Uganda

Endowed with abundant natural resources, fertile land and minerals, Uganda has been poised for rapid economic development over the past decades. The average growth rate decelerated to +4.7% between 2011 and 2019, after having stood at +7.6% during the previous decade. Uganda's improved political stability and abundant foreign aid enabled it to become one of the fastest-growing economies in Africa. Yet, Uganda remains one of the poorest countries in the region, with GDP per capita of USD858 in 2021, in part due to its rapid population growth rate (above +3% per annum).

The Covid-19 pandemic hampered economic activity in 2020-2021 due to the economy’s strong exposure to tourism and international trade. As a result, real GDP contracted by -1.5% in 2020 but rebounded to +6.0% in 2021. As Covid-19 is becoming endemic, the recovery should continue in 2022-2023, driven by the services sector that dominates economic activity with a share of 50% in GDP. Tourism is expected to pick up pace and services branches (ICT, utilities, transport) are also set to expand over the medium term. Agricultural output remains volatile because of lagging technology and high exposure to climate hazards. The industrial sector should certainly benefit from the expansion of the construction sector, in part resulting from infrastructure developments in energy and transportation.  In addition, active support towards developing the upstream oil industry may provide some support to growth in the medium term. We project average annual economic growth of around +5% in 2022-2023, though the global impact of the war in Ukraine poses some downside risks to this forecast. In the medium term, inward investment and industry (construction and manufacturing) in Uganda are expected to receive a boost in 2023-2026 from the development of the Kingfisher and Tilenga oil projects, with industry becoming a driver of growth.

Driven by a strong rise in global prices for oil (a major import) and food, and sustained global supply-side disruptions aggravated by the war in Ukraine, the headline inflation rate rose from 2.9% y/y at end-2021 to 8% in early H2 2022. We expect inflation to remain elevated as compared to recent years (average 2.4% in 2019-20219) – we forecast average annual price increases of approximately 6.5% in 2022 and 5% in 2023. In mid-2022, the Bank of Uganda (BoU, the central bank) raised its policy interest rate thrice by a cumulative 250bps to 9.0%. Given the outlook of sustained inflationary pressures and the BoU's aggressive tightening stance, we expect further rate hikes until early 2023 in order to bring back and contain core inflation at about the target level of 5%.

Uganda faces continued political instability and security threats on its borders. Tensions with neighboring Rwanda persist despite ongoing political attempts to restore peace. The country enjoyed improved political stability since President Yoweri Museveni came to power in 1986, following decades of conflict and insecurity. Constitutional amendments passed in 2005 and 2018 scrapped the presidential term and age limits. Popular discontent has been increasing over recent years amid an economic growth slowdown and deteriorating socio-economic conditions. Despite the growing anti-government sentiment, President Yoweri won a sixth term in the January 2021 presidential election, and his National Resistance Movement (NRM) party retained its comfortable majority in the legislative election. However, the imminent change of leadership of the NRM as President Yoweri ages risks being a flashpoint for political instability in Uganda.

The business environment in Uganda is below average in our assessment of 185 economies. The Heritage Foundation’s “Index of Economic Freedom 2021” survey assigns the country rank 106 out of 185 countries. And the World Bank Institute’s annual “Worldwide Governance Indicators” surveys continue to indicate notable weaknesses with regard to the regulatory and legal frameworks and, in particular, control of corruption. However, Uganda scores well on our proprietary “Environmental Sustainability Index”, reflecting strengths with regard to CO2 emissions, water stress and general vulnerability to climate change. The low recycling rate is an area of weakness.