UGANDAN ECONOMY

BCOM III & BESBM III

LECTURE NOTES
(Student’s Reader One)

INTRODUCTION TO UGANDA’S ECONOMY

• Macroeconomic Indicators of an Economy
• Theoretical Perspectives on Economic growth and Development
• Evolution & Nature of Uganda’s economy
• Uganda’s Current Development Strategy

FACULTY OF ECONOMICS, ENERGY AND MANAGEMENT SCIENCES

DEPARTMENT OF APPLIED ECONOMICS
MAKERERE UNIVERSITY BUSINESS SCHOOL

JANUARY 2025
Facilitator: Darious Mugabe Email: [email protected]
 Disclaimer: Note that these notes are guides but NOT a substitute for attending lectures. Clearly,
the notes in this reader are far from being complete and CANNOT substitute reading full text books
or the recommended texts. If you miss lectures or you don’t read the recommended texts, you will
find it difficult to obtain a good grade.

Introduction
This reader is intended to help you comprehend the first topic in Ugandan Economy. It covers
the basic understanding of an economy and its macroeconomic indicators; the theoretical
perspectives on economic growth and development; the evolving nature of the Ugandan
economy; and the current development strategy of Uganda’s economy. It integrates both
microeconomic theory and macroeconomic theory principles to lay a firm analysis of
Uganda’s economic performance.

What is an economy?
It is simply a circular flow of income and expenditures. An economy consists of various
markets, which are essentially a gathering of economic agents—households, firms,
government, financial institutions, and the external sector (illustrations needed). Economic
markets are mechanisms used to allocate scarce resources in an economy and government as
an economic agent plays a critical role of ensuring that market rules of the game are not flouted.
In so doing, government’s aim is to maximize the welfare of other economic agents.

1. Macroeconomic indicators
Macroeconomic indicators are statistics that reflect the overall economic performance of an
economy. These statistics provide insights into the health of an economy, guiding policy
decisions and investment strategies. Macroeconomic indicators, therefore, help policy makers
to understand economic trends, assess economic stability, and compare economic
performance over time or with other countries. These indicators should be in equilibrium to
achieve macroeconomic stability which provides the certainty needed for businesses to invest,
consumers to spend, and governments to plan and implement long-term development
strategies. By maintaining stable economic conditions, it is envisaged that a country can
achieve higher levels of prosperity, reduce poverty, and improve the overall well-being of its
population. Macroeconomic indicators widely used in economic literature include, but are
not limited to the following;
a) GDP growth/Economic growth: GDP is the total monetary value of all goods and
services produced within a country's borders over a specific time period, typically annually
(a year) or quarterly (every after three months). It can either be nominal GDP, when
measured at market prices or real GDP after it has been adjusted for inflation. The growth
in the GDP value over time is called economic growth, which is so far the most
comprehensive measure of a country’s overall economic activity. Uganda has experienced
varying GDP growth rates (economic growth rates), often influenced by factors such as
agriculture performance, infrastructure development, and political stability. In the past
decade, Uganda’s GDP growth has averaged 4.7%, driven by sectors like services,
industry, and construction.

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 b) Inflation Rate: Inflation is the rate at which the general level of prices for goods and
services is rising, leading to erosion of the purchasing power of money. It is commonly
measured using the Consumer Price Index (CPI), which tracks the change in prices of a
basket of goods and services over time. Moderate inflation indicates a growing economy,
while hyperinflation or deflation can signal economic instability. Controlling inflation is
vital for maintaining consumer confidence and economic stability.

Uganda has a history of hyperinflation (in 1970s – early ‘80s). Reforms (in the late 1980s-
‘90s) stabilized it, but it has been volatile since FY 2007/08. The volatility in Uganda’s
inflation is attributed to factors like food prices, exchange rate movements, political cycles,
and global oil prices.

c) Exchange Rate: It is the value of one country's currency in relation to another currency. It
determines how much of one currency is needed to purchase a unit of another currency.
The exchange rate can be determined by market forces (floating exchange rate) or set by
the government (fixed exchange rate). Uganda has used a managed float system since the
1990s, where the exchange rate is determined by market forces, but the central bank may
intervene to stabilize the sharp volatilities. Uganda chose a managed float system to:
→ Avoid Balance of Payments deficits perpetuated by fixing the exchange rate
→ Avoid overvaluation of the shilling which affects Uganda’s exports
→ Avoid distortion of price structures of imports
→ Reduce depletion of the foreign exchange reserves to curb shortages
→ Reduce the emergence of a parallel market (black market)
→ Ensure flexibility which helps the economy to adjust to external shocks.

The exchange rate affects international trade, inflation, and foreign investment. A stable
exchange rate encourages trade and investment, while a volatile exchange rate can lead to
economic instability. The Ugandan Shilling (UGX) has over the years experienced moderate
depreciation against major currencies like the US Dollar (USD) mainly influenced by trade
balances (imports), foreign reserves, and remittances from Ugandans abroad.

d) Balance of Payments (BoP). This is a statement that summarizes a country's economic

transactions with the rest of the world over a specific period, particularly annually. It
includes the current account (exports and imports) and the capital and financial account
(capital inflows and outflows). Uganda often runs a current account deficit due to higher
imports than exports. However, inflows from remittances, foreign direct investment (FDI),
and external borrowing help to reduce the deficit.
e) Interest Rates. These are the cost of borrowing money or the return on investment for
savings, usually set by the central bank to influence economic activity. Interest rates affect
borrowing and spending decisions by households and businesses, influencing overall
economic activity. Lower interest rates tend to stimulate economic growth, while higher
rates can help control inflation. The Bank of Uganda adjusts its policy interest rate (Central
Bank Rate) based on economic conditions. Interest rates are determined by;

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 → Cost of funds i.e. the central bank rate
→ Opportunity cost of lending i.e. other alternatives
→ Specific individual risk profiles of borrowers
→ Transaction costs of serving borrowers

In Uganda, interest rates have been relatively high compared to global averages, reflecting
inflationary pressures and the need to manage exchange rate stability. High interest rates in
Uganda are attributed to the following factors:
→ High operational costs (mainly due to nature of loans –small & uncollateralised)
→ Absence of long-term finance
→ Risky borrowers (most of them lack collateral = adverse selection & moral hazard.
Banks generally experience high non-performing loans “NPLs”)
→ Oligopoly banking structure.
→ High litigation cost (due to inadequacies of the judiciary)

f) Unemployment Rate. This is the percentage of the labor force that is unemployed and
actively seeking employment. A high unemployment rate indicates underutilization of
labor resources and can lead to social unrest and economic inefficiencies. Lower
unemployment rates are generally associated with a more robust economy. Uganda's
unemployment rate has been relatively low compared to global averages. However, the
country faces significant underemployment and a large informal sector, where many
people are engaged in low-paying, informal jobs without social security benefits.

Uganda therefore derives its four major macroeconomic objectives from the above
macroeconomic indicators. These include;
i. Real economic growth rate of at least 6%
ii. Inflation rate with in single digits.
iii. Maintain reserves equivalent to 4.5 months of imports
iv. Stable & competitive real exchange rate

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 2. Theoretical Perspectives on Economic Growth
In the conventional economic growth theory, for a country to grow the following are
prerequisites:
1. Capital accumulation: A country must save at least 15% of its GDP and invest it in new
factories, machinery, equipment and other materials that increase the physical capital stock.
It should also invest in socio-economic infrastructure, such as, roads, energy, water and
sanitation, communications, hospitals, schools, etc.
2. Population and labour force growth: This is a factor still under debate. Population growth
increases the labour force and the potential size of domestic markets in the long run. This
stimulates economic growth. However, it is questionable whether rapidly growing
population exerts a positive or negative influence on economic growth, especially given
that a country may not be able to absorb and employ all the increased labour force. The
high population may also be poor and therefore lacking in effective demand for goods and
services produced.
3. Technological progress: Improvement in the process of accomplishing tasks. This is where
innovation plays a critical part. Technology progress can be labour saving or capital saving
or neutral. The bottom line is: for a country to grow there must be advancements in
technology i.e., better utilization of existing and new found resources to raise output. Some
new models of growth justify imitation where you copy modern technologies from
innovators.
4. Natural resources: Conventionally, a country which is endowed with natural resources
such as minerals, forests, water, fertile soils, good climate, air etc. is likely to grow faster
than those without e.g., Diamonds played a great part in Botswana’s rapid growth; just oil
has accelerated growth in Qatar, the Emirates etc. However, there are countries without
minerals and other resources which have attained rapid growth while some with abundant
resources remained stagnant -- Japan Vs DRC.
5. Organisation: The entrepreneur ability to organise other resources promotes production
and thus economic growth. This calls for prudent macroeconomic policies, especially fiscal
and monetary policies – low inflation, stable exchange rates and interest rates, prudent
government expenditure, good governance and political stability all stimulate economic
growth.
6. Role of institutions:
a. Property rights: This refers to security of ownership of resources, both physical and
intellectual resources. For a country to grow property rights must be guaranteed.
b. Rule of law: For economic growth to come about there should be rule of law as
opposed to dictatorship and political corruption.
c. Impact of taxes: Evidence shows that high taxes are a major impediment to faster
economic growth. So, for a country to grow there must be a prudent tax policy that is
raising revenue by progressively taxing its population.
d. Investment in education: There must be human resource development for any
country to grow. There are various benefits that accrue to a country whose population
is well-educated and trainable.

