Nature of Ugandan

Economy

August, 2024

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 Outline
• Introduction
• Historical Background
• Basic/Salient Features Of Uganda’s Economy
• SWOT Analysis Of Ugandan Economy
• The Structure Of Agricultural Sector In Uganda
• The Structure Of Industrial Sector In Uganda
• The Informal Sector In Uganda
• The Concept Of Dualism In Uganda’s Economy
• The Concept Of Economic Dependence
• Economic Independence
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 Introduction
Structure of Uganda’s Economy Uganda’s economy is
heavily factor-driven and diversified across the three
sectors -- agriculture, industry, and services sector.
Since independence, the economy has been transforming
from agriculture to service and industry.
The share of agriculture in GDP has generally declined
from 54% in 1960s to about 24% today.
However, most of the workforce is still concentrated in
agriculture.
To date 73.8% of Ugandans live in rural areas where the
main activity is agriculture, and 70% of the working persons
were reported by UBOS to be employed directly by
agriculture by 2022. 3
 Introduction Cont’d
Economic theory suggests that this shift in the GDP share (from
agriculture to industry and services) is a sign that the economy is
undergoing transformation.
As the economy grows and per capita incomes rise, demand for
food and other staple agricultural commodities is usually satisfied
by a small proportion of household incomes.
However, the challenge with Uganda’s experience is that
although agriculture is fast declining in GDP contribution, it has
remained the largest employer of Ugandans as seen above.
This is the genesis of the persistent household poverty and low
incomes among Ugandans.
It also explains why Uganda’s value added per worker is rated the
lowest among the neighbouring sub-Saharan Africa countries
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Brief Historical Background
Peasant agricultural production has been the predominant
economic activity since pre-colonial times.
Despite an active trade in ivory and animal hides linking
Uganda with the east coast of Africa long before the arrival of
Europeans, most Ugandans were subsistence farmers.
After declaring Uganda a protectorate in 1893, Britain pursued
economic policies that drew Uganda into the world economy
primarily to serve Britain's late nineteenth - century textile
industry.
Cotton cultivation increased in importance after 1904, and
once it became clear that cotton plantations would be too
difficult and expensive to maintain, official policy encouraged
smallholder farmers to produce and market their cotton
through local cooperative associations.
By 1910, cotton had become Uganda's leading
export. In the following decades, the government
encouraged the growth of sugar cane and tea.
Following World War II, officials introduced coffee
cultivation to bolster declining export revenues, and
coffee soon earned more than half of Uganda's
export earnings.
In 1952 the Uganda government under the British
rule established Uganda Development Corporation
UDC a first parastatal body in the country.
The role of this body was to facilitate industrial and
agricultural development alongside the private
sector.
Uganda enjoyed a strong and stable economy in the years
approaching independence.
Agriculture was the dominant activity, but the expanding
manufacturing sector appeared capable of increasing its
contribution to GDP, especially through the production of
foodstuffs & textiles. Some valuable minerals, notably
copper, had been discovered, & water power resources
were substantial.
In 1967 Uganda and the neighboring countries of Kenya &
Tanzania joined together to form the East African
Community (EAC), hoping to create a common market &
share the cost of transport & banking facilities, & Uganda
registered impressive growth rates for the first eight years
after independence.
The economy deteriorated under the rule of President Idi Amin
Dada from 1971 to 1979. Amin used nationalist, militarist
rhetoric and ill-chosen economic policies to eliminate foreign
economic interests & build up the military establishment.
In 1972 he expelled holders of British passports, including
approximately 70,000 Asians of Indian & Pakistani descent.
Many Asians had been active in agribusiness, manufacturing,
& commerce. Their mass expulsion & Amin's efforts to
expropriate foreign businesses undermined investor
confidence in Uganda.
Amin also increased public expenditures on military goods, a
practice that contributed to escalating foreign & domestic
debt during the 1970s.
Relations with Uganda's neighbors soured, the EAC disbanded
in 1977, & Tanzanian troops finally led a joint effort to overthrow
the unpopular Amin regime in 1979. By 1980 the economy was
nearly destroyed.
Following Amin's departure, successive governments attempted to
restore international confidence in the economy through a mixture of
development plans and austere government budgets.
