The International Monetary Fund (IMF) recently concluded
their latest country assessment of Uganda in which they concluded that Uganda
continues on a growth path and despite concerns about external factors and
inflation that the trend will continue.
They reported that “economic growth is projected to expand by
a robust 5.3 percent in the current fiscal year and 5.8 percent in FY2015/16
(compared to 4.5 percent in FY2013/14), led by scaled-up public investment and
a recovery of private consumption supported by stronger credit growth.”
The IMF also opined that “Strong growth and subdued
inflation, alongside high international reserves (about 4 months of imports), a
sound financial system, and relatively low government debt (currently at 30
percent of GDP) continue to provide buffers to shield the Ugandan economy
against shocks.”
But they warned that “Nonetheless, there are risks to the
outlook posed by domestic and regional uncertainties.”
"In a nutshell, that the ship is holding steady, an opinion the finance ministry was content to interpret as a clean bill of health.
That was the big picture, down on the ground a different story is unfolding.
Business is slow. Shops are shutting down. Property prices are sliding.
This should not come as a surprise. Two events in particular have conspired to generate the current situation.
After 2011 election related inflation shot up, peaking at 30
percent in October of that a year. In a bid to rein inflation the central bank
signalled an increase in lending rates, issued more government paper and sold
more foreign exchange. The aim to suck out any excess cash in the economy not
backed by production. After all inflation is caused by too much money chasing
too few goods.
Just when the Bank of Uganda was coming to grips with
inflation, at the end of 2013 South Sudan imploded into civil war. This was bad
because not only was South Sudan our biggest export market up to that point but it was also a source of tens of millions
of dollars, dollars that were artificially
holding up our local real estate market and retail consumption.
The double whammy of central bank anti-inflation policies and
the drying up of Sudanese dollars are what is causing he pain at the micro level.
But also at that time the bursting of corruption scams in the
public service ministry and prime minister’s office dealt a further blow to the
easy money that used to keep our business afloat and water Kampala’s night
life.
As if that was not enough the donors in reaction to these
scandals, in righteous indigination closed the taps sucking out more easy money
from the general economy.
But we are not done yet. The progress on the oil production
slowed as government and the exploration companies negotiated themselves to a
near standstill on the issue of production licenses.
So how then does the IMF give Uganda the nod on its future
prospects?
According to classical economics growth comes from the sum
total of consumption, investment, government expenditure and the net of exports
and imports.
"Given the government’s massive outlays in roads and ongoing investments in energy and other infrastructure it is safe to say the overall picture could show that these are more than adequate to account for the dips in consumption in the general economy...
The investments in infrastructure are not expected to have an
immediate impact but their returns will come much sooner than the returns from
the UPE and USE investments that started a decade and a half or so ago.
We have been here before. In the early 1990s when government
first determined to take a grip of inflation, the drop in economic activity
with the wholesale wiping out of industries like the kibanda market, the air
suppliers was just if not more staggering than what we were experiencing now.
But those were hard decisions that had to be made then so
that we could enjoy the subsequent good times that followed.
With rehabilitation of the economy complete these new
investments again are what are needed to take us to the next level of growth
and development.
It serves as little consolation when making ends meet today
is getting harder and harder but that is what it is.
Consider it a case of taking one step back to jump three
steps forward.
"Seen in that context the IMF report is a good thing. It means that we are at least moving forward on a macro level. The hope is that sentiment on the micro-level catches up too....
However it is no reason to rest on our laurels. The feedback
loop can be from the micro to the macro level – that the local depression can
filter up rather than the macro growth trickle down, if for example these huge
investments don’t come through on time or at all.
