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Chapter 5
THE STRUCTURE OF UGANDA’S ECONOMY
“Structure of an economy”
This refers the basic or salient features of an economy. When considering the structure of an
economy, are put into consideration the following.
1. The major or dominant sectors of an economy.
2. The ownership and control of resources.
3. The size, composition and strength of the sectors in the economy.

A description of the structure / features of Uganda’s economy – a summary

The features are as follows;
1. It is predominantly an agricultural economy / it is dominated by the
agricultural sector.
2. It has a small but growing industrial sector.
3. It is a dualistic economy.
4. It is a mixed economy.
5. It is an open economy.
6. It is a (highly) dependent economy / it is economically dependent.
7. High levels of under employment and unemployment in the country.
8. High population growth rate.
9. The available labour force is mainly unskilled and semi-skilled.
10. Many firms produce at excess capacity.
11. It has poor infrastructure / under developed infrastructure / there is low
level of infrastructural development reflected in the poor state of roads, poor
power supply, inadequate communication facilities etc.
12. The economy employs labour intensive technology.
13. It has a fast growing informal sector.

IMPLICATIONS OF THE STRUCTURE OF UGANDA’S ECONOMY

N.B. We generate the implications from the features. The focus is on what comes out of the
structure of the economy of Uganda. Since the structure of Uganda’s economy is loop- sided,
it obviously generates unfortunate implications and these are;

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■ Balance of payments deficit / Unfavourable Balance of Payments position. Uganda

mainly exports low priced agricultural products with low value added. At the same time it
imports expensive manufactured goods and this increases import expenditure. Earnings
from exports are lower than import expenditure hence causing a balance of payment
deficit.
■ Low personal income levels. Due to high levels of unemployment, many people receive
low incomes. At the same time, the predominance of agriculture which is done of small
scale creates to low incomes in the economy. (Many people are carrying out subsistence
agriculture)
■ Production of poor quality products. Products produced in the informal sector tend to
be of low quality due to low value added. This is because the informal sector uses poor
methods of production.
■ There is under- utilization of resources. This arises from the existence of poor
infrastructure. Due to poor infrastructure, some resources are not exploited and this leads
to excess capacity.
■ Low saving and investment levels. The low incomes earned by people give rise to low
savings and finally there are low levels of investment.
■ Low levels of government revenue from taxes. This arises from a small industrial
sector, high levels of unemployment and a big informal sector which create a narrow tax
base in Uganda. Therefore, government gets low (limited) tax revenue.
■ Having predominantly unskilled labour. This arises from the high levels of illiteracy
and as a result many people do not acquire the necessary skills and training needed in the
labour market.
■ Low levels of technological development. This is caused by technological dualism in
Uganda. There is still predominance of rudimentary skills of production because of the
conservatism of people and limited capital. Capital is still limited, yet it is necessary to
carry out research and development in new techniques of production.
■ Low levels of capital accumulation. This arises from a high population growth rate
which reduces capital accumulation. Money which would have been saved and invested is
being used to cater for the growing population.
■ Acute income inequalities arise. Due to high levels of unemployment, many people are
not earning income while the few who are employed are earning high incomes. This
causes income inequality in Uganda.
■ Poor terms of trade. Import prices of manufactured goods always rise faster than the
export prices of agricultural goods. This gives rise to poor terms of trade in Uganda.
■ Foreign domination of economy. This arises from reliance on decisions made by other
countries as well as expatriates, foreign technology, capital etc.
■ Repatriation of profits by foreign investors. Since the economy is open, there are
foreign investors in Uganda. However, such foreign repatriate profits to their mother
countries instead of re-investing such profits in Uganda. This has a danger of lowering
investment levels in Uganda.
■ Low labour productivity. This arises from labour having low skills as a result of high
levels of illiteracy among people.

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■ Low levels of Gross Domestic Product (GDP). Low GDP arises from production at
excess capacity where resources remain under-utilised and less goods and services are
produced in Uganda.

