Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
UGANDA SNAPSHOT 2015 Quarter 1 Inflation – After reaching a multi-year low of 1.3% y-o-y in January this year, consumer price inflation has only shown a marginal uptick, with the most recent figure being a 1.9% y-o-y increase in March. This is slightly higher than the 1.6% y-o-y increase recorded in February. Food prices continued to decrease in March, with the sub-index recording an eighth consecutive month of deflation. The food sub-index decreased by 2.2% y-o-y in March compared to a 3% y-o-y reduction in February. Growth – The most recent figures from the Uganda Bureau of Statistics (UBOS) show that the Ugandan economy expanded by 1.2% q-o-q in Q3 2014, which is equivalent to the revised 1.2% q-o-q expansion in Q2 2014. Real GDP growth is expected to remain on an upward trajectory over the medium term as public investments materialise and private sector investment increases due to the development of the country’s oil sector. National development plan – The 2014/15 fiscal year (ending June) marks the final year of the current five-year national development plan (NDP), which has attempted to address structural bottlenecks in the economy to accelerate socioeconomic transformation, thus reducing poverty. Looking forward, the authorities have stated that the goal of the second phase of the NDP (NDP2, starting FY 2015/16) will be to propel Uganda to middle-income status by 2020. OPPORTUNITIES STRENGTHS The development of the oil sector has seen strong progress more recently, and production should start over the medium term. Ongoing integration within the East African Community (EAC) presents significant business opportunities. A substantial oil endowment ensures that strong prospects for economic growth and foreign direct investment (FDI) will continue. Kampala continues to demonstrate a steady commitment to macroeconomic reforms. Substantial hydropower potential. Extensive infrastructure projects underway to increase power capacity. Large-scale infrastructure development opportunities to address a severe infrastructure deficit. Fast-rising FDI inflows; set to continue on increasing interest in the oil sector and downstream related activities. VULNERABILITIES WHAT IS BEING DONE? Significant infrastructure shortfalls (transport, water, power). Progress in addressing infrastructure shortfalls has been slow. Dependence on agriculture and hydropower for electricity renders the economy vulnerable to weather developments. Development of the nascent oil sector should reduce the economy's dependence on agriculture going forward. President Yoweri Museveni has taken a firm stance on corruption issues, and steps have been taken to remedy donor aid fraud. The National Population Policy Action Plan (2011-15) does not seem to significantly address population growth. Although improving, bureaucracy and corruption remain problems. Significant development challenges due to rapid population growth. MEGA TRENDS Population 35,918,915 (July 2014 est.); Age 15 - 64: 49.3% Population growth rate (%) 3.24% (2014 est.) Life expectancy at birth Total population: 54.46 years; male: 53.1 years; female: 55.86 years (2014 est.) HIV/AIDS Adult prevalence rate: 7.44%; People living with HIV/AIDS: 1.6 million (2013 est.) Adult literacy rate (age 15 and over can read Total population: 78.4%; male: 85.3%; female: 71.5% (2015 est.) and write) Urbanisation Urban population: 15.4% of total population (2013); Urban population growth: 5.4% (2013) Population below $1.25 (PPP) poverty line 37.8% (2013 est.) Unemployment rate 3.8% (2013) Employment (% of total) Agriculture: 65.6%; Industry: 6%; Services: 28.4% (2009 est.) Labour participation rate (% of total population ages 15+) 77.5% (2013) Business language English Telephone & Internet users Main lines in use: 207,474; Mobile cellular: 16.57 million; Internet users: 5.82 million (2013) Sources: CIA World Factbook, World Bank, UNESCO, ITU, UNAIDS & NKC Research 1 Total Uganda Corruption Perceptions Index 2014 (1 least, 175 most corrupt) Doing Business 2015 (1 best, 189 worst) Global Competitiveness 2014-15 (1 most, 144 least competitive) Economic Freedom 2015 (1 most, 178 least free) HDI Ranking 2013 (1 most, 187 least developed) 189 144 178 187 92 164 0 Source: NKC Research 175 142 150 122 20 40 60 80 100 120 140 160 180 200 Risk environment / Risk outlook Sovereign Risk Ratings S&P Fitch Moody’s B/Stable B+/Stable B1/Stable Fitch Ratings upgraded Uganda’s long-term foreign and local currency Issuer Default Rating (IDR) by one notch to “B+” on February 13, setting the outlook at stable. According to the agency, Uganda has established a long track record of prudent macroeconomic policies, with significant fiscal investment supporting economic growth while effective monetary policy implementation has helped contain inflation. In addition, Uganda’s fiscal dynamics have improved, supported by higher revenue collection capacity, and the country has consequently become less aid-dependent. Although government debt has risen steadily, the agency notes that current levels remain below that of most peers, with the majority of liabilities on concessional terms. In turn, Standard and Poor’s (S&P) affirmed Uganda’s sovereign credit rating at “B” on January 16, maintaining the stable outlook. This follows a one-notch downgrade in January last year. According to the agency, Uganda is expected to record strong real GDP growth figures in coming years – exceeding 6% p.a. – largely driven by investment in the