III. Economic Trends and Outlook A. Major Trends and Outlook The economy of Uganda has shown a steady recovery since 1987 when the National Resistance Movement (NRM), which governs Uganda, put into place an Economic Recovery Program Plan with assistance from the World Bank and the IMF. Gross domestic product (GDP) has grown steadily at rates varying from a low of 4.2% in FY 1990/91 (July 1990 through June 1991) to as much as 7.5% in FY 1988/89. GDP growth was approximately 4% for FY 1993/94, down from 7.2% in FY 1992/93. The primary cause of the decrease in growth is the drought which affected agriculture, the biggest component of the economy. Food crop production increased only 1.7% (estimated) for FY 1993/94 as opposed to 9.2% in FY 1992/93. Having had good rains, overall growth is expected to increase to 5.5% in FY 1994/95. Uganda remains, however, one of the poorest countries in the world, with per capita income of under $170 per year in 1991. The country is favored with a good climate and fertile soil, but the economic mismanagement which accompanied the civil war in the 1970's and early 1980's debilitated the country. The economic programs followed by the NRM have put the country on the right track, but the country is still a long way from providing a high standard of living for its people. Life expectancy is 47 for men and 50 for women, one of the lowest in the world and likely to get worse with the AIDS pandemic threatening the population. Access to health and sanitation services is poor. Large numbers of Ugandans suffer from malnutrition, although there is little famine. Public expenditure on economic and social services such as primary health and education, and agricultural research is low, though it is getting an increasing share of the national budget and international donors make up for some of this with extensive programs in these areas. From this low base, the country is showing steady improvement in many areas. The index of industrial production rose from 123.7 in 1988 to 230.4 in December 1993. Inflation, which ran at 240% in 1987, has been averaging about 15% for the ten months from July 1993 to May 1994. With continued stability in the government and the government's commitment to economic discipline, prospects for continued high growth and low inflation are excellent. The current account deficit as a percentage of GDP narrowed, declining to -3.4% in FY 1993/94 from -4.9% in FY 1992/93. The deficit without grants stands at -10.7% of GDP for FY 1993/94. The trade deficit widened, mainly due to private imports which increased by 42.6%. The trade deficit in FY 1993/94 was $458.8 million (U.S.). Exports of merchandise goods increased substantially, albeit from a small base. Merchandise goods exports reached $237.4 million (U.S.) for FY 1993/94. Private transfers also increased noticeably. Despite these improvements, the country continues to be dependent on large quantities of donor assistance. Although exports have grown rapidly, imports are increasing more than exports and the country must maintain high debt-service payments. B. Principal Growth Sectors Agricultural production represents over 50% of Uganda's GDP and over 90% of export earnings. There is significant potential for substantial increases in agricultural production in a wide variety of areas, including non-traditional exports such as flowers, vanilla, silk and other specialty items as well as in cotton. Manufacturing is increasing, albeit from a small base. The industrial sector is expected to show growth of 15-18% during FY 1993/94. Growth has been strong in food processing, drinks and tobacco, and chemicals, paint and soap. Services have shown growth, though most services are concentrated in the informal sector. C. Government Role in the Economy The government of Uganda is actively liberalizing the economy. In the past few years, the government has abolished monopolies in coffee, cotton, power generation and telecommunications. Foreign exchange, based on a market determined exchange rate, can be freely purchased. Many public enterprises have been privatized or are scheduled for privatization. The government is pursuing a three- tier approach developed by the World Bank for cutting government involvement in the economy. Loss-making parastatals are being liquidated, enterprises which could be managed better by private companies are being divested, and other parastatals are being restructured. D. Balance of Payments Situation Uganda's balance of payments situation is weak. While the trade balance improved from -369.6 million U.S. dollars in 1990/91 to - 278.6 million U.S. dollars in 1991/92, it worsened to -416.1 million U.S. dollars (estimated) in FY 1992/93. (Figures for 1993/94 are not yet available.) Overall exports dropped, with coffee leading the way, and imports climbed by 27%, from $450.6 to $573.2 million. The results for FY 1993/94 will be tempered by the increase in coffee prices and production. The government is dependent on donor assistance and will remain so for the foreseeable future. Total debt is approximately $2,615 million, which represents 90% of GDP. With most of the debt owed to multilateral agencies, rescheduling is not a viable option for debt reduction. E. Trade and Investment Barriers There are a number of trade barriers that affect American export potential. First and foremost, Uganda's historical patterns of trading are primarily within the region, with Europe (particularly the U.K.) and the Middle East. In addition, transportation costs affect the competitiveness of American manufactured goods relative to goods manufactured in neighboring countries and Europe. Uganda's weak financial sector is a constraint to trade. Local banks are undercapitalized and credit is difficult to obtain, although a number of foreign banks operate in Uganda. Given the shortage of capital in both the private and public sectors, the majority of trade opportunities for U.S. companies will continue to be projects funded by foreign