MEASURES THAT CAN BE TAKEN TO IMPROVE UGANDA’S ECONOMY

1. Develop infrastructure. The government can construct and rehabilitate the infrastructure
especially the road network to reduce the cost of transport and enable movement of raw
materials to production centres and finished goods to market areas. This can encourage
more investment in the economy.
2. Widen market both local and foreign. The government can expand the market through
joining regional economic integration like East African Community, COMESA, etc. This
can encourage more investments in the country because of the assured market for goods
that increases sales of output and profits.
3. Provide affordable capital for investment. The government can offer loans at low
interest rate for investment. This can help to expand the capital base of the investors by
availing funds for acquiring inputs and result into increase in output.
4. Stabilise the political climate. The government can ensure relative peace in different
parts of the country to give confidence to investors due to assurance of security to life and
property, thereby create an increase in the level of production.
5. Provide investment incentives like tax holidays, allocation of land for industries etc.
This can reduce the cost of production and encourage investors to set up more production
units in the country.
6. Control population growth rates. This can be done through promoting family planning
in order to reduce the dependency burden on the working population. This can reduce
consumption expenditure and increase the level of savings that avails funds for
investments in the country.
7. Improve the techniques of production through research. The government can
encourage technological development through innovations and inventions as a way of
promoting better techniques of production that can efficiently transform inputs into output
hence increase the volume of output and improve the quality of output.
8. Improve the land tenure system. The government can carry out land reforms to give
investors chance to access / acquire / buy land on which to set up production units.
9. Modernise agriculture. This can encourage the transformation of agriculture from
subsistence production to commercial oriented production. This can increase the supply
of raw materials to the industrial sector and ensure food security in the country.
10.Diversify the economy. The government can encourage the starting up of many
economic activities in the country to create firms to supply raw materials and services to
already existing firms in order to reduce dependence on agriculture and promote
industrialisation / manufacturing.
11.Provide labour with skills through training. This can enable labour to acquire the
necessary / relevant skills for production thereby increase efficiency in the rate of
transforming inputs into output.
12.Improve entrepreneurship skills. This can help in ensuring proper organization of other
factors of production for investment.

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Reasons for changing the structure of Uganda’s economy (the need for
structural transformation in Uganda)
To increase output hence economic growth (through ensuring liberalised
and competitive domestic markets, essential for efficient resource allocation
through reduced costs of production, thereby increasing the economy’s ability to
increase the volume of output produced)
To stabilise prices / to control inflation (through contractionary or
restrictive monetary policies that reduce money supply which causes a reduction
in aggregate demand hence leading to a fall in prices)
To improve / increase the quality of output / To encourage production
of quality goods (through acquisition and application or use of modern
technology / through industrializing agriculture by adding value to output)
To increase the level of savings / to reduce the dependency burden
(through controlling population growth rate so as to reduce the dependency
burden which raises the level of financial resources available for saving
and productive investment)
To encourage technological development (through increased investment in
science, technology and innovation so as to develop domestic technologies that
meet local needs by supporting research and development initiatives in the
country hence raising productivity)
To develop / improve labour skills (through emphasis on human capital
development to ensure supply of adequately trained manpower with relevant
skills / policies aimed at upgrading workforce skills can help shift labour away
from low-productivity agricultural activities and into higher-productivity industry
and service sectors / increasing spending on training and education aims to
improve the skills of current and future members of the labour force, which in
turn raises average labour productivity levels in the economy and increases the
nation’s aggregate supply or productive capacity).
To promote self-sufficiency / to reduce economic dependence (through
accelerating industrial development / industrialization focusing on import
substitution (i.e., the domestic production of manufactured goods previously
imported / through putting in place measures to increase its tax revenue
collection; attract other forms of long-term capital in order for the country
to eventually escape dependence on aid).
To promote sectoral linkages (through domestic production of

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agricultural inputs as part of industrial development strategies so as to