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 Economist Daron Acemoglu & political scientist James Robinson in 2012 authored a book, “Why
Nations Fail”, in which they attribute success of nations to building “inclusive” political and
economic institutions (i.e., institutions that protect individual rights, secure private property and
encourage entrepreneurship). They argue that poor countries are those under “extractive”
institutions (i.e., institutions that place power in the hands of small elite that (mis)use it to exploit
the masses.)

Why do Economists care about GDP growth?

Because output is highly correlated (many times) with things people care about in life (i.e.,
standard of living, wages, jobs, prices, value of currency, etc… or generally HAPPINESS!!!).
Economists assert that high GDP per capita reflects a high standard of living. For example,
the 2015 World Bank rankings1 (based on the Atlas method) showed that the richest country
in the world was Monaco, with GDP per capita income of $171,500, followed by
Liechtenstein ($114,200), Bermuda ($106,140), Norway ($93,820) and Qatar ($85,430).

The poorest country was Burundi, with a mere $260, followed Central African Republic
($350) and Liberia ($380), Niger ($390) and Democratic Republic of the Congo (DRC) with
$410. Uganda was the 17th poorest country on earth with $670. Kenya was the richest country
in the East African region with $1,340, followed by Tanzania ($910), and Rwanda ($700).
This implies that standard of living was/is much higher in countries such as Monaco,
Luxemburg and Qatar than in Uganda2. More generally, life is better in North America and
Europe than it is in Africa and Latin America.

As of recent, by end of 2021, the richest country had GDP per capita of $131,782
(Luxembourg), while the poorest had only $265 (Burundi) –translating into a difference of
$131,517 and indeed if one ranks countries by their GDP per capita incomes, those in the top
10% are on average 30 times richer than those in the bottom 10%. Economists have been
disturbed, for centuries now, by this sharp contrast in the development levels and
corresponding living standards of different countries across the globe. A fleeting glimpse at
life in different parts of our planet is sufficient to raise various questions:

If indeed the earth was created on the same day, by the same God, with all humans equal,
why the difference? How can this large variation in the wealth of nations be explained? Why
are some countries stupendously rich and others horrendously poor? and what can be done
about it? Putting it more clearly, why is Uganda so much poorer than the U.S. or the UK? Or
more generally, why is it that Africa, among continents of the world, seems to be locked into
a cycle of dysfunction? Are Africa’s leaders genetically more venal, more ruthless, more
corrupt; what is it about Africa that holds it back, that seems to render it more incapable of
joining the rest of the world in the 21st Century?” Does it have to be this way? Are there factors

1See World Bank (2016)

2According to the World Bank, GDP or GNI per capita measures the average amount of resources available
to persons residing in a given economy, and reflects the average economic well-being of a population. 3
Clifford Cobb, Ted Halstead and Jonathan Rowe (of Redefining Progress, a San Francisco-based economic thinktank)

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 that we can change that lead to these gaps? Is enjoyment of the rich dependent on suffering of
the poor?

In case these questions immediately make you shudder at a thought that you are about to read
a racist treatise, you aren't. The answers to the questions don't involve human racial
differences at all. The emphasis is on search for ultimate explanations, in the earnest, to the
above questions. However, Robert. E. Lucas Jr (1998) poetically puts it that the consequences
for human welfare involved in questions like these are simply staggering: Once one starts to
think about them, it is hard to think about anything else.

Important facts you should know

The size of Uganda’s GDP was Shs. 183.004Trillion (equivalent to 500 Billion) as end of
June 2023. This means that if we sold everything that we produced between July 2022 and
June 2023, including all private and public consumption, investments, additions to private
inventories, paid-in construction costs, government outlays, and foreign balance of trade, we
get only Shs. 183.004 trillion. GDP per capita is GDP per person in a given year. It’s obtained
by getting the value of GDP and divide it by the country’s total population. Recall that our
GDP is Shs. 183.004 (USD 50 bn). If we divide this money, equally, among all Ugandans
(45.9 million people), each one of us gets Shs. 3.99 million (USD 1, 086). This means that
Uganda’s GDP per capita is still below the average income for Sub Saharan Africa (SSA) of
$1,479. This shows that Uganda’s income is indeed very low even comparable to countries of
her standards (SSA)—the poorest region on earth.

Limitations of GDP
However, economists concur that GDP may at times be misleading. In the words of one critic,
“GDP works like a calculating machine that adds but cannot subtract. It treats everything that happens
in the market as a gain for humanity, while ignoring everything that happens outside the monetised
economy, regardless of the importance to well-being.”3

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 3. Evolving Nature of Ugandan Economy
Ugandan economy is an agrarian economy. Peasant agricultural production has been the
predominant economic activity for Uganda since pre-colonial times. During the colonial rule
over Uganda, Asians became involved in commerce: retail and wholesale trade, cotton
ginning, coffee and sugar processing, while Africans (indigenous Ugandans) were largely
excluded from wholesale trade as, according to colonial policy, licenses could only be issued
to traders who owned permanent buildings of stone or concrete. By 1959, ‘Africans handled
less than 10% of national trade’ (Kasozi, 1999).

This colonial policy provoked intense resentment; indigenous Ugandans felt alienated and for
a long time regarded Asians as foreigners and exploiters. Idi Amin was later in 1972 to
capitalize on this discontent, at a huge cost to the economy. Given this history, it’s not
surprising that peasant agriculture has remained the mainstay for Ugandans. Agricultural
productivity has also remained low, and this means persistence of poverty especially in rural
areas where near 80% of Ugandans live, mainly, as small-holder subsistence farmers.

3.1 The Economy at Independence

Uganda enjoyed a strong and stable economy in the years approaching independence. At
independence in 1962, the economy was small but one of the most promising in sub-Saharan
Africa. At independence, the total Gross Domestic Product (GDP) for Uganda was just above
USD 68 million (about Shs. 177 billion in today’s shilling). The GDP grew to about USD 108
million by 1966. The post-independence decade of 1962-1971 was a period of considerable
economic prosperity characterized by:
• Average annual real GDP growth rate of 6% per annum,
• Real GDP per capita growth rate of 3% per annum,
• Economic growth averaged 4.5% a year,
• Sound fiscal and monetary policies leading to stable macroeconomy which accelerated
growth of the economy,
• Stable prices -- inflation never exceeded single digit. So, the cost of living was low. For
example, although a university graduate in the 1960s started at a salary of Shs. 1,500 a
month, he/she commanded a better living standard than his/her grandchild today.
Then, the exchange rate was Shs.7 per $; meaning that a graduate earned about USD
214. If that amount is adjusted for inflation, it comes to about $1,500 in 2014 terms.
That would mean that a fresh university graduate in 1960 earned about Shs. 3.9 million
in 2014 money.
• The balance of payments was in surplus. This was on the account of strong export
performance.
• Stable exchange rate and foreign exchange readily available,
• GDP per capita was about $512 (in 1980 prices) -- the fifth highest in Eastern and
Southern Africa, after South Africa, Zimbabwe, Mauritius and Zambia.
• National saving rate was among the highest in the region, 13.4% of GDP,
• Exports of goods and services accounted for 25% of GDP and these were able to finance
a large proportion of the country’s import requirements

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 Table 1: Selected Economic Performance Indicators 1960-70 (indexes: 1960=100)

Source: Background to the Budget (1965/66); Statistical Abstracts (1965 & 1966); Quarterly
Economic and Statistical Bulletin; & World Bank (1982)
By 1970, Uganda was one of the emerging economies in the world, in the same league with
countries such as Singapore, Malaysia, Thailand, and other countries that have since taken
off. Actually, in 1971, Uganda was considered among those African countries with a chance
of achieving a GDP growth rate of 7% for the rest of the century (Bwire, 2012).

3.1.1 The “Good Old Days”

The 1960’s are widely regarded as the good old days among Ugandans mainly because the
general standards of living were relatively good and perhaps better than those lived by most
Ugandans today. This was on the account of the low cost of living and the high value the
Ugandan shilling commanded then. The prices of goods and services were low and stable.
For example;

A parent was required to pay only Shs. 15 per term for his/her child to go to an urban primary
school like Bat Valley Primary School, while secondary schools charged Shs. 20 per term.

A kilo of sugar cost 45 cents and did a litre of milk. A bottle of soda cost 65 cents, while a
beer cost 1 shilling and 20 cents. A cup of black tea in a trendy Kampala restaurant cost 25
cents, while tea with milk cost 50 cents.

