Uganda. Summary. Economic Indicators

Transcription

1 Uganda Summary Moody s B2 / S&P B / Fitch B+ 1 Economy: Agriculture 25%, Industry 22%, Services 52% Uganda is a very poor country but is rich in natural resources, especially oil. The country has 1.7 billion barrels of recoverable oil reserves. Investment of US$15 20 billion is expected to develop the oil sector and production is expected to begin in 2020, potentially adding 4% to annual growth. Agriculture, coffee, cotton, and tea comprise a significant share of the economy, so growth tends to be volatile and vulnerable to weather conditions. Uganda s main weaknesses include an over-dependence on commodities, and twin current account and fiscal deficits. Despite these challenges, economic management has improved, the political environment has been stable, and Uganda has a good relationship with the International Monetary Fund (IMF). Corruption remains a major problem, but the government has recently begun efforts to reduce corruption in an effort to attract foreign investment. Economic Indicators F 2018F Population (Millions) GDP per Capita (USD) Nominal GDP (USD Billions) Real GDP (%) Year-End CPI (%) Fiscal Balance (% of GDP) Interest (% of Revenues) FC Debt/Public Debt (%) Government Debt (% of GDP) Government Debt (% of Revenue) Current Account (% of GDP) FDI (% of GDP) External Debt (% of GDP) Foreign Reserves/External Debt (%) Foreign Reserves (Mo. of Imports) Foreign Reserves (% of GDP) As of November 2017 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: Lazard, Central Bank of Uganda, Haver Analytics, IMF 677

2 Lazard Emerging Markets Debt Rating History Below is a history of the country s foreign and local currency ratings by the major agencies dating back to We have also included a chart of the country s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency BB- BB- B+ B+ B B B- B- CCC CCC Moody s S&P Fitch Moody s S&P Fitch As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody s, Standard and Poor s, JPMorgan 678

3 Uganda Strengths Oil Sector The oil sector has the potential to be a key driver of future growth, with the IMF estimating that it can add 0.5% GDP growth initially and up to 4% GDP at peak production levels if well managed. 2 Uganda discovered oil in 2006 and is estimated to have reserves of 6.5 billion barrels, 3 of which 1.7 billion is recoverable. Uganda has issued production licenses to three international companies Tullow Oil, Total, and CNOOC which are expected to invest US$8 billion and start producing up to 230,000 barrels per day by As part of Uganda s efforts to develop the oil sector, the government has joined Tanzania in building a US$4 billion pipeline 5 that would provide access to the Indian Ocean. Over the next 3 4 years, the expected investment in the oil sector is in the range of US$15 20 billion. 6 Political Continuity President Yoweri Museveni has ruled Uganda for 30 years. In 2016, he was reelected for a fifth term garnering more than 60% of votes, 7 while his party maintained control of parliament. 8 However, popular discontent with the government is high, and protests have become more common, with some turning violent. The main complaints are the high living costs, corruption, and shortage of electricity. The government has total control of the police force and army; thus major protests are unlikely to get out of control. The opposition remains marginalized, and opposition leaders tend to get arrested. Uganda has a presidential age limit of 75 years, and President Museveni is currently 73 and thus, will be his last term, unless the age limit is reconsidered. 9 IMF Relationship In 2013, Uganda and the IMF reached a three-year Policy Support Instrument (PSI) that aims to maintain macroeconomic stability and reduce growth constraints. The IMF s framework for PSIs is designed for low-income countries that may not need financing but still seek IMF advice, monitoring, and endorsement of their policies. While the government has made significant progress, such as keeping inflation on track and increasing its reserves level, the IMF noted in its eighth review in 2017 that performance has been mixed mainly on account of overshooting current expenditures and central bank financing. 10 Weaknesses Lack of Economic Diversification Uganda s economy is highly dependent on agriculture, which accounts for 24% of the economy and employs more than 80% of the working population. 11 Among the most important agricultural products are coffee, cotton, and tea. 12 The country s reliance on agriculture makes the economy highly vulnerable to weather factors, such as the drought experienced in 2016 which significantly impacted coffee production and was one the biggest risks undermining Uganda s economic recovery. 13 Unfavorable weather conditions create a major negative economic impact, because they affect the population s income, result in food shortages and higher prices, and can reduce export earnings. Moreover, the World Bank points out that the poorest 40% of households are small farmers that are extremely vulnerable to weather events

