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Uganda’s economy escapes worst effects of the COVID-19

But World Bank warns of looming danger

ANALYSIS | THE INDEPENDENT | Uganda’s economy could escape the worst effects of the COVID-19 pandemic and post one of the higher growth figures on the African continent in 2021, according to the latest Global Prospects Report of the World Bank released this January.

According to the World Bank, Uganda’s economy is among the few in Sub-Saharan Africa that have so far managed to avoid outright recession. Others include Ethiopia, Ghana, Guinea, Niger, Benin, Burundi, Côte d’Ivoire, South Sudan, Tanzania, and Malawi. Only Kenya and Rwanda in the East African Community region have entered a recession; Kenya at -1.0 and Rwanda at – 0.2%.

The worst hit economies on that African continent have so far been Seychelles -15.9, Mauritius -12.9, Cabo Verde -11.0, and Zimbabwe -10.0.

Uganda has also avoided other negative impacts of the pandemic on exchange rates and inflation. But it has battled others such as unprecedented capital outflows, reduced remittance inflows and Foreign Direct Investment (FDI), and growing public debt due to COVID-19 related borrowing.

Uganda has so far managed to escape the worst effects of the pandemic partly because it has had relatively small domestic outbreaks, and is not heavily dependent on travel and tourism, and oil exports.

Instead, it is heavily dependent on its agricultural sector which has seen somewhat reduced exposure to the pandemic.  Contractions in agricultural commodity exporters were typically less steep.

Agricultural commodity prices have over the past year declined far less than most industrial commodities. Uganda’s economy also has a relatively smaller services sector.

As a result, the Uganda economy is estimated to have grown 2.9% in the FY 2020 which is a far better outcome than the -0.4% decline that the World Bank projected in its June 2020 estimates.

Uganda’s projected growth is still higher than the outlook growth in Sub-Saharan Africa which is expected to rebound   only   moderately   to   2.7   percent   in 2021. That is 0.4    percentage    point    weaker than previously   projected.  Uganda’s projected growth will also be higher than the regional projection of 3.3% when it firms in 2022.

While  the rebound in private consumption and investment is forecast  to  be  slower  than  previously  envisioned, export growth is expected to accelerate in line with the  rebound  in  economic  activity  among  major trading partners.

Despite upward revisions to the projected pace of recovery  in  China,  growth  in  major  economies and  key  trading  partners  of  the  region  could  still disappoint,  as  has  recently  been  the  case  for  the euro  area  and  the  United  States.

Uganda is also among countries expected to have slightly stronger recovery—though still well below historical averages—among agricultural commodity exporters, averaging 4.5 percent in 2021-22.  Higher international prices for agricultural export commodities are expected to support activity. These growth rates also partly reflect a resumption of investment, including foreign direct investment, as uncertainty gradually wanes, progress toward the full implementation of the   African   Continental   Free   Trade   Area agreement (ACFTA),   and   continued   implementation   of reforms to improve business environments.

Despite the envisioned recovery, the  level  of  regional  GDP  in  2022  is  forecast to  remain  below  the  level  projected  in  January 2020.  The  sluggish  recovery  reflects  persistent outbreaks in several economies that have inhibited the  resumption  of  economic  activity,  particularly in  services  sectors  such  as  tourism.

Cautious optimism

Maintaining its cautious optimism for Uganda, the World Bank now projects that the economy will expand by 2.8% in 2021 before gaining steam in 2022 to expand by 5.9%.

But, according to the report, whether this is less than gloomy outlook materialises, depends a lot on how Uganda manages the next trajectory of the COVID-19 pandemic; including how quickly it can access a vaccine on a massive scale. Other risks to the outlook include weaker-than-expected recoveries in key trading economies, such as China and the USA.

Generally, Sub-Saharan Africa has been hard hit by the COVID-19 pandemic, with activity in the region shrinking by an estimated 3.7 percent last year.

COVID-19 vaccine rollouts are expected to gather pace in early 2021 among advanced economies and   major   Emerging Markets and Developing Economies (EMDEs). That could bolster   business   and consumer confidence even as logistical impediments delay vaccine distribution in the region.

A  weaker-than-anticipated  recovery  in  Sub-Saharan  Africa  could be  the  result  of  lingering  adverse  effects  of  the pandemic, or the delayed distribution of  effective vaccines,  especially  if  combined  with  a  marked uptick  in  new  domestic  cases.  Moreover,  new waves   of   infections   would   slow   growth   in  non-regional   trading   partners,   which   would dampen  the  projected  growth  pickup  in  Sub-Saharan  Africa  through  lower  export  demand—particularly for tourism—and reduced investment.

Although there has been substantial progress in COVID-19    vaccine    development, wide scale vaccine distribution in Sub-Saharan Africa is likely to   face   many   hurdles.   These   include   poor transport  infrastructure  and  distribution  systems, weak  health  system  capacity  to  implement  large-scale   vaccination   programs,   and   outdated   or insufficient   cold   storage   systems   to   preserve vaccines.

Growth is forecast to resume at a moderate average pace of 3 percent in 2021-22—essentially zero in per capita terms and well below previous projections—as persistent outbreaks in several countries continue to inhibit the recovery.

COVID-19 is likely to weigh on growth in Sub-Saharan Africa for a long period, as the rollout of vaccines in the region is expected to lag that of advanced economies and major emerging market and developing economies (EMDEs), further dampening growth.

As a result, living standards are likely to be set back a decade, and tens of millions of people in the region could be pushed into extreme poverty cumulatively in 2020-21.

One comment

  1. We haven’t yet seen the effects of elections on covid, so this analysis is premature.
    All pictures of the season show lack observance of SOPs.
    The pandemic negative effects are expected to shoot up at least one more time before the situation normalises to numbers that will stabilise with normal behaviour.

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