Power woes stall Uganda’s economic rise

Few countries have enjoyed as much sustained growth in recent history as Uganda, which averaged 7% over the last three decades. And then came a slow turn.

Now expected to grow around 4% this year, among the slowest in East Africa, there is rising sentiment that forecasts may have been too optimistic.

“Since the downturn of 2009, successive forecasts have predicted a recovery in growth rates that did not materialize,” said a September IMF working paper that assessed medium-term budget frameworks of Uganda and five other sub-Saharan Africa countries.

“The existence of separate functions and organizational arrangements for the preparation of countries’ multi-year national development plans and the budget remains problematic. In most sub-Saharan African countries, coordination of national planning and preparation of the budget remains challenging.”

Indeed, the National Planning Authority (NPA), which aims for the nation to attain middle-income status by 2020, is expressing reservations about manufacturing, a key pillar of its current development plan.

“We thought by the end of the financial year 2016/17, industry would be contributing 27.4% but it only contributed 19.6%,” said NPA Chairman Wilberforce Kisamba Mugerwa in a speech on September 12.

Growth in East Africa’s third largest economy, driven by the service sector at the expense of industry and manufacturing sectors, has led to non-inclusive growth, according to Andrew Mold, Acting Director of the United Nations Economic Commission for Africa (UNECA) in Eastern Africa.

High power tariffs are a major factor curbing manufacturing.

The price is more than double the government’s target of $0.05 per unit for industrial consumers.

The government, looking to cut the cost of Bujagali Power Station,  the country’s largest hydropower producer, is in talks with the African Development Bank and the International Finance Corporation to refinance its loan, extending repayment from seven to 15 years, according to Energy Minister Irene Muloni.

Even as industries consume about 70% of Uganda’s 860MW in power output, a 10% target of annual growth in demand for power is unlikely at the current economic growth rate, according to Selestino Babungi, Managing Director of Umeme, the country’s largest power distributor.

The government’s aim to install 2,500MW by 2020 is also a “stringent target,” says Harrison Mutikanga, CEO of Uganda Electricity Generation Company.

While Uganda’s low electricity access levels of 22% are attracting global companies into utilities, a consumption risk exists as subsidies are necessary, says Sabine Dall’Omo, Siemens CEO for South and East Africa.

Meanwhile, credit growth to manufacturing has been down this year, a trend that poses negative risks to private investment growth and recovery of domestic economic activity, says the Bank of Uganda in a June report.

Yet Uganda and India are seen as the fastest growing economies through to 2025 at 7.7% annually, according to Harvard University’s Atlas of Economic Complexity report, which attributes much of the prospective growth on rapid population increase.

Uganda, with a population of 41 million, is also looking to boost tourism and agricultural output.

It’s targeting a million tourists out of China, which could increase overall arrivals from 1.3 million to four million by 2020, says Tourism Minister, Prof Ephraim Kamuntu.

Production of coffee, the country’s largest export, is projected to rise from 3.5 million 60 kilogram bags to 20 million in 2020, says the Uganda Coffee Development Authority (UCDA).

For Finance Minister Matia Kasaija, the country’s climate is key.

“The weather really cheated us, because we were not ready,” Kasaija said in reference to last year’s drought that saw growth slow to 3%.

“We shall go back to our growth rate of 5% and above this year,” he says optimistically.


Adopted from Forbes Africa

Reader's Comments