4 June 2009
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Kampala — His Excellency the Vice-President, Rt. Hon. Speaker, His Lordship the Chief Justice, Rt. Hon. Prime Minister, Rt. Hon. Leader of the Opposition, Hon. Ministers, Hon. Members of Parliament, distinguished guests, ladies and gentlemen.Museveni outlines priorities in State-of-the-Nation Address
INTRODUCTION
In accordance with Article 101(1) of the Constitution of Uganda, I stand here to deliver the State of the Nation Address, 2009. Before I go further, permit me, once again, to convey to you and the entire House my deepest condolences and sympathies over the death of the following Members of Parliament:
Over a period, many lives have been lost through road accidents which could have been largely avoided, had the motorists been more careful. Lives have also been lost through collapsing buildings under construction, which calls into question the monitoring and supervision of construction worksites and building plan approval processes of local authorities. On a more disturbing note, a number of ritual-related murders, especially of children, have been reported. We recently achieved a breakthrough in the Kiboga area. All child sacrifice suspects were arrested. We need to propose the amendment of the Constitution in order not to allow granting of bail in such cases as well as in cases of treason, rape, defilement and embezzlement except if the mandatory days are exceeded.
I request you to stand up and observe a minute of silence in memory of the departed persons I have mentioned. May the Almighty God rest their souls in Eternal Peace.
ECONOMY
Economic Activity (GDP)
While the impact of the global economic crisis in the developed world has been adverse on many other economies of the world, the Uganda economy is live, well and strong. Provisional data by the Uganda Bureau of Statistics indicate that the Uganda economy has continued to grow at a robust rate of 7.0% per annum, despite the global economic crisis. Even though there has been a slight decline in the growth that was projected during the fiscal year 2008/09, when growth was 9.0% per annum, Uganda's economic growth performance was much higher than that of other countries in the region and in the rest of the world. The size of the Ugandan economy is estimated at sh29.8 trillion by the end of June 2009, as compared to sh24.7 trillion in June 2008. This means that the size of our economy has expanded 8.4 times since the NRM took over power in 1986.
Per capita GDP is now estimated at $440 up from $264 in 1986. This means that the size of the economy in dollars is now $38.88b by PPP method ($15.04b by official exchange rate). The resilience of the Uganda economy in the midst of the on-going global economic crisis is, mainly, because of the diversification of the Ugandan economy and particularly the export sector and services sector.
This is in contrast to the economies of some countries that have already experienced a contraction (or negative growth) in their national economic output. To take some examples, the economic output of the United States of America, Europe, Japan, etc, has, actually, shrunk and many jobs have been lost. In contrast, in Uganda, although some businesses have experienced some fever, our continued impressive performance in the face of the global economic crisis is a manifestation of the sound economic policies of the NRM Government.
The source of this strong growth in Uganda has continued to come from the industrial and services sectors, while the agricultural sector has shown significant signs of activation.
In the industrial sector, formal manufacturing registered strong growth of 8.3%. Manufacturing registered strong annual growth of 7.2% during last financial year, although slightly less than the 7.6% growth recorded in the previous year.
The growth in this sub-sector was, mainly, as a result of the increase in growth of the food processing sub-sector. Growth was also registered in the textiles, clothing and footwear as well as chemicals, paint, soap and foam products, among others. The mining and quarrying sub-sector achieved a growth rate of 9.2% over the year.
A more recent evaluation of the industrial sector gives an indication of the resilience of the economy to external shocks, such as the global economic crisis.
The index of industrial production, which broadly tracks the performance of the manufacturing sector, had an increase of 6.9%, in the quarter of January to March 2009, relative to the corresponding period in 2008. This suggests that, overall, manufacturing production has so far not been affected by the on-going global recession. In the food processing sub-sector, the index of edible oil and fats production, dairy production, grain milling and sugar processing increased by 37.2%, 51.1%,39.6% and 33.9%, respectively, in the quarter of January to March 2009 compared to the same period in 2008. Cotton ginning registered a remarkable recovery with an annual increase of 245% in the quarter of January to March 2009, albeit from a small base, reversing the decline the sector suffered in the previous four quarters since January 2008.