harness the potential backward and forward linkages between sectors such that
output of agricultural sector is used as input in the industrial sector)
To reduce income inequality (through designing measures / programmes
aiming at a reduction of extreme poverty by empowering the poor by way of
enhancing their incomes; increasing employment opportunities, particularly in
agriculture, while increasing the provision of basic social services through primary
education, primary healthcare, agricultural extension services, and rural feeder
roads).
To improve the balance of payments position (through setting up import
substitution industries to engage in local production of goods that would have
been previously imported hence saving scarce foreign exchange) / to increase
foreign exchange earnings (through diversifying Uganda’s export basket e.g.
from traditional to non-traditional products /non-traditional exports).
To increase income (through higher value agro-processing and expansion
of foreign markets via deepening regional integration and ensuring
reasonably efficient and competitive domestic markets by developing
infrastructure that enables a rapid movement of goods and services at reasonable
cost)
To create employment opportunities (through liberalisation of the economy
to create a conducive climate to business investment and expansion. In such a
climate businesses are able to budget for profit with greater certainty and the
resultant business expansion brings with it more employment opportunities).
To promote entrepreneurship (through extending credit to ‘key’ sectors of
the economy (i.e. agriculture and industry to promote enterprise creation and
growth in the agribusiness and manufacturing sectors / through prioritising
efforts like provision of tax incentives to attract foreign direct investment that
helps to develop linkages with local enterprises and transfers skills and
technology to the domestic private sector with a view of upgrading and
diversifying the domestic enterprise base).
To generate more revenue for government (through taxation) Mobilizing
domestic resources by broadening and deepening the tax base can lessen a
country's dependence on external funding—such as international aid,
development assistance, and foreign borrowing
To improve terms of trade (through encouraging production of higher-value
goods / processing of agricultural products that fetch high prices on the world
market).
To increase the level of resource utilisation (through an industrial strategy

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which involves production primarily based on the use of local resources; and the
development of infrastructure which decreases costs for producers of moving
local resources to production units)
To promote balance in regional / sectoral development (through
upgrading of agriculture, rural transformation by way of setting up small scale
firms and the diversification of rural economic activities hence increasing
employment and income opportunities, particularly in agriculture, thus making
rural areas hospitable).

THE CONCEPT OF DUALISM

THE CONCEPT OF DUALISM IN UGANDA’S ECONOMY
Dualism refers to the co- existence of two contrasting socio-economic situations
(phenomena), one being superior and desirable and the other is inferior and undesirable.
The two situations exist side- by- side in an economy.

Economic dualism is where there is co-existence of two contrasting economic phenomena,

one desirable and the other undesirable.

NB: a dual economy is one where there is co-existence of two contrasting sectors or
phenomena, one advanced / modern / superior / desirable and the other backward /
traditional / inferior / undesirable; which are mutually exclusive to different groups of the
economy.
Or
A dual economy is one in which there is co-existence of two phenomena at the same place
and time; one desirable, the other not which are mutually exclusive to different groups of the
economy.

Dualism is a concept widely discussed in development economics. It represents the existence

and persistence of increasing divergences between rich and poor nations and rich and poor
peoples on various levels. Specifically, the concept of dualism embraces four key elements
as stated by development experts.

1. Different sets of conditions, of which some are “superior” and others “inferior”, can
coexist in a given space. Examples of this element of dualism include Lewis’s urban and
rural sector dualism, the coexistence of wealthy, highly educated elites with mass of
illiterate poor people; and the dependence notion of the coexistence of powerful wealthy
industrialized nations with weak, impoverished peasant societies in the international
economy.
2. This coexistence is chronic and not merely transitional. It is not due to a temporary
phenomenon, in which case time could eliminate the discrepancy between superior and
inferior elements. In other words, the international coexistence of wealth and poverty is not
simply a historical phenomenon that will be rectified in time. Although both the stages-of –

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growth theory and the structural-change models implicitly make such assumptions, the
facts of growing international inequalities seem to refute it.
3. Not only do the degrees of superiority or inferiority fail to show any signs of
diminishing, but they even have an inherent tendency to increase. For example, the
productivity gap between workers in developed countries and their counterparts in most
LDCs seems to widen with each passing year.
4. The interrelations between the superior and inferior elements are such that the
existence of the superior elements does little or nothing to pull up the inferior
element let alone “tickle down” to it. In fact it may actually serve to push it down-“to
develop its underdevelopment”; (Hans Singer 1970:60-61.).

