Drought, detached service sector slow Uganda growth rate to 3.9pc

A banana plantation in Isingiro district, Uganda. The district has been ravaged by drought. FILE PHOTO | NMG 

By DICTA ASIIMWE

In Summary

• Uganda is now projected to register its second lowest growth rate in two decades at 3.9 per cent.
• For the 2016/17 financial year, the government is blaming the drought for the economy’s poor performance.
• The service industry has not been badly hit by the latest economic slowdown and actually recorded growth. But experts say the sector just grows itself and employs only a few people.

Uganda is now projected to register its second lowest growth rate in two decades at 3.9 per cent, as a result of the drought that has ravaged large parts of the country leading to low agricultural output.

The lowest growth over these past two decades was registered in the 2012/13 financial year after a drought and austerity measures meant to mop up excess liquidity from an expensive election in February 2011 saw the economic growth slow down to 3.3 per cent.

For the 2016/17 financial year, the government is blaming the drought for the economy’s poor performance.

Secretary to the Treasury Keith Muhakanizi says that the Treasury has had to revise the GDP downwards to 3.9 per from the projected 5 per cent due to the massive crop failure and low livestock productivity. A drought and an armyworm invasion devastated crops and livestock in many parts of the country.

Agriculture contributes a modest 26 per cent to Uganda’s GDP compared with the services sector, which contributes 49 per cent.

Cannot spur growth

The service industry has not been badly hit by the latest economic slowdown and actually recorded growth. But experts say the sector is structured to just grow itself and not the economy since it employs only a few people, compared with agriculture where over 70 per cent of the population is employed.

Ezra Munyambonera, a senior research fellow at the Economic Policy Research Centre (EPRC) said that while the services sector in Uganda isn’t doing poorly, it is detached from primary sectors like agriculture and manufacturing, so it lacks the ability to spur economic growth, and creates distortions instead.

“A services sector that is not growing with manufacturing and agriculture doesn’t create a multiplier effect through employment and investment. It creates distortions in the economy instead,” he said.

This, he added, partly explains why after registering high growth figures until 2010, Uganda’s economy has stagnated, and is not registering the 7 per cent required for the country to achieve middle-income status by 2020 and eliminate poverty by 2030.

In the April Africa Pulse report, the World Bank classified Uganda as a stagnated economy while neighbouring Rwanda, Kenya and Tanzania were classified as growing at a steady pace.

But Mr Muhakanizi says that the government will use budgetary interventions to solve the problems that have been slowing Uganda’s economy and that in the 2017/18 financial year, growth will increase to between 5 and 6 per cent. After this, he expects the economy to continue on an upward trajectory.

Low investment

To achieve this, the government will this year increase allocations to extension work and irrigation, as these investments will protect farmers against the vagaries of nature.

According to the Budget Framework Paper, the government will this year invest an extra Ush23 billion ($6.4 million) in irrigation services, while Ush4 ($1 million) will be used for quality assurance, monitoring and support to extension workers.

Mr Muhakanizi says these are important investments since underperformance in the agricultural sector affects other areas, especially agro-based manufacturing, citing the sugar industry, where scarcity of cane has led to a sharp increase in sugar prices.

But other experts say the investment in agriculture is still too low. For the 2017/2018 financial year, budgetary allocation to agriculture will stagnate at 3.1 per cent and the sector will receive Ush863.4 billion ($231 million) out of the Ush28.3 trillion ($7.8 billion) that is planned for the 2017/2018 financial year.

And the underfunded priorities, according to the Civil Society Budget Advocacy Group (CSBAG), include the provision of extension work.

The advocacy group argues that although extension services will provide more funding that will see one extension service worker for every 1,500 farmers from a low of one extension worker for 2,400 farmers, their numbers will still be too low to make a difference. The United Nations ratio is one extension worker for every 500 farmers.