Uganda Economics Case Study

8/12/2019 Uganda Economics Case Study

1/6

Geography of Uganda

Uganda is a land locked country found on the equator in east Africa. It has a tropical climate

that produces average temperatures of 29*C and average rainfall of 100cm. The country

experiences annual tropical wet season where the majority of the rainfall occurs. Uganda lies

low at 1100 meters above sea level on average, though shares Mount Elgon with Kenya. It

also shares Lake Victoriathe largest lake in Africa- with Tanzania and Kenya. The source of

the River Nile is found in Uganda. It flows for 130 kilometres through the countrynorthwards and through to South Sudan.

Uganda are rich in raw materials such as copper, cobalt, salt, limestone and gold.

Demographic of Uganda

Uganda has 10 major ethnic groups and many more smaller groups as with many African

countries, due to the boarders being drawn without the consideration of the many ethnic

groups. In 2010 Uganda had a population of 33.425 million people and is increasing at a rate

of 1,000,000 people per year, 49% of which are under 15 and only 2.5% are over 65 years.

The death rate on average is 13.2 per 100 people per year. The birth rate is 46.3 per 1000

people per year. The population rise is likely to lead to greater strains on the already fragile

infrastructure in the country. As things are, the country cannot support the current

population. Uganda's youthful population is one of the youngest in the world. This is a result

of high birth rate, a falling infant mortality rate and a high death rate. High birth rates are

common in developing countries where a lot of families are subsistence farmers. Having a

large family to work the land is essential as a large family would benefit from increasing

returns to scale. The high death rate and infant mortality rate also contributes to people

wanting many children as the likelihood of a child dying is higher than in a more

economically developed country like the UK where the birth rate is 12.26 per 1000 people.

The youthful population accounts for the increasingly expanding labour force. The increasein labour produce a doubling of the labour force in the next 30 years. Unless the rate of job

creation can keep up with the supply of labour, the rate of unemployment will continue to

rise and the costs to the government in terms of social welfare will also continue to rise.

The life expectancy at birth is 56 years which is 24 years lower than the UK and 11.88 years

lower than the worldwide average. The current life expectancy is the highest its ever been in

Uganda, which is a result of improving health infrastructure and medicinal imports.

The two main religions in Uganda are Catholicism (41.9%) and Anglican(35.9%).

History


2/6

The British became a protectorate of Uganda in 1894 following the 'Scramble for Africa'

which saw most of Africa subdivided into colonies. The British invested heavily into

infrastructure in the country and most of there colonies to develop the trade routes

through Kenya and Uganda, such as the East African railway, and hold greater trade power in

the region that included the German East African colonies and the Belgium Congo.

Uganda, under the British rule, grew wealthy as the British introduced cotton which was

grown by the local farmers. Uganda gained independence from the British in 1962 and there

are still remnants of that period such as democratic

Following independence, Uganda experienced instability. The first President of Uganda was

Milton Obote. His time in power between April 1966 and January 1971, and later in

December 1980 and July 1985 is known for the widespread corruption, food shortages and

rapid increases in food prices and the persecution of Indian traders who had previously held

monopolies under British rule. There were many coups against the government. The most

notable being the Idi Amin coup of 1971. He led the Ugandan army against the president andseized control. Between 1971-1979 up to 800,000 Ugandans where killed. Farmsteads where

burned to the ground and livestock were killed as part of a plan to terrorise civilians into

submission. Idi Amin also expelled up to 80,000 Ugandan-Asians. Many Asians owned

lucrative businesses in the country. When they left, they left behind those businesses and

positions that they held in government and the economy suffered as a result. Those

businesses where run into the ground by miss-management and inefficiency. The

manufacturing industries suffered from poor maintenance and neglect and output was

drastically reduced. This is shown in income per person in 1971 compared with 1979, the

period in which Idi Amin was in power. In 1971 GDP per capita was $964 per person per

year. In 1979 it fell to $676 per person per year.

Uganda started using there own currency, the Ugandan shilling, after the collapse of the East

African Currency Board. Before that, Uganda has been using other currency. The Bank of

Uganda was established in 1966. Uganda's Currency has changed seven times since 1966.

The 1966, 1973, 1979, 1983 and 1986 changes were due to changes in regimes. The 1987

issue has been updated to stop counterfeiters.

HIV/AIDs

HIV/AIDs has been a major cause of deaths in Africa. Uganda where one of the most

effective of any country in Africa to respond to the HIV/AID's epidemic. During the 1980's

almost 80% of Ugandans had the HIV virus and by 2008 this had fallen to 6.8%. The Ugandan

government where proactive in their approach compared with South Africa which, under

president Thabo Mbeki, denied the link between HIV and AIDs. Life expectancy fell from 50,

in 1980, to 45 in the mid 1990's.