Based on revised GDP data, the share of agriculture in total GDP continued to decline from 15.7% in fiscal year 2007/08 to 15.1% this financial year, even though the agricultural sector grew annually by 2.6%. This reflects a continued structural transformation of the Ugandan economy as other sectors continue to grow much faster than agriculture.
The evidence for the undeniable fact that agriculture is growing is the fact that the recent Agricultural and Livestock Census recorded the existence of 11 million heads of cattle, 12 million goats, 37 million poultry and 3 million sheep and pigs each. This compares much more favorably to lower number of livestock that were being estimated before the census in 2007 as follows:- 7 million head of cattle, 8.3 million goats, 27 million poultry and 1.7 million sheep and 2 million pigs. This example illustrates the fact that even though the share of agriculture in the total economy is declining, there is still substantial growth of agriculture. The cattle population in 1986 was only 3 million.
The service sector, which now accounts for 51.2% of total GDP, continued to register strong growth estimated at 9.4% per annum during financial year 2008/09. Growth in the transport and communications services sub-sector is estimated at over 20% in the current financial year, a continuation of equally good performance in the previous year. This was driven mainly by the posts and telecommunications sub-sector which is estimated to have grown by 32.2% during fiscal year 2008/09 compared to 22.6% in the previous year. Over a five-year period, this sub-sector has registered an average growth of 24.4% per annum, thus achieving the fastest steady growth over the period relative to other sectors of the economy. There are now 8.6 million telephone connections in Uganda by December 2008, as compared to 5.2 million connections in December 2007. The telephone lines in 1986 were only 28.000.
Government's objective in this sub-sector is to increase coverage of telecommunication and internet services access throughout the country by licensing more service providers and through public-private partnership arrangements. This policy objective has achieved impressive achievements so far. As more players get licensed, coverage has increased and increased competition has resulted in reduced unit cost of using these services. The tremendous improvement in the telecommunications and internet services has triggered the development of a number of consumer products in other sub-sectors, including the banking sector. This is increasing connectivity as well as productivity in the economy as a whole.
The financial services sub-sector is estimated to have increased by 21.7% during the last fiscal year, compared to a growth of 24.1% per annum achieved in the previous year. Total deposits within the formal financial sector grew from Shs. 5.2 trillion in June 2008 to Shs. 6.1 trillion by March 2009, while lending by formal financial institutions to the private sector grew from 2.9 trillion in the last financial year to 3.7 trillion by March 2009. It is not surprising that two new international banks were licensed since last financial year, which will lead to increased competition in the financial sector and a long-awaited reduction in interest rates.
Investment
Uganda's investment climate continues to be attractive and profitable. Total fixed investment grew by 9.2% during fiscal year 2008/9, higher than the growth of 6.5% recorded last financial year.
The share of investment to GDP is now 26%, of which private investment is 20.4%. Private construction is estimated at 15.9% of GDP and this would have been higher if remittances from Ugandans working abroad had remained at last year's level. Private investment in machinery and equipment increased to 4.5% of GDP compared to 3.4% of GDP in financial year 2007/08. This means that private investors are focusing on increasing productivity of their investments, which is also good for creating jobs as profits continue to grow.
Foreign direct investment remains strong, reflecting continued sound economic fundamentals and, therefore, strong investor confidence in the economy. Foreign direct investment is estimated at $736m during this financial year. This comes on top of $778m worth of foreign investment achieved last financial year. I have been informed that because countries in Europe are in recession, private companies in those countries are exploring investing in Uganda where they can make profits. Equity capital is estimated at $597m this financial year, while reinvested capital from company profits increased by nearly 10% in the same period. The reinvestment of company profits in Uganda is a good sign of investor confidence in the economy.
Export performance
Despite the concerns at the beginning of the global recession that our exports were going to decline because of reduced demand in developed countries, this has not materialized. I am happy to report to the nation that our exports of goods continue to grow, now estimated at $2.8b for financial year 2008/09 compared to $2.6b in the financial year 2007/08. Most of the increase was on account of regional informal cross-border trade which is estimated at $1.242b in this financial year compared to $ 1.068b in financial year 2007/08, an annual increase of 16.3%.