Forms / types of Dualism:

1. Technological dualism involves co- existence of modern technology alongside traditional
technology.
2. Intra-sectoral dualism involves co-existence of commercial sector alongside subsistence
(traditional) sector within the agricultural sector.
3. Literacy dualism involves co-existence of literates alongside illiterates.
4. Exchange dualism involves co-existence of barter exchange and monetary exchange.
5. Income dualism involves co-existence of high income earners alongside low income
earners.
6. Regional dualism involves co-existence of developed regions alongside under-developed
regions.
7. Socio-cultural dualism involves co-existence of traditionalists alongside modernists
(liberals).
Features / examples of dualism:
N.B: The features of dualism are extracted from the general forms of dualism i.e. we
consider what makes up a given form of dualism
- Co- existence of modern technology alongside traditional technology. (Co-existence of
capital intensive technology alongside labour intensive technology)
- Co-existence of commercial sector and subsistence sector.
- Co-existence of literates and illiterates.
- Co-existence of barter exchange and monetary exchange.
- Co-existence of high income and low income earners ( co-existence of the rich and the
poor people)
- Co-existence of developed regions alongside under-developed regions.
- Co-existence of traditionalists and modernists. For example the co-existence of traditional
birth attendants in many rural areas of Uganda and the modern trained mid wives and
nurses who work in hospitals, co-existence of traditional worshiping and modern
worshipping that embraces Christianity and Islam, etc.

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The meaning of Economic Dualism: This is the co –existence of two contrasting economic
situations in a country; one being superior and desirable while the other is inferior and
undesirable.

Table
Dualism – a situation in which there is co-existence of two phenomena / situations, one
strong and desirable but the other undesirable but which are mutually exclusive to
different groups in society.
Or
Refers to the co-existence of two phenomena / situations, one desirable but the other not
desirable which are mutually exclusive to the different groups in society.
Forms of dualism in Examples / features / characteristics of dualism :
Uganda :
Technological the co-existence of traditional / primitive technology
alongside modern technology.
Inter / intra sectoral the co-existence of commercial production alongside
subsistence production.
Literacy the co-existence of illiterate alongside the literate.
Exchange the co-existence of barter exchange alongside monetary
exchange.
Income the co-existence of high income earners (the rich) alongside
low income earners / the poor.
Regional the co-existence of relatively developed regions alongside
underdeveloped regions.
Socio-cultural the co-existence of traditionalists alongside modernists /
liberals.

Dualism – a situation in which there is co-existence of two phenomena / situations, one strong and
desirable but the other undesirable but which are mutually exclusive to different groups in society.
Or
Refers to the co-existence of two phenomena / situations, one desirable but the other not desirable
which are mutually exclusive to the different groups in society.
Advantages of dual Limitations or problems of a dual economy
economy
Increases employment both Creates a problem of planning i.e. it is difficult to find out
in the formal and informal which sector to boost up first for example agriculture or
sectors. industry, rural or urban, subsistence or commercial etc.
Government raises a lot of Creates rural-urban imbalances with the rural sector often
revenue through progressive lagging behind and the urban centres often acting as growth
taxation of the modern poles.
sector or the rich.

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Government is awakened to It often leads to rural-urban migration and its associated

its responsibility of providing demerits for example open urban unemployment due to the
utilities for the less creation of jobs in the modern sector which are not matched
developed regions or with the rapid supply of labour from the traditional sector.
disadvantaged individuals.
Provides an impetus for Leads to economic dualism as the distribution of wealth and
research and planning to income in the economy is uneven.
identify ways and means of
developing the economy.
Fosters factor mobility from Technological dualism leads to unemployment due to
the traditional sector to the adoption of labour saving techniques of production yet the
modern sector. developing countries have abundant supply of cheap labour.
Promotes diversification in Dualism creates conflicts between beliefs, religions, values etc.
the economy due to the in society.
existence of firms in both the
formal and informal sectors.
The resources in the backward sector remain idle,
underexploited and misused.

