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Uganda Economic Snapshot H2, 2017 Namibia

Trade & Investment SWOT

Strengths
There are no restrictions on capital movements in or out of the
Weaknesses
High interest rates have squeezed credit limits on private sector
country, and no foreign exchange controls. investment and made borrowing unaffordable.
The Uganda Investment Authority (UIA) helps investors navigate red Members of the East African Community (EAC) have failed to impose
tape and fast track permit and license procedures. the Common External Tariffs (CET).
Uganda permits 100% foreign ownership of companies. Overall public expenditure is at a low base level, valued at 17.5% of
GDP.
The ruling party has not registered a single case of expropriation since In total, companies have to pay an average of 25.2% of profits in tax,
coming to power in 1986. which is uncompetitive compared with the regional average of 18.4%.

Opportunities
Public expenditure on transport and energy infrastructure will rise as
Threats
The sum value of imports outweighs national exports, leading to a
the government leverages future oil and gas revenues. heavy trade deficit for Uganda which threatens economic growth.
Investment incentives include 10-year tax holidays, VAT deferments, Ongoing trade disputes between East African nations have resulted in
tax deductions and exemptions, depreciation allowances, capital the proliferation of tariff and non-tariff trade barriers.
allowances and land allocations.
Uganda's five-year e-Governance Master Plan provides a framework The reformed Public Procurement Disposal of Public Assets Act gives
for improved public services and increased transparency. priority to local tenders over foreign investors.
Regional integration will improve as Uganda and the EAC strengthen Transparency International reports high levels of corruption in the
ties, streamlining opportunities for regional economic growth such as Ugandan public sector, particularly among the police and judiciary.
through free trade, free movement of labour and shared visas.

Source: Business Monitor International (BMI), KPMG research

Economic structure - The primary sector comprises

both agriculture and fisheries. Farming activity produces
the coffee, tea and cereals that are important for export
MegaTotal:trends
41.66 million; female: 20.84 million;
revenues, while plantains, cassava, sweet potato and
male: 20.82 million; age 0-14: 47.58% of
maize are produced for domestic consumption. Population 2017
total; age 15+: 52.42% of total; age 65+:
Agriculture is the biggest employer of the country’s
labour force. Aquaculture and fishing in rivers and lakes 2.48% of total
(open water covers 15% of the country’s land area) yield Population growth
2015 3.29%
catches for local and export needs. The secondary sector rate
is made up of construction, manufacturing and mining. Life expectancy at Total: 59.51 years; female: 61.77 years;
Manufacturing of light consumer goods and the 2015
birth male: 57.36 years
production of beverages, electricity and cement is Total number of people living with HIV: 1.4
integral parts of the secondary sector in Uganda. The HIV/AIDS 2016 million; total adult prevalence: 6.5%; HIV
tertiary sector, which is the largest sector in Uganda, AIDS orphans (age 0-17): 0.66 million
comprises largely of wholesale and retail trade as well as Total population: 31.98%; female: 25.39%;
finance, real estate and business services. 53% of Adult literacy rate 2015
male: 38.65%
Uganda’s GDP is contributed by the services sector. The Urban population: 16.44% of total; annual
total contribution (direct and indirect) of travel and Urbanisation 2016 urban population growth: 5.4%; rural
tourism to Uganda’s GDP was $1.8 billion in 2016, the population: 83.56% of total
equivalent of 6.6% of GDP.
Population below
2012 10.29%
$1.90/day poverty line
Recent economic developments – Headline
inflation decreased from 5.3% y-o-y in September to Total: 2.4%; female: 1.9%; male: 2.8%;
Unemployment rate 2017
4.8% y-o-y in October 2017. The Bank of Uganda (BoU) youth (15 - 24): 4.2%
cut its interest rate by 50 basis points to 9.5% in Agriculture: 54.8% of total; industry: 9.9%
Employment 2017
September 2017, which is the lowest since the country of total; services: 35.3% of total
adopted an inflation target in 2011. The decision to lower Labour participation
2017 Total (ages 15+): 85.01% of total population
the interest rate is aimed at boosting private sector rate
credit spend and economic growth. Real GDP growth
Business languages n/a English
was recorded at 5.5% y-o-y during the second quarter of
2017 and is expected to expand by 4.4% during the Fixed telephone subscriptions: 0.37 million
calendar year. Business confidence increased for the Telephone & internet 2012; (2016); wired internet subscriptions: 0.1
ninth consecutive month in September, reaching the users 2016 million (2012); cell phone subscriptions:
highest level in more than three years. A fiscal deficit of 22.84 million (2016)
3.2% of GDP is estimated for 2017. The International Quality of
Monetary Fund (IMF) team who visited Uganda in infrastructure (1 =
November 2017 emphasised the importance of 2017 3.33
underdeveloped, 7 =
increasing revenue collection by 0.5% of GDP per developed)
annum. Fitch Ratings affirmed Uganda’s “B+” sovereign Sources: UNESCO Institute for Statistics, World Telecommunication/ICT indicator database,
rating with a stable outlook in August 2017. World Bank, UNAIDS, International Labour Organisation, Analyse Africa

