1 January 2013

Uganda: An Eyeshot of Business in 2012

Looking back, the year 2012 will be remembered as the kind that evoked so much optimism and pessimism in equal measure.

This is the year that began with such economic pain that the traders were forced into a strike over the high lending rates as early as the first week and ended with even more economic trouble as it became clear that the shilling was heading for a more difficult future. In all fairness, though, there were brief moments when it appeared that the country was on the right path to being on the same economic pedestal with regional heavyweights.

But even with the opportunities created with the coming on stream of the 250MW Bujagali power project, a fall in inflation levels, something somewhere went amiss.

Uganda's economy, it was announced, would not grow as expected. One financial scam after another unfolded within government institutions. The donors, who pick up a quarter of the national budget bill, ran out of patience; they cut aid, totalling $300m according to some reports.

The pain felt in the first week of 2012 would return towards the end of 2012, only this time on a wider scale. The Observer looks back at 2012 and relives the moments that made headlines.

The Shs 2.9bn farm-down:

After close to two years of corporate battles and blackmail where diplomatic relations between Uganda and the United Kingdom were caught in the middle, the government of Uganda finally gave the go-ahead to Tullow Oil, a UK firm, to conclude the sale of two thirds of its assets to China's CNOOC and France's Total for $2.9bn, the largest corporate deal in Uganda ever. The deal ended a $404 tax dispute, and brought the much needed revenues to Uganda's coffers.

The conclusion of the deal also led to Government finally tabling the long-awaited petroleum bills in Parliament.

High interest rates:

Early in the year, inflation was somewhere around 30%, levels last seen more than 15 years back. Sensing that the bankers would not understand their grief, traders locked up their shops and went on strike, vowing to pull out their deposits from banks. The traders were hurt that the banks denied them some grace period while they were chocking on credit.

President Yoweri Museveni was forced to mediate the issue. Interest rates never came down, and there was no grace period that was announced, at least publicly. The bankers had won.

Power tariffs up:

In February, Uganda Electricity Regulatory Authority (ERA) announced increments in the electricity tariffs after the government scrapped Shs 396bn annual subsidies. Domestic consumers were to pay Shs 524.5 from Shs 385.6 to per unit while commercial consumers would pay Shs487.6, up from 358.6 per unit.

Electricity is the fulcrum of the business world - no wonder the traders under their umbrella organ the Kampala City Traders' Association (KACITA) staged a demonstration seeking presidential intervention to cut power tariffs. Their efforts came to nothing.

Bujagali on the grid:

The 250MW Bujagali power plant was finally commissioned mid this year. The plant cost about $900m, according to media reports. While the project reduced a stringent load- shedding schedule, it did little to ease on the high power tariffs.

Like the power tariffs are not high enough, there is a recommendation to peg the tariffs to changes in inflation, fluctuations in the foreign exchange market and fuel prices. The recommendation has already received stiff resistance. Also, Umeme, the power suppliers, have proposed an increment in domestic bills by Shs 69 and Shs 52.8 for domestic and commercial consumers respectively.

A parliamentary report on the energy sector shows high power tariffs hurt economic growth as they increase production costs and reduce the competitiveness of the local manufacturers.

Ebola scares tourists:

In November 2011, Uganda was chosen by the Lonely Planet website as the top tourist safari destination in the world for the year 2012. This was a big boost for the industry that had previously earned the country at least $700m in 2011. Much more was expected in 2012.

In July 2012, however, Uganda was hit by an Ebola outbreak at a time when tourists prefer to take their summer vacations in Africa.

As a result, between 5%-10% of the tourists called off their trips, with many more postponing their travels to Uganda.

The Oil Bill:

For more than two months, parliamentarians remained at loggerheads with the executive to pass the controversial Petroleum (Exploration, Development and Production) Bill, 2012, with much of the disagreements surrounding clause 9 of the bill, which, many claimed, bestowed excessive powers on the minister of Energy. The bill was finally passed on December 7.

Clause 9 vests power in the hands of the minister of Energy and Mineral Development to issue and revoke licences to companies wishing to do business in the oil and gas sector.

Corruption rears ugly head:

Uganda has never been short of corruption scandals; the Shs 142bn compensation to businessman Hassan Basajjabalaba, the Shs 5bn bicycle deal, Shs 200bn ID scam, among others. However, there has never been a corruption scandal in the last five years that has evoked such public anger and shocked the donor community like the financial scam in the Office of the Prime Minister.

While more money has been lost in other corruption scandals, the OPM story shed more light on the moral character of some government officials; the money was meant for rebuilding northern Uganda, a region that until 2006 suffered a two- decade war, claiming thousands of lives and leaving many more displaced.

Donors, shocked by events in the OPM, pulled the plug on aid. Countries like Norway, Ireland, Sweden, Denmark, and United Kingdom all decided to withhold their budget support for six months. The suspension of aid will cut economic growth by 0.8 per cent from the projected 5% in the 2012/2013 fiscal year to 4.2 percent, according to Keith Muhakanizi, the deputy Secretary to the Treasury.

Uganda joins COMESA FTA:

In a bid to tap a wider regional market, Uganda this year signed the Free Trade Area (FTA) agreement with the Common Market for East and Southern Africa (COMESA), gaining access to a market of 14 member countries. COMESA has a general population of 467 million people and a combined GDP of $799 billion by 2010, making it one of the biggest trade blocs.

Uganda's exports to the COMESA region are anticipated to grow by an average of 50% annually, according to the trade and industry minister, Amelia Kyambadde.

The IPO:

This year, Umeme went public when London-based private equity fund Actis, the majority shareholder in Umeme, decided to sell 38% of her shares to the public. This initiative was for Umeme to raise at least Shs 171bn aimed at reducing the company's interest- bearing debt.

Uganda misses digital migration target:

Like her counterparts in the region, Uganda has failed to beat the target for the shift to digital terrestrial broadcasting from analogue. Uganda thought it would achieve this feat before the end of 2012.

A number of hurdles stood in the way: disagreements on who should be the signal distributor, lack of a legal framework on digital migration as well as the infrastructural deficiencies, and lack of funds to pull it off. Uganda is still hopeful that it will meet the global target of July 2015.

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