THE FORMAL SECTOR IN UGANDA

Table
A formal sector is one which encompasses all jobs with normal hours and regular wages and are
recognised as income sources on which income taxes must be paid.
Or
Part of an economy consisting of enterprises / firms / businesses and economic activities that are
registered, protected, monitored and taxed by the government.
CONTRIBUTION OF THE FORMAL SECTOR
FEATURES / CHARACTERISTICS OF THE TO THE DEVELOPMENT OF UGANDA
FORMAL SECTOR IN UGANDA
■ Made up of predominantly registered ■ Provides revenue to the government
businesses.
■ Mainly provides salaried employment. ■ Promotes proper accountability
■ Has proper record keeping. ■ Produces quality output
■ Businesses are mainly governed by laws / Acts■ Increases output hence economic growth
of Parliament.
■ Dominated by corporate ownership of ■ Provides employment
resources.
■ Has employees and employers’ unions. ■ Develops infrastructure

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■ Mainly uses better / improved / modern ■ Improves balance of payments position

technology.
■ Mainly produces better / improved quality ■ Widens consumer choices / produces a variety of
output. goods
■ Mainly urban or sub-urban based. ■ Promotes entrepreneurship
■ Mainly uses skilled labour. ■ Improves labour skills
■ Production is mainly for commercial purposes■ Undertakes innovation and inventions / develops
i.e. profit oriented. technology
■ Promotes stability and growth of firms
■ Promotes optimum use of resources hence
avoidance of wastage

THE INFORMAL SECTOR IN UGANDA

Table
Meaning: It is an inter-mediate sector which exists between the modern sector and the
traditional sector.
It is the part of the urban economy of developing countries characterized by small competitive
individual or family firms, petty retail trade and services, labour-intensive methods, free entry, and
market-determined factor and product prices.
It is mainly made up of those activities which have slowly developed from the traditional form of
production and are slowly being modernised.
Examples of activities / operators
under the informal sector include; FEATURES / CHARACTERISTICS OF AN INFORMAL
SECTOR
 Cloth tailoring / tailors 1. Production is mainly on small scale
 Bicycle repairers 2. There is mainly use of poor or simple technology
 Motorcycle mechanics 3. Mainly low quality output is produced.
 Small food restaurants 4. It is mainly semi or sub-urban based
 Petty traders like hawkers, peddlers, 5. It is characterized by poor or no book-keeping / financial
street vendors, market stall vendors, records.
chicken roosters.
 Small metal welding units / metal 6. It is basically/ mainly run by sole proprietors.
scrap fabricators.
 Small furniture making units and 7. It is dominated by semi-skilled and unskilled personnel
timber sellers etc.
 8. There is use of basically local resources.
 9. It mainly produces for the local market.

THE ROLE / CONTRIBUTION / IMPACT OF THE INFORMAL SECTOR IN UGANDA’S ECONOMY

It has both positive and negative impact and contribution:
The positive impact of the Informal sector is as follows:

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■ It creates more employment opportunities. The informal sector creates jobs for many people
since it is labour intensive. The employed people earn income and are able to sustain their
livelihood.
■ It facilitates the utilisation of resources (It increases resource utilisation) which reduces
resource wastage.
■ It provides a cheap training ground for local labour. As people work in the informal sector,
they gradually learn new skills on the job. This leads to the development of local skills in the long–
run.
■ There is production of wide variety goods. There are many activities in the informal sector
which result into provision of a variety of goods to the public. This widens consumers’ choice
hence improving the welfare of the people.
■ It promotes innovations and inventions i.e. it promotes technological development. In the long
run, better and efficient techniques of production are developed in the informal sector which
leads to technological development.
■ It promotes entrepreneurial skills. Through the informal sector, people learn how to bear risks
and how to organize the available factors of production. This gives them the confidence to invest
hence promoting entrepreneurship in the economy.
■ To some extent, it contributes some revenue to government. The investors in the informal
sector pay license fee to the government to be allowed to run their activities in a given area. They
also pay some taxes to the government.
■ It enhances fairer distribution of income. As people earn income from the informal sector, the
income gap among people involved in other sectors is gradually reduced.
■ It promotes commercialization of the economy. The informal sector produces goods which are
sold in exchange for money, thereby expanding the commercial sector of the economy. This
reduces the subsistence sector in Uganda.
■ It leads to greater diversification of the economy. This arises from the many activities carried
out in the informal sector.
■ There is production of locally affordable goods. As people are able to afford the goods
produced in the informal sector, their standard of living is gradually improved.
■ It increases the country’s GDP. More goods are produced in the informal sector and this
increases the country’s national income / GDP.
■ There is a reduction in foreign exchange outflow. The informal sector produces goods that
would have been imported. This cuts down on foreign exchange out flow.