Uganda's export of manufactured industrial products to the region, especially Southern Sudan and DRC, which account for 70 percent of informal cross border trade, is estimated at $831m in financial year 2008/09. There was a slight decline of $36m mainly because of fish. While the demand for fish and the price have shot up, the stocks in our lakes had declined but the Government is addressing this by strengthening regulation. Exports of maize and beans have increased by 55% and 34% respectively in this financial year.
The volume of coffee export shipments increased by 5.2% from 181.68 metric tonnes last year to an estimated 191.16 metric tonnes this financial year. However, the coffee receipts were lower because of the fall in coffee prices in the international market. Tea export receipts are also estimated to have increased by 11.3% in the same period while export volume increased by 7.1%.
Cotton export receipts registered impressive performance with an increase of nearly 40% during fiscal year 2008/09 while export volumes increased by over 89% in the same period from about 12,000 metric tonnes in financial year 2007/08 to 22,500 metric tonnes in financial year 2008/09. This strong rebound of the cotton sector is attributed to improved acreage and improved seeds. All this growth in the economy is taking place in spite of the mistake of delaying Bujagali dam some years ago. How much more would have the economy grown if those mistakes had not been made?
Inflation
The NRM Government has established a track record of maintaining low inflation since 1992/3. Inflation has averaged 5.0 percent per annum for the last two decades. More recently, primarily as a result of strong demand from neighbouring countries, food prices escalated. Up to April 2009, the annual increase in the general price level was 13.4%.
The price of food, including processed food, increased by 26.1% in the 12 months to April 2009 and while that of beverages increased by 12.6% in the same period. Food crops and related products which include fresh food produce, milk and flour, recorded a general price increase of slightly over 30% while prices of food staples escalated by 66.3% per annum in the 12 months to April 2009.
The annual inflation level which excludes food, fuel, utilities and electricity - because these face volatile price movements - (commonly referred to as core inflation) was 11.3% by end April 2009. Although oil prices dropped substantially in October to below $70 and subsequently below $40 per barrel, the fall in prices was not immediately passed on to Ugandans until January 2009. There have also been persistent problems with the oil pipeline between Mombasa and Nairobi and the problem of pirates off the coast of Somalia hijacking ships at sea which has pushed up the cost of transporting oil through the Gulf into the Indian Ocean. These factors resulted in high oil pump prices which translated into persistently high transport costs.
However, the situation has dramatically improved in recent months. Since December 2008, prices of some non-food items started coming down while the rate of increase decelerated in some others. The pump prices of fuel have dropped (negative growth) by 6.4% for the year ending April 2009 compared to an increase of over 21 percent recorded in the corresponding period in the previous year. As a result, transport fares increased only by 4.5% during the same period - which is less than the average inflation rate - compared to an increase of 23% in the previous year (April 2007 to April 2008). Communication charges also registered zero growth in the same period, but recovered from a 1.5% decline a year before.
During the period January to April 2009, the monthly general price level of rent, fuel and utilities, as a group, dropped by negative 1.5% only on average, while that of transport and communications fell by 0.3% in the same period. The outlook on inflation is positive. With this trend, it is projected that inflation will revert to single digit within the course of next financial year.
Exchange rate
Owing to sustained demand for foreign currency from both corporate and offshore players and high domestic import demand, the shilling weakened or depreciated by 29% between April 2008 and April 2009. Other factors include: the general strengthening of the US dollar against major currencies in the international markets since January 2009, reduced remittances and other current transfers through NGOs.
It is important to note that while the shilling has weakened or depreciated between October 2008 and May 2009, the real effective exchange rate - in other words, the relative trade weighted value of the shilling vis-à-vis currencies of trading partners - which measures the competitiveness of the export sector, strengthened or appreciated in the same period. On an annual basis, the real exchange rate appreciated (strengthened) by 2.6% between March 2008 and March 2009.