Soon after the current president of Uganda Museveni came into power In 1986, he push for

a campaign of prevention of the spread of HIV. The policy 'ABC' aimed at educating the

population of what caused HIV so that they could make more informed decisions. This policy

would be less costly in the long term rather than focusing on curing. The policy consists of

Abstinence, Be faithful and Condoms and was hugely successful in reducing the prevalencerate in Uganda.


3/6

The spread of HIV had widespread impacts on economic growth. The country had an adult

prevalence rate of nearly 14% in 1991 People affected by HIV will be unable to work and

this would lead to a fall in the labour supply. This would cause the cost of labour to rise as

labour becomes increasingly scarce. The effect of rising wages could be passed onto the

consumer in higher prices or with businesses employing fewer workers or even reducing

output to reduce the costs of production. The epidemic left 1.2 million children orphaned

and so they were left to be cared for by their grandparents. The total tax base fell during the

mid 1990's as the HIV/AID's virus killed of much of the adult population. This reduced the

governments ability to affect the spread of the disease, such as health care infrastructure, as

the governments revenue fell. This meant more of the burden fell on the governments

ability to gain aid from the World Health Organisation and other non governmental

organisations. The prevalence of HIV also put increasing pressures on the health

infrastructure in the country which increased public expenditure. The effect of an increasing

public expenditure and falling revenue meant that the fiscal deficit was rising and economic

growth was slow during the early years of Museveni's time in power. Studies have alsoshown that there is a correlation between a country with decreasing life expectancy and

also decreasing GDP rates. There has also been predications of economic growth trajectories

of several sub-Saharan African countries and that shows that HIV/AIDs will have the effect of

reducing economic growth between 0.56 and 1.47% between 1990 and 2025.

Poverty

Uganda is one of the poorest nations in the world. It is ranked 161st, out of 187 countries, in

the world in the Human Development Index. Almost 37% of the population are living in

extreme poverty at less than $1.25 a day. This figure has fallen from 70% in 1992. The

amount of people living in poverty (less than $2 a day) has also fallen considerably from 89%

in 1992 to 65% in 2009. The overall number of people living in poverty has increased due to

population growth. The poorest regions in Uganda are found in the northern part of the

country. The north is dominated by remote tribes.

Around 85% of Ugandans live In rural areas. 27% of these live below the national poverty

line. Most people who live in rural regions are subsistence farmers or rely on agriculture for

their incomes. These small scale farmers are spread out in remote areas and so the full

effect of economic growth will be harder to reach them. They lack the ability to access

financial services which would enable them to expand their productive capabilities. The

majority of the poor in the country live in dry, semi-arid conditions where growing crops is

limited to the seasonality of the rainfall. In these regions, the population is most vulnerable

to the effects of climate change. As the climate becomes increasingly extreme, the amount

of people who are affected will rise in the future.

Northern Uganda was particularly affected by the 2011 East African Drought in which east

Africa experienced the worst drought in 60 years. This drought had wide reaching effects on

the rest of Uganda as roughly 1.2 million Ugandans where affected. Inflation, caused by food

shortages, rose to a all time high of 30.5% in October 2011.


4/6

HIV/AIDs has severely affected the poor of Uganda where a large number of adults died

from the disease and left around 1.2 million children orphaned and without any form of

income. The rapid growth of the population also has contributed to the restriction of people

from getting out of poverty.There has also been rapid rural to urban migration in Uganda. Between 2002 and 2010 the

urban population grew by 5.6 % compared with the rural population growing by 3.4%. This

has exacerbated the urban poverty problem as people began to build illegal settlements on

the outskirts of major cities such as the Katanga slum in Kampala, the capital city. People

move from rural areas to towns and cities In search of a higher standard of living. But most

will end up in the slums as the supply of labour outstrips demand. The percentage of urban

poverty will continue to rise if job creation cannot keep up with the rate of urbanisation.

Economy

The Ugandan economic output in 2012 was $20.96 billion. It has a GDP per capita of $1,415

which is the 205th highest in the world. The most important sector of the economy is

agriculture as it employs 80% of the labour force. However the majority of this sector is

dominated by the poor who are subsistence farmers. The manufacturing industry employs

5% and services employs 13%.

The agricultural industry is the most vulnerable of the industries as its heavily dependent

on the climate. Extreme variations in the climate such as drought or flooding will limit output

and can cause food prices to rise. Currently the government are focusing efforts in trying to

modernise agriculture by increasing mechanisation. This will allow the agriculture sector to

become more efficient and to benefit from increasing returns to scale. The effect of this

would be structural unemployment as the economy begins to move away from agriculture.

Modernising the agriculture industry will also reduce its vulnerability to changes in climate,

as production can remain relatively constant. Although agriculture employs 80% of the

population, it contributes to only 23.5% to total GDP. This highlights that the sector is in

need of modernisation to improve its efficiency. Manufacturing accounts for 26.5% to total

GDP whilst services contributes the most with 49.3%. Services and Manufacturing have both

been increasing their proportion of GDP in last 10 years whilst agriculture has been

declining. The service sector is also shown to have contributed the most to economic growth

whilst agriculture has contributed the least, which suggests that the key to economic growth

is with the service sector.


