How Uganda’s Budget Supports Trade and Investment

Uganda’s Finance Minister, Matia Kasaija, on June 15 hit several optimistic notes for next Financial Year when announcing a Shs52.7 trillion budget.

That is a 10% jump from the Shs48 trillion last financial year and the biggest rise in projected government expenditure since COVID struck in 2020.

Kasaija appeared determined to signal a return to pre-COVID-19 positivity by reeling off measure after measure to boost the economy and said the economy is projected to grow at a rate of 6% next FY and at an average of 6.5-7% per year over the next five years.

And many budget followers and experts appear to have bought into the government’s optimism. The budget creates conditions favourable for trade and investment in the country.

Increase in external trade

The minister indicated that by April 2023, Uganda’s exports of merchandise goods amounted to $4.2b compared to $3.1b over the same period over the previous financial year. This represents a 35.5% increase, mainly driven by an increase in exports of gold, coffee, fish, sugar, beans, maize and light manufactured products to regional markets.

The Government has provided support through different initiatives to boost exports. These include the provision of long term and affordable capital, investment in transport infrastructure and energy in particular, plus building of industrial parks.

These efforts have started yielding noticeable results. Manufactured exports have re-emerged as a major contributor to merchandise exports. For example, in 2022 Uganda exported sugar worth $163m; cement worth $87m; plastics worth $61m; soap $31m and beer worth $29m. There were no exports of any of these items as recently as 2006. By April 2023, Uganda imported goods worth $7.1b compared to $5.8b in the same period of the previous financial year. This is a 22.4% increase, mainly driven by a rise in private sector imports, particularly in the oil and gas sector, plant and machinery for manufacturing, as well as the effect of imported inflation.

Regional trade

By April 2023, Uganda recorded a trade surplus with our East African Community trading partners of $1.0b. Tanzania remains the only EAC trading partner where the country recorded a bilateral trade deficit of $154m. The trade balance is expected to be strengthened further by boosting exports and enhancing domestic manufacturing capacity to replace some imports.

The Exchange Rate

The Uganda Shilling remained stable against major global currencies, despite the strengthening of the US dollar. Between April 2022 and April 2023, the Uganda Shilling depreciated by 5.8% against the US Dollar, compared to an average depreciation rate of 8% within the East African region. The relative stability of the exchange rate is due to the increase in Foreign Direct Investment inflows into the oil and gas sector, significant recovery in Tourism, and the recent good performance of exports.

Foreign direct investment, remittances and tourism

Foreign Direct Investment inflows to Uganda amounted to $1.5b by April 2023. Workers’ remittances increased to $1.3b in calendar year 2022 compared to $1.1b the previous year, it is estimated at $1.2b by April 2023. Tourism revenue increased to $847.8m by April 2023 from $777.8m in the same period a year ago.

Transport infrastructure development

This has been a major hallmark of Uganda’s recent economic development. The road sector in 1986 totalled 7,900km. Today, it has expanded twenty-fold to almost 160,000 km. While only 6,700 km of today’s road network is paved, the road network now allows access to even the remotest parts of Uganda.

Next financial year, the country will substantially complete 16 national road projects

Emergency repairs of the Kampala – Malaba meter-gauge railway was completed this year. The rehabilitation of the Kampala Kampala – Malaba and Tororo – Gulu Metre Gauge railways will commence next financial year. 49% of the right of way for the Kampala -Malaba Standard Gauge railway has been acquired. The construction of the Malaba – Kampala Standard Gauge Railway will commence next financial year, for which it have provided sh535b.

Air transport

In the air transport sector, the redevelopment and expansion of Entebbe International Airport is 85% complete, and is due to be completed by July 2024. The construction of Kabalega International Airport now stands at 91.7% and will be completed by September 2023. The following aerodomes will be rehabilitated; Kidepo, Pakuba, Mbarara, Gulu, Arua, Kisoro and Kasese.

Transport budget

An allocation of sh4.5 trillion, representing 13.3% of the total budget, has been budgeted for road maintenance and construction, railway development and rehabilitation, water and air transport development. Of particular significance, an allocation of Shs 1 billion has been provided to each District, City and Municipality for road grading, murram and compacting.

Power infrastructure

Power generation, transmission and distribution infrastructure have continued to expand. Generation capacity increased to 1378.1 MW as at March 2023 from 1,343.9 MW in March 2022, an increase of 34.3 MW. The commissioning of the Karuma Hydropower Project is planned for September 2023, generation capacity will increase to 1978 MW.  The 6 MW Nyagak III Hydropower project is also due for commissioning by end of this month.

In transmission, a total of 417 km of transmission lines were added to the main grid during the year, bringing the total transmission line network to 4,011 Km. To enable evacuation of power from the 600MW Karuma Hydropower project, the 248 km Karuma-Kawanda, the 55km Karuma-Olwiyo, and the 76km Karuma-Lira lines have been completed. 

Next year, 761 km of transmission lines and associated power sub-stations will be constructed to improve the stability and reliability of the networks. There  will also be capacity building of the Uganda Electricity Generation and Transmission companies to manage the generation and distribution networks after the expiry of the ESKOM and Umeme concessions. Next financial year, Sh1.3 trillion, representing 3.9 percent of the budget, has been allocated for electricity interventions

Strengthening Regional Integration and Trade

Budget consultations with regional Ministers of Finance were held on 8-12 May in Arusha Tanzania and agreed to make some changes in the EAC taxation structure.

To make industries more competitive, attract investments, and remove the remaining barriers to trade among African countries, it was agreed as EAC partner states to change the taxes paid on goods coming from outside the EAC as follows:

  1. 0% duty levied on imports of raw materials and capital goods;
  2. 10% duty charged on imports of intermediate goods;
  3. 25% duty charged on imports of finished goods not readily available in the region;
  4. A maximum rate of 35% duty charged on imports of finished goods readily available in the region; and
  5. Small adjustments to promote import substitution and value addition of local industries.

Industrial Development and Investment

Eight government owned industrial parks are currently operational. These are Namanve, Jinja, Bweyogerere, Mbale, Soroti, Mbarara, Kasese and Luzira. In addition, there are three industrial parks developed under a Public Private Partnership arrangement at Kapeeka, Mukono and Buikwe. Uganda Investment Authority has acquired 12 square miles for industrial development provided by various Local Governments in the 18 zones across the country.

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