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 Business Environment
Human Development Index of Economic Global Competitiveness Corruption Perceptions
Doing Business 2018
Index (HDI) 2015 Freedom 2017 Index (GCI) 2017-18 Index 2016

163rd 91st 114th 122nd 151st

out of 188 out of 180 out of 137 out of 190 out of 176
countries countries countries countries countries

Source: World Bank, The Heritage Foundation, World Economic Forum (WEF), Transparency International

Economic policy – The Second National Development Plan (NDP II) 2015/16 – 2019/20 is part of a series of six such schemes aimed at
achieving the Uganda Vision 2040. The goal of the current iteration is to propel the country towards middle income status by 2020 by
strengthening the country’s competitiveness in order to achieve sustainable wealth creation, employment and inclusive growth. The NDP ii
prioritises investment in areas with the greatest multiplier effect on the economy and employment, including agriculture; tourism, mineral
resources, infrastructure development and human capital development. More specifically, the plan emphasizes commercialisation of agriculture
to increase production and productivity, aggressive marketing, diversification of products and development of tourism supporting infrastructure
and services, as well as adding value to raw minerals through beneficiation,

Sovereign Risk Ratings

S&P Global Ratings Fitch Ratings Moody’s Investors Service

B/Stable B+/Stable B2/Stable

Source: Trading Economics

S&P Global Ratings affirmed Uganda’s long-term foreign sovereign credit ratings at “B” in June 2016. S&P also affirmed that the outlook for
Uganda is stable. The country’s ratings are supported by robust economic growth prospects on the back of significant public infrastructure
expenditure. Ratings negatives include low levels of GDP per capita and large (albeit falling) fiscal budget deficits. The stable outlook factors in
Fitch’s expectation that the government “will broadly stay on track with its Policy Support Instrument (PSI) with the International Monetary
Fund (IMF) and with its broader relations with official creditors.” Ratings could improve of economic benefits from infrastructure spending turns
out to be higher than the agency’s analysts currently expert and if economic growth, fiscal and external metrics improve significantly.
Conversely, Uganda’s rating could be adversely affected by a deterioration in fiscal and external metrics.

Fitch Ratings affirmed Uganda’s long-term foreign currency Issuer Default Ratings (IDR) at “B+” with a stable outlook in August 2017. While
the sovereign benefits from strong medium-term growth potential and the authorities' competent macroeconomic policy making, its rating is
constrained by twin (fiscal and current account) deficits and the structural constraints to improving the business environment and increasing
private sector development. Government execution of development expenditure is pressured by weaknesses within the public investment
management framework. On a positive note, this under-execution in the capital budget – also associated with delayed donor disbursements -
has supported a slight improvement in fiscal dynamics. General government revenue also increased from 13% of GDP in the 2012/13 fiscal
year to 15% of GDP in 2016/17 in reflection of success under the PSI. Nonetheless, deterioration in public finances is the primary threat to the
country’s rating at present, alongside current account and economic growth risks.