As far as transport was concerned, the railway fare from Kampala to Mombasa was only Shs.
20, while that from Kampala to Arua was Shs. 10. A bus ticket within Kampala City cost a
passenger between 25 and 30 cents. A bicycle cost Shs. 250, while a brand-new car (Honda
Civic) cost Shs. 30,000.

The entry fee into night clubs in the 1960s was Shs.2, with the more upscale and expensive
clubs (the Guvnors/Silk of the time) charging only Shs.3.

This implies that a fresh university graduate who earned Shs. 1,500 (an equivalent of Shs. 3.9
million in 2014 money) a month lived a very comfortable life. This is the reason economists
emphasize macroeconomic stability (particularly the stability of prices and exchange rates).

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 3.2 Where Did These Rosy Statistics Go?
The economy started to deteriorate under the rule of President Idi Amin from 1971 to 1979.
On assuming power, Amin’s military regime embarked on policies that would seriously affect
the Ugandan economy and the wellbeing of the people for decades. His period was
characterised by:
1) The 1972 economic war – in August 1972 Amin expelled Asians (over 70,000 of them)
many of whom were active in agribusiness, manufacturing, and commerce. Amin accused
the Asians of the following offences:
a) Abuse of foreign exchange regulations: That Asians used to export goods and services and
kept the foreign exchange proceeds abroad. This also included undervaluing of exports
and overvaluing of imports;
b) Hoarding and smuggling of essential commodities like sugar, oil, and hoes creating artificial
shortages in order to keep the prices unreasonably high;
c) Undercutting African traders and unfair competition: That Asians were importers,
wholesalers and retailers all in one, and ensured that business remained entirely in Asian
hands by practicing price discrimination against Ugandan traders. They did this by
supplying their fellow Asians with goods at low prices than those they charged indigenous
Ugandans;
d) Employing family members in their businesses: That Asians used not to trust Ugandans and
if they employed any Ugandan, they hid business secrets from them and did not give them
authority;
e) Tax evasion: That Asians kept two different books of accounts; one for Income tax
department and another, which showed the true and correct account of the business, in
Gujarati or Hindu which Ugandan tax administrators did not understand. Through this
trick they paid less tax than they ought to;
f) Practicing and spreading corruption. That Asians believed that they could not get any service
in the government department or parastatal without bribing their way; and lastly
g) Disloyalty to the country: Amin accused Asians of being ungrateful to Uganda. That the
country had availed them with opportunities for both local and foreign training in
medicine, engineering, law and other professions but on completion of the programs many
of them had either worked briefly for government or opted directly for private sector.

Therefore, due to these accusations Amin, under decree 17/1972, revoked the residence
permits of Asians of Indian, Pakistan and Bangladesh origin, and gave them 90 days (3
months) to leave the country (Kibikyo, 2008). Although a long history of economic
inequalities between the African majority and the Asians has caused resentment, the
expulsion did little to improve income distribution or the welfare of the ‘common man’ in
Uganda (Bigsten & Kayizzi-Mugerwa, 1999). Instead, it put an end to Uganda’s post-
independence prosperity. It set Uganda on a deterioration path. There were three main
effects of the Asian expulsion:
i. Skilled managers were replaced by largely unskilled people, often drawn from the
military and with little education;

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 ii. The appropriation of their properties earned the country a long-lived reputation for
lawlessness and property confiscation;
iii. The manner in which former Asian businesses were acquired created insecurity of
tenure, leading to asset stripping e.g., Kakira sugar factory lost 119 tractors.
Note:
• Before Amin’s unfortunate action, the three East African governments (Kenya, Tanzania
& Uganda) had in January 1967 proposed to expel Asians from East Africa who had
refused to assume the EAC citizenship aimed at reducing repatriation.
• In 1969, in a bid to enable indigenous Ugandans to have a say in the economic affairs of
their country (which at the time was dominated by Asians & British immigrants) and “for
the realisation of the real meaning of Independence”, Obote had announced a “Move to
the Left” under the Common Man’s Charter. He wanted to make Uganda a socialist country
like Tanzania.
2) Gross mismanagement of the Ugandan economy by Amin’s henchmen and hangers-on
(popularly known as mafuta-mingi). Many of these lacked entrepreneurial skills and
creditworthiness, and were inexperienced at doing business. Most of the mafuta-mingi
were muslims (Amin’s religion) although several other prominent beneficiaries (e.g.
Gordon Wavamunno [Mercedes Benz Franchise], James Mulwana [Uganda Batteries &
Uganda Blankets], Mrs. Mbiire [Pop-In, a bread-making factory] – a few beneficiaries who
became successful) were non-Muslims. The mafuta-mingi ran down the factories and
shops.
3) Introduction of economic distortions such as price controls (which led to emergency of
black markets (magendo) & hoarding of basic groceries and other essential commodities);
high import tariffs (led to smuggling); excessive printing of money to finance fiscal deficits
(led to high inflation -- 216% in 1979), fixed exchange rate regime (led to shortage of foreign
exchange) etc.
4) Fiscal indiscipline -- spending too much on unproductive sectors of the economy such as
the military, government, etc. and neglecting the productive sectors such as agriculture,
industry, services, physical infrastructures etc. Amin was the first Ugandan leader to start
an arms race & big public spending. This led to high budget deficit, increasing at an annual
rate of 23%, and was financed by simply printing money.
5) Collapse of the formal sector which led to drastic reductions in government tax base to
only 6% of GDP in 1979 from 15% of GDP in 1970. Private business virtually collapsed
due to shortages of inputs, high inflation, and insecurity;
6) Drastic fall in foreign direct investment (FDI) due to the economic war and insecurity
which undermined investor confidence in Uganda, and
7) Escalating foreign and domestic debt (see table 2 below), and alienation of Uganda from
bilateral and multilateral donor agencies, such as the World Bank and IMF. Aid inflows
from the World Bank and Western countries generally ceased.
By 1980, the Ugandan economy had reached an unprecedented state of decay. Production
had collapsed, there were rampant shortages of essential commodities such as soap, sugar,
paraffin, clothes, blankets, drugs, food, etc., prices had gone through the roof (216% inflation
rate), and physical infrastructure had been destroyed. Overall, the GDP had fallen between

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 1971 and 1980 by 40% (Musinguzi et al, 2000). The period 1971-80 has been described by
political and economic pundits as having been “a political tragedy and an economic disaster for
Uganda.”
Table 2: Selected Economic Performance Indicators 1971-80 (indexes: 1960=100)

Source: Background to the Budget (various years, 1971/72 – 1981/82); Budget Speech (various
years): World Bank: World Development Data.; World Bank (1982).

In summary, the main causes of poor economic performance during the 1970s were:
▪ Economic war & subsequent distortions,
▪ Political turmoil,
▪ Social disorder,
▪ A highly over valued exchange rate,
▪ Export taxation, and
▪ Quantitative restrictions on imports.
3.3 Obote II’s Economic Recovery Programme (ERP), 1981 – 1985
In 1981, the country began a programme of economic recovery under the second government
of Milton Obote. The programme aimed at:
i. Raising the real GDP growth by 5% per annum,
ii. Reducing inflation to annual rate of 25% in order to re-establish macroeconomic
stability
iii. Reviving production and securing operational and long-term finances from external
sources
iv. Improving macroeconomic management polices to encourage the mobilisation of
domestic resources
The following were some of the reforms which Obote II introduced under the 1981–84 ERP:
a) Floating of the Uganda shilling on the foreign exchange markets to strengthen the BOP,
b) Dismantling of a wide range of price controls,
c) Increasing producer prices for export crops,
d) Introduction of a dual exchange rate starting in August 1982 i.e., Window I (the less
depreciated official exchange rate determined by BOU for essential imports especially

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 oil and raw materials, and for debt service. It was it was set at $1 = UGX100 on 23rd
August 1982, before increasing it to UGX 290 per dollar by the end of 1982), and
Window II (the more depreciated rate determined through a foreign exchange auction
& black market [Kibanda]. It was set at 1$ = UGX240 at the beginning, and increased
to UGX 479 per dollar at the end of 1982). Window Two rate was determined by a
weekly auction of foreign exchange by the Bank of Uganda.
e) Restoration of investor confidence by persuading foreign companies to return to their
former businesses which Amin had expropriated,
f) Rationalization of tax structures and control of government expenditure, and
g) Brought back the IMF and the World Bank—the two donor agencies extended
considerable foreign assistance to the economy. ODA flows rose from zero to an
average of 1.5% of GDP between 1981 and 1985 (Bwire, 2012).

Achievements of the 1981-84 ERP

i. Between 1981 and 1984 GDP, on average, grew by 6% per annum. Per capita income
also grew at average rate of 0.22% in the same period, contrasted with the sub-Saharan
region performance, which declined at a rate of 1.28%
ii. By 1983 inflation had been stabilised and controlled (i.e., from 164% per annum in
iii. 1981 to 21% in 1983)
iv. There was reduction in the overall budget deficit,
v. Domestic credit to government was cut down,
vi. The value of the shilling was stabilised
vii. The productive capacity of the economy was recovered. Export volumes increased
despite the constraint of a coffee quota.
viii. Economic growth restarted partly with the increased external financing assistance for
rehabilitation efforts following years of neglect of infrastructure in the 1970s.

