Kampala, February 14, 2013 - Uganda can earn an additional $2.5 billion from non-traditional trading partners in the region and close the trade deficit in the next five years if it removes trade barriers with neighbors, the World Bank announced today. Doing so could also help the East African country stabilize the economy in the face of a slowdown in overall growth and reduced aid flows, the World Bank says.
"Looking beyond the East African Community, Uganda must position herself as the land bridge to link other landlocked countries to the coastal economies," said Ahmadou Moustapha Ndiaye, World Bank Country Manager. "Regional integration and trade is the best opportunity for a brighter economic outlook,” concludes Mr. Ndiaye.
In the first economic update for Uganda titled “Bridges Across Borders: Unleashing Uganda’s Regional Trade Potential”, the World Bank urges the country that a more rapid diversification of the economy and the appropriate use of resources, including oil, will drive renewed growth momentum.
The report also points out that Uganda should work at eliminating nontariff trade barriers to reduce the cost of doing business, reduce transport costs in order to raise productivity and increase connectivity, and improve transport logistics to make the country a better land-linked partner.
While Uganda’s economy is poised to grow by 4.5 percent during the Financial Year ending June 30, 2013, up from 3.4 percent GDP growth in 2012, the World Bank cautioned authorities that it falls below potential and far lower than recent historic rates.
External Balance Improves, Trade Balance Deteriorates
Uganda’s overall position in terms of its transactions with the rest of the world improved in 2012 on account of increased capital inflows. At the same time, the current account deficit worsened and the slight improvement in services did not compensate for deterioration in the trade balance of goods. Currently, the trade imbalance is estimated at $2.4 billion.
“Uganda has entered into a number of regional agreements, including the East African Community (EAC) and Common Market for Eastern and Southern Africa (COMESA). These regional agreements have yielded significant dividends, almost doubling Uganda’s regional exports over five years, to 25 percent of total exports in FY11,” says Hon. Maria Kiwanuka, Minister of Finance, Planning & Economic development. “To benefit more from regional trade, we would need to ensure that the transport corridors are working properly to allow more efficient flow of goods to the regional markets,” notes Hon. Kiwanuka.
For its part, The Bank suggests Uganda will need to boost trade with African countries as it has with the rest of the world. In 2012, Official Development Assistance (ODA) to Uganda was approximately $882 million, almost same amount as average annual exports to Sudan and DRC.
The gradual deceleration in economic growth over the past few years was the result of a combination of factors, the Bank notes. Because of negative climatic conditions, the agricultural sector grew at the slower pace of 1.6 percent per annum in the period from 2006 to 2012, less than half of the average rate of growth of 3.4 percent in the period from 1991 to 2005.
Over the same periods, the rate of growth of manufacturing sector decelerated from 9.8 percent to 6.1 percent. The rate of growth of the previously booming construction sector also declined from 9.6 percent to below 7.4 percent between these two periods. The exception has been the rate of growth for the services sector, which accelerated from 7.3 percent to 7.7 percent, largely as a result of the rapid expansion of the communication and banking sectors, new World Bank analysis concludes.
Sources of growth
The World Bank has a positive economic outlook for Uganda so long as she concentrates her efforts to improve productivity in agriculture, manufacturing and service sectors. For example, the agricultural sector contributes to approximately a quarter of Uganda’s total production and employs approximately three-quarters of its workforce.
“Over the medium-term, if existing uncertainties in fiscal management are resolved, Uganda’s rate of economic growth should gradually increase, reverting to and perhaps even exceeding historical averages of 7-8 percent,” says Rachel K. Sebudde, World Bank Senior Economist and lead author of the report.
“This increased rate of growth will largely be driven by reduction in binding constraints as investments in infrastructure including oil materialize and a higher level of integration between Uganda’s economy and regional and world economies,” adds Sebudde.
The full report and accompanying datasets are available at www.worldbank.org/uganda