The Negative impact or contribution of the informal sector in Uganda:

 It creates congestion in urban or sub-urban areas. This breeds rural urban migration and its
associated problems such as high urban crime rate, open-urban unemployment etc.

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 It encourages duplication of services / wasteful competition e.g. many people get involved in
one line of activity within the informal sector but they all serve a small market. This creates
wasteful competition which finally results into resource wastage.
 It causes public revenue instabilities. The informal sector is not a reliable and significant source
of revenue to government since the operators with in the sector earn unstable incomes. In
addition, the operators in the sector do not keep proper accounting records hence creating
difficulties in tax assessment (many operators in the informal sector evade tax payment)
 It hampers the development and maintenance of quality goods and services. This arises from
the use of poor techniques of production in the informal sector. Such poor quality commodities
are sold at low prices leading to low profits being earned by producers.
 It gives rise to disguised unemployment and under employment due to the small scale
operation.
 It is associated with high administration costs. Operators in the informal sector meet high
expenses like payment of license fee, high power costs, high transport costs etc. and these
operational costs reduce their profits.
 It causes pollution of the environment (for example metal scrap fabricators pollute the
environment through poor disposal of metal cuttings.

Explain the reasons for the growing informal sector in

developing countries.

Table
Table : Advantages and Disadvantages of the informal sector
Advantages of the informal sector Disadvantages of the informal sector
Increases resource utilisation Leads to duplication of goods hence waste
Promotes development of entrepreneurship Leads to production of poor quality output
Promotes development of technology Leads to under employment and disguised
unemployment
Creates employment opportunities Low quantity of output due to absence of
economies of scale
Reduces the subsistence sector High cost of government provision of
infrastructure to the sector
Encourages production of a variety of goods Leads to pollution / environmental degradation
Provides revenue to the government through Leads to rural urban migration and its negative
the payment of taxes effects
Provides a training ground for labour Leads to high crime and immorality rates
Reduces income inequality
Provides affordable goods to low income

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earners
Diversifies the economy
Reduces capital outflow
Leads to economic growth / increases output
Leads to growth of the industrial sector

Table
Table : Problems faced by the informal sector and possible measures to rand
disadvantages of cost-cutting strategy
Problems faced by the Measures that are being taken by government to
informal sector in reduce the informal sector in Uganda
Uganda
Poor infrastructure  Developing infrastructure (lowering costs of
(limits transport / high transport / lowering the average costs of production
cost of transport)
and increasing profits)
Limited capital (limits  Providing affordable credit (availing or providing
funds for purchasing) funds which are used as capital) / stabilising
interest rates (reducing the cost of borrowed
capital) / promoting creation of saving and credit
societies (raising sufficient funds to be used as
capital for investment)

Limited skills (inefficiency

 Providing skills to labour / training labour
in their operations leading (increasing efficiency in the rate at which inputs /
to high costs of resources are transformed into output)
production)
Poor technology  Promoting use of modern technology / improving
(inefficiencyin their technology (reducing costs of production and
operations leading to high increasing profit)
costs of production)
Limited entrepreneurship  Promoting entrepreneurship (enabling better
(limits the ability to
mobilisation, combination and organisation of
mobilise, organize and
resources or factors of production for investment)
combine resources or
factors of production)
High rate of inflation  Controlling inflation / stabilising prices (reducing
(rising
average costs of costs of production and increasing profit)
production)
Political instability  Maintaining political stability / improving political

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(destroys production units climate (giving confidence to the informal business

/ creates fear of possible operators due to assurance of security to life and
loss of life and property) property)

Limited market (limits  Widening market (increasing sales of output and

sales of output and profits)
profits)
Poor land tenure system  Improving the land tenure system (increasing
(limits access or
access to land for investment)
acquisition of land)
High taxes (high costs of  Providing tax incentives to formal investors
doing business and (reducing costs of production and increasing profit)
reduced profits)
Harassment by law  Enforcing compliance with the laws governing
enforcement officials businesses (enabling formalization of businesses
(causes fear of arrest / and increasing access to support services from the
detention / confiscation
government like training programmes)
of goods and equipment /
increased costs in doing
business by way of bribes
to law enforcers)
 Strengthening / maintaining institutions to
encourage investment and formal businesses
(promoting a business friendly environment that
enables access to finance and various support
services)
 Enforcing / encouraging tax compliance:
- Registration of tax payers with URA / URSB / FIA etc.
- Filing tax returns
- Declaration
- Proper record keeping
- Tax payment (increasing tax compliance and thus
increasing government revenue sources)