Table 3: Selected Economic Performance Indicators 1981-86 (indexes: 1960=100)

Indicators 1981 1982 1983 1984 1985 1986
GDP growth rate (%) 4 5.7 7.4 -8.5 2 0.3
GDP Per capita index 65 67 70 62 61 60
Investments/GDP (%) 5 9 7 7 8 8
Savings/GDP (%) 0 0 2 6 7 5
Exports/GDP (%) - 9 8 9 9 9
Inflation (%) 74 40 22 36 95 96
External debt (M$) 717 882.1 1014.9 1077.4 1238.8 1422.1
Population (Millions) 13.4 13.8 14.1 14.5 14.8 15.2
Source: Background to the Budget (various years, 1982/83 – 1987/88); Bank of Uganda: Annual
Report 1985; IMF, International Financial Statistics; World Bank (1988), Towards Stabilisation
and Economic Recovery; Statistical Bulletin No. GDP/2: Gross Domestic Product of Uganda 1981-
1989; World Bank: World Development data.

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 However, the recovery was short-lived. The reasons for failure of the 1981-84 ERP include:
▪ Renewed outbreak of civil strife which hindered pursuance of proper economic
management i.e., escalation of the Luwero bush war (the NRM/NRA Liberation War of
1981-1986)
▪ Government commitment to the programme was weak, denying the reforms the desired
credibility. A number of performance benchmarks in the monetary programme were
violated, which culminated in the suspension of the programme with the IMF. The IMF
ended its support following a disagreement over budget policy with Obote II government.
▪ Overly expansionist fiscal and monetary policies which led to resurgence of inflation, and
drastic fall in GDP growth to 8.5% by 1984. For example, money supply increased by 127
in 1984 alone.
▪ Little progress was made towards improving the tax structure and administration

By the time Obote II government was toppled in July 1985, Ugandans were living agonizing
lives similar to, and in some parts of the country worse than those under Amin. During the
brief regime of Tito Okello Lutwa in 1985, the economy slipped almost out of control as civil
war extended across the country. Some observers summarised Okello’s six months regime as,
“Months of aimlessness, months of destruction and months of shame for Uganda.”

3.4 The NRM’s Economic Recovery Programme, 1987

Taking over a country and an economy in ruins in January 1986, the NRA/NRM
Government, with the help of the World Bank and the IMF, came up with a number of
reforms to restore economic sanity. By the end of 1986 inflation had reached 358.4% and the
GDP growth of 0.3% was driven by the subsistence sector.

This hyperinflation was mainly due to total lack of financial control in government ministries
and parastatals leading to huge budget deficits, financed by printing money (Musinguzi et al,
2000).

Initial mistakes
1) Closed model and revaluation (of the ‘buying power of the shilling’) turned out to be a
mistake as this fueled more macroeconomic instability and worsened external viability.
2) Price controls resulted into the intensification of macroeconomic imbalances. These
controls created all the distortions that Amin had brought to Uganda—shortages, black
markets (Kikuubo boys), etc. The controls were also extended to the forex markets, where
the official rate in 1986 was fixed at Ushs 14 per U.S. dollar and Ush 50 per U.S. dollar
for essential and non-essential transactions respectively (Atingi-Ego & Subudde, 2003).
These controls brought back all the bad effects that had been experienced in 1970s.
These mistakes taught “the new leaders from the bush” some hard lessons and by 1987 it had
become evident that a new programme was needed.

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 World Bank/IMF funded ERP
In May 1987 the NRM government, supported by IMF and the World Bank, introduced an
Economic Recovery Programme (ERP) aimed at:
i. Achieving positive economic growth of at least 5% per annum by boosting production,
ii. Restoration of price stability by dampening inflation
iii. Halting and reversing the deterioration of balance of payments by boosting export
earnings, and
iv. Strengthening the institutional framework.

This ERP marked the beginning of the emergence of the Ugandan Economy we are studying
today.

3.4.1 The Broad Policy Objectives of the ERP were:

a) Stabilisation of the economy, through the restoration of fiscal and monetary discipline,
notwithstanding the increasing demand for considerable outlays to rehabilitate the
devastated infrastructure in the post conflict economy;
b) Liberalisation of consumer and producer prices. The underlying theory here is that
competitive markets and their efficiency in allocation of resources is promoted by
appropriate pricing. Consequently, regulation of markets and their pricing was to be
eliminated. Monopoly position of marketing boards was also eliminated. Liberal
marketing policies increased competition; hence better prices paid to the farmers.
c) Liberalisation & deregulation of interest rates within a restructured and more efficient
financial system capable of mobilising domestic resources and increasing investments;
d) Progressive movement towards a market determined exchange rate within a system free
of exchange restrictions and distortions;
e) Strengthening of the Balance of Payments (BOP) and the normalization of relations with
external creditors;
f) Liberalisation of trade and compliance with other regional and international trade
obligations; and
g) The privatization and rationalization of state enterprises.

Major Reforms under the 1987 ERP

a) Currency reform measures -- two zeros were knocked off the shilling (i.e., 1 new Shilling
= 100 old Shillings) and a currency conversion tax at a rate of 30% was also imposed.
These measures were intended to reduce excessive liquidity in the economy in order to
restore the value of the Ugandan Shilling. This was accompanied by 77% devaluation
(i.e., from 14 to 60 shillings per dollar) to address imbalances in the external sector.
Inflation reduced from 360.7% in May 1987 to about 200% in June (Barungi, 1997).

b) Abolition of export taxes in 1992/93 to promote Uganda’s exports. Government had

introduced export taxes in 1987/88, mainly from coffee, to broaden the tax base.
Managing the increased coffee-export inflow in 1994-95 was a test of economic management in the
new liberalised environment. The money had a real potential for destabilising the economy by

Ug. Econ, Lecture Notes, BCOM III & BESBM III, AY 2024/25; MUBS; January, 2025 Page | 15
 appreciating the currency. The government decided to re-introduce a coffee tax as the quickest means
of mopping up extra liquidity in the market. (Kayizzi Mugerwa)

c) Merger of Ministry of Finance (MoF) with Ministry of Planning and Economic

Development (MoPED) in 1992 to coordinate macroeconomic management and ensure
fiscal discipline (control of public expenditure),

d) Granting of semi-independence to the Bank of Uganda (BoU) through 3 legislations --

the 1993 BoU Statute which gave it full authority for monetary policy; the 1993 Financial
Institutions Statute which gave it power to regulate and supervise commercial banks and
other financial institutions, and the 1995 Constitution (Article 162 (2) granted it
independence). “In performing its functions, the Bank of Uganda shall conform to this
Constitution but shall not be subject to the direction or control of any person or authority,” the
article states. Through reforms, the BOU was transformed from a “printing press” to a
credible central bank with the prime objective of price stability.

e) Fiscal operations and tax reforms, including: setting up of Uganda Revenue Authority
(URA) in 1991 to improve revenue administration, abolition of export taxes beginning in
1992/93, introduction of value-added-tax (VAT) at 17% for most goods in 1996, etc.

f) Development of private sector to get government from doing business. In 1991 Uganda
Investment Authority (UIA) was created to administer the Investment Code to attract,
promote and facilitate investment, provide fiscal incentives, and protect foreign and local
investors.

g) Privatisation of state-owned enterprises (SOEs) which unofficially started in 1989 with

the sale of some six firms and in 1992, 142 SOEs were officially put on sale launching the
project aimed at getting government out of doing business.

h) Adoption of a fully-fledged flexible exchange rate regime in 1992. A highly over valued
exchange rate system, adopted in 1970s through 1980s, had been at the forefront of
Uganda’s poor economic performance. In October 1993, the inter-bank rate was
introduced to eliminate the segmented exchange rate system by bringing about a
convergence of the three channels (i.e., the official FX market; the weekly auction; and
the forex bureaux). These reforms in the FX market had appositive and significant impact
on the economic recovery of Uganda.

Ug. Econ, Lecture Notes, BCOM III & BESBM III, AY 2024/25; MUBS; January, 2025 Page | 16
 Table 4: Selected Economic Performance Indicators 1987-97(index 1960 = 100)

Sources: Background to the Budget 1996/97; Uganda: Key Economic Indicators, January 1996;
IMF: International Financial Statistics; World Bank: World Bank Development Data 1996;
Statistical Abstract 1998; Bank of Uganda, Monthly Economic Report Jan-March, 1999.

