Ugandan Economy to be among Africa’s Strongest in 2009

Coffee is Uganda's top export, earning $348 million in 2008.

Uganda’s economy is expected to be among Africa’s strongest in 2009 with a growth rate of around 6% thanks largely to strong regional trade and continued demand for its agricultural exports, according to the African Economic Outlook 2009, published in May by the African Development Bank (AfDB), the Organization for Economic Cooperation and Development (OECD) and the United Nations Economic Commission for Africa (UNECA).

While the global economic crisis is causing Uganda’s economic growth to slow, the country still far outstrips the continent’s 2009 projected average economic growth rate of 2.8%. East Africa is expected to be the strongest region overall with an average growth rate of 5.5%.

Mr. Louis Kasekende, Chief Economist for the AfDB, pointed to the diversity of Uganda’s export sector as a key factor in its economic resilience. “Countries that have been heavily dependent on exports of minerals and oil are going through a very difficult period,” he said.

Strong regional trade is also central to continued growth. The East African Community (EAC) reports that since commencement of the EAC customs union in January 2005, trade between members – Burundi, Kenya, Rwanda, Tanzania and Uganda – has increased by 20%.

The countries of the Common Market for Eastern and Southern Africa (COMESA) are also important trading partners for Uganda. Exports to COMESA countries almost doubled from $284 million in 2006 to $506 million in 2007.

Despite Africa’s overall slower expected growth over the next year, the African Economic Outlook notes that the continent is better positioned to weather the crisis than it was 10 years ago.  “The decade of reform has introduced efficiency in macroeconomic management and made the African economies more competitive,” Mr. Kasekende said.

The report also points to an improved business environment in Africa due to innovations in information and communication technology (ICT) that are contributing to market development, overcoming traditional infrastructure constraints and reducing business costs.

Foreign Direct Investment

In addition to remaining one of Africa’s strongest economies, Uganda was also named in May as one of the fastest growing destinations for foreign direct investment (FDI) by fDi Intelligence, the research and analytics division of the London-based Financial Times.

With a tighter credit market reducing global GDP, fDi Intelligence reported that investors were shifting their focus from developed economies to the developing world, in particular Africa. While South Africa, Morocco, Egypt, Algeria and Tunisia were the top countries for FDI projects in Africa in 2008, fDi Intelligence reported that Uganda, Mozambique and Ghana were the fastest growing.

“The global recession is hastening the shift of focus to developing countries as they remain the only source of growth in the world economy,” the report stated.

The intelligence division anticipates a decline of 13% in the number of greenfield FDI projects globally, but does not foresee a drop in greenfield investments in developing economies. Greenfield investments are projects in manufacturing, office or other physical company-related structures in an area where no previous facilities exist.

In addition, investment in telecommunications is expected to increase as the arrival of undersea fiber optic cables in East Africa reduces the cost of information and communication technologies (ICT) in the region.