Beginning in 1980, the second government of Milton Obote obtained
foreign donor support, primarily from the International Monetary Fund (
IMF), by floating the Uganda shilling (USh), removing price controls,
increasing agricultural producer prices, and setting strict limits on
government expenditures.
In addition, Obote tried to persuade foreign companies to return to
their former premises, which had been nationalized under Amin.
These recovery initiatives created real growth in agriculture between
1980 and 1983.
The lack of foreign exchange was a major constraint on government
efforts, however, and it became a critical problem in 1984 when the
IMF ended its support following a disagreement over budget policy.
During the brief regime of Tito Lutwa Okello in 1985, the economy
slipped almost out of control as civil war extended across the country.
The role of the government in the recovery program;
• Respond to Uganda’s economic problems
• Assist Uganda industrialists to create a viable private
sector
• Introduce measures to restore the economy namely
floating of the shilling, Increasing Producer prices etc
• Removal of price controls Introducing of flexible interest
rates balancing the budget and Establishment of the tax
structure
• Invite the owners of the properties to repossess
• Enacted expropriation Act in 1982 to facilitate the
economic recovery initiatives
In 1986 when NRM government captured the power it
initiated the process of decentralization and local
governance to promote and sustain popular democratic
participation through a system of elected local council
LCS.
The system aimed at improving the social economic
conditions of the people of Uganda as a nation.
The Uganda government needed the decentralization
policy to attain legitimacy in response to national
leaders’ pressure for greater participation and
democratization in decision-making by ethnic, regional
or religious groups.
It was hoped that decentralization of this nature would
lead to local and national development.
After seizing power in January 1986, the new NRM
government published a political manifesto that had
been drawn up when the NRM was an army of
antigovernment rebels.
Several points in the Ten-Point Program emphasized the
importance of economic development, declaring that an
independent, self-sustaining national economy was vital
to protect Uganda's interests.
The manifesto also set out specific goals for achieving this
self-sufficiency: diversifying agricultural exports and
developing industries that used local raw materials to
manufacture products necessary for development.
Ten-Point Program also set out other economic
goals:
• to improve basic social services, such as water,
health care, and housing;
• to improve literacy skills nationwide;
• to eliminate corruption, especially in government;
• to return expropriated land to its rightful Ugandan
owners; to raise public-sector salaries;
• to strengthen regional ties and develop markets
among East African nations;
• and to maintain a mixed economy combining
private ownership with an active government sector.
The NRM government proposed a major Rehabilitation and
Development Plan (RDP) for fiscal years 1987-88 through 1990-
91, with IMF support; it then devalued the shilling and
committed itself to budgetary restraint.
The four year plan set out primarily to stabilize the economy
and promote economic growth. More specific goals were to
reduce Uganda's dependence on external assistance,
diversify agricultural exports, and encourage the growth of the
private sector through new credit policies.
Setting these priorities helped improve Uganda's credentials
with international aid organizations and donor countries of the
West, but in the first three years of Museveni's rule, coffee
production remained the only economic activity inside
Uganda to display consistent growth and resilience.
When coffee-producing nations failed to reach an
agreement on prices for coffee exports in 1989,
Uganda faced devastating losses in export earnings
and sought increased international assistance to
stave off economic collapse.
In 1987 the NRM government established a policy
statement that advocated for the liberalization of
the economy, floatation of currency, removal of
price controls, freezing the interest rates liberalizing
trade, and reducing government expenditure
capacity to the economy.
Among the many implementation programs
established was the Poverty Eradication Frame work
(PEAP) whose objectives were:
• Addressing the requirement for fast and sustainable
economic growth and structural transformation.
• Transferring responsibility to district and lower levels
of administration
• Ensuring transparency and efficiency in public
expenditure in process of service delivery
• Establishing and promotion effective partnership
with NGO and civil society organizations
• Empowering the disadvantaged groups
• Improving the ability of the poor to raise incomes
• Making special provision for micro finance to
enable poor people access finance services
• Increasing returns to productive assets by
improving the markets
• Provision of advisory services
• Bridge the gap b’tn local people and with the
gov’t at local & central levels, physically &
psychologically.