Moody's Investors Services retained its “B2” rating for Uganda in an annual credit analysis published in August 2017. The agency also
retained a stable outlook which is reflective of “expectations that, despite likely deterioration in the government's fiscal metrics until 2020, the
country's credit fundamentals” will remain on a par with other “B2” countries. Other supportive factors include a doubling in per capita income
over the past decade, a strong monetary policy framework and an expansionary and fiscal robust framework directed towards capital
investment. Constraints on the rating include still low per capita income, the small scale of the Ugandan economy, deteriorating debt
affordability (in part due to growth in non-concessional borrowing), weaker competitiveness versus its “B2” peers, institutional weaknesses
and rising domestic political risk.

Finance & Banking

Number of commercial Bank branches per Deposit accounts per
Central bank ATMs per 100 000 adults
banks 100 000 adults 1 000 adults

Bank of Uganda (BoU) 22 2.98 4.37 206.3

Stock market Listed companies Market capitalisation Largest sectors Weekly trading value

Uganda Securities
17 $1.1 billion Financial services $0.1 million
Exchange
Capital market Level of development Maturity range Municipal bonds Corporate bonds

Yes Limited 91 days to 10 years No Yes

Sources: World Bank, African Alliance, Analyse Africa, KPMG research

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Macroeconomic overview
Economic structure (% of GDP), 2016
Agriculture, forestry & fishing 25.0
Wholesale & retail trade 16.9
Finance & business services 12.0
Transport & communication 11.9
Other services 11.2
Manufacturing 8.9
Construction 7.7
Government services 2.9
Utilities 2.8
Mining 0.7
0.0 10.0 20.0 30.0

Source: African Economic Outlook (AEO)

Economic growth – Economic growth slowed down severely in 2016 to just 2.3% due to severe drought and limited government spending.
However, real GDP growth recovered during 2017: the economy grew by 5.5% y-o-y during the second quarter and is expected to expand by
4.4% y-o-y during the calendar year. Most recently, business confidence increased for the ninth consecutive month in September, reaching the
highest level in more than three years. The IMF expects and expansion of 5.2% in 2018. Uganda's economic growth is seen on an accelerating
path, driven by diversification, improving weather conditions and the increase in private and public sector investment. An expected increase in
coffee and gold production – the country’s largest two exports by value - in 2018 will support external revenues while gains in private
consumption will be supported by more stable inflation.

Real GDP growth (%) FDI inflows (% of GDP)

5.7 6.0
6.0 5.2
4.7 4.9
5.0 4.6 4.4 5.0
4.1 4.2
3.7
4.0 4.0
2.7
3.0 2.2 2.3 3.0 2.1 2.0
2.0 2.0
1.0 1.0
0.0 0.0
2012 2013 2014 2015 2016e 2017f 2018f 2010 2011 2012 2013 2014 2015 2016

Sources: International Monetary Fund (IMF), United Nations Conference on Trade and Development (UNCTAD)

Foreign investment – Foreign direct investment (FDI) is seen as a fundamental pillar of the country’s economy and policies, laws and
regulations, and Uganda is generally favourable towards FDI. The country has a highly liberalised economy, where all sectors are open for
investment. The government is committed to invest in improving the infrastructure of the country and the trading links throughout the region.
Some factors that hamper trade and investment development in Uganda are poorly enforced legislation and high levels of corruption. However,
the country’s geographical location gives it a strategic base to be a regional hub for trade and development, especially with regards to its pivotal
trade partnerships that creates a viable market for business. Uganda aims to start exporting crude oil in 2020 with the completion of a pipeline
through Tanzania. Crude oil production and exploration licenses could specifically accelerate FDI inflows.