5/6

Uganda are rich In natural resources which include, rich fertile soils, a regular rainfall,

deposits of minerals such as copper and gold. Oil reserves has also been recently discovered

estimated to be up to 3.5 billion barrels .

In 2012 Uganda's budget deficit stood at -2.9% of GDP. Public expenditure in the same year

was $3.7 billion and government revenue came to $3 billion. The national debt level

reached 23.6% of GDP in 2012.

The relative political and economic stability of Uganda since 1986 has made the

environment for investing more attractive to foreign investors. Foreign direct investment

was $1.7 billion in 2013 which rose by 92% on the previous year, making Uganda the highest

recipient of FDI out of its regional rivals in east Africa. China alone invested $610 million in

2013 into the Ugandan economy. Around 7,000 Chinese live in Uganda while 256 Chinese

owned businesses are also based there which helps boost trade through increased face to

face interaction. Chinese investment in Uganda is estimated to have created 28,000 new

jobs. This was all achieved by currency reform, raising producer prices on export crops,

increasing prices of petroleum products, and improving public sector wages. The policychanges were aimed at reducing inflation and boosting production and exports. Since 1990

economic reforms allowed for continued economic growth based on sustained investment

on infrastructure, improved incentives for production and exports, lower inflation, better

domestic security, and the return of exiled Indian-Ugandan entrepreneurs.

Tourism in Uganda is a large source of employment and investment which contributed $1.88

billion in 2013. Tourism has created jobs for many of the rural population and injected a flow

of money into local remote communities. During the British rule, the tourism industry

attracted 100,000 visitors per year. It then became non existent during the 1970s and 1980s

due to instability.

Corruption is a widespread problem in Africa and is particular problem in Uganda where its

rated as the 140th worst in the Corruption Perceptions index, falling from 130th. Corruption

leads to the reduced national wealth as money is spent on unnecessary high cost projects

at the expense of much needed infrastructure such as schools, hospitals and roads. The

misallocation of resources stunts economic growth as productivity is low. Corruption can

also lead to higher costs of goods and services as unhealthy competition deters

competition. Large scale corruption will also lead to a widening of the distribution of wealth.

Imports have been growing faster than exports resulting in a trade deficit. Uganda imports

consist mostly of vehicles, petroleum and medical supplies which totals to $5.1 billion in

2012 up from $4.9 billion from the previous year. Exports consists of Coffee- which

contributed towards $30 million of Uganda's total exports-fish, tea, cotton and gold.

Instability in the during the 1970's and 1980's caused much of the exporting industry to

collapse. An example of this is the Sugar industry which produced 152,000 tons of sugar in

1968. By 1989 Uganda imported large amounts of sugar even though the local industry had

the capacity to produce enough to meet the domestic demand. Sugar is the most profitable

crop in Uganda. Exports made $2.8 billion in 2012, up from $2.5 million in 2011.

The trade deficit would be sustainable if the goods that were imported where used in the

process of production. However most of the imports are finished product consumer goods

such as cereals which is the third highest amount of imported good. The reduction of tariffs

has been In line with the governments open trade policy which attempts to make theeconomy more competitive with its east African rivals.


6/6

Uganda is a member of the East African Community that shares a common market for goods,

labour and capital. There are plans to create a common currency and a political union within

the next 10 years.

Future of the Economy

Uganda is vulnerable to changes in the price of oil as it imports most of its oil from Kenya

who import the crude oil from abroad to refine in Mombasa. The Ugandan government

began to look for domestic sources of oil due to the rising oil prices. In July 2007, potentially

600 million barrels of crude oil was found under Lake Albert on the border with the D.R.C.

Uganda potentially now have oil reserves of 3.5 billion barrels which would make Uganda

the 4th highest producer of oil in sub Saharan Africa. However tensions have risen on the

border with the D.R.C which threatens instability as both countries want to clarify the

borders so that it favours their side. These oil reserves will give Uganda comparative

advantage in oil production that could speed up economic growth In the long term asexports are boosted. As the demand for the Ugandan shilling rises, the costs of imports will

begin to fall which would increase the quantity of foreign imports. The knock on effect will

be higher standards of living which will help lift people out of extreme poverty.

A major untapped resource in Uganda is hydroelectric power. Much of the White Nile runs

through the country and there is great potential for it to be harnessed. The Owen Falls Dam

was built in 1954 and supplied energy to Tanzania and Kenya. During the 1970's and 1980's

the dam was poorly maintained and 6 out of the 10 generators broke down by 1988. In 2000

repairs and extensions where made to increase its output to 380 Megawatts. Uganda is a

major energy producer in East Africa, and further investment in hydroelectric power could

see it become a major export in the future.

Uganda Economics Case Study

Documents

Transcript of Uganda Economics Case Study