Uganda has shown significant growth over the past five years. However, Covid-19, political risk, and electricity constraints could be its achilles heel. The government plans to boost its electricity supply.
Most countries in the East African region have achieved relatively good economic performances over the last decade. Before the Covid-19 pandemic, this growth was slow but sustained. Although Covid-19 will have a severe impact in the region, it is expected that growth will continue, albeit at an even slower rate as before. Uganda, once the laggard in the region, has seen spectacular growth until the beginning of this year.
Uganda has considerable natural resources, including fertile soils, regular rainfall, significant reserves of recoverable oil, and small deposits of copper, gold, cobalt, limestone, and other minerals. Agriculture is one of the most important sectors of the economy, employing 70% of the work force and accounting for 24.2 % of the GDP.
One of the constraints in Uganda, as in other African countries, has been the limited supply of electricity. To address this challenge the government of Uganda introduced the Electricity Connections Policy 2018-2027 two years ago. The policy’s goal is to scale up access to power and clean energy throughout the country from the current 28% to about 60% by 2027 and to 80% by 2040.
To achieve this, power generation has to increase to 3500MW by 2025, and about 41 000MW by 2040. This will require maximum harnessing of Uganda’s hydroelectric power potential, estimated at 4000MW, largely along the Nile River, as well as other potential energy sources, such as geothermal, solar, and nuclear, which will each contribute about 450MW, 30000MW, and 1000MW respectively.
According to Selestino Babungi, CEO of Uganda’s largest power distribution company Umeme, the company plans to launch a USD83.27-million electric power distribution project this year to improve the distribution network in Uganda. Babungi says that Umeme has already secured approval for the project from the Electricity Regulatory Authority (ERA). According to Babungi the company will focus on six key areas: addressing energy losses and improving operational efficiency, addressing load demand growth, improving power supply reliability, boosting power generation evacuation and supply, improving network systems automation and beefing up network protection and security.
Upon completion Babungi expects the project to reliably connect about 250 000 to 300 000 customers to the national grid per year. The project will also assist with the distribution of electricity generated from the new Karuma hydropower plant that is being built on the Nile River by Chinese firm Sinohydro. Umeme accounts for about 97% of all electricity used in the Uganda.
Uganda has experienced some political instability recently. Its people need change and President Yoweri Museveni has violently suppressed several protests. Museveni has been in power since 1986, when he overthrew the previous regime in a military coup. Museveni and his National Resistance Movement (NRM) introduced several structural reforms and investments, most of which led to a sustained period of high growth and poverty reduction between 1987 and 2010.
Uganda has also introduced ambitious public-sector reforms in the past two decades which has helped improve public sector management and institutional quality. Voice and accountability, which improved between 2003 and 2008, have since declined, however. Policy and legal frameworks continue to improve, notably through the Public Financial Management Act (2015), although gaps in implementation in procurement and anti-corruption remain.
In October 2019, Uganda’s economic structure was significantly changed following a rebasing of the national accounts. The revision of the base year from FY09/10 to FY16/17 and inclusion of activities that were previously missing, meant the economy was 21% larger during the last 10 years and by FY18/19, with a share of industry in gross domestic product (GDP) of 30%, much larger than the previous estimate of 20%. This increase was largely driven by manufacturing, for which the share doubled from about 8% to over 16% of GDP. The share of services declined from 58% to 46% of GDP, while agriculture rose from 22% to 24% of GDP.
While about 700 000 young people reach working age every year in Uganda, only 75 000 jobs are created per year. This leaves more than 70% of Ugandans employed in agriculture, mainly on a subsistence basis. An average of one million young people are expected to reach working age between 2030-2040.
Regional instability, pandemic preparedness (Ebola and Coronavirus) and broader global trade uncertainty could undermine exports and affect growth and have implications for debt sustainability and the current account.
The ease of doing business in Uganda
|Topics||DB 2020 rank||DB 2019 rank||Change in rank|
|Starting a business||169||164||▼ 5|
|Dealing with construction permits||113||145||▲ 32|
|Getting electricity||168||175||▲ 7|
|Registering property||135||126||▼ 9|
|Getting credit||80||73||▼ 7|
|Protecting minority investors||88||110||▲ 22|
|Paying taxes||92||87||▼ 5|
|Trading across borders||121||119||▼2|
|Enforcing contracts||77||71||▼ 6|
|Resolving insolvency||99||112||▲ 13|
Source: The World Bank