• Promotion of self-employment & other form of
wage employment
 BASIC/SALIENT FEATURES OF UGANDA’S ECONOMY
Uganda’s economy can be described as follows;
• It is predominantly an agricultural economy. Agriculture is the major
sector/production activity because it contributes a big percentage of the
country’s GDP and employs a bigger proportion of the country’s labour
force. It is also the major source of food and foreign exchange earner for the
country.
• It is basically a mixed economy. This means that resources are owned and
allocated to different uses by both the government and private individuals.
• Uganda’s economy has got a small but growing industrial sector with most
industries involved in processing.
• It is a dual economy. Elements of dualism in Uganda include; Co-existence of
the poor people alongside the rich, rural areas alongside urban areas, the
educated alongside the illiterate people, subsistence sector alongside the
monetary sector etc.
• It is an open economy. This implies that Uganda participates in international
trade.
• It is a highly dependent economy. Uganda relies heavily on foreign
economics for financial and human resources. It also relies on agricultural
sector for her exports and employment. 18
BASIC/SALIENT FEATURES OF UGANDA’S ECONOMY CONT’D
• Uganda’s economy is characterized by high levels of
unemployment and under employment. This is due to
abundant supply of unskilled and semi-skilled labour force
in the country’
• Uganda’s economy is characterized by a high population
growth rate, this is due to the high birth rates and low
death rates.
• The labour force is predominantly unskilled due to the low
levels of education.
• It is characterized by a growing informal sector. This is an
intermediate sector existing between the modern and
traditional sector 19
 BASIC/SALIENT FEATURES OF UGANDA’S ECONOMY
CONT’D
• It is characterized by a large subsistence sector i.e. most
producers produce for home consumption.
• It is characterized by poorly developed social and economic
infrastructure e.g. roads are in a poor state but improving, there is
shortage of power and inadequate communication facilities.
• Excess capacity exists in many sectors of the economy. This
means that most firms produce at less than full capacity due to
poor technology, inadequate capital, limited market size etc.
• The employment pattern is such that the majority of labour force
is in the primary sector especially the agriculture sector. Few
Ugandans are engaged in manufacturing and very few of the
labour force is found in the tertiary sector (service industry).
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ECONOMIC IMPLICATIONS/EFFECTS OF THE
STRUCTURE OF UGANDA’S ECONOMY
• Balance of payments deficit. This is due to the high
expenditure on importation of manufactured products which
are highly priced and low earning from exports which are
mainly agricultural products that fetch low prices on the
world market hence causing a B.O.P deficit.
• Heavy debt burden. This arises from over dependence on
foreign aid inform of loans which require paying back.
• Low tax base and low tax revenue. This is due to the presence
of a large subsistence sector and a small industrial sector
whose activities are not taxed.
• Low labor productivity. This is due to dominance of unskilled
labour force.
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 ECONOMIC IMPLICATIONS/EFFECTS OF THE
STRUCTURE OF UGANDA’S ECONOMY CONT’D
• High levels of poverty among people. This is due to low incomes
resulting from a large subsistence sector.
• There is failure of government plans. This is due to dependence on
foreign aid which is inadequate and sometimes unreliable.
• It implies unfavorable terms of trade. This is because of dependence
on primary agricultural exports which fetch low prices on the world
market yet Uganda mainly imports manufactured goods which are
highly priced.
• Fluctuation in foreign exchange earnings of the country. This is due to
the dominance of agricultural product exports whose prices are
unstable.
• Low levels of savings and investment. This is due to a high dependence
burden arising from a high population growth rate.
• Low rate of economic growth and development. This is because most
of the country’s natural resources are under-utilized.
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 ECONOMIC IMPLICATIONS/EFFECTS OF THE
STRUCTURE OF UGANDA’S ECONOMY CONT’D
• There is diminishing returns on land due to dependence on
agriculture i.e. decline in productivity of land arising from over
utilization of land.
• Income inequality among people. This is due to high levels of
unemployment and dominance of subsistence sector where
producers earn low income compared to the few engaged in
monetary products and the employed who earn high incomes.
• Low levels of technological advancement. This is caused by
technological dualism in Uganda. There is still predominance of
rudimentary/ backward skills of production in many parts of the
country because of conservatism among people and limited
capital.