capital, much of which is linked to businesses based in the source country. F. Labor Force Education and skills levels are low in Uganda. Once the home of one of the best universities in Africa, Uganda's schools at all levels have deteriorated from 20 years of civil strife and neglect. They are slowly being revitalized. Private sector businessmen report that they prefer to train unskilled and semi-skilled workers on-the-job, rather than depending on state-operated technical schools. While entry level skills in the trades, accounting and word processing, are available, supervisory and management level skills are in very short supply. The number of Ugandans returning from abroad appears to be accelerating and can be expected to fill part of the gap. Most Ugandans work in the rural economy, predominantly agriculture. The next biggest share of the total labor force is in services which include finance, transport and trade as well as informal rural subsistence sectors. Industrial workers constitute only 3% of all workers. Approximately 42% of men and 35% of women are members of the labor force, with large numbers of women active in household activities which are not measured as part of the labor force. A major feature of the labor force in Uganda is the relatively high access to land. Most Ugandans are employed in agriculture, with a low unemployment rate based on a relative abundance of land; however, most of these laborers working the land only achieve a marginal subsistence level. There is very little wage labor in agriculture; casual laborers are not common. G. Major Local and Third Country Competitors in Specific Sectors Trade relationships transcend sectoral barriers, with no particular sector more open than others to U.S. exporters. U.S. exporters in any sector will have to contend with Uganda's historical patterns of trading, which are primarily within the region, with Europe (particularly the U.K.) and the Middle East. Given the shortage of capital in both the private and public sectors, the majority of trade opportunities for U.S. companies will continue to be projects funded by foreign capital, much of which is linked to businesses based in the source country. H. Infrastructure Situation Re: Goods/Service Distribution Roads between major cities are variable. Certain cities are served by good tarmac roads, but many are reachable only by dirt roads which become treacherous during the rainy seasons. There are a number of airfields but apart from Entebbe Airport, they are served only by charter or private airplanes. The Kampala-Nairobi rail link transports the bulk of goods shipped by railroad. However, the Tororo-Gulu-Apac line handles a large portion of the cotton evacuated from northern Uganda. Rail ferry service on Lake Victoria between Port Bell near Kampala and Mwanza, Tanzania connects with Tanzanian rail service to Dar es Salaam. Most goods reach Kampala from Mombasa and Nairobi, Kenya overland by trucks on all weather tarmac roads. New cold storage facilities are being constructed at Entebbe airport for perishable commodities. Several international air carriers serve Entebbe airport including British Airways (two flights weekly) and Sabena (three flights weekly). I. Major Infrastructure Projects Underway A vast number of projects directed at agricultural development, education, health and improving the infrastructure are underway in Uganda. Some of the infrastructure projects underway in 1991 included: - Purchase of equipment for National Water & Sewerage Corporation (NWSC) - Five Urban Centers Water and Sewerage - Advisory Assistance for Water Supply, Sewerage and Waste Disposal (NWSC) - West Nile Water Supply - Rural Water Supply Study (NWSC) - Water Leakage Detection (NWSC) - Kampala Infrastructure Project - Water Supply -- Bushenyi, Kabatoro, Rakai - Water Borehole Rehabilitation - Water Supply and Sanitation - Environmental Pilot Project in Gombe and Batalya - Development through Conservation of Impenetrable Forest - Rwenzori Mountains Conservation and Development - South Karamoja Agro-Forestry - Kilembe Mines Prefeasibility Study - Gold Exploration in Busia Area - Wildlife and National Parks Rehabilitation - Rehabilitation of Makerere University - Supply of Roofing Materials for Schools - Medical School at Makerere University - Rehabilitation of the Central Storage in Kampala - Construction of Cold Storage Facility - Forestry Rehabilitation - Fisheries Development Program - Community Based Development Projects - Nyanza Textile Rehabilitation - Small Scale Industry Rehabilitation - Cement Industry - Phosphate Fertilizer Plant - Kinyara Sugar Works - Lugazi Sugar II - Kakira Sugar Works - Iron and Steel - Owen Falls Dam - Power Project - South-Western Transmission Line - Rural Electrification - Transport Policy and Planning - Road Rehabilitation Phase II - Northern Corridor Kabale- Katuna Road - Kampala-Jinja Road - Road Resealing - Rural Feeder Roads Maintenance - Ishaka-Katunguru Road - Rehabilitation of Bridges - Rehabilitation of Uganda Railway Corporation Phase III and IV - Port Bell Terminal Rehabilitation - Purchase of Locomotives and Rail Wagons - Entebbe Airport Rehabilitation - Telecommunications Kagera Basin Organization - International Dialing System - Rehabilitation of Kampala- Kasese Telecommunications - Rehabilitation of Post and Telecommunications Phase II - Supply of Telex Exchange System - Rehabilitation of Microwave System along the Track Kampala/Kasese - Provision of Potable Water Plus Related Sanitation/Health - Mandella Stadium - Pump Maintenance and Replacement Systems - Springs, Wells and Gravity Schemes - South West Integrated Health and Water Project - Mulago Hospital Rehabilitation - Rehabilitation of Health Units in North and East Uganda - Mbale Hospital Rehabilitation - First Health Project - Improvement in Lacor Hospital - Rehabilitation of Mpigi Hospital - Rehabilitation of the Emergency Ward of Mulago Hospital - Meteorological Services - Geothermal Exploration