Mutebile leads experts to analyse ways to maintain high growth
Kampala, Uganda | JULIUS BUSINGE | July has been a month of reflection by finance experts and economic technocrats on the future state of the economy as the new FY2019/20 kicked off.
There is the nagging commentary that although Uganda is no longer a basket-case economy, it is an empty pockets-economy with enclaves of prosperity. There is also fear borne of almost 10 years of slow growth that fuels questions on whether the current momentum will be sustained.
When Finance technocrats like Central Bank Governor Tumusiime Mutebile, lecture room gurus like Ramathan Ggoobi of Makerere University Business School and NGO types like Julius Kapwepwe of the Uganda Debt Network are asked to prescribe a path for the future of the economy, each reels off almost divergent opinions.
They all mention agriculture, industrialisation, private sector credit, lending rates, export driven manufacturing, the demographic dividend and more. But they order them differently and prescribe almost conflicting levels of importance to each.
The general view, however, is the economy is buoyant. According to the Bank of Uganda Monetary Policy Report for June 2019, it is estimated that the economy grew by 6.1% in FY2018/19. This growth rate is higher than the average of 4.8% registered annually since 2014/2015.
Growth was supported by the central bank taking a decision that favoured easier borrowing by businesses and increased government spending to stimulate the economy and good weather that favoured the agriculture sector. The government did more infrastructure projects, the private sector borrowed more, and households consumed more.
Prices remained relatively stable in FY2018/19 with headline inflation, which changes more rapidly because it includes items like food and fuel, and core inflation averaging 3.1% and 3.7% respectively in the 11 months to May 2019. This was mainly on account of a drop in food crops as a result of favourable weather conditions throughout the year.
The value of the shilling also was stable. It weakened by just 1.1% against the US dollar, to an average of Shs3, 736 in the three months to May 2019. In the quarter ended January 2019 it had strengthened by 2%.
Commercial banks reduced their interest rates slightly to 20.2% in the quarter to April 2019 compared to 20.7% recorded in the quarter to January 2019. On average, private sector credit in the quarter ended April 2019 was 13.9%, up from 7.2% in the same quarter last year.
Growth up, poverty up
But in a speech at the National Leadership Institute on July 07, Ramathan Ggoobi, a senior economics lecturer at Makerere University Business School, although the economy is growing, there is a problem. The economic growth is not reflecting in the pockets of the people.
Instead more people are becoming poorer. He cites data from the Uganda Bureau of Statistics that showed that 21.4% Ugandans are poor now compared to 19.7% from FY 2012/13. Up to eight million people cannot afford three meals a day.
Ggoobi said poverty has increased partly because of drought, sharp changes in prices, crop diseases/pests, livestock diseases, storms, human epidemic, floods and power outages.
He listed current problems to the economy as bad leaders, huge public debt, high population growth rate, regional imbalance and insecurity. He said they are partly caused by politics.
Ggoobi spoke of agriculture transformation, industrialisation, and exporting more. But it is clear his prescription is agriculture. He says it must see transformation, diversification, and intensification. There must be irrigation and new crop varieties.
“We must make agriculture a high value sector, raise productivity in order to reduce subsistence production,” he said.
But he agrees that agriculture is a low productivity sector and says industrialisation will speed up the movement of people to more productive sectors and improve export performance.
He says farmers should get incentives to commercialise or diversify into non-farm activities.
“Economies transform when people raise agricultural surplus that they move with into industry and then services,” he said, “Our number one task is to facilitate smallholder farmers to raise their productivity and incomes,” Ggoobi said.