HOW COVID-19 HAS AFFECTED UGANDA’S ECONOMY & WHAT GOVT MUST DO TO AVOID DIRE CONSEQUENCES IN POST-COVID PERIOD
By Mulengera Reporter
The current Covid19 pandemic and its accompanying preventive measures have dealt a blow to most countries’ economies, Uganda’s inclusive. But explaining what effects the restrictions instituted to prevent or minimize the spread of the viral respiratory disease until a vaccine or treatment is approved for use has largely focused on the negative impact the pandemic will have on economic activity, revenue streams and lockdowns.
However, Prof Augustus Nuwagaba, a seasoned international consultant on Africa’s economic transformation, argues that the debate on the impact of Covid on Uganda must probe the four economic fundamentals – Interest Rates, Trade Balance, Inflation and Gross Domestic Product (GDP) – since these “determine not only the capacity of a people to engage in economic activity, but they define the actual store of real time value of money.” He adds that those seeking to help the economy from further seeking in the post-Covid period must plug the holes the pandemic and its restrictive measures have left on these fundamentals.
Prof Nuwagaba argues that loan repayment will be one of the major crises in the business sector post-Covid, especially given the high interest rates Ugandans companies and individuals have to endure compared to their counterparts in the region and other countries elsewhere.
At an average of 20 per cent, Uganda’s interest rate regime is one of the highest, higher than South Africa’s 10.25 per cent, Kenya’s 12.3 per cent, Tanzania’s 12 per cent, China’s 3.8 per cent, United Kingdom’s 1.1 per cent and USA’s 0.25 per cent.
The Professor is worried that with the lockdown seeing businesses closed for months now, most people could have “eaten up the operating capital” and not even the Bank of Uganda freeze on loan repayment might help because of the “already abnormally high” interest rates that will, consequently, kill many SMEs and make other businesses enterprises less competitive.
“It is going to be an uphill task for borrowers to meet loan obligations both during and after Covid19 period,” predicts Nuwagaba.
In all the four fundamentals, Uganda will endure her worst beating on the trade balance front, the professor further projects. Trade balance is simply the difference between money earned from exports (receipts) and that spent on imports (invoices).
With Uganda’s trade balance at a deficit of $3.7bn (given that tourism earns the country, $1.5bn, Diaspora remittances $ 1.4bn and exports $4.1bn, yet she imports goods worth $7.8bn annually), the economy will suffer more severely because restrictions on air travel, border crossings and hotel operations will affect the key areas from which Uganda earns a lot, especially tourism.
Nuwagaba hopes that if Covid19 is defeated soonest and lockdowns lifted, Uganda’s tourism sector could recover with time, but advises that more be done to promote domestic tourism.
“It is only our hope that the corona virus will subside quickly and tourism will rebound. Uganda has been outstanding in managing the COVID-19 pandemic and it is envisaged that the tourism sector will suffer in the immediate, but in the short and medium term, the sector should catch up,” predicts Nuwagaba.
He also advises government to “embark on import substitution, boost local production and cure “the cancer of importation” in its bid to balance its trade position.
The Professor observes that while there hasn’t been a considerable rise in prices – largely because lockdown measures like business shutdown have left people with little or no disposable income – farmers have suffered low prices for their goods, with the price of a tray of eggs falling from Shs12,000 in January 2020 to Shs 7,000 in May, and the price of a litre of milk plummeting from Shs1,200 to Shs300, something that has meant losses for farmers, and could discourage those interested in investing in agriculture.
According to the international consultant, technically speaking, Uganda has not experienced a recession but the situation on ground – job losses, failure for people to meet their basic needs, etc. – clearly shows that Covid19 has thrown the country into an economic slump.
Nuwagaba explains that technically, a recession means that a country’s GDP has suffered two successive quarters of negative growth, and therefore, with Uganda’s growth rate projection revised downwards from 6.2 per cent to 3.0 per cent, economic experts wouldn’t term Uganda’s current situation as that of a recession. But for socio-economic transformation analysts, technical definitions, it seems, wouldn’t matter.
Moving forward, Prof Nuwagaba thinks that “Uganda will be better if she adopts an import substitution strategy and cures the “cancer” of importation;” prioritizes the agricultural sector because it is “abundantly clear” that it has “shock-absorbed Uganda” during the Covid crisis; and focuses on an “economic stimulus that can make the economy rebound as quickly as possible.”
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