Uganda

Bright 2010 awaits Uganda's agriculture

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By CHARLES KAZOOBA

Uganda's economy is likely to pick up again in 2010, having been sheltered from the credit crunch by a robust intervention in the agriculture sector.

A stimulus package through commercial banks for large-scale farmers and agro-processors is cushioning the economy against further buffeting by the global economic and financial crisis.

Financial observers say the Ush60 billion ($30 million) agriculture credit facility that the government launched recently for commercial farming and a further $7 million being mobilised through the Uganda Development Bank to support agricultural lending, will pay off in the form of increased food exports to neighbouring markets in Southern Sudan, DR Congo, Kenya and Rwanda.

In addition, the extensive financing of advisory services through the National Agricultural Advisory Services is expected to improve the quality of food exports and thus the value of the country's export earnings.

"Uganda is largely an agricultural economy. With increased investment in the sector, we are going to export more food to our neighbours. And this is the area that has saved us from the global financial and economic crisis," said Stephen Mukitale Birahwa, who chairs the Parliamentary Committee on the National Economy.

Indeed, the country's exports grew by 19 per cent during financial year 2008/09 despite the global recession that decimated demand in Europe and America.

Comparative advantage

Analysts say Uganda's comparative advantage in food production gives it the potential of becoming the food basket of the region. It is also well placed as a trading hub.

However, parliamentary findings for the last quarter of 2008/9 indicate that Uganda's economy has slowed down due to the worsening global economic and financial crisis.

The trade balance - which measures the net contribution of exports - posted a deficit of $171 million in the third quarter of 2008/09; remittances from Ugandans working abroad shrank by 47.4 per cent; the total value of shares traded at the Uganda Securities Exchange also declined by 93.7 per cent and lending rates shot up by more than two per cent between January and March this year.

The Parliamentary Committee on the National Economy warned that despite the upbeat forecasts about the robustness of the economy, the effects of the global economic downturn are real and are gradually affecting the economy.

"Although at the moment, Uganda is not actually in a recession, it is certainly experiencing a downturn in growth. Therefore, maintaining business as usual in the false hope that our economy is robust could actually create a recessional climate," warned the lawmakers.

The survey shows that imports were by $995.11 million in the third quarter of 2008/9 compared with $836.7 million in the same period in 2007/8. This was still a far cry from the figure for the third quarter of 2006/7 of $1,866.6 million.

"This committee observes that this highlights the extent to which the global economic crisis has continued to stress our economy, forcing a cut-back in imports, mainly as a result of the rise in the dollar against the shilling," the MPs said.

However, committee chairman MP Mukitale suggested that if government invested more in agriculture production and processing, decreased donor dependency and improved the quality of Uganda's labour exports, the economy would get back on its feet.

The MPs claim the low global demand and a fall in international prices of coffee and other exports to the European market as a result of the current global economic slowdown influenced a drop in Uganda's export earnings.

Their survey indicates that exports performed fairly well, posting a growth of 22.7 per cent compared with the second quarter of 2008/9, increasing from $672.1 million to $824.4million.

But this performance is well below that of $909 million in the third quarter in 2006/7.

Foreign direct investment in Uganda also dropped, from $208.7 million in the third quarter of 2007/8 to $182.7 million in the third quarter of 2008/9.

The MPs claim the decline resulted from the global meltdown.