Rebooting Uganda’s economy post COVID-19

Private sector present various stimulus packages to government on how kick-start business activities back to normal growth curve

Kampala, Uganda | ISAAC KHISA | Life is slowly returning to normalcy in Uganda’s towns save for those that lie on the borders with neighbouring countries. Shops and restaurants are back to business albeit observing social distance and public transport is planned to resume on June.04 once masks have been distributed.

But as easing the lockdown progresses, investors, businesses and economic experts are worried about the future of businesses in post COVID-19 period, an informal survey by The Independent shows.

While they agree that coronavirus pandemic has been tactfully handled with confirmed cases standing at 274 cases, 63 recoveries and no death as of May 21, they contend that the government is yet to do enough to resuscitate businesses and economy that would in turn stir demand and reduce operational costs.

The government is already projecting the economy to grow slower at between 5.2% and 5.7% compared with the earlier predicted 6%.

“Yes, the government has put in place various measures to cushion businesses and economy from the pandemic but it is not enough,” Corti Paul Lakuma, an economists at the Economic Policy Research Centre told The Independent in an interview.  “But again it is because of the limited resources at our disposal compared with other countries.”

However, he said the Bank of Uganda’s decision to drop its policy rate from 9% in February to 8% last month to counter the fallout from the coronavirus pandemic on commercial banks, micro deposit taking institutions,  economy and borrowers, was reasonable.

He says that lowering the central bank rate far below the 8% could be counter-productive because it could spark inflation, which is currently standing at 3.2%.

BoU also directed commercial banks and financial institution to extent loan repayment holiday to borrowers for up to a period of 12 months starting April, 2020.  Nevertheless, the loan still accrues interest during the period.

In addition, the government has secured a US$491.5million from the International Monetary Fund under the Rapid Credit Facility, to help the country address the economic impact of the COVID-19 pandemic.

The government said the credit facility along with the additional donor financing is expected to help check on the balance on payments and budget support needs.

Lakuma, however, said there’s still information gap to determine the type and quantity of incentives required to effectively support businesses and economy to return to the growth path.

In the meantime, the Private Sector Foundation Uganda has presented a set of recommendation to the Prime Minister, Dr. Ruhakana Rugunda, on how to save business from collapse following more than 60 days of lockdown, according to its Executive Director, Gideon Badagawa.

“The government has been very strategic in the COVID-19 fight in a sense that the first step was to make sure that our people remain a life…but now we need to resuscitate business and the economy,” he said, adding that a good number of businesses that employ a good number of local population and remit taxes to government are now threatening to lay off workers and or close their operations altogether.

Survey suggests tough times ahead

Latest survey by the  Makerere University based Economic Policy Research Centre  on the impact of coronavirus pandemic on businesses in Uganda shows that in the event that COVID-19 persists for the next six months, about 3.8 million workers would lose their jobs temporarily while 0.6 million would lose their employment permanently.

The survey says more than 75 percent of employees projected to lose their jobs permanently are from the service sector and mainly from Kampala.

The survey also notes that small and medium businesses have experienced the largest effects of the risk associated with COVID-19 compared to large scale businesses, and that they could collapse in the next 1 to 3 months in the event that the situation persist.

The decline in small and medium businesses, the survey notes, is due to inability to cope containment measures instituted by government.

“Specifically, nine out of ten businesses report experiencing an increase in operating expenses due to preventive measures instituted by government to curb the spread of the virus.  Agriculture enterprises have been worst hit due to challenges of accessing inputs arising from transport restrictions and the ban on weekly markets,” the survey notes.

“In addition, prices of agricultural outputs have declined due to lost demand and the shift from consumption of fresh agricultural produce to dry rations.”

With respect to the future outlook, major concerns highlighted by businesses—in the event that the COVID-19 situation persists for more than six months—relate to reduced product demand and potential inability to meet costs of operations.

On the other hand, majority of the medium and large firms do not foresee closure, according to the survey, adding that there is a slightly higher resilience among agriculture and manufacturing firms compared to service sector firms.

However, President Yoweri Museveni has in his recent national address downplayed coronavirus pandemic on the economy, insisting that whilst some sectors such as tourism and tourism industry will suffer, the overall economy will not be affected as much as per a section of experts.

Instead, he says agriculture and manufacturing might sectors actually flourish because people will need food and fast moving goods, especially those needed by the health sector, an argument that economists disagrees with.