4 Lazard Emerging Markets Debt Corruption Uganda faces rampant corruption, which indirectly impacts economic growth, the government balance sheet, and the balance of payments. The fiscal loss related to tax evasion is also very high yet difficult to measure. The tax base is narrow with 30 of the largest taxpayers accounting for more than half of tax revenues. 15 Corruption exists even at the top levels of government where several major cabinet members, including the prime minister, have been investigated. This has caused foreign donor countries to temporarily withhold disbursements, amounting to US$282 million in late 2012 and early 2013, after it was discovered that money had been misappropriated by government officials. 16 However, some positive steps have also been taken, such as the recent crackdown of ghost workers on the government payroll. Additionally, fighting corruption in public institutions was an electoral promise of President Museveni 17, who has launched an anti-corruption campaign in an effort to attract investment. 18 Nevertheless, Uganda ranks poorly in corruption perception, in Transparency International s Corruption Perception Index 2016 Uganda ranks 151st out of countries, where in the previous year (2015) it ranked at 139 th out of Twin Deficits Uganda has twin current account and fiscal deficits. The average fiscal deficit in the last decade was -3.6% of GDP while in the medium term the expectation from the IMF is that it will average -3.3% over the period, with most of the fiscal improvement coming in 2021 and beyond. As a result, the debt to GDP ratio is projected to increase from 20.3% in 2008 to close to 40% by On the external side, the current account deficit is fairly high averaging -7% of GDP in the last decade, with medium-term projections of an average deficit of -6.9% over Financing will come mainly from foreign direct investment, public loans, and grants. The high current account deficit is a structural problem due to low savings levels, a lack of competitiveness, and high reliance on food and energy imports. Private transfers, including family remittances, amount to approximately US$1.0 billion, and tourism only partially compensates for this structural weakness. The encouraging news is that foreign reserves remain relatively high at US$3.4 billion, as of October 2017, covering more than four months worth of imports. 23 Poor Infrastructure Uganda has deficient infrastructure. Uganda has an estimated 20,000 kilometers of road and only 3,264 kilometers is paved. 24 The IMF notes that there is a need to upgrade the transportation network, and this is now Uganda s top economic priority. Three-quarters of the population lives in rural areas, thus an efficient network is important to foster trade, and commerce. 25 Regional Dependency Uganda is dependent on its neighbors due to close trade links with them and the fact that Uganda is a land locked country. Exports to the region, including from Sudan, Kenya, and the Democratic Republic of the Congo, account for about half of total exports. Uganda needs to transport its products through other countries and use the ports of its neighbors, especially Kenya. 680

5 Uganda Country Background Size Capital Population 241,0.38 KM 2 (82nd) Kampala 39.6 Million Religion Protestant 45.1%, Catholic 39.3%, Muslim 13.7% Median Age 15.8 Years Literacy Rate 78.4% Independence 9 October 1962 Political System Government Leadership Next Election 2021 Legislative Branch Presidential Republic President Yoweri Kaguta Museveni Unicameral National Assembly Economy Agriculture 25.4%, Industry 22.7%, Services 51.9% Labor Force Agriculture 71.9%, Industry 4.4%, Services 23.7% Merchandise Exports Export Partners Currency As of November 2017 Source: CIA Coffee, Fish, Tea, Cotton, Flowers, Horticultural Products, Gold Kenya 20.9%, UAE 11.2%, Rwanda 9.5%, Democratic Republic of the Congo 8.9%, Italy 4.5% Shillings (UGX) 681

