Exports are the key to sustainable growth
BUILDING ON SUCCESS SOUND ECONOMIC POLICIES AND REFORMS HAVE PRODUCED REMARKABLE RESULTS FOR UGANDA OVER THE PAST DECADE. TO PROGRESS FURTHER ECONOMIC EXPANSION NEEDS TO BE SPEEDED UP AND NEW PRODUCTS DEVELOPED

GERALD Ssendaula Minister of Finance, Planning and Economic Development

EFFORTS TO produce and export more must be redoubled if Uganda is to maintain the levels of economic success it has achieved over the last ten years, according to Gerald Ssendaula, Minister of Finance, Planning and Economic Development. He has pledged that the government will significantly enhance efforts to promote higher quality production and greater competitiveness in both regional and international markets.

While not equalling the 7 percent peak of recent years, Uganda’s estimated 5.6 percent rate of economic growth in 2001-02 is still high for the East African region. “Uganda has been able to sustain strong growth, despite the continued weakness in the price of our main export, coffee,” says Mr. Ssendaula. His ministry is projecting gross domestic product (GDP) to increase by 6.6 percent next year. To achieve this, the government aims to maintain economic stability and accelerate reforms aimed at removing production bottlenecks.

OPEN FOR BUSINESS The role of the Bank of Uganda is to develop a strong, viable financial sector

Uganda’s total exports are projected at $450 million for 2001-02. The case for the government’s drive for export diversification is vividly illustrated, however, by the decline in value of the country’s coffee exports by 23 percent–despite a 6.7 percent increase in volume. This was the result of a 30 percent fall in the international price of coffee. The cost to Uganda in lost export earnings was around $30 million. The loss is partly offset, however, by a strong performance by the country’s non-coffee exports, which total $372 million.

The government has a five-year Strategic Export Plan to promote faster and broader economic growth based on the production, processing and marketing of important exports such as coffee, cotton, textiles, tea, fish, beef, hides and skins. However, support from Uganda’s development partners in the international community is “critical” to the export drive and Mr. Ssendaula has called for it to be “sustained and deepened.”
In addition to the AGOA initiative, Ugandan exports will benefit from the European Union’s ‘Everything but Arms’ (EBA) initiative and recent trade agreements made with Japan. But Mr. Ssendaula warns that subsidies, such as that given to U.S. cotton farmers, do not help Ugandan producers.

He says it is imperative that the government continues with the same economic policies, including disciplined fiscal policy. “The implementation of sound economic policies and reforms and the maintenance of macroeconomic stability have been key to ensuring the success we have achieved over the past decade,” he says. “This success is demonstrated in the steady growth in our GDP, the low and steady inflation, the increasing per capita incomes, marked decline in the incidence of poverty and the adequate levels of foreign currency reserves.”
A stable macroeconomy has existed in Uganda since 1992. Inflation has been in single figures since then and most of the time has been below 5 percent.

“The headline inflation rate has been negative for the last seven consecutive months,” says Emmanuel Tumusiime-Mutebile, Governor of the Bank of Uganda. “This means that, as a whole, we are looking towards an inflationary rate of just about 2 percent per annum. This has enabled us to keep the exchange rate very stable and reduce interest rates.”
A program to strengthen financial management in government is underway, ahead of the passing into law of a new Public Finance and Accountability Bill. A National Planning Authority will start work next year, guiding longterm development strategies. It will use socio-economic data collected in a national census to be carried out this September.

Mr. Tumusiime-Mutebile affirms that the government is totally committed to sound fiscal and monetary management, and describes the consistency of government policy as a major asset that has lifted Uganda’s stock with private investors. “Private investors now look on the government as credible. They don’t expect it to change its policy overnight and they certainly don’t expect it to reverse it.”
Liberalization of the current and capital accounts has facilitated the free flow of capital, says Mr. Tumusiime-Mutebile. “The openness of the economy, both on current account as well as capital account, is an important signal to private investors.”

He sees the role of the Central Bank as being to facilitate the development of a strong financial sector. He says the most important challenge facing the sector is to find viable outlets for capital project finance. “But I think, as the structural adjustments in the economy remove bottlenecks, especially in the allocation of resources, these challenges will be met and viable investment projects will be created in the private sector.”
An example is agro-processing. “There is very little food-processing going on, especially for the export market, and things like food concentrates or even fresh produce, such as beans. Agro-processing is a very important sector for us. That is where our competitive advantage lies.”
There is also a lot of potential for foreign investment in banks, Mr. Tumusiime-Mutebile believes. “We have just sold the largest, Uganda Commercial Bank, to Standard Bank of South Africa. Our investment climate is conducive to new players coming into the financial system.”