It is important to put what is happening on the exchange rate in proper perspective. Although the current events in the global economy sparked off the recent exchange rate movements, it is important to note that the shilling sustained general appreciation between June 2003, when the exchange rate reached nearly sh2,000 per one US Dollar and August 2008. This appreciation made some exports uncompetitive as export producers barely recovered their input costs. The recent depreciation, therefore, has the positive effect of making our export sector more competitive.
Therefore, the exchange rate will continue to be determined by supply and demand in the foreign exchange market and there will be no Government shift in the exchange rate policy. Government will not intervene in the foreign exchange market to support the exchange rate at an administratively pre-determined level. The Bank of Uganda will continue to routinely and modestly intervene in the market only to deal with fluctuations which may cause sharp volatility in the exchange rate. This policy stance is to ensure that we preserve our foreign reserves currently at $2.4b, which is equivalent to five months of imports. Our reserves will not be used to subsidize imports, as Government's strategy for reducing prices is to support increased production in the domestic economy through measures that I will later explain.
Constraints to growth
In order to address the most critical growth constraints in the economy, Government focused on increasing resource allocation towards infrastructure development, particularly roads and energy. In order to achieve the twin objectives of increasing expenditures on infrastructure and to prevent fueling inflation pressures, the Government will continue to implement efficiency improvement measures in order to create the necessary space to allow increased resource allocation to priority areas.
The strategy includes, among others, ensuring that budget performance is improved through strengthening the link between public spending and results, in addition to re-orienting budget allocation more towards the targeted priority areas. The specific measures that are being implemented to achieve the above objectives include ensuring that expenditure releases are based on credible work plans, establishment of an effective monitoring systems to track and evaluate expenditures vis-à-vis intended targets. I have directed the Prime Minister to ensure that the results of each Government agency are discussed by Cabinet on a quarterly basis which I will personally chair.
Although there has been domestic revenue shortfall during the current fiscal year, planned priority programs and projects have been implemented without resource constraints; and implementation capacity has been enhanced to improve the speed at which projects and programs will be implemented.
PROSPERITY FOR ALL
The NRM Government has since the 2006 General elections clearly pronounced itself on the goal for achieving Prosperity-for-All Ugandan households. Achieving Prosperity-for-All has so far and will continue to require Government concerted interventions in the following areas:
Agriculture and rural development
The ultimate goal as far as agriculture and rural development is concerned is to ensure that rural households in Uganda earn an income of, at least, sh20m and have livelihoods that enable them meet the basic necessities. To date, the following actions pertaining to agriculture development have been implemented:
In respect to these areas, I am glad to report the following:
I have also noted with concern the continued slow implementation and ineffectiveness of public servants in Government departments and agencies at implementing programmes and projects that we have directed them to do. This is constraining the delivery of much needed inputs and infrastructure for agriculture and rural development.
I advise Honourable Members to actively get acquainted with the projects and programmes that have been planned for their respective constituencies and for which resources have been provided, but for which public servants are sabotaging for either personal gain or sheer ineffectiveness. This leads to poor implementation of projects and programmes in rural areas. Let me reiterate that I will not hesitate to take punitive action against public servants who are not performing their duties with utmost commitment and dedication and do not deliver intended results in this sector.
Development and maintenance of infrastructure
I will now turn to three areas of infrastructure that are critical to both immediate and long-term growth, development and socio-economic transformation, namely:-
Progress with road transport
In direct support to agriculture and rural development, 20,000 km of the 40,000 km of district roads will have received routine maintenance while 850 km will have been re-graveled and rehabilitated by the end of June this year. This will ensure the produce that our farmers and other traders and business people can access district and nation-wide markets more efficiently without delays and also lower the costs of transportation of rural production.
The Road Fund has also now been fully constituted and in the next financial year will be operationalized to provide road maintenance funding for National, district and urban roads and later community roads. With adequate funding the road maintenance backlog will be dealt with in the medium term, which situation has previously constrained efficient transportation of goods and produce in the past. Hon Members must be on the alert for the respective plans and maintenance programmes to be financed by the Road Fund in their districts and constituencies to ensure that they receive their due share of allocated funds and that these funds are used effectively.
