Uganda: How Coronavirus Could Plunge Uganda's Economy Into Crisis

An aerial view of commercial buildings in Kampala.

Kampala — On a normal day, the Kikuubo trading hub in downtown Kampala buzzes as thousands of traders and customers with wads of cash haggle over prices of all kinds of merchandise, most of which are Chinese made.

The traders alongside their boys are on hand to help customers pack and load goods onto waiting trucks ready for delivery to all corners of Uganda and the neighbouring countries of Rwanda, Burundi, Tanzania, South Sudan and eastern DR Congo.

Kikuubo's growing commercial value as Kampala's main trading center is demonstrated by the number of commercial banks that have recently set up shop there. Even Uganda's only business-focused television (Smart Tv) recently set up its studios there. Some economists The Independent talked to say that slightly over 40% of Kampala's GDP (60% of the national GDP) is generated here.

But for weeks now, ever since the Coronavirus became a global issue, traders in Kikuubo have become stranded and frustrated over loss of business. They say they are finding it hard to replenish their stock and they all blame the rampaging pandemic which is sending the global economy into a tailspin.

The story is not any different for thousands of other traders in the nearby high-rise shopping arcades. Yanga Samba deals in clothing, footwear and phone accessories and he imports most of his merchandise from China.

He says his stock has already dwindled and sees no hope in sight for re-stocking soon. "In response, we have increased prices of most items by 10% -30%," he says, "For example a dozen of jean trousers used to go for Shs300, 000. Now we are selling it at Shs330, 000."

"We really have no choice. The factories are closed. Suppliers are not working. There isn't any business going on because goods are stuck in China," he adds in reference to the lockdown in China.

Another trader, Balaam Bahumure, who imports clothes from China, says his container of clothes, worth millions of shillings is stuck in the southwestern Chinese city of Chongqing.

"My container has been stuck in China for the past two months. I am traveling to Nairobi soon to try and identify other suppliers but these are expensive compared to those from China," he said.

Like many other sub-Saharan African countries, Ugandan traders have over the last two decades chosen China as their favourite destination when it comes to trading in all sorts of merchandise including machinery, electronics, clothes and even construction materials. Merchandise from Chinese factories is relatively cheaper compared to other Asian countries like Taiwan, Vietnam and Thailand, the traders say.

From down-town Kampala to the most far-flung market and shop in Uganda, trade in Chinese products has eased people's access to household commodities and goods. However, the outbreak of the Coronavirus (COVID- 19) in the Chinese city of Wuhan that continues to spread around the world has caused panic among the Ugandan traders.

The virus had killed 3,131 people, 48,438 recovered and 92,236 cases reported as at March.03, according to the World Health Organisation.

The virus has particularly ravaged China, South Korea and Japan - the Asian countries critical in the supply chain of key products. Importers in developing countries including Uganda are finding it difficult to buy finished products and other raw materials for manufacturing firms.

Observers of Uganda's economy say unless the pandemic is contained soon, the economy could easily run into a crisis especially if prices for Chinese-made products rise.

Issa Ssekito, the spokesperson for the Kampala City Traders Association (KACITA) anticipates product prices to skyrocket in the coming months. "The economy is going to be bad; the cost of living is going to be high because those with stock have increased prices and they should," he said.

Mutebile and the numbers

Trade volumes between Uganda and the Asian nations have been growing at a terrific speed in the past decade; with China being the second leading exporter just behind India to the East African nation.

Statistics from Bank of Uganda show that while the country's imports from Asia increased from US$1.4bn in 2009 to US$2.7bn in 2019, Uganda's imports from China alone stood at US$335million in 2009 and US$1bn in 2019.

Uganda imports a wide variety of products from China including construction materials, electrical machinery and equipment and their parts, clothing, kitchenware, furniture as well as raw materials.

On the other hand, Uganda's exports to China - mainly agricultural products - have increased from US$15.45million to US$40million during the same period under review. Still, Uganda exports most of its products to the European Union and the Middle East, whose export earnings have also tremendously increased from US$415million and US$101million in 2009 to US$496million and US$1.2billion in 2019, respectively.

However, industry followers say life will get tougher starting next month as stocks that traders imported in December last year ahead of the festive season get finished.

Emmanuel Tumusiime-Mutebile, the Governor, Bank of Uganda, said in his February Monetary Policy Statement that businesses are likely to slow down due to the Coronavirus outbreak in China.

"There is considerable uncertainty regarding the duration and severity of the Coronavirus outbreak. If it persists to an extended period, the effect on global economic activity is likely to be larger than currently projected," Mutebile said.

The Uganda Revenue Authority (URA) has already confirmed that whereas they are yet to witness a decline in import volumes owed to the fact that majority of the goods were already in transit at the time of the Coronavirus outbreak, the taxman expects a sharp drop in cargo clearances starting next month.

By press time, reports indicated that four big cargo ships that supply goods from China had failed to dock at Mombasa port for the second month in a row following the Coronavirus outbreak. Mombasa is the gateway through which Kenya, Uganda, South Sudan, Rwanda and parts of Tanzania, Ethiopia and the Democratic Republic of Congo import their goods.

"The port of Mombasa receives three big dischargers (imports) from China under Evergreen Line and one COSCO ship on a monthly basis. These four ships have not called since the Coronavirus effect in China," Kenya Ports Authority Managing Director, Daniel Manduku told The East African newspaper.