Major highlights from 1987 to date, courtesy of the ERP

▪ Prudent macroeconomic policies which reduced inflation from 220% in 1987 to a
singledigit for much of the period 1993 – 2007. However, inflation began rising once again
into double digits from 2007/08 onwards. We shall see why this was the case (in Topic 2).
▪ Savings fell sharply to 4.2%, from 7.0% in the previous period, primarily resulting from the
high consumption levels recorded.
▪ Because of resource constraints, limited efforts were made to improve the physical
infrastructure and development financing was constrained
▪ Sustained positive GDP growth rates averaging 6.5%.
▪ Per capita income (GNI per capita) has grown at an average of 3.6% p.a., and recovered
from the low of US$250 of 1986 to US$660 in 2016. However, it is still far below the average
growth rate of highly performing economies of South East Asia (5.6% over the last two
decades), although Uganda’s growth has outperformed that of SSA by nearly 82% during
this period.
▪ The investment–GDP ratio has averaged 15% in this period, recording the highest average
ratio since the 1960s
▪ The period, especially the 1990s, has been characterised by substantial reliance on external
assistance. This was necessitated by (1) the low domestic savings rate, (2) the narrow
revenue base including inadequate export earnings, and (3) the acute need for resources to
rehabilitate the economy in order to revive the productive capacity and improve
government’s ability to manage the economy.
▪ Government identified the need to reduce poverty through broad-based growth that
involves the participation of the poor in order to create economic opportunities and reduce
poverty so as to consolidate the post-conflict peace. Poverty reduced to 25% in 2009/10
from 56% in 1992.
▪ Lower inflation restored investor confidence in Uganda besides allowing a competitive
exchange rate.

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 ▪ Improvement of human development indicators; education (especially UPE and
liberalization of education sector), primary health care, water and sanitation etc. For
instance, primary school enrolment is 8.7 million pupils, 74% of households have access to
water from improved sources (UNHS 2009/10).

Note:
a) Over the last three decades, the economy has moved from recovery to growth based on
short- term planning (Vision 2040).
b) In 1990s, Uganda was “a pioneer of macroeconomic stabilization and structural
adjustment in sub- Saharan Africa.” (Reinikka and Collier, 2001). As a result, the
country attracted a lot of aid money. For example, Uganda was the first country to
receive general budget support under the World Bank’s Poverty Reduction Support
Credit (Moncrieffe, 2004).

Some negative impacts of ERP

Although experience of Uganda in the past two decades or so has revealed that market-
oriented policies are more effective and efficient than the administrative controls, there are a
number of issues about these reforms that have been raised by a cross section of people that
need to be debated. These are:
• The growth profile has remained jobless
• Incomes have not kept pace with the GDP growth
• Income inequality is rising
• Low competitiveness of the economy
• Too much market; too little government

Is the Ugandan Economy Growing?

Yes. Official statistics from UBOS and World Development Indictors show that the economy
has expanded quite rapidly in the recent period as the figure shows.
Figure 1: Uganda's GDP (in CurrentUSD) from 1962- 2021
45,000,000,000 40,529,789,026
40,000,000,000 29,203,988,815
35,000,000,000 32,612,397,758
30,000,000,000
25,000,000,000
20,000,000,000
15,000,000,000
10,000,000,000
449,012,579
5,000,000,000
0
1964

1986

2008
1962

1966
1968
1970
1972
1974
1976
1978
1980
1982
1984

1988
1990
1992
1994
1996
1998
2000
2002
2004
2006

2010
2012
2014
2016
2018
2020

Source: WDI database. Accessible via:

https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=UG

Ug. Econ, Lecture Notes, BCOM III & BESBM III, AY 2024/25; MUBS; January, 2025 Page | 18
 The figure above shows Uganda’s total GDP (after rebasing) between 1962 and 2021 in
current billion US dollars. It shows that the GDP has grown quite rapidly from US$4.5 billion
in 1962 to US$32.6 billion in 2014, although declined slightly to US$29.2 billion in 2016. Data
shows that average GDP growth rate between 1986 and 2000 was 6.1 percent per year,
increasing to 6.6 percent for the period 2001 – 2016 (WDI, 2017). Generally, Uganda’s
economy has turned in strong growth since early 1990s.

However, when compared with regional peers, GDP for Kenya and Tanzania has grown much
better than Uganda since 1992
Figure 2: Uganda's GDP (in Current US$) from 1962-2020
compared to regional peers
120,000,000,000

100,000,000,000

80,000,000,000

60,000,000,000

40,000,000,000

20,000,000,000

0
1972

1982

1992

2002

2012
1962
1964
1966
1968
1970

1974
1976
1978
1980

1984
1986
1988
1990

1994
1996
1998
2000

2004
2006
2008
2010

2014
2016
2018
2020
Congo, Dem. Rep. Kenya Rwanda South Sudan Tanzania Uganda

Source: WDI database. Accessible via:

https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=UG

Rebasing of GDP
The rapid growth in GDP figures was amplified in 2015 when UBOS released improved and
rebased estimates of GDP. The new rebased estimates showed that the economy was more
buoyant than had previously been reported. They also showed significant variations in GDP
figures and as a result, there was an upward adjustment in real GDP growth.

These changes were attributed to:

i. Change of base year from 2002 to 2009/10 prices;
ii. Change in methodology for measuring GDP, to ensure better coverage of the economy
than in the past. The coverage of economic activities in the economy was made more
comprehensive after capturing the informal sector and non-profit institutions
This was the second rebase following the 2008 rebase from 1997/98 to 2002 prices

Note: Rebasing of the national accounts (which includes GDP) is the process of replacing an
old base year with a new and more recent base year. The base year provides the reference
point to which future values of the GDP are compared.

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 In 2015, Uganda followed other East and West African countries that had rebased their
economies. Uganda’s 17% change in GDP after rebasing was the lowest in the region—in
Kenya it was 24% and in Tanzania it was 25%. GDP for Nigeria’s and Ghana’s economies
changed by 89% and 62%, respectively, far ahead of East African countries. However, this
was mostly due to differences in previous base periods for West and East Africa (1990 and
1993 for Nigeria and Ghana, respectively, compared with 2001 for Kenya and Tanzania, and
2002 for Uganda). The more regular the revisions, the better the national income estimates.

What changed after the rebasing?

Services contributed to half (50.2%) of GDP in 2013/14 and the contribution by the
agriculture sector declined from 26.6% to 23.3% in 2013 after rebasing

Source: Uganda Bureau of Statistics

Main Sources of Growth in Uganda for the Period 1992 to Date

a) Good economic policies (fiscal and monetary) that led to macroeconomic stability and thus
increases in agricultural incomes, foreign direct investment (FDI), remittances by Ugandans
living abroad, and the high growth of the real sector.
b) Increased private sector investment, especially in industry and construction. Uganda’s growth
has mainly been driven by increased investment particularly in industry and services.
Increased private sector investment is on the Uganda’s membership in the Multilateral
Investment Guarantee Agency (MIGA) which increased the attractiveness of the country as
an investment centre. Also, the creation of the Uganda Investment Authority (UIA) in 1991
and its new Investment Code facilitated both local and FDI. Investment is mainly in the
sectors of tourism, agro-processing, horticulture, fish processing, construction, mining,
manufacturing, hydro-electric power, merchant and investment banking,
telecommunication and infrastructure development.
c) Large donor support geared towards public sector spending on social services. For example,
Uganda was the first country to receive general budget support under the World Bank’s
Poverty Reduction Support Credit (Moncrieffe, 2004). The aid-GDP share, which was
about 1% in 1980 rose significantly to about 5% in 1986 reaching a peak of about 19% in
1992, and averaged about 11% between 1990 and 2006 (Bwire, 2012). ODA inflows (in
absolute terms), increased from USD 870m in 1996/97 to USD 1.4bn in 2008/09.
d) Favourable external environment. Substantial debt relief and relatively low borrowing costs,
and high commodity prices. Uganda became a beneficiary of the highly indebted poor
countries (HIPC) debt relief in 1998/99.
e) Increased exports and thus better terms of trade, with new exports, particularly fish, cut flowers,
and maize, coming on board. Total exports increased from US$171 million in 1992 to

Ug. Econ, Lecture Notes, BCOM III & BESBM III, AY 2024/25; MUBS; January, 2025 Page | 20
 US$478 million in 1999. Uganda’s exports mainly go to the European Union (EU) and the
Common Market for Eastern and Southern Africa (COMESA).
f) Removal of economic distortions such as price controls (and the resultant black marketing),
fixed foreign exchange regime, high tariffs (and the resultant smuggling), etc.
g) Growth in total factor productivity: the portion of output not explained by the number of
inputs used in production. This increased output by TFP is thus due to increased efficiency
of capital and labour used in production. This growth in Uganda’s TFP has been as a result
of growth of education, health, infrastructure, imports and other institutional factors.
h) Relatively stable political environment since the 1990s which reduced uncertainty and risk for
investors.

Fine GDP has grown; but growing for who?

