NRM ECONOMY: If majority are praising it, why are experts worried about the future?   

Industrialisation agenda

Industrialisation has also contributed tremendously to Uganda’s great economic transformation. This sector has grown from 8.6% in 1996 to over 28% today.

The 2014 data from Uganda Bureau of Statistics (UBOS) indicates that Uganda had over 416,864 companies that were formerly in services sector comprised of the areas of hospitality (tourism), consultancy, banking, education, health, transport, ICT, beautification (salons) and more.

These were employing 872,260 people. The formal manufacturing sector alone had 32,410 companies, employing 153,495 people.

Over the same period, however, the percentage contribution of agriculture to the GDP has declined to 26% from 44% in 1996 even as volumes of output have gone up. The sector, which employs over 70% of Ugandans, has largely been left in the hands of the private sector with its annual budget funding recorded below 5% over the past years.

Meanwhile, industrialisation has partly been pointed out as one factor driving Uganda’s GDP in monetary terms, from 1986 to 2015, the economy’s GDP has grown from US$246 million in 1986 to US$26billion today.

Tax revenues have increased from less than a trillion in the early days of NRM to now close to Shs 15 trillion. This is good news in line with national budget funding and moving the economy.

Latest threats to economy

Lately, some shocks are threatening the future of the economy if not tamed.

For instance, drought and political instability within the region have recently affected output and market exploitation opportunities, hence reversing growth of the economy to an average of below 5% as opposed to higher rates recorded in early 2000s (7-8% per year ) and government projections of over 6%.

High inflation has been another threat. But the Bank of Uganda introduced Inflation Targeting Lite (LTE) in 2011 as part of its broader monetary policy instrument to tame it because it had jumped to 30% at the end of 2011 (the highest since 1993). Top bank officials say the policy tool, the Central Bank Rate (CBR) – which it sets every after three months to signal direction of interest rates – has succeeded given that inflation for the last five years has been kept within the target of 5%.

However, critics say the hiking of the CBR to 23%, in its early days of 2011, discouraged investments because it brought about high interest rates (which jumped to around 28% from the lows of 23% on average then). Although the BoU has reduced the CBR to now 9.5%, the lowest ever, still interest rates remain high – averaging 20% – which is muting growth of private sector credit.

This means there is a dilemma to deal with. Private sector credit is not growing partly because government is borrowing locally to finance service delivery activities, some of which aim to ease the cost of doing business for the private sector. But the same private sector say government’s internal borrowing is bad news because they are being crowded out, hence affecting bigger economy opportunities. As that dilemma hangs around, attempts by the private sector to lure banks to further reduce interest rates are yielding insignificant results because banks say the cost of doing business in the country dictate that current rates remain if they are to keep their businesses as a going concern.

The good news though is that government has reported in its official documents that it would cut domestic borrowing from Shs954.2 billion in the current FY to Shs 611bn in FY 2019/20 and to Shs 409 bn by FY 2022/23.