18 February 2013

Uganda: WB Report Tips Uganda On Regional Trade

The World Bank last week released a very comprehensive and balanced report on the outlook of the Ugandan economy outlining threats and opportunities to East Africa's third largets economy.

Delivered by the Bank's Country Manager, Ahmadou Moustapha Ndiaye, the report titled, "Bridges Across Borders: Unleashing Uganda's Regional Trade Potential", urges the country for a more rapid diversification of the economy and the appropriate use of resources, including oil, that will drive renewed growth momentum.

The reports said that despite the country having one of the world's highest rates of population growth (Estimated at 3.582% in 2012), Uganda has an impressive record of economic growth and poverty reduction.

The Bank says that for the last 20 years, up to about 2010, the average annual rate of economic growth stood at around 7%.

During this same period, the proportion of the population living below the poverty line declined from 56% in 1992 to 24% in 2010. The report credits Uganda for being the first country in sub-Saharan Africa, to pioneer of liberalization and pro-market policies in the late 1980s.

This established the foundation for the country's remarkable economic performance in the 1990s and the 2000s. During this period, the country diversified its exports, mainly through fisheries and tourism, with high levels of private investment.

Exports of agricultural commodities (particularly innovative crops such as flowers, tobacco and maize, on top of the traditional exports of coffee, tea and cotton) grew by 16 percent per annum during most of the 2000s.

Private investment, which increased to an average of 18% of GDP at the end of the century from 11 percent in the 1990s, was mostly driven by construction.

However, in recent years, the rate of growth has slowed down and has been characterized by increased volatility. From an average of 9.3% per annum in 2001 to 2008, the rate of growth declined to 7.2% in 2009 and to 5.9% in 2010.

The global economic crisis of 2009 and its after effects have resulted in the deterioration in Uganda's terms of trade, with commodity prices declining while oil prices increased. This had a negative impact on exports and investment, leading to a decline in the rate of growth.

Prolonged drought, combined with poorly directed government spending and poor financial management, has had a negative impact on the macro environment. In turn, this has resulted in a slowing down of the services and industry sectors. Corruption and misuses of government resources have also had a negative perception of government leading to aid cuts.

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