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Experts offer glimmer of hope for Uganda in 2019

Ugandans and their businesses are likely to be better off in 2019 than they were last year, according to several forecasts, although they will still grapple with expensive electricity.

This is based on the fact that the economy is expected to post impressive growth in 2019, with more private businesses likely to be vibrant.

In the end-of-year business index, which was released in December, Stanbic bank said the private sector had seen a rise in new businesses, which companies said was due to strong demand for their goods and services, a trend that is likely to continue in 2019.

Standard Chartered bank forecasts that “growth will average 6 per cent accelerating even further with oil production after 2021.”

“Final investment decision (FID) by the joint venture partners on oil production has been pushed back to 2019. This means that first oil is unlikely until 2021 or later (if it goes ahead),” said Razia Khan, the Standard Chartered chief economist for Africa and Middle East.

“We expect robust medium-term economic growth – with or without first oil – as the government ramps up infrastructure spending.”

But Khan warns that while growth prospects look good, it only translates to two per cent in per capita terms – meaning at personal level, growth might be lower.

Given that Uganda failed to make the final investment decision last year, this could see a delay in the foreign direct investment that was expected to flow into the country to the oil and gas industry.

“Construction of an oil pipeline to the port of Tanga in Tanzania will require more imports, eventually widening the [Current Account] deficit, but the absence of oil-related activity is likely to contain the deficit for now.”

Prices of goods and services are expected to remain in check in 2019, given the favorable weather conditions for farmers throughout 2018. The pump prices are also expected to drop if the global oil prices continue at the current level – below $60 a barrel.

According to Khan, a stable Uganda shilling should give the Bank of Uganda more room to pause its policy tightening, after a pre-emptive 100 basis points hike in the central bank rate (CBR) in October 2018. The CBR influences the direction of commercial bank interest rates in the economy.

This may not have the impact on the commercial banks’ charges on loans as “We [may] see BoU hikes resuming from April 2019, with the CBR ending the year at 12 per cent [from the current 10 per cent] and rising to 13.5 per cent by end-2020,” Khan said. This will be a year that precedes elections and inflation pressures will be expected to be higher.

Khan maintains there is going to be concerns over the low rate of revenue collections.

“While this has traditionally been mitigated by weak execution of public investment projects, there is now a greater urgency to complete projects,” she said, indicating government will have to look for a way to get the money this year – more taxes could come into play.

“Recurrent expenditure remains strong...more measures to expand the revenue base are expected when the budget for FY20 is announced in June 2019. An increase in the public borrowing requirement should, however, keep domestic interest rates elevated,” Khan said.

To Paul Lakuma at the Makerere-based Economic Policy Research Centre, businesses will still grapple with power outages in 2019 – consequently affecting their performance. This is despite the fact that the official commissioning of Karuma and Isimba power dams is expected this year – after being shifted from 2018. Ugandans buy electricity at over 12 US cents per kilowatt-hour.

“Government should work on electricity. It is too expensive and outages in upcountry are common. They should also clamp down on corruption,” Lakuma said.


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