Uganda GDP is LIKE Kampala SHOPPING malls, Rosy in short run BUT SUSPECT in the LONGRUN

The Ugandan economy today lends credence to the famous Africa rising of the 2000s, and recent economic trends suggest an Africa rising paradox but a far better continent than the one dubbed hopeless of the 1990s. An aerial view of Uganda's banking sector, telecommunication, and the supermarket industry among others over the last five years suggests the struggle for the private sector is imminent as exhibited by forced acquisitions, mergers, farm downs, downsizing and closures. This has not been helped by the exacerbating economic fundamentals globally and domestically that are characterised by heightened inflation, depreciating shilling, and high interest rates. The latter is highly associated with the monetary policy response by the hiking of the Central Bank Rate (now at 17%) and growing government domestic borrowing through issuance of treasury bills and bonds reaching UGX 10.7 trillion in February 2016. The 364 Treasury bill rate reached 24.6% in February 2015 compared to average lending rate to private sector of 25%, implying the institutional investors including banks will prefer to invest in the government securities than the risky private sector given that government is considered risk free.

All these factors weigh negatively on Uganda's GDP. To many , GDP is abstract but stands for Gross Domestic Product, which is a measure of the level of economic activity over a period of time usually a quarter or year. GDP essentially looks at monetary value of all output (goods and services) generated within boarders of an economy, irrespective of who generates it (foreigner or Ugandan). Every country wishes to have expanding GDP, which in itself is an indicator of economic growth. When GDP expands, employment increases, workers, business and governments are better off. The latter would garner more revenue from heightened economic vibrancy of households and firms. However, high grow rates can fuel inflation, usually a case of too much demand, common with fast growing economies like Ethiopia.  The reverse is true, when the euro zone encountered recession in 2014 (consecutive GDP decline over 2 periods); the zone subsequently registered a deflation (prices falling over a period of time), a case of demand deficiency.

By and large, Uganda remains a small economy despite posting impressive average GDP growth rates of 7% annually between 1990-2010, before slowing down to an average of 5% over the last 5 years. The recent slowdown implies output gap (the difference between the actual output/production capacity of an economy and its potential output.  Uganda’s GDP was UGX 75 trillion (USD 25 billion) at the end of June 2015 and is expected to grow at 5% reaching UGX 79 trillion (USD 23 billion) in June 2016. In UGX, the economy would have expanded, but due to shilling depreciation, the value in dollars would be less. Over the long term, the exchange rate has increased from UGX 400 to the dollar in 1990 reaching UGX 3400 to date.   The key growth fundamentals backstopped by prudent fiscal and monetary policy related largely to influx of foreign capital, aid, private investments and resultantly employment in absolute numbers as well as labor participation increased. These streams of income and investments supported largely the evolution of the service sector, and asset (land and real estate) bubbles.  The growth of the latter exceeded the growth if the formal income and revenue streams (mortgages, remittances and household incomes), implying a mystery stream of income- arguably corruption.

GDP usually doesn't take into account the depreciation of the capital and buildings. The earlier  estimations also included some activities that have since sunken; a number of infant businesses that die within the first five years (statistically high), many buildings that have stalled, the roads that don’t last five years and number of half occupied shopping malls.  Overall the challenge has been that public and private investments that supported the earlier growth transition didn’t not focus on raising productivity in key sectors; manufacturing sector has only accounted for 7% of national output or GDP over last decade. Structural transformation hasn’t resulted; the interlinkages between sectors (agriculture, service and industry) remain very weak. The economy remains largely informal; accounting for 49%. Financial markets remain illiquid, small and undeveloped. While Uganda has bred business gurus, including the five that made it to the Forbes magazine list of richest Africans in 2012- each worth more than USD 50 million, none has yet to register any of their business companies on Uganda Securities Exchange (USE). The supply side of the national budget-public revenue has not grown significantly as a share of GDP, Revenue accounts for only 13% of GDP. All these factors emphasize structural impediments.

The macroeconomic policies may have dealt with short term economic fluctuations but the problems often go deeper than just demand (growth) dynamics. For example, monetary policy has been effective in controlling inflation by curbing demand through high interest rates but on the other end, inflation is rather a supply problem. The inflation cycle seems to be repetitive every three years, associated with global food and fuel prices or the domestic drought.  Fixing supply problems requires structural policies.

To a layman, the Ugandan economy may be equated to GARDEN CITY, very promising in its infancy but long term sustainability is suspect. The true ownership also remains blurry.