Main imports Main exports

$ bn 0.00 0.50 1.00 1.50 $ bn 0.00 0.20 0.40 0.60

Fuels Coffee & tea

Vehicles Gold

Machinery 2016
Cereals
2015
Pharmaceuticals Fuels
2014

Main Imports: % share of total 2014 2015 2016 Main Exports: % share of total 2014 2015 2016
Fuels 23.8% 18.7% 16.5% Coffee & tea 22.0% 21.1% 18.2%
Vehicles 9.0% 9.6% 8.7% Gold 0.0% 1.6% 13.7%
Machinery 8.1% 8.7% 8.4% Cereals 4.3% 6.3% 5.8%
Pharmaceuticals 5.9% 6.7% 6.5% Fuels 8.1% 6.6% 5.7%

Source: Trade Map

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External trade – The current account deficit will widen in 2017 to 5.6% of GDP and to 7.2% of GDP in 2018 as the demand for capital
imports weights on the trade balance. Capital imports are set to rise as government-led infrastructure investment gains momentum – this is set
to continue until 2020. Furthermore, expected higher global oil prices also increase the fuel import bill. Exports will continue on an upward
trend but at a slower pace; export growth will not be enough to outpace import growth. The production levels of coffee, tea and other
agricultural products should recover after the severe drought of 2016, but it is very sensitive to poor weather conditions. Import cover - the
number of months of imports covered by a country's foreign reserves - is projected by BMI to equal 6.6 months in 2018, compared to a global
benchmark of at least three months.

Current account balance (% of GDP) Fiscal Balance (% of GDP)

0.0 0.0
-2.0 -1.0
-4.0 -2.0
-6.0 -4.3 -3.0
-5.6 -2.7
-3.0 -3.2
-8.0 -6.8 -7.0 -7.1 -7.2 -4.0
-4.0 -3.9
-10.0 -8.5 -5.0
-4.7 -4.6
-10.0 -4.9
-12.0 -6.0
2011 2012 2013 2014 2015 2016e 2017f 2018f 2011 2012 2013 2014 2015 2016e 2017f 2018f
Source: IMF

Fiscal policy – The budget deficit is expected to widen in 2018 due to the government’s increased expenditure on infrastructure projects.
Development of oil, rail and hydropower projects, in addition to associated labour and administration costs, will cause fiscal spending to rise.
Government revenues should grow at a steady pace as tax collection and administration improves, but this will nonetheless be insufficient to
cover the rising expenditures. The IMF team who visited Uganda in November 2017 emphasised the importance of increasing revenue
collection by 0.5% of GDP per annum. A fiscal deficit of 3.2% of GDP is estimated for 2017, and is expected to increase to 4% of GDP in 2018.
The shortfalls will be funded by an increase in domestic borrowing, which will add to the growing public debt stockpile. The country's debt
dynamics are sustainable over the medium term, but a growing reliance on domestic borrowing is having a crowding out effect on the private
sector.

Inflation (% change) Household spending (% of total), 2016

Food & non-alcoholic drinks 28.3
14.0 12.7 Housing & utilities 15.5
Education 9.8
12.0 Recreation & culture 9.2
10.0 Transport 8.3
Healthcare 6.4
8.0 Communication 4.7
5.4 5.5 5.8 5.6
6.0 4.9 Home furnishing 4.7
3.1 Alcoholic drinks & tobacco 4.0
4.0 Clothing & footwear 3.3
2.0 Other 3.0
0.0 Restaurants & hotels 3.0
2012 2013 2014 2015 2016e 2017f 2018f 0.0 5.0 10.0 15.0 20.0 25.0 30.0

Source: IMF, BMI, country statistics agencies

Monetary policy - Headline inflation decreased from 5.3% y-o-y in September to 4.8% y-o-y in October 2017. Although average inflation
increased in the 2017 calendar year to 5.8%, headline inflation will remain within reach of the Bank of Uganda’s (BoU) target of 5% y-o-y over
the medium term. The inflation rate is expected to moderate to an average of 5.6% in 2018. The BoU cut its interest rate by 50 basis points to
9.5% in September 2017, which is the lowest since the country adopted an inflation target in 2011. The decision to lower the interest rate is
aimed at boosting private sector credit spend and economic growth. After this monetary easing, the BoU would likely wait for previous policy
changes to take effect before considering further rate cuts.

Contact details
KPMG Uganda KPMG South Africa Economics

Benson Ndung’u, Partner Lullu Krugel, Director

+256 414 34 03 15 +27 (0) 82 712 4049
[email protected] [email protected]

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