Uganda’s 2017/18 economic growth beats forecasts

A mobile phone mast
Strong growth in the information and communications sector, due to an increase data usage and investments to upgrade infrastructure, was one of the main drivers of GDP growth in 2017/18. Credit: PxHere

Uganda’s gross domestic product growth rebounded strongly in the 2017/2018 financial year on the strength of a pick-up in investments and exports, according to the World Bank.

Uganda’s real GDP in the year to the end of June grew 6.1% year on year, higher than the 5.5% forecast in the Bank’s previous Uganda Economic Update and stronger than the 3.9% growth seen in the year before.

But once population growth is factored in, the economy’s per capita growth rate is just 3.2% in FY17/18, up from 1% in the previous year. This is because of a rapidly growing population and heavy reliance on rain-fed and subsistence agriculture; 70% of Uganda’s population is employed in the agriculture sector.

The rebound in Uganda’s real economy was largely driven by growth in information and communication services, food crop production and the construction sector, the Bank said.

“The provision of information and communication services rose 14% per annum over the past two years, accelerating in FY17/18 to 15.2%, making this sector the biggest contributor to total GDP growth. Communication output continues to grow horizontally, as the consumer base widens, and vertically, as spending on a variety of services expands,” said the update.

Information and communication services were responsible for more than a third of the growth in the services sector. Their growth was “driven primarily by sustained growth in data usage and investments to upgrade infrastructure to support both 3G connectivity country-wide and the initial roll-out of 4G services.”

Food production also accelerated to 5.3% — the strongest growth recorded over the past eight years — on favourable weather conditions. The construction sector, which was the third highest contributor to overall growth, grew strongly at 6.9%, reflecting “the continuing benefits provided by the public investment program.”

The growth in merchandise exports, meanwhile, was supported by “strong growth in tea and renewed exports of food crops, particularly maize and beans.” Merchandise exports increased by 9.4% in FY17/18, compared to the 18.3% growth recorded in the previous year. The value of coffee exports, traditionally the most valuable export commodity, stagnated as prices fell by about 5%.

For 2018/19, the World Bank forecast GDP growth of 6%, driven by an anticipated increase in investments, particularly to support developments in the oil sector. These include the planned 600km of roads to support oil production, the oil refinery in Hoima, and the and the oil pipeline to Tanga in Tanzania.

The risks to this outlook, which remain tilted to the downside, include an escalation in political tensions—riots and civil unrest in urban areas, the reliance on rain-fed and subsistence agriculture, and the failure to rein in current spending which “could jeopardize Uganda’s macroeconomic stability and worsen debt vulnerabilities.”

Additionally, Uganda’s export performance runs the risk of being “negatively impacted by continued volatility in key export markets such as the Democratic Republic of Congo and South Sudan.”

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