The tourism sector, too, has not been spared either as the prospective tourists cancel trips. "ITB Berlin was cancelled last week and last minute because of the Coronavirus. It's the first time it has been cancelled in 50 years.

That's a big blow to the tourism industry because that is the time of sealing deals between wholesalers and destination management companies like Great Lakes Safaris, said Amos Wekesa, the chief executive officer of Great Lakes Safaris.

"Even without a confirmed Coronavirus case in Uganda, people are scared of boarding planes to destinations," he said.

Uganda has in the past two years recorded a surge in tourism arrivals in the past two years from 1.2million in 2017 to 1.5million in 2018. Consequently, the foreign exchange earnings grew from US$1.45billion to US$1.6bn during the same period under review.

At the same time, various African carriers including RwandAir, Kenya Airways, Royal Air Maroc, Egypt Air, Air Madagascar and Air Mauritius have cancelled flights to China.

Tanzania's national carrier, Air Tanzania, has been forced to postpone its maiden flight to China. Elsewhere in the world, Virgin Atlantic, Germany's Lufthansa, Air France and KLM SA, cancelled their flights to the Asian nation.

Museveni speaks out

It now appears the government is taking the pandemic more seriously. President Yoweri Museveni said on March.01 that the coronavirus is an inconvenience and that could jeopardize the economy once confirmed in any country.

"It undermines economies because it is disruptive and inconvenient. If a country records a case of coronavirus, people will be quarantined, movements limited, businesses, schools, leisure parks closed," he said.

Museveni, however, said the government will take all measures to safeguard Ugandans against the deadly disease. On March 03, the state minister for primary healthcare, Dr Joyce Moriku Kaducu, said 722 travelers including Ugandans, Chinese and other nationals were being isolated to contain the virus.

Of this number, 41% of the individuals have completed the 14 days of self-isolation. To prevent the importation of the virus, the health ministry has also enhanced surveillance measures for all travelers from all countries battling COVID-19 especially in Europe, Asia and US.

The government has also banned public meetings without the clearance from the health ministry and the police.

In Africa, only Nigeria, Algeria and Egypt have confirmed cases. Screenings at Entebbe International Airport and other entry points such as Busia, Malaba, Elegu and Cyanika have also been strengthened with deployment of additional health workers, treatment and infection prevention materials.

"Entebbe and Naguru referral hospitals as well as Mulago National Referral Hospital Grade A have been prepared to receive and manage suspected and confirmed cases," she said, adding that the Ministry of Health has also mobilized a mobile testing laboratory facility to boost testing capacity.

Kaducu reiterated that people should avoid handshaking, hugging, mass gathering and to observe infection, prevention and control practices such as washing hands with soap and clean water.

Effects on global economy

Larry Hatheway, a former Chief Economist at UBS and GAM Investments, and a co-founder of the US-based Jackson Hole Economics says as the new Coronavirus approaches pandemic status, it is increasingly likely that the economic impact will be severe.

He says alongside intensifying public-health responses, governments must step in to mitigate the virus's impact on growth, employment, and living standards. Hatheway says there are three reasons to worry that COVID-19 will hit the global economy hard.

"First, regional and national travel restrictions will curb the flow of goods and services across borders and within countries," he said. "Second, increased uncertainty will translate into reduced "big ticket" spending by households and small businesses."

Holidays and business travel are already being reconsidered, as evidenced by the 200,000-plus airline cancellations so far this year.

Hatheway also said the sharp decline in global equity markets, if sustained, will harm the real economy, plunging markets into fear and uncertainty, reduce household wealth, and therefore erode consumer spending.

"In short, COVID-19 and the responses to it could easily lead to a global spending shortfall, which would soon be followed by mounting job losses, potentially pushing real economies everywhere to the brink of recession. But governments have tools for fighting recession," he said.

Going forward, Hatheway says governments must implement measures to stabilize commercial activity without delay. "The point is to boost disposable purchasing power within days - not months - by putting more money in the hands of middle- and low-income households, who tend to spend a greater fraction of their incomes," he said.

That is what the United States, the United Kingdom, and many other countries did during the 2008-09 "Great Recession." Hatheway adds that the central banks should announce fresh central bank rates and liquidity provisions to stir product demand.

He also suggests that all governments should immediately boost spending on medical services, which must be made available to those most at risk from the coronavirus: the elderly, the poor, and the marginalized - both in cities and remote, rural communities.

"Policymakers should immediately authorize spending for fleets of mobile medical units to reach those who cannot otherwise access proper care. Yes, some commentators will fret about the fiscal consequences of tax cuts and increased government spending. "But they will be wrong to do so," he said.

"Low and falling bond yields mean that most advanced and large emerging economies have extraordinary leeway to borrow at little cost. Central banks are ready to hoover up any government debt that financial markets cannot absorb."

Besides, Hatheway says, emergency measures will be temporary and subject to reversal after the crisis passes. He said the current challenge is to fight coronavirus and its harmful economic effects.

"Not acting forcefully and immediately would be akin to letting the patient die just to teach him a lesson," said adding that partisanship and zero-sum politics are no excuse for governments to shirk their fundamental obligations to citizens.

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