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Tuesday, 6 March, 2001, 09:28 GMT
Uganda's economic test
President Museveni has presided over a period of economic growth
President Museveni has presided over a period of economic growth
The year ahead looks set to be a testing one for Uganda economically as well as politically.

In recent years, Uganda has been credited with one of Africa's strongest growth rates - helped by the implementation of an economic reform programme by President Museveni's government as well as international aid.

But its economy is heavily reliant on coffee exports and the falling coffee price has hit export revenues hard.

Pressure is now on the Ugandan government to reduce its reliance on the coffee bean, diversify its economy and hopefully arrest the slowdown in economic growth.
coffee beans
The falling price of coffee has hit Ugandan export revenues

In a letter of intent to the IMF last year, Gerald Ssendaula - the country's finance minister - estimated that real GDP growth for 1999/2000 slowed to 5.1%, in part because of drought.

Average growth rates have been about 6.4% over the past 10 years, in part a credit to the relative stability of President Museveni's government.

Inflation has fallen from 16.1% to 5.2% in the past six years.

These economic achievements have won Uganda praise from international lenders and last September, the IMF released $12m, bringing to $112m the money Uganda has received under its three-year programme.

GNP per capita
Uganda: $320
Sub Saharan Africa: $500
Source: World Bank

There is still work to be done: the IMF has warned of the dangers of the widening of the fiscal deficit, the need to improve tax collection and continue existing reforms.

Poverty stricken

The headline IMF figures don't succeed in hiding the fact that Uganda is still one of the world's poorest countries.

The share of the population living in poverty may be falling, but regional divides exist and many Ugandans feel they have not enjoyed the benefits of the growing economy.

The privatisation policy pursued by the Ugandan government is seen by many as a scramble for the fruits of state-owned property.

In theory, the money released under the IMF's Poverty Reduction and Growth Facility should in some way change this.

The fiscal programme includes plans for an across the board wage increase of 5%, with a salary increase of 10% for lower-ranking primary school teachers, prison staff and police.

Uganda has also benefitted from debt relief, becoming one of the first countries to be declared eligible for the Heavily Indebted Poor Countries Initiative in April 1998, ensuring some $700m of debt relief.

Ugandan test

But the real test of the new Ugandan government may be if it can diversify its economy.

Agriculture employs over 80% of the workforce, while coffee accounts for over 50% of export revenues.

A small horticulture industry is emerging, and maize exports to Kenya are growing, while the tea industry has also been revitalised.

Part of the problem is that other African countries are diversifying from their traditional industries, so European flower buyers may now choose between Kenyan and Ugandan fresh-cut flowers.

Uganda is also competing with other African countries for foreign direct investment.

"In terms of political stability it is one of the best places to invest in Africa, because the government is so amenable to foreign companies coming in," Christopher Eads, an economist at the Economic Intelligence Unit said.

Duncan Bonnett, researcher at Whitehouse & Associates, a consultancy for foreign direct investors in Africa, says that the level of direct investment may not match that received by the oil-rich African countries, but agrees that Uganda is an attractive place for investors.

"The Ugandan economy more than many is structured in a way that will allow it to integrate in the global economy," Bonnett said. "Increasingly the business infrastructure is reaching a level where people fell comfortable to do business there and are able to do business there. "

The enquiries received by foreign investors when the IMF and World Bank was singing Uganda's praises have since faded. "It is very difficult for African countries to maintain that level of interest," Bonnett said.

Aid boost

The single biggest factor in Ugandan success has been the financial support from international donors such as the IMF and the World Bank.

Whatever the election result, he anticipates that Uganda will continue to receive this aid, Eads said.

"Uganda is the only example that donors can hold up as a success story, and I don't think they would sacrifice that."

His estimate is that about 8% of GDP comes from donor funding, no mean amount considering that the manufacturing sector only counts for about 10%.

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See also:

16 Feb 01 | Business
Africa's economy under spotlight
10 Jan 01 | Country profiles
Country profile: Uganda
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