At the national level, in this Financial Year, construction for upgrading to tarmack of Matugga - Semuto - Kapeeka road commenced while similar works continued on the following roads:-
The reconstruction of Jinja - Bugiri and the rehabilitation of Kawempe - Luwero - Kafu roads is near completion and the reconstruction of Kampala - Masaka - Mbarara and Busega - Mityana roads has commenced. The contracts for the rehabilitation of the following roads have been awarded and work has already started on some:
Contracts for the upgrading to tarmac of the following road projects will be awarded during 2009/2010 financial year:-
In view of the age of the existing bridge across the River Nile at Jinja, the design of a new Bridge across the River Nile will also commence while the Aswa, Awoja and Agu Bridges will be rehabilitated.
The design for the construction into dual carriageways on the following roads will be also completed during next financial year.
During the next financial year the designs for upgrading the tarmac of the following roads will start:
In order to expedite the implementation and operationalization of major road projects, I have directed the Ministers of Transport and Finance to consider the development and maintenance of some major roads on a public-private partnership basis as a long term strategy of developing and maintaining some of our road corridors. These arrangements will be entered into if alternative free public roads exist.
Furthermore, the Ministries of Works and Finance are supporting the Kampala City Council to study the introduction of a rapid bus transit system through public-private partnership. This will address the excessive traffic congestion in the Greater Kampala Metropolitan area, which remains a challenge in the transport sector.
Progress with rail and water transport
With respect to rail transport, the Governments of Kenya and Uganda are concluding the resolution of the problems associated with the Mombasa-Kampala Railway, to ensure that the concessionaire fully operationalizes this vital link for trade and transportation of regional goods.
Studies for re-opening of Kampala - Kasese and Tororo - Pakwach railway lines have also started and the development and implementation of respective Ugandan aspects the East African Regional Railway Master Plan will commence next Financial Year. We have for a long time talked with the Government of Tanzania about the Tanga-Musoma railway line. This is important as an alternative to the Mombasa line. We need to discuss with DRC about the Kasese-Kisangani and with Rwanda about the Kasese-Gisenyi lines.
The design for the ship to replace MV Kabalega and repair works on MV Pamba and Kaawa are also on-going. Government is considering the development of Port Bell and Jinja ports so that they have a capacity to handle containers as part of Government's effort to develop the southern route (Central Corridor) to the port of Dar es Salaam.
The ferry for Mbulamuti - Nabuganyi (Kayunga) was also procured during this financial year. Additional ferries for the following crossings will also be procured in the next financial year:-
Progress with energy infrastructure development
Construction works for the 250 Megawatt Bujagali Dam and Power house are progressing according to schedule and the project is to commence electricity generation in December 2010. With respect to Karuma Hydropower project, construction of a larger-sized 700 Megawatt will commence by December 2010.
In order to solve the interim power shortages before the Bujagali Hydro Power project comes on board, construction of two more Heavy fuel thermal plants of 10 Megawatts at Tororo and 50 Megawatts in Jinja will be completed. This is in addition to the 50 Megawatt Heavy Thermal plant that was commissioned in September 2008 and the 50 Megawatt diesel plant at Mutundwe.
Honourable members need to note that Government has achieved a major transformation in electricity generation since the crisis of 2005, replacing more expensive diesel thermal plants with heavy fuel ones, while we progress towards fundamentally resolving long term energy needs by constructing hydropower plants. In the medium term, the cost of electricity to consumers will be more affordable and enable more Ugandan producers and rural households as well to access and use more efficient energy such as electricity, with a greater positive impact on the environment.
The following renewable energy projects have been completed and are producing electricity:
The Government has also decided that since the private investor in the Nyagak Small hydropower project is experiencing cost overruns, the Government is going to co-invest in the project so that it is commissioned by the end of this year.
Government will continue to implement the rural electrification programme to ensure that all district headquarters, production areas and communities which create nuclei for rural social and economic transformation are supplied with electricity.
Good progress is being made as demonstrated by the following:
Government is in the final stages of completing the construction of the following major rural electrification schemes:
The following schemes have been completed:
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