RELATIONSHIP BETWEEN THE INFORMAL SECTOR AND SMALL SCALE INDUSTRIES

1. The two sectors produce low output since they operate on small scale.
2. The two sectors mainly use local resources.
3. The two sectors mainly use labour intensive techniques of production.
4. The two sectors mainly require little capital for establishment and maintenance.
5. The two sectors mainly produce consumer goods for the local market.
6. There is low contribution to government revenue by the two sectors.
7. The two sectors are mainly urban or semi urban based.
8. Private ownership of firms is dominant in the two sectors.

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9. There is limited formal book keeping in the two sectors.

10. In both sectors, production units operate at excess capacity.
11. On -job training is a common aspect in both sectors i.e. there is apprenticeship of workers who
acquire skills on the job through gradual training by more skilled workers.

THE STRUCTURE OF THE AGRICULTURAL SECTOR IN UGANDA

A description of the structure of the agriculture sector in Uganda

Mainly dependent on family labour
Mainly small scale
Mainly rural based
Uses mainly unskilled and semi-skilled labour
Mainly dependent on nature
Production is mainly for subsistence / dominated by subsistence production
Quantity of output produced is mainly / generally low
Production is mainly for the local market
Mainly food crops (food stuffs) / narrow range of cash crops produced
Narrow range of products for exports / narrow range of production is for exports
Mainly low quality of output
Mainly labour intensive care

An assessment of the implications of the structure of the agriculture sector in Uganda

Positive implications of the structure of the agriculture sector in Uganda
Promotes infrastructural development (especially the road network in rural areas to ease
transportation of agricultural output from the production areas to the market centres )
Provides employment (mainly labour intensive technology therefore hires labour)
Utilises idle land resources / encourages utilisation of land resources (mainly rural based hence
making use of the vast land resources)
Foreign exchange earnings (due to exportation of some products of the sector)
Provides some revenue to government (in form of market dues and taxes imposed on farmers carrying
out commercial production)
Promotes equity in income distribution (mainly rural based and most Ugandans live in rural
areas and practice farming, raising agriculture incomes)
Means of forging balance in regional development (mainly rural based and thus induces
development of rural infrastructure and small scale industrialisation that encourage regional
growth)
Promotes food security at the household level (due to production of mainly food crops (food stuffs))
Minimises / reduces dependence on food imports (due to production of mainly food crops (food
stuffs))
Promotes growth and development of the industrial sector (because the sector is the major supplier of
raw materials to agro processing industries / provides a large proportion of the raw materials for

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industry)
Promotes economic growth (due to production of food crops and cash crops that leads to increase in
output)
Provides market to the output /products of the industrial sector (e.g. fertilizers, tractors, manufactured
goods required by the workers, etc.)

Negative implications of the structure of the agriculture sector in Uganda

Low / limited revenue to government (because production is mainly for subsistence / low levels of
monetisation of the sector)
Low quality of output (mainly labour intensive / unskilled labour)
Low output or low quantity of output hence low economic growth (due to production on a small scale and
at a subsistence level)
Low foreign exchange earnings (due to low value, quantity and variety of exports)
Unfavourable / poor terms of trade (due to low value / quality of exports from the sector)
Seasonal unemployment and under-employment (due to dependence on nature and wide use of family
labour)
Fluctuations in prices / leads to structural inflation (due to dependence on nature for production)
Under-development of the industrial sector / limited linkages with other sectors ()
Income inequality (production is mainly for own consumption i.e. subsistence production hence low
incomes for people engaged in agriculture)
Limited technical development / low level of innovations and inventions (due to large subsistence sector /
use of simple tools in farming)
Limits infrastructural development (mainly subsistence)
Declining returns to land / exhaustion of land / land degradation (due to increased pressure on the land
resources for subsistence production /exacerbated by low and unreliable rainfall, frequent drought and
precarious water supply)
Conservatism (due to subsistence production and dependence on nature)
Food shortages or insecurity (due to dependence on nature / seasonal production)
Under-utilisation of resources hence operation at excess capacity (due to production on a small scale and
at a subsistence level)
Limited markets for products (due to poor quality products from the sector)
Accelerates or exacerbates economic dependence (due to the narrow range of exports from the
agricultural sector)