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 MEASURES THAT CAN BE TAKEN TO
IMPROVE UGANDA’S ECONOMY
• Develop infrastructure. The government can construct and rehabilitate the
infrastructure especially the road network. This can enable easy movement
of raw materials to production centres and finished goods to market areas
and at reduced cost. This can encourage more investment in the economy
and thus improve Uganda’s economy.
• Widen market both local and foreign. The government can expand the
market through joining regional economic integration like East African
Community, COMESA, etc. This can encourage more investments and
production in the country because of the assured market for goods.
• Provide affordable capital for investment. The government can offer loans at
low interest rate for investment. This can help to expand the capital base of
the investors and result into increase in investment and output.
• Stabilize the political climate. The government can ensure relative peace in
different parts of the country through strengthening of defense. This can give
confidence to investors since there are assured of safety for life and property
thereby creating an increase in the level of investment and production.
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 MEASURES THAT CAN BE TAKEN TO
IMPROVE UGANDA’S ECONOMY CONT’D
• Provide investment incentive like tax holidays, allocation of land for
industries etc. This can reduce the cost of doing business and thus
encourage investors to set up more production units in the country.
• Control population growth rate. This can be done through promoting
family planning in order to reduce the dependence burden on the
working population. This can increase the level of savings and
investments in the country.
• Improve the techniques of production through research. The
government can encourage technological development and transfer
as a way of promoting better techniques of production that can cause
increase in the volume of output and improvement in the quality of
output.
• Improve the land tenure system. The government can carry out land
reforms to give investors easy access to land and chance to buy land
on which to set up production units. This can promote investment and
commercial production.
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 MEASURES THAT CAN BE TAKEN TO
IMPROVE UGANDA’S ECONOMY CONT’D
• Improve the land tenure system. The government can carry out land reforms
to give investors easy access to land and chance to buy land on which to
set up production units. This can promote investment and commercial
production.
• Modernize agriculture. The government can encourage the transformation
of agriculture from subsistence production to commercial oriented
production. This can reduce subsistence production activities in agriculture
and increase incomes of produces and the supply of raw materials and food
in the country.
• Diversify the economy. The government can encourage the starting up of
many economic activities in the country. This can reduce dependence on
agriculture and its negative effects
• Provide labour with skills through training. This can enable labour to acquire
the necessary skills for production and thus increase labour productivity and
efficiency.
• Improve entrepreneurship skills. This can help in ensuring proper organization
and coordination of factors of production in order to increase output.
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THE MACROECONOMY: SWOT ANALYSIS
A Swot Analysis identifies strength(s), weakness(s),
opportunities, and threat pertinent to a system or
situation in a manner, which exposes the capacity
of the system to address set goals, in turn, specific
strategies can be devised. The analysis of
Uganda’s macroeconomy in the context of SWOT is
encapsulated below.
Strengths
The Ugandan economy has strengths which
constitute the building block for achieving the
aspirations of the people – sustained economic
development.
• Abundant natural resources – soil, vegetation,
lakes, river, minerals, fauna (wildlife), good climate.
• A growing reservoir of skilled labour, with abundant
unskilled labour.
• Evident growth in entrepreneurial spirit.
• Availability of fertile land for farming and animal
husbandry.
• Favourable investment climate and opportunities
(Uganda Investment Act and Uganda Investment
Authority).
• A liberalized economy.
• A market economy (laissez-faire) with limited
control.
• Private sector led growth.
• Part of a larger market (economic integration –
East Africa Community and Common Market for
Eastern and Southern Africa).
• Political pluralism.
Weaknesses:
• Very small and landlocked.
• Limited market (rampant poverty).
• Limited managerial capacity.
• Limited entrepreneurship
• Poor infrastructure.
• Limited application of science and technology.
• Weak financial system.
• Narrow export base.
• Peasant agriculture.
• Small industrial sector.
• Prevalence of corruption.
• Narrow tax base.
Opportunities
• Available technologies on the world market.
• Possibility for forming viable economic integration.
• Utilisation of information technologies.
• Support from development partners.
Threats
• Negative external forces.
• Protectionism (from developed countries).
• Donor fatigue resulting into cancelling of financial support.
• Disease burden like AIDS.
• Debt burden.
• Unfavourable donor conditionalities.
THANK YOU
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