The economy of Uganda will shrink more than twice the size this financial year was expected to grow, as businesses suffer from low sales due to weak consumer spending.
In a May 2020 report on African markets, Standard Bank expects Gross Domestic Product growth – the value of goods and services in a given timeframe – to increase by 2.5 percent year-on-year in 2020 from its previous year-on-year estimate of 6.1 percent.
This GDP forecast from one of Africa’s largest banks is gloomier than the International Monetary Fund’s 3.5 per cent estimate, demonstrating the severity of the wreckage left in Uganda by the coronavirus in its wake.
Uganda began imposing partial lockdowns on March 19, tightening the bolts until most businesses were completely closed on March 31, as the country struggled to contain the spread of the virus. The closure, which came at a time when the economy was bleeding from all sorts of stress, came with a price, although the country was praised for keeping down its caseload of viruses.
Many businesses have closed their shop as a result of the lockout, although others have introduced strict cost-cutting steps such as work layoffs. Things should have been different. The government of Uganda was expected to spend heavily on infrastructure projects such as roads and power plants, a marketing tool prior to general elections in 2021. It has shelved many of those plans.
Standard bank also thought this year it should make the final investment decision (FID) for the oil projects. The oil companies operating in the upstream sector were expected to sign a $3.5-billion investment decision for the Hoima-Tanga crude oil pipeline 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 that the amount of money Uganda gets from exports will be lower as compared to what it will spend on imports.
“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, the main export earner for Uganda, faltering, gold remains one of the country’s best fall-back positions. The report notes that gold exports from Uganda quickly shot up to $1.3 billion in 2019, from $515 million in 2018 and $417.9 million in 2017. But the report, pointing to the issue of smuggling, mentions a major problem with gold trade.
“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.
Most of Uganda’s gold is believed to come from the neighboring Democratic Republic of Congo.