Sunday, December 27, 2015

Economic situation in Uganda

By Kiwewa Faisal
The year 2015 has been characterized by several economic factors, but it has been majorly the low global commodity prices and high interest rates from commercial banks.

When the economies in Europe are not doing well, they reduce on spending when the demand for some commodities goes down, the prices fall. Some of these commodities include exports like coffee, cotton, tea and cocoa. And other hard commodities like Petroleum, metals, etc. 2015 was thus characterized by low commodity prices. The speculators had started putting up ware houses, amenities, and businesses in the Albertine region but when the oil prices went down the activity slowed down, government has however done some licensing so some investors are likely to come in next year, and some oil has also been discovered in Kanungu.

The low oil prices would be advantageous to low developed economies   that use oil machinery by reducing the cost of production, for example if one has a maize mill it would help cut on the costs of production. However this is not helping us because agriculture is not mechanized and the economy is barely that industrialized.

The decline of China’s economy has also been a major factor. China used to buy whatever Africa was producing; China was taking petroleum, beans, Simsim and maize. However there has been a decline in these exports to China by 6% and thus this has led to decline in the prices of such commodities as well.

The USA dollar strength against major currencies, has largely affected our economy. Investors tend to go in countries where the economy is doing well for example USA; those that invest in Uganda invest in financial instruments like treasury bills, bonds lending money to government. When the interest rate is high say 30% the borrowers become riskier to the banks and the probability of default becomes very high, so banks tend to go into less riskier ventures like financial instruments as well, and this implies that accessing credit in case of borrowing by business men becomes hard. This is so because at high interest rates borrowers become riskier to banks, therefore the banks have to be very careful when lending.

The Political climate in Africa tends to scare investors for example the key activity now in Uganda is politics, completely non-productive, when the Opposition formed the coalition TDA, the shilling became weaker and when the coalition collapsed the shilling appreciated. The investors had gotten scared and thus they had started withdrawing their money, but when the alliance collapsed, they got confidence and returned the money; the shilling was thus able to appreciate. The investors are thus scared of the turmoil and chaos that comes after elections in Africa.

The economic situation is likely not to change till the 3rd quarter of 2016 because the fundamentals are still the same.

The Key spender is government, so if they do not spend we do not see money, individuals can barely spend without earning. But in Uganda the export bill is 2.6b and the import bill is 6b, so where do we get the money to import all those commodities, how is it possible to spend more than what you earn? However, this money comes in the form of grants, transfer earnings, donations etc.

Therefore as a result of this economic situation, it would be wise to use your savings, or form SACCOS and Micro finance schemes in this global economic situation, so that you can lend money to your selves at cheaper rates so as to survive. The economic situation is likely to stay the same, individuals have to restructure themselves, it’s now survival for the fittest, if you have some land grow some food and save on buying food, for those who love the drink you have got to reduce. The economy was over liberalized, there are no cooperatives anymore, every entity was almost privatized and this is also a very big disadvantage to us. This means the government can hardly come in to regulate 
About The Author,
Kiweewa Faisal (Hons. BSci.Finance)

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