The main challenge in Uganda is that although GDP has been growing, per capita incomes
among Ugandan households seem not to keep pace with the GDP. By and large, although
per capita income growth rate has been positive, averaging 3.4 percent per year in 25 years
(1990 – 2015), household incomes among Ugandans have remained nearly stagnant since
1970s to date. You can hardly differentiate Uganda’s per capita income growth curve from
the zero line or x-axis (see figures below).
Figure 3: Uganda's GDP Per capita (in current US$) from 1962-2020
with selected countries
80000
70000
60000
50000
40000
30000
20000
10000
0
1966

1992

2018
1962
1964

1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990

1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016

2020

Korea, Rep. Malaysia Singapore Uganda

Source: World Bank data base, Author’s calculations

The figure above shows per capita incomes (in current US$) for Uganda, compared with three
other countries. The figure clearly indicates that between 1962 and 2020, GDP capita for
Uganda has been nearly stagnant. Although Uganda’s total GDP has expanded to over US$40
billion, per capita incomes have not changed much since 1960s, yet the incomes of Singapore,
Korea (South) and Malaysia— countries that had comparable per capita incomes with
Uganda in 1960s—have grown impressively.
This literally means that in Uganda, and much of Africa, we are building rich economies with
poor people. Even when compared with selected African countries, our per capita income

Ug. Econ, Lecture Notes, BCOM III & BESBM III, AY 2024/25; MUBS; January, 2025 Page | 21
 growth still looks ugly. This is now more disturbing because on the account of GDP, Uganda
has been growing more impressively than these countries and yet on the account of GDP per
capita, these countries outperform Uganda.
Uganda's GDP Per capita (in current US$) from 1962-2020
compared with regional peers
2500

2000

1500

1000

500

0
1982
1984
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980

1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Congo, Dem. Rep. Kenya Rwanda Tanzania Uganda

Source: World Bank data set; Author’s calculations

Why the paradox? Why are incomes stagnant despite the rising GDP?
a) Growth is not inclusive. There is rising inequality among Ugandans. This means that the
growth is going to the few who already have a lot. The emerging opportunities are poorly
distributed. Central Uganda & Greater Kampala = 66%, North = 7%, East = 13% & West
= 14%3 . Although inequality (let it be individual or regional) is often a consequence of
progress—not everyone or every part of the country gets rich at the same time—large
inequalities affect progress.
b) High population growth rate. Uganda’s population is growing at 3.25% (9th highest; and
the fertility rate is 6 kids per woman, the 5th highest in the world). This implies that
population is competing with the growth of GDP, and clearly the former is winning the race.
If Uganda’s economy and population continue to grow at the rates both have been growing
in the past decade (2005 – 2015), it will take Uganda 20 years (70/3.5 = 20 years) to double
her GNI per capita. Note: Uganda’s GNI per capita is currently growing at 3.5% per year.
Globally, the most livable countries are those either with smaller populations or with large
population driven by longer life expectance as opposed to increasing numbers of children.
The key is to ensure that the country reduces the dependency ratio (the number of children
per family).

3 MoFPED (2016), “Private Sector Development Strategy 2015/16 – 2019/20.”

5
See UNSTATS: National Accounts Aggregates

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 c) A large proportion of Uganda’s GDP is produced by foreigners. Most of the large and
thriving businesses in Uganda (and particularly those in the fastest growing sectors—
telecommunications, banking, large scale manufacturing, wholesale and retail trade etc.) are
foreign owned. Ugandans are concentrated mainly in small, informal businesses— vending
the products that foreigners produce, riding boda-bodas, hair salons, bars, etc. Thus, a
significantly larger proportion of the proceeds of the expanding economy go to foreigners
who repatriate them to their home countries.
d) High marginal propensity to import (MPM). Currently, the MPM for Uganda stands at
33%5 – one of the highest in the region (e.g., Zambia = 23%, Tanzania = 29%). This implies
that incomes and jobs are shipped out of Uganda to the countries that produce her imports
– China, South Korea, India, Hong Kong, Malaysia etc. No wonder their incomes are
growing as ours continue to stagnate.
e) Low levels of capital accumulation. The culture of consumerism among Ugandans means
that we cannot save and accumulate capital. Uganda’s MPC (87%) is very high which
deprives many Ugandans of the ability to save, invest and create wealth that would secure
their income flows. China’s MPC is 38%, South Korea’s is 42%.

Why the Jobless Growth of Uganda’s Economy?

In economic theory, economic growth is expected to create jobs and reduce unemployment
(Okun’s Law). In 1962, Arthur Okun, an American economist, postulated that a 1% increase
in the growth rate of GDP would lead to 0.3% reduction in unemployment. Subsequent
research has proven that economic growth is good for employment.

However, empirical and diagnostic studies have found that Uganda’s growth profile has
remained jobless (see Ggoobi, 2017). The economy has been growing rapidly in recent
decades without a commensurate growth in employment.

We have already seen how the economy has expanded in the past three decades. Despite that
rapid expansion of the economy, unemployment has increased. It is estimated that of the
500,000 young people that enter the labour market every year, only about 12 percent of secure
a formal job (NPA, 2020). The rest either remain jobless or join the informal sector. Over 90%
of Ugandans employed in non-agricultural activities are in informal employment (according
to UBOS statistics). So, why the paradox?

Research has attributed it to the following factors:

1) Chaotic political economy: according to Mugisha and Kitamirike (2017), a

combination of ‘wrong’ orientation of macroeconomic reforms (neo-liberalism) and
political patronage fuelled by a shift to multi-party democratic politics, and the desire of
the NRM regime to consolidate itself in power, caused jobless growth. That the two
crowded out private and public investment.

2) Low productivity growth: Uganda’s agriculture has had the lowest labour productivity
in Uganda, yet it is the sector that hosts three quarters of Uganda’s labour force.

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 3) High population growth rate: between 1990 and 2014, total employment in Uganda
grew on average by 2.96% per annum, yet the population growth rate in the same period
was 3.6%, and labour force growth rate was 3.1% over the period. Population growth
rate often competes with other important variables such as the growth rate of the
household incomes and the growth rate employment. In Uganda the former is currently
winning the race.

4) Structure of Uganda’s economy: As indicated later in this reader, Uganda’s economy

has experienced sectoral shifts in GDP composition with no sectoral shifts in
employment. Nearly 80% of the population has remained stuck in agriculture, a sector
whose contribution to GDP reduced from 56.6% in 1986 to about 24% in 2016. More
research is needed to explain why this is the case

Is Uganda a middle income country?

In July 2022, Ugandan President Yoweri Museveni announced that the country had achieved
lower-middle-income status. His announcement was based on data from UBOS, showing that
Uganda had grown to the level of a lower-middle-income country, meeting the World Bank’s
income threshold of US$1,046 per capita for the 2021–2022 financial year (FY). The World Bank
quickly disputed this claim based on the following reasons:

1) Differences in measures of income: UBOS used GDP as a measure of the size of its economy,
whereas the World Bank used GNP or GNI, consistent with its standard approach and the
thresholds.
2) Wheras GDP is not always larger than GNP, in the case of Uganda, the World Bank also
estimated GDP to be higher than GNP, (by around 2%), but its estimate of Uganda’s GDP
differed to that of UBOS.
3) Differences in time period: UBOS based its calculations on financial Year 2021–2022 (July to
June) data, while the World Bank used data for the calendar year 2021.
4) Different adjustments to census data: Both UBOS and World Bank used the 2002 and 2014
national census data as the basis of their 2021 estimates. However, the World Bank adjusted
this data upwards due to post-enumeration surveys, based on which the UN believes there is an
undercounting of around 3.4 million people, and projected a steeper growth in population since
2014. See table below
Item UBOS World Bank Difference
National accounts GDP US$45.7 billion GNI US$39.5 billion UBOS’s figure is US$6.2
(total income) (July 2021–June 2022) (2021 calendar year) billion (16%) larger
Income per capita US$1046 (GDP per US$840 (GNP per US$206
capita) capita)
Total population 43.7 million 47.1 million World Bank’s estimate
(total adults and is 3.4 million (8%) larger
children)
Source: The data behind the debate over Uganda’s income status-Development Initiatives. Accessible via:
https://devinit.org/blog/data-behind-debate-over-ugandas-income-status/

Ug. Econ, Lecture Notes, BCOM III & BESBM III, AY 2024/25; MUBS; January, 2025 Page | 24
 In the meantime, Uganda is still among the 31 countries classified as low-income economies.
The middle-income status, to which 107 countries currently belong, has two categories: lower
middle income (52 countries), upper middle income (55 countries). The developed countries
are classified as the high income or OECD countries. They are 79 of them in the world.

As of July 1st, 2022, the World Bank employed a threshold of $12,695 GNP per capita
income to distinguish between the high-income or developed economies and low- and
middle-income economies.

The low-income economies are those with a GNP per capita4 below $1,085 as of 2022. The
lower middle-income economies are those with a GNP per capita between $1,085 and $4,095;
upper middle-income economies are those with a GNP per capita between $4,096 and $12,695

The GNP per capita (in U.S. dollars) which is used to classify countries into the above four
income groupings above is converted from local currency of the country using the World Bank
Atlas method. The Atlas method smoothens the exchange rate fluctuations by using a three-
year moving average, price-adjusted conversion factor. The purpose of the Atlas conversion
factor is to reduce the impact of exchange rate fluctuations in the cross-country comparison
of national incomes.

