Standard bank predicts tough future for Uganda’s economy
Uganda’s economy will shrink more than twice the size it was expected to grow this financial year as businesses suffer from low sales due to weak consumer spending power.
Standard bank, in a May 2020 report on African markets, expects Gross Domestic Product growth – the value of goods and services in a given period – to expand by 2.5 per cent year-on-year in 2020, from its previous forecast of 6.1 per cent year-on-year.
This GDP forecast from one of Africa’s largest banks is gloomier than the 3.5 per cent prediction from the International Monetary Fund, showing the gravity of the wreckage that the coronavirus has left in its wake in Uganda.
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Uganda started imposing partial lockdowns on March 19, tightening the bolts until a full closure of most businesses on March 31 as the country fought to contain the spread of the virus. The closure, which came at a time when the economy was bleeding from all kinds of stresses, has come with a price, although the country has been praised for keeping its virus caseload down.
As a result of the lockdown, many businesses have closed shop while some have instituted stringent cost-cutting measures such as job layoffs. Things were expected to be different. Uganda’s government was expected to spend heavily on infrastructure projects such as roads and power plants, a marketing tool ahead of the 2021 general elections. Many of those plans were shelved.
Standard bank also thought the final investment decision (FID) for the oil projects would be made this year. The oil companies operating in the upstream sector were expected to sign a $3.5 billion investment decision for the crude oil pipeline between Hoima and Tanga in Tanzania.
But now, according to Standard bank, “due to the pandemic, which has now made it impossible for expatriates working in the oil fields to travel, the FID will probably have to be postponed into second half of 2021. The international oil price plummet too will now serve as a disincentive for oil firms to finalize the FID.”
The bank is also worried that “election-related anxiety prompts firms to postpone investment decisions, while household consumption also becomes restrained.”
Standard bank says the amount of money Uganda will receive from exports compared to what it will spend on imports will be lower.
“We see the current account deficit widening to 8.2 per cent of GDP in 2020. Owing to Covid-19, tourism receipts will probably decline further in 2020. In fact, tourist arrivals and earnings were faltering for much of 2019 due to the border closure with Rwanda… ”
Still reinforcing its point around tourism receipts, the report noted that “regardless, even if cross-border travel was to resume in the second half of 2020, tourism won’t recover then. Furthermore, with elections expected to be held in February 2021, tourist arrivals would anyway be only a trickle due to greater political risks around that time.”
With tourism, Uganda’s main export earner, faltering, gold remains one the best fall-back position for the country. The report notes that Uganda’s gold exports rapidly shot up to $1.3 billion in 2019, from $515 million in 2018 and $417.9 million in 2017. But the report notes a big problem with gold trade, pointing to the issue around smuggling.
“If increased safe haven demand continues to support gold prices, goods exports could be underpinned over the coming year. But FX [foreign exchange] earnings from gold receipts are barely passed via the domestic interbank market,” the report says.
A lot of the gold from Uganda is suspected to come from the neighbouring Democratic Republic of Congo.
