What should a country like Uganda do in an environment where trade with the US is becoming more difficult?
The good news for Uganda is that very few Ugandan exports have been directed to the US-only about 2 percent in 2024. This is relatively favourable compared to regional peers; for instance, Kenya has a much higher percentage, while Tanzania falls somewhere in between. Moreover, Uganda’s exports do not directly compete with US production. There is no significant movement in America to produce coffee domestically, which is reassuring.
Another key point to consider, though not specific to Uganda, is the importance of identifying new opportunities. Recent data shows that one of the fastest-growing markets for Ugandan exporters is not the US, Europe, or even China, but India.
Over the last five years, exports to India have increased by an average of 50 percent annually. While we want to continue exporting to the US and hope for that market to grow, we must explore new partnerships and opportunities elsewhere. Countries that can successfully navigate this transition are likely to thrive in the future.
How should Uganda position itself for the huge opportunities in India?
To capitalise on the significant opportunities in India, where trade has been rapidly expanding, Uganda should work on building relationships there. This can be achieved by sending groups of Ugandan businesses, rather than individual companies, as trade envoys to India to explore opportunities and promote Uganda’s interests. Additionally, it is essential to ensure that Uganda has the right supply chains in place.
Many assume that placing an order with a local supplier is straightforward. But exporting in sufficient quantities to new markets requires that legislation, regulations, product standards, and logistics are properly managed. This process may take time, but Uganda has a strong trading history and is poised to remain a successful trading nation. Uganda needs to concentrate on identifying and seizing these new opportunities.
Regarding the impact of the upcoming election season on the economy-specifically concerning government spending and fiscal policy-elections play a significant role in every country.
However, we do not expect much change in our forecasts for public finance in Uganda. Discussions with institutions like the International Monetary Fund about funded programs may become more challenging during this period.
Traditionally, incumbent governments tend to spend more leading up to elections to attract undecided voters, which is a natural political strategy.
Another observation during elections is that investors often adopt a wait-and-see attitude, pausing their investments for several weeks or even months as they assess the situation. This may result in a temporary weakness in the Ugandan shilling-not necessarily due to active bets against Uganda, but because there are fewer incentives for investment during the election period.
Finally, we must consider the behaviour of Ugandans during this time. Will people be more inclined to make significant purchases? Will businesses commit to major investments, or will they take a wait-and-see approach? These factors will influence the economy during the election season.
What are your predictions for Uganda’s economy looking at the current trends and uncertainties?
Currently, we expect the Ugandan economy to grow at about 6.5 percent this year and approximately 6.75 percent next year. A significant growth surge, expected in 2027 as commercial oil production ramps up, could see the economy grow by over 10 percent.
This anticipated growth is exciting and transformative for the country. We are also optimistic about the performance of sectors like agriculture and construction, with the latter benefiting from infrastructure investments. Additionally, there is a strong focus on enhancing agricultural value through manufacturing and agro-processing to capture more value domestically before exporting products.
Do you think the Bank of Uganda’s decision to maintain the Central Bank Rate at 9.75 percent will be effective in controlling inflation while supporting economic growth?
Balancing inflation control with economic growth is challenging. We believe that the current rate is appropriate for managing inflation, which is projected to remain around 4 percent in the near term.
While a slight adjustment to the rate may not drastically change the macroeconomic outlook, we anticipate that a stable interest rate will be necessary for the time being.
How might the tightening of liquidity conditions and high lending rates affect private sector credit growth and overall economic activity?
The credit performance in our economy is driven by two things: one is the interest rate and the other is the availability of finance. There is only so much money in the economy to lend, to move around. So in that space, that money can go to the private sector, the government, or it can go to a mix of those things.
Currently, due to significant government deficits, a large portion of the available savings is directed towards government needs rather than private sector growth. This dynamic creates challenges for private companies seeking credit, as limited financing availability can hinder their expansion and overall economic activity.
What are your thoughts on the Uganda shilling in relation to the forex rate and its trading performance against other major currencies?
The shilling has experienced a remarkable year, showing a 4 percent increase in strength as of early September.
The exchange rate compared to the dollar today is not far off from where we were four or five years ago. As we approach the end of the year, we expect the shilling to weaken slightly against the dollar, with forecasts predicting a low of around 3,600.