country’s key economic sectors. On 20 December 2013, Moody’s assigned the government of Uganda an inaugural credit rating of “B1” (one notch above that of S&P and on par with that of Fitch) with a stable outlook. More recently on March 3, Moody’s stated that Uganda continues to boast strong growth prospects and solid public finances, but the agency noted that public debt is expected to rise as infrastructure spending grows and donor support declines. The agency also stated that the long-term health of Uganda’s government finances will largely depend on mobilising new sources of revenue. In turn, the level of earnings from Uganda’s minerals and other exports will depend on improvements in domestic security. Infrastructure Diversity of the Economy Banking Sector Continuity of Economic Policy GDP Growth Key Balances Foreign Investment Socioeconomic Development Forex Reserves Improving; but severe deficit Limited, but improving Fair, and improving Generally stable Strong Twin deficits Strong and rising Low Modest Daily Trading Volume USh323m (Daily Avg. turnover March 2015) Stock Market Listed Companies Liquidity Market Cap Dominant Sector Uganda Securities Exchange 16 (including cross-listed companies) Limited $8.3bn (USE, end March 2015) Banks Capital Market Development Liquidity Maturity Range Municipal Bonds Corporate Bonds Yes Underdeveloped Fairly low 91-days to 364-days (T-bills) 1-Yr to 10-Yr (Govt. Bonds) No Yes Macro-economic overview Uganda is a country with a strong economic growth track-record, stable macroeconomic fundamentals, and positive development prospects. After maintaining an average real GDP growth rate of nearly 8% p.a. between 2008 and 2011, the economy endured a significant downturn in 2012 due to a balance-of-trade shock as well as a severe drought. These exogenous shocks required tight management of monetary policy and, in support, prudent fiscal policy, which exacerbated the economic downturn. However, prudent policy management restored macroeconomic stability, and the economy was back on a strong growth trajectory the following year. Most macroeconomic variables remain sound, with an adequate level of foreign reserves, strong FDI inflows, a stable monetary environment, while public and external debt levels are not particularly high. The largest concern from an economic perspective involves the country’s twin deficits, particularly the widening current account deficit. While largely investment driven, the wide current account deficit will continue to put pressure on the shilling exchange rate, which could in turn negatively affect the country’s monetary environment and the Bank of Uganda’s (BoU) ability to accumulate foreign reserves. In turn, the fiscal budget is under pressure due to the government’s ambitious investment programme. The infrastructure deficit needs to be addressed, but the scale thereof will test public financial management and effectiveness of public spending. The country faces numerous challenges, including a severe infrastructure deficit, donor dependence, vulnerability to exogenous shocks (adverse weather conditions, regional conflict, cuts in donor support), and institutional shortcomings such as widespread corruption and a relatively cumbersome business environment. Still, the country’s growth prospects remain strong. Two salient sources of upside economic growth potential stem from the development of the country’s nascent oil sector, and more rapid integration into the East African Community (EAC). The development of the country’s oil industry is regarded as the catalyst to propel Uganda onto an amplified development path, while EAC integration would allow Uganda to take advantage of the larger regional market. 2 Economic Structure as % of GDP 2014 Estimate Source: NKC Research Agriculture/ GDP 26.9% Service/GDP 50.7% Industry/GDP 22.4% Historically, the primary source of economic activity was the agricultural sector, which now only accounts for around a quarter of the country’s output, but still engages nearly three-quarters of the country’s population. Agricultural exports are salient sources of foreign exchange, particularly coffee, tea, and tobacco. The sector remains largely rain-fed, and highly vulnerable to adverse weather conditions. In turn, the services sector is the largest contributor to overall GDP, while also maintaining its role as a driving force behind the country’s strong GDP growth performance. The transport, telecommunications, and financial services sub-sectors have shown strong growth in recent years, while the historically important tourism sector has faced numerous headwinds in recent quarters. Furthermore, the Ugandan industrial sector is dominated by construction, which, in turn, is primarily driven by large infrastructure investments by the government. Real GDP Growth & Net FDI/GDP 14.0 9.0 Source: NKC Research 8.0 12.0 7.0 10.0 6.0 8.0 5.0 6.0 4.0 4.0 3.0 2.0 2.0 0.0 2009 2010 2011 2012 2013 2014E 2015F 2016F GDP Growth (y-o-y, %) (lhs) Net FDI/GDP (rhs) The most recent figures from UBOS show that the Ugandan economy expanded by 1.2% q-o-q in Q3 2014. From a sectoral point of view, the agricultural and services sectors were the primary drivers behind the quarter’s growth, while the services sector largely disappointed. More specifically, both the agricultural and services sectors expanded by 1.8% q-o-q in Q3 2014. In turn, the industrial sector recorded a dismal 0.3% q-o-q expansion in Q3 2014 compared to a growth rate of 3.5% q-o-q in the previous quarter. Turning to