The Atlas conversion factor for any year is the average of a country’s exchange rate for that
year and its exchange rates for the two preceding years, adjusted for the difference between
the rate of inflation in the country and international inflation. The objective of the adjustment
is to reduce any changes to the exchange rate caused by inflation. The resulting GNP in U.S.
dollars can then be divided by a country’s midyear population to derive GNP per capita (Atlas
method).

The World Bank favors the Atlas method for comparing the relative size of economies and
for classifying countries in categories mentioned above and to set lending eligibilities in order
to reduce short-term fluctuations in country classification.

Why do income classifications for countries matter?

The World Bank Board uses GNI per capita levels (calculated using the Atlas method) to
guide operational lending policy. According to this policy, low-income countries access
highly concessional financing5 through the International Development Association (IDA).
Generally, middle-income countries receive less concessional terms, depending on their
income levels, as IDA targets most of its grant financing to countries with high debt
vulnerability. Middle income countries that are financially creditworthy, may also access
financing from the International Bank for Reconstruction and Development (IBRD).

4 According to the World Bank, GDP per capita measures the average amount of resources available to persons residing in
a given economy, and reflects the average economic well-being of a population.
5
Concessional finance is “below market” rate finance provided by major financial institutions, such as development banks
and multilateral funding institutions, to developing countries to accelerate development objectives

Ug. Econ, Lecture Notes, BCOM III & BESBM III, AY 2024/25; MUBS; January, 2025 Page | 25
 4. Uganda’s Curren Development Strategy t
Current State of the Economy
Uganda’s economy has recovered from a growth rate of 3% in FY 2019/20 to 6% in FY
2023/24, on account of higher growth in all sectors. The services sector grew by 6.6%,
industry increased by 5.8%, while agriculture grew by 5.1%. The current macroeconomic
indicators reveal good economic health for Uganda’s economy:
i Inflation was contained at 3.9% in June 2024, and within the target rate.
ii The shilling has remained relatively stable despite depreciation pressures at the
beginning of this year.
iii Interest rates have remained broadly stable, albeit still higher than required.
iv Exports have increased to over USD 7.5 billion, up from USD 4.9 billion in 2023.
v Foreign Direct Investment (FDI) inflow to Uganda has boomed to USD 2.9 billion last
year, making Uganda the 4th top country in attracting FDI in Africa.
vi The economy has created more jobs, attributed to various wealth creation initiatives
that have been implemented. The list of formal jobs has grown to 3.14 million while
informal jobs created by Emyooga, Youth Livelihood Programme, PDM, and Women
Entrepreneurship Programme, are over 4.66 million.

Economic Outlook
The economy is projected to grow between 6 and 7 percent this FY 2024/25 and rise to
double digits over the medium term. This is on account of the Tenfold Growth Strategy the
government has recently adopted.

The Tenfold Growth Strategy

The Cabinet approved this strategy in March 2024 to expand Uganda’s GDP by 10-fold within
15 years (or before 2040), from the current base of $50 billion (2023) to US$ 500 billion (2038).
Expanding the size of Uganda’s economy 10-fold before 2040 is a bold ambition, in light of
the recent Uganda’s economy performance. We have already alluded that Uganda’s GDP
growth has averaged 4.7% per annum over the past decade (2013-2023), which is lower than
the average growth of 7.3% in the previous decade (2002-2012). Similarly, the rate at which
the economy is generating jobs is suboptimal, translating into a slower pace in the rise of
household incomes and poverty reduction.

What does the tenfold strategy mean?

In nominal terms, the ambition to grow the economy 10-fold means that Uganda has to
achieve an average annual growth rate of 17 percent per annum over the remaining 14-year
period (2024/25-2037/38). To put it in a clear perspective, it means that Uganda has to:
i double the size of the GDP every five years for the remaining three NDPs;
ii increase per capita GDP by six-fold (from US$1,093 to nearly US$7,000);
iii double the level of savings in the economy (from 20% to 40%) to match the required
level of investment (40% of GDP);

Ug. Econ, Lecture Notes, BCOM III & BESBM III, AY 2024/25; MUBS; January, 2025 Page | 26
 iv increase the annual FDI inflows (from US$ 2.9bn in 2022 to US$ 50bn by 2040);
v rapidly grow export of value-added products, from 12% of GDP in 2022 to 50%; and
vi rapidly accumulate the stock and quality of human capital, physical capital, and
environmental capital
This is a toll order but must be considered in light of the fact that some countries have walked
a similar journey even in periods when the markets, sectors, and technologies that existed
when they commenced such an ambitious journey (in 1990s) were all suboptimal compared
to today.

Is the tenfold growth strategy attainable?

Yes. A global scan of countries that have exponentially grown their GDP to around to around
US$500 billion from a base similar to Uganda’s (FY2022/23) locates the following five
countries:
a) Singapore: 33 years of growth at an average growth rate per annum of 8.7% (from US
$36.1bn in 1990 to US$466.8 in 2023);
b) South Korea: 22 years of growth at an average annual growth rate of 13% (from US$
38.0 billion in 1977 to US$1,665 billion in 2023);
c) Malaysia: 34 years of growth at an average annual growth rate of 8% (from US$ 38.0in
1989 to US$406 billion in 2023);
d) Thailand: 38 years of growth at an average annual GDP growth rate of 7.6% (from US$
38.9 billion in 1985 to US$ 500 billion in 2023); and
e) Chile: 33 years of growth at an average annual growth rate 4.5% (from US$33 billion in
1990 to US$316.7 billion in 2023)
On average, the exponential GDP growth of the above countries has happened in the lifetime
of a single generation. A significant share of this performance is attributed to the surge
(increase) in Foreign Direct Investment (FDI) into the above countries which helped close
their savings-investment gaps, and sharp rise in human capital formation (both education
attainment levels and skills) that, in many respects, was akin to a demographic dividend. As
a results, scholars agree that many policymakers now consider private foreign capital to be an
essential resource for the acceleration of economic growth.

But also, these economies were better able than most economies to allocate resources to highly
productive investments. They did this with combinations of policies, always including market-
oriented ‘fundamentals’, but sometimes relying on tailored government interventions.” (IMF,
1994). In the context of Uganda, it remains questionable whether such resource allocations
are possible given the country’s dynamic political economy characterized by ever changing
priorities and policy shifts. What remains unquestionable is that achieving this ambition
requires an unprecedented and radical change in the country’s policy propositions, strategic
focus and execution culture. The country needs to consider the new thinking in terms of doing
business differently by;
i Taking full advantage of the new ways of business processes or doing things (emerging
technologies-IT solutions and artificial intelligence),

Ug. Econ, Lecture Notes, BCOM III & BESBM III, AY 2024/25; MUBS; January, 2025 Page | 27
 ii Investing in new sources of growth (emerging sectors), and
iii Leveraging the new trade and economic relationships (emerging markets)

How does government intend to achieve the tenfold growth strategy?

The latest Sectoral Employment Diagnostics Analyses (SEDA) study for Uganda revealed
that for Uganda’s economy, services have the highest output multiplier (2.61) followed by
agriculture (2.55) and lastly industry (2.30). According to the study, “the output multiplier
represents the total output produced by all sectors in response to a shilling increase in final
demand for the sector’s output”. This, therefore, implies that for every shilling invested in a
particular sector in Uganda’s economy, Ushs. 2.61, Ushs. 2.55 and Ushs. 2.30, are
respectively generated in services, agriculture and industry. That is, the original shilling
invested and an additional Ushs. 1.61, Ushs. 1.55, and Ushs. 1.3, respectively are recouped.
Besides output multipliers, the study also generated evidence on sectors with the highest
employment multipliers and leakages (import content of sectors). Taking into account all the
three multipliers, the ten-fold growth strategy is built on action agenda for delivering
exponential economic growth in Uganda, based on five strategic anchor sectors for attaining
a sustainable break-through into a new and higher economic frontier. These strategic anchor
sectors are abbreviated as ATMS as explained below;
i Agro-Industrialization and light manufacturing. The target by FY 2039/40 is US$20
billion. In 2020, Economic Policy Research Centre (EPRC) studied and identified nine
potential commodities for fostering a sustainable agro-industrialisation (dairy; beef; fish;
coffee; cassava; oil palm; maize; cotton; and tea). A total of 39 potential uses (or
applications) and 90 food and industrial products (intermediate and final) were also
identified under these nine commodity value chains, of which some like ethanol, industrial
alcohol, and edible oil were already under commercial production.

