fish exports contributed positively to Uganda’s overall export performance. Mineral product exports have been a notable contributor as demand increases, particularly from Uganda’s major export destinations, including the Middle East. The Middle East accounted for 33.1 percent of Uganda’s total exports in August 2024, with the United Arab Emirates (UAE) alone taking up 97.8 percent of exports to the region. The European Union, East African Community (EAC), and Asia also served as critical destinations, comprising 23.3 percent, 24.4 percent, and 13.2 percent of exports, respectively.
Rising Imports and Infrastructure Investments
August saw a 4.7% rise in Uganda’s merchandise imports, which amounted to USD 1,103.68 million, up from USD 1,054.36 million in July. This surge was mainly driven by increased government spending on infrastructure, particularly oil-related and other large-scale projects. As these projects advance, demand for imported materials, equipment, and services has increased, evidenced by project imports jumping from USD 11.34 million in July to USD 58.29 million in August.
This increased import activity reflects Uganda’s commitment to infrastructure development, which has been prioritized to bolster economic growth. However, it also underscores the import-reliant nature of Uganda’s current development trajectory, as critical infrastructure projects often require resources unavailable locally.
Economic Implications and Future Considerations
Uganda’s evolving trade dynamics have crucial implications for its macroeconomic stability and future policy direction. While coffee and mineral exports showcase Uganda’s growing capacity to leverage its agricultural and natural resources, the persistent dependence on imports—particularly for development projects—creates vulnerability to external market shocks and currency fluctuations.
Currency Stability and Inflationary Pressures
As Uganda’s import bill grows, so does the potential for inflationary pressures on consumer goods, which could impact living costs. Additionally, the increased trade deficit places downward pressure on Uganda’s foreign exchange reserves, a factor that could impact the shilling’s stability. If Uganda continues to prioritize imports for large projects without proportional export growth, currency depreciation risks could become more pronounced, further affecting the cost of imports and domestic inflation.
Policy Shifts Toward Export Diversification
For Uganda to reduce its reliance on imports sustainably, the government may consider policies aimed at diversifying its export portfolio beyond coffee and mineral products. Investments in processing industries, particularly in agriculture, could help Uganda add value to exports and capture a larger share of global market revenues. By increasing exports of processed goods, Uganda could move away from exporting raw materials alone, which are often more susceptible to price volatility.
Balancing Development with Trade Deficit Management
Uganda’s infrastructure initiatives are essential to the country’s broader development goals; however, the rising trade deficit necessitates a strategic approach to managing these projects. Enhanced local production of materials and components required for infrastructure could mitigate the need for imports. Moreover, fostering public-private partnerships could attract foreign investment in Uganda’s industrial sectors, helping to fund and develop domestic industries that reduce import dependency.
Conclusion: Navigating Uganda’s Trade Path
As Uganda’s merchandise trade deficit expands month-over-month yet narrows on an annual basis, the country stands at a pivotal point in balancing trade policy with economic growth ambitions. Uganda’s ongoing reliance on coffee and mineral exports highlights a need for diversification to ensure resilience in its export sector, while its significant import bill for infrastructure underlines the challenges of growth-dependent import reliance.
Moving forward, Uganda’s policymakers may need to prioritize initiatives that strengthen export competitiveness, promote local industries, and explore new markets. By strategically managing imports and supporting export diversification, Uganda can not only sustain its trade balance but also advance toward broader economic goals, including long-term macroeconomic stability and reduced vulnerability to external shocks.