6 Lazard Emerging Markets Debt Country Timeline 1962 Uganda becomes independent with Milton Obote as prime minister and with Buganda enjoying considerable autonomy Uganda becomes a republic with Buganda s King Mutesa as president Milton Obote toppled in a coup led by Army chief Idi Amin Tanzania invades Uganda, unifying the various anti-amin forces under the Uganda National Liberation Front and forcing Amin to flee. Voters in a referendum overwhelmingly back a return to multi-party politics National Resistance Army rebels take Kampala and install Yoweri Museveni as president Museveni restores the traditional kings, including the king of Buganda, but without political power East African Community (EAC) inaugurated in Arusha, Tanzania, laying groundwork for common East African passport, flag, economic and monetary integration. Members are Tanzania, Uganda and Kenya Sudan, Uganda sign agreement aimed at containing Ugandan rebel group the Lord's Resistance Army (LRA), active along common border. Army evacuates more than 400,000 civilians caught up in fight against cult-like LRA which continues its brutal attacks on villages Parliament approves a constitutional amendment which scraps presidential term limits. Voters in a referendum overwhelmingly back a return to multi-party politics The government and the LRA sign a truce aimed at ending their long-running conflict. Subsequent peace talks are marred by regular walk-outs State of emergency imposed after severe floods cause widespread devastation Lord s Resistance Army appeals for ceasefire in face of continuing offensive by regional countries. The UK oil explorer Heritage Oil says it has made a major oil find in Uganda. Ugandan army begins to withdraw from DR Congo, where it had pursued Lord s Resistance Army rebels National Resistance Movement primary elections for parliamentary and local candidates suspended amid irregularities, violence Museveni wins his fourth presidential election. Challenger Kizza Besigye alleges vote-rigging and dismisses the result as a sham. US deploys special forces personnel to help Uganda combat LRA rebels President Museveni signs tough new anti-gay bill into law, drawing criticism from around the world. The World Bank postpones a $90m ( 54m) loan to Uganda over the move, and the US imposes sanctions President Museveni wins re-election against veteran candidate Kizza Besigye, amid opposition, Commonwealth, US and European Union concern about fairness and transparency Four countries launch an intelligence center in Uganda from which they will coordinate the fight against the rebel Allied Democratic Forces. The ADF started out with the aim of overthrowing President Museveni, but went on to absorb other rebel factions, and has carried out random massacres over two decades. The UN says the number of South Sudanese refugees in Uganda has reached one million. Source: BBC 682

7 Uganda Notes 1 As of December accessed 13 December Musoke, Ronald, Uganda s oil reserves now estimated at 6.5 billion barrels, The Independent, 28 August 2014, accessed on 27 October 2015, accessed 28 November Tanzania, Uganda $4 Billion Oil-Pipeline Timetable Slips 4-billion-oil-pipeline-timetable-slips accessed 28 November accessed 13 December Uganda s Museveni re-elected amid controversy accessed 28 November accessed 28 November accessed 13 December accessed 13 December The World Factbook, Central Intelligence Agency, accessed on 27 October 2015, library/publications/the-world-factbook/geos/ug.html. 12 Imports: Commodities by Country Uganda, FAOSTAT, accessed on 27 October 2015, org/desktopdefault.aspx?pageid=342&lang=en&country= accessed 28 November accessed 13 December Tax competition in East Africa: A race to the bottom? Tax incentives and revenue losses in Uganda, Tax Justice Network-Africa & ActionAid International, April 2012, 16 Uganda: Govt to Raise Borrowing After Corruption Cuts Aid, AllAfrica.com, 14 February 2013, accessed on 14 December 2013, accessed 28 November Uganda s corruption crackdown aimed at attracting investors accessed 13 December accessed 13 December Corruption Perceptions Index, Transparency International 2015, accessed on 28 November 2016, IMF WEO October 2017 data 22 IMF WEO October 2017 data 23 Haver Analytics data 24 Country Comparison to the World: Roadways, CIA World Factbook, accessed on 27 October 2015, Coronel, Ana Lucia, Uganda s Ambitious Infrastructure Plan Set to Boost Economy, IMF Survey Magazine, 7 July 2015, accessed on 27 October 2015, CAR063015A.htm. 683

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