Uganda: Economy Not Recovering Soon – Bank of Uganda

But pull back factors sowing uncertainty include failure to contain the pandemic through vaccination and observance of SOPs, emergence of vaccine resistance to COVID-19 variants, and re-introduction of restriction on gatherings and mobility.

There are also factors outside of the Ugandan economy, including risks associated with rising global commodity prices, especially of oil as economies fully open up.

Winners and losers

The spread of COVID-19 and its economic impacts gained momentum in March 2020 when the country’s first case was reported. By March 30, the government of Uganda had declared a nation-wide lockdown in addition to other critical measures to minimise its spread. The impacts of the virus itself together with government initiatives to control its spread have been felt in the political, social, and economic spheres of life of the country.

Public gatherings in places of worship, bars, weddings, and concerts were suspended together with public and private transport except for so-called essential workers.

Earlier reports had hinted that the COVID-19 effect on the economy is likely to be transitory rather than structural and projected a quick return to positive growth.

One such report was published on Aug. 03 by the Brookings Institution; a nonprofit public policy organisation based in Washington, DC that conducts in-depth research on such issues. Titled ‘The impact of COVID-19 on industries without smokestacks in Uganda,’ it was written by researchers, Madina M. Guloba, Medard Kakuru, and Sarah N. Ssewanyana from Makerere University Kampala’s Economic Policy Research Centre (EPRC).

Unlike the BoU statement that covered the June to July period, the Brookings study covered the early period from March to July.

According to the World Bank, the impact of any pandemic on economic well-being operates through two distinct channels: directly or indirectly from effects of the pandemic and through the behavioral effects resulting from the fear of contagion.

The government started easing restrictions around June 2020. Public transport resumed and by September 2020, airports and land borders had re-opened. On Oct. 1, 2020, international flights resumed.

This growth has been negatively affected as a result of COVID-19. Production, taxation, financial flows, employment, money markets, and poverty rates have all been affected.

While the growth rate prior to the pandemic in the third quarter of 2018/19 was at 7.0 percent, in the third quarter of 2019/20, it had declined to 0.3 percent. Then, while the fourth quarter of 2018/19 growth rate was at 4.6 percent, it had declined to -5.7 percent during the same period in 2019/20.

The negative growth corresponds to a decline in GDP value added at constant prices experienced from Shs28.5 trillion (Approx. $7.7 billion) in Q4 2018/19 to Shs27.2 trillion ($7.3 billion) in Q4 2019/20 representing a 4.6% decline.

Nonetheless, the study points out, sectors such as agriculture and transportation (trade in particular, both domestic and cross-border) were more resilient as they continued to grow. In the first quarter of 2020/21, there was even a slight recovery attributed to an ease in lockdown measures, which enabled resumption of the real sector which involves actual purchase and flow of goods and services consumed by people using actual money to pay and other activities in the economy.

“Simply put, there have been losers and winners as the pandemic took its toll on the economy,” the study says.

But like the BoU statement, the Brookings study noted that COVID-19 led to a decline in Uganda’s GDP due to closure of business entities (both formal and informal) and a subsequent and significant decline in employment. Only firms leveraging digital platforms worked, but these instances were rare.

While the agriculture sector in Uganda was not heavily hit, agro-processing, an Industries Without Smokestacks (IWOSS) sector that is heavily dependent on agriculture production for supply, suffered due to limited transportation of goods from production areas. But most sectors resumed business when the total lockdown was lifted.

According to the study, a key informant in the agro-processing sector reported that the effect of the pandemic on the sector is transitory because most businesses/industries have not shifted from their line of businesses when they resumed operations.

According to the key informant quoted, the recovery in agriculture is too high for the COVID-19 effect to have been a structural issue.

The report says even the Ministry of Finance, Planning and Economic Development and Bank of Uganda were reporting that the economy is recovering steadily.

“The speed of the recovery hints that COVID-19 effects on overall employment are likely more transitory,” the report said.