FDI, Uganda’s oil sector is expected to be the country’s main FDI drawing card going forward. According to Tullow Oil, over the next few years the company and its partners plan to invest between $8bn - $10bn in upstream facilities, and between $3bn $4bn when the construction of the oil pipeline commences. Tullow expects to make a final investment decision for work in Uganda by the end of 2015 or early 2016. Exports ($ bn) Imports ($ bn) 2014E 2015F 2016F Machinery equipment, vehicles & accessories Petroleum products Vegetable products, animals, beverages, fats & oils Chemicals Coffee Base metals & products Fish & fish products Tea 0.0 Source: NKC Research 0.5 1.0 1.5 2.0 Main Imports: % share of total 2014E 2015F 2016F Machinery equipment, vehicles & accessories 23.19 23.59 25.67 Petroleum products 21.65 17.50 17.20 Vegetable products, animals, beverages, fats & oils 9.33 9.55 9.87 Chemicals 8.87 8.88 8.68 Main Exports: % share of total 2014E 2015F 2016F Coffee 15.42 13.80 12.46 Base metals & products 4.60 4.39 4.13 Fish & fish products 4.46 3.86 3.47 Tea 3.19 2.95 2.76 According to the most recent figures from the BoU, total exports in 2014 reached $2.7bn, reflecting a 6% decrease. Most major exports disappointed over the year, particularly coffee (-15% to reach $410m), tobacco (-44% to reach 65m), and base metals & products (-11% to reach $122m). The only export commodities that recorded notably stronger performances in 2014 were sesame and electricity exports, both of which nearly doubled to $56m and $34m, respectively. In turn, total imports in 2014 reached $5bn, reflecting a marginal 1% increase. Machinery & equipment and petroleum products remained the country’s largest import categories, increasing by 3% (reaching $1.2bn) and 7% (reaching $1.1bn), respectively. Overall, this resulted in a merchandise trade deficit of just under $2.4bn, which is 11% wider than the deficit recorded in 2013. 3 Current Account & Budget Balance (% of GDP) -2.0 -2.0 -4.0 -3.0 -6.0 -4.0 -8.0 -5.0 -6.0 -10.0 Source: NKC Research -12.0 -7.0 2009 2010 2011 2012 2013 2014E 2015F 2016F Current Account/GDP (lhs) Budget Balance/GDP (rhs) The most recent data from the BoU shows that the country recorded a $1.9bn deficit in the current account over the first three quarters of 2014. This reflects a 54% y-o-y widening compared to the 2013 deficit. While the transfers account recorded a 6.6% y-o-y larger surplus over the first three quarters of 2014, reaching $905m, all the other components in the current account recorded significantly wider deficits over the period. The merchandise trade deficit widened by 12.8% y-o-y, reaching $1.8bn, while the services deficit widened by 89.6% y-o-y to reach $542m. In turn, the income account deficit more than doubled, reaching $521m for the first three quarters of 2014. Turning the fiscal balance, in early March the Ugandan government requested Parliamentary approval of a 5.3% increase in public expenditure for the current fiscal year. Kampala asked for an additional USh800bn (around $270m) in additional spending for the fiscal year ending June. Opposition figures have criticised the request to increase expenditure, stating that the funds will be used to finance Museveni’s campaign in the 2016 elections. A government spokesperson has denied that the extra funds would be used for campaigning, stating that the additional funding will be directed towards unforeseen security and other needs, without providing further details. Average CPI (% change, y-o-y) 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Source: NKC Research 2009 2010 2011 2012 2013 2014E 2015F 2016F The Monetary Policy Committee (MPC) of the BoU decided to increase the country’s benchmark interest rate by 100 bps to 12% at its most recent meeting in April. While annual headline inflation reached a marginal 1.9% y-o-y in March, core inflation has shown stronger upward momentum, reaching 3.7% y-o-y in March. The rise in core inflation was driven by the pass-through effects of the recent shilling exchange rate depreciation, which is pushing the core rate toward the country’s medium-term target of 5% y-o-y. In turn, the low rates of headline inflation have been due to deflation in the food crop index, which has been the result of a good agricultural harvest. The April MPC statement notes that indicators of economic activity point to strong GDP growth in the second half of 2014, supported by faster growth in private sector borrowing. As a result, real output is now expected to be slightly above its sustainable level. Furthermore, the central bank notes that real output growth may accelerate over the medium term, stimulated by higher public investment spending and private consumption, pushing real output even further above the sustainable level. This, in turn, may exert upward pressure on prices of goods and services in the domestic economy. CONTACT DETAILS KPMG NKC Benson Ndung’u –Partner/Country Leader KPMG 3rd Floor, Rwenzori Courts Plot 2 & 4A, Nakasero Road P O Box 3509 Kampala, Uganda NKC Independent Economists CC Tel +256 414 34 03 15/6 Email [email protected] 12 Cecilia Street Paarl, 7646, South Africa P O Box 3020, Paarl, 7620 Tel: +27(0)21 863-6200 Fax: +27(0)21 863-2728 Email: [email protected] GPS coordinates S33°45.379' E018°58.015' The foregoing information is for general use only. NKC does not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions. (Uganda) © 2015 KPMG East Africa Limited, a Limited Liability Company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 4