Using three out of these nine commodity value chains (coffee, tea and fish), the study
confirmed the possibility of increasing exports earnings by five-fold within one NDP
implementation cycle (5-years), i.e., from a base income of US$615 million (2015/16) to US$
2.85 billion (2024/25). By end of year three of NDP III (FY2022/23), export earnings from
these three commodities had already increased to US$1.08 billion, representing nearly a 2-
fold increase. The proposed priority interventions include;
→ Advancing the Parish Revolving Fund into a fully-fledged financial institution capable
of intermediating savings and investment; and brokering value chain relationships
→ Rolling out the Uganda Agricultural Insurance Scheme (UAIS) nationwide to cover
all PDM enterprises, and speed up operationalization of the PearlAfricaSat-1Satellite
for provision of research and observation data required to provide solutions in weather
forecast, land, water bodies, mineral mapping and agriculture monitoring.
→ Adopting and effectively implementing structured demand as a framework for
ensuring more and better commodity off-take at zonal level.
→ Establishing a legal framework for registering and regulating farming enterprise in
support of commercialization of agriculture

Ug. Econ, Lecture Notes, BCOM III & BESBM III, AY 2024/25; MUBS; January, 2025 Page | 28
 → Establishing a public-private partnership for scaling up the tailoring segment of the
local garment industry for export. Working with leading global fashion labels, Uganda
intends to benchmark with Turkey (or Turkish tailors in the country) on how to blend
its high-quality cotton with imported polyester fabric to mass produce garments for
regional markets.

ii Tourism development. Target is US$50 billion. In 2019, inbound visitors to Uganda spent
over Ushs4.6 trillion on tourism services while domestic tourists spent about Ushs3.0
trillion (UBOS,2023). A 5-fold increase in the annual number of in-bound tourists under
the current average spend-per-tourist (Ushs3.0 million) and average length-of-stay (8.3
nights) could potentially translate into annual foreign earnings of Ushs23.0 trillion per
annum (U$6.2billion). If this increase is coupled with a doubling of both the average
duration of stay and average spend per tourist in the country, annual revenue surges to
Ushs96.1 trillion per annum (or US$ 25 billion). Considering that internal tourism
generates approximately twice the size of revenue from in-bound tourism, it is not far-
fetched to target earnings of US$50 billion from the national tourism economy by 2035 (an
equivalent of a 25-fold increase from 2023). In nominal GDP terms, this translates into a
potential annual economywide output of US$132 billion.
On-going and Proposed Priority Interventions for Tourism Development
→ Closing Infrastructure Gap in GKMA and Secondary Cities: Speed up
implementation of on-going projects that contribute to the closure of infrastructure
gaps in GKMA.
→ E-maps & E-commerce: Speed up implementation of a national addressing system to
support local travel and tourism as well as e-commerce
→ Agro-Tourism: Increase return on investment from real estate in rural areas by
incentivizing homestays and agro-tourism
→ Standards: Implement existing licensing regime for hotel and tour operators including
public health standards and certification of workers (drivers, housekeeping workers)
→ Regulation for Order and Confidence: Government will renew its comment to
implement existing regulations without reservation e.g. the Traffic and Road Safety
Act (2023); Public Health Act (2022); National Environment Act (2019); and the Food
and Drug Act (1964)
→ Centres of Excellence: Complete on-going infrastructure and human resource
interventions to upgrade and expand the scope and standard of healthcare and
education services to internationally competitive standards
→ Oil and Gas Tourism Circuit: Uganda’s Oil and Gas story is a powerful story and will
be turned into a tourism product with the Albertine Graben tourism circuit. A physical
and virtual centre coupled with mobile Audio and Video narrations of the country’s
journey to commercialization of its Oil and Gas resources will be developed and
aggressively marketed as an integral part of the Uganda’s tourism offering

iii Mineral-based manufacturing including and petroleum products. The target is US$ 25
billion. Gold, Copper, Iron Ore, Cobalt, Lithium, Uranium, Limestone, Rare Minerals,
Mable and Sand. In terms of export performance, three mineral products have prominently
featured in the country’s export basket over the NDP III period: Gold, Cement and Base

Ug. Econ, Lecture Notes, BCOM III & BESBM III, AY 2024/25; MUBS; January, 2025 Page | 29
 Metals and Products (including Iron and Steel). In FY2022/23, these three items earned
the country US$ 1.471 billion (or 27% of merchandise exports) with gold leading the pack
(US$1.135 billion). With increased capacity utilization, more value addition and product
diversification, and greater regional trade; export earnings from the above mineral
products could easily attain a 10-fold increase by 2040 (or US$ 15 billion) This, in turn,
would translate into additional economywide output of between US$ 28 and 38 billion.
On-going and Planned Priority Interventions for Mineral Development
a) Leveraging Mining Operations: Set up, capitalize and operationalize the National
Mining Company
b) Public Infrastructure: Expand the national laboratory infrastructure to support export
trade in value-added products
c) Orom-Cross Graphite Project: Support commercialization of graphite production for
value added manufactured products under the 21-Year Mining License awarded to
Blencowe Resources in 2019
d) Iron Ore Mining: Commercial mining of Iron ore to feed the local and regional Iron
and Steel industry
e) Copper Mining: Commercial refinement of copper for cables, transformers,
aluminum industries and military equipment in line Presidential Directive of 28th
June, 2021.
f) Clinker Production: Actualize the 6,000 tonnes per day production of clinker in
Moroto by West International Holding Limited and save the country an import bill of
US$380 million per annum in addition to generating earnings of US$ 900 million per
annum at peak production. Uganda imports over 50 percent of the clinker it uses in
the production of cement.
g) Accelerate Cement Production: Uganda has a present cement production capacity of
over 4.5 million tonnes per annum and the demand is projected to increase by 15
percent annually on the background of the booming oil and gas sector and
infrastructure development. This, coupled with commercial production of related
construction products like marble and limestone, will strengthen forward and
backward linkages in the construction industry.
h) Fertilizer Production: The Sukulu Fertliser Plant has a planned production capacity
of 100,000 tonnes of fertilizer per annum. This exceeds the country’s current
consumption of approximately 77,000 tonnes of fertilizer annually (NEC).
Government will accordingly follow through with the development of the Sukulu
Industrial Complex in Tororo
i) Automotive Manufacturing: Transition the government fleet and public commuter
transport from Internal Combustion Engines (ICE) to Electric Vehicles. Also enter
partnerships for local production of lithium-ion batteries
j) Incentives: Implement an export-based incentive scheme for investors in the mineral
beneficiation industry

iv Science, Technology and Innovation (STI) including ICT. This is a multiplier anchor
program with a huge economywide impact. It is referred to as the knowledge economy (or
more formally referred to as the Quaternary Sector) where knowledge is acquired, created,
spread and used effectively to enhance economic development. The pathogenic sub-sector
which consists of research, development, technology transfer, and commercialization of
innovations targeting pathogen control and management such as vaccines, diagnostics,

Ug. Econ, Lecture Notes, BCOM III & BESBM III, AY 2024/25; MUBS; January, 2025 Page | 30
 therapeutics, and the attendant ecosystem – is one of the promising segments of the
country’s knowledge economy. It is a subsector where Uganda is making good strides, and
could become, in some segments, a net source of exports to regional and global markets.
The chemical sector including pharmaceuticals accounts for over 10% of Uganda’s
manufactured value added, which is the highest in the EAC region. UIA reports that in
2018, there were over 300 life sciences companies and over 30 pharmaceutical and medical
devices companies in Uganda, manufacturing 173 pharmaceutical products.
On-going and Planned Priority Interventions for Knowledge Economy
a) Policy and Strategy: Update the National STI Plan (2012/13-2017/18) and
advance implementation of its sixteen strategies
b) R&D Funding: Transition public funding from the tradition approach of financing
university grants to a competitive approach that draws in greater participation of
industry players
c) Intellectual Property: Resolve the constrains surrounding registration of
Intellectual Property Rights (especially international agreements on manufacture
of generic products – the case of COVIDEX)
d) Culture and Commerce: Catalogue and commercialize traditional knowledge
embedded within the country’s cultures. This includes developing support
packages for players in the music, film and literary arts industry to inspire the
country and to more appropriately project Uganda on the regional and
international stage
e) STI Parks: Speed up the establishment of the National Science and Technology
Park in Kampala and other regional Parks for extension of services to
entrepreneurs and the private sector as provided for in the STI Plan.

In a nutshell, the Tenfold Growth Strategy will require five key change parameters:
i Clean-Up: by fully implementing and enforcing the existing laws and regulations
ii Team-Up: Focus all stakeholders on one goal and use a phased approach to addressing
the implementation gaps
iii Skill-Up: Arrest the declining trend in labor productivity and mainstream manpower
planning
iv Green-Up: Preserve and grow environmental assets
v Link-Up: Develop and deepen regional value chains and cross-border infrastructure
connectivity for market access and penetration.
All these will require consolidation of national and regional security, a strong and efficient
Judiciary, macroeconomic stability, effective and accountable institutional actions and actors
(both public and private), and deeper regional integration. H.E the President and Cabinet
have already endorsed this strategy but awaits a detailed implantation plan.

Ug. Econ, Lecture Notes, BCOM III & BESBM III, AY 2024/25; MUBS; January, 2025 Page | 31
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