It pointed out that, in terms of sectors, the economy has seen transitions of labour from some sectors to others. Teachers locked out of classrooms turned to charcoal burning, riding bodaboda motorcycle taxis, or serving as night watchmen. Some went into small highly informal businesses like selling chapatti on impromptu street stalls.

The COVID-19 pandemic also induced a structural change in employment. A substantial number of firms/organisations downsized to reduce operating expenses while others closed entirely. Such changes imply a further contraction of formal jobs, giving way to more informal employment or, worse, still increased unemployment.

Focus on tourism

The report focused a lot on the tourism sector, which is a major Industry Without Smokestacks (IWOSS). Here, the report projected a missed recovery path with some sub-sectors such as leisure visitors, who represent about 20 percent of all international visitors to Uganda, being not likely to return soon.

It said this would impact particular entities such as tour operators and safari lodges that rely on the leisure market.

“As such, many tour operators who have sound driving and interpersonal skills have looked to alternative jobs,” it said.

But the study said business travelers from within the East African Community, who constitute about 70 percent of all international visitors, are expected to resume faster. The cities where such business visitors stay were also expected to recover faster, the study said.

But the latest BoU statement dampens any such Pollyannaish.

“Tourism is unlikely to return to normal levels any time soon,” it says bluntly while blaming the on and off lockdown and easing regime seen so far.

The tourism sector is a key driver of socio-economic development in Uganda. It is a major foreign exchange earner and provides avenues for investment and employment. In FY 2018/19, tourism contributed about US$1.1 billion or Shs4.2 trillion to the Ugandan economy corresponding to about 3.2% of GDP. In 2017, it contributed about 229,000 jobs or 2.4% of total employment including employment by hotels, travel agents, airlines and related services. Its total contribution to employment rises to 605,500 jobs or 6.3% of total employment. In addition, the local communities living adjacent to tourist attractions also have suffered since their source of livelihood was closed.

Uganda’s average economic growth of 5.3% in the five years to 2018/19 has been driven mainly by developments in the services sector which includes tourism and many other Industries Without Smokestacks.

Industries Without Smokestacks (IWSS) include high-value agriculture, post-crop harvest processing, mining services, tourism, business services and other tradable services like cut flowers, transport, mobile money, telecommunications, and finance. The services sector share of GDP stands at 44%, followed by industry at 26%, and industry at 23%. Exports of industries without smokestacks have been growing more rapidly than traditional non-mineral exports in many African countries, Including Uganda.

But even before outbreak of the COVID-19 pandemic, experts including from the World Bank were warning of the risks of relying on the services sector and urging a shift to higher productivity activities such and industry and manufacturing that are resilient to shocks. The pandemic effects on the tourism sector hit women far worse than men given their much higher participation in hospitality-related activities like hotels and restaurants.

E-commerce boom

But the Brookings study makes a major finding; that the rise of technology during the pandemic will also have long-lasting effects. It points at how, during a launch of the e-commerce partnership between the United Nations Capital Development Fund (UNCDF) and Safeboda; a mobile phone-assisted motorcycle taxi hailing service, the Ugandan Minister of Trade, Industry and Cooperatives reported that the pandemic has paved the way for e-commerce and this would never be reversed.

Some agribusiness activities were compelled to go digital, which in many cases resulted in more profits than in the pre-COVID era–suggesting that such agribusinesses mighty be unlikely to look back.

The study points at the online grocery platform Bringo Fresh said to have experienced a 150% increase in online orders immediately after the first COVID-19 case was reported in Uganda. The increase could have been triggered by increased demand for fresh fruit and vegetables (FFV), which are believed to enhance immunity.

During the launch, one of the first partnership market FFV vendors to embrace e-commerce mentioned that her daily sales were higher than they were before lockdown, and she attributed this to e-commerce.

“Some jobs will never be recovered given the adoption of different working modalities like working online and from home,” a key informant to the study is quoted to have said.