Ways of changing such a structure

o Developing infrastructure i.e. rural feeder road development. This is intended to
ease the movement of agricultural produce to the market by reducing the transport
costs.
o Improving land tenure system / carrying out land reforms. Land reforms are
intended to improve the land tenure system in order to make land more accessible
to farmers and enable large scale production.

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o Promoting agricultural research so as to discover scientific methods of increasing

agricultural productivity, for example, at Kawanda research station, Namulonge
research station and Kabanyoro. This is intended to improve breeds of animals and
crops thereby increasing agricultural productivity.
o Providing farm inputs to farmers at subsidized prices in order to reduce costs of
production and increase earnings from the sale of output after harvest.
o Diversifying the sector / diversification of agriculture. This is intended to reduce
effect of price fluctuations which discourage farmers from producing.
o Encouraging the use of better technology / mechanisation of agriculture. This is
intended to reduce the amount of labour input necessary to produce a given level of
output.
o Industrialisation within agricultural sector. This is intended to add value to
primary products.
o Stabilising the political atmosphere. This is intended to instill confidence among
investors in agricultural activity and increase output at all times.
o Training labour / providing skills to farmers. This is intended to help in carrying
out extension services and setting up of demonstration farms.
o Encouraging reduction in rain fed agriculture / encouraging the use of
irrigation in farming. This is intended to reduce dependence on nature in the
agricultural sector.
o Providing affordable credit facilities. This is intended to enable farmers buy farm
inputs and implements.
o Widening markets. This is intended to encourage large-scale commercialised
agriculture since farmers find easy to market their products and avoid post-harvest
losses by remaining with unsold output.
o Monetising the sector. This is intended to encourage large scale production for
exchange hence increasing the farmers’ incomes.
o Encouraging proper accountability. This is intended to ensure proper use of funds
meant for agricultural development such as for research like in organisations like
NAADS and NARO, therefore, ensure that the agricultural development projects are
completed.
o Promoting entrepreneurship. This is intended to encourage investment in the
agricultural sector since people are able to undertake risks and mobilise resources to
invest in the sector.
o Developing the co-operative movement. This is intended to ease the marketing of
their produce, buying agricultural inputs at subsidised prices due to bulk purchase,
improvement in the bargaining power of the farmers.

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Reasons for changing /transforming the structure of the agriculture sector in

Uganda

USE: This is achieved / will be achieved …………to explain

To stabilise prices in agriculture sector / economy. This will be achieved through
modernisation of agriculture which involves adoption of irrigation in farming which
ensures supply of agricultural output throughout the year and this helps to minimise
shortages of such products arising out of unfavourable natural factors.
To facilitate increase in output hence economic growth (through increasing access
to and use of critical farm inputs at subsidised prices / encouraging agriculture
research that avails high yielding crop varieties and animal breeds thereby increasing
on the quantity of output from the sector)
Or
To stabilise agricultural output by making it less vulnerable to the natural
conditions (through adaptation of modern irrigation technologies)
To enable mechanisation of agriculture / to enable use of improved equipment in
the agricultural sector (through up scaling the transfer and utilization of food-
production and labour-saving technologies and providing of appropriate farm power
such as tractors)
To increase the quality of output from agriculture sector (through improved
agricultural research on better crop varieties & animal breeds and technology
development / through improvement of the stock and quality of storage facilities for
crops, livestock and fish products to minimize post-harvest wastage and enhance
quality maintenance)
To reduce commodity concentration (through promoting and encouraging
agricultural diversification that increases the range of products for exchange)
To monetise the economy (through encouraging commercial production by
procuring and distributing various agricultural inputs, planting materials
(seeds/seedlings) and stocking materials which facilitates growth of commercial
sector)
For raising more export revenue (through exports of processed food products from
the agro-based industries)
To prepare ground for industrialization / in order to increase value-addition to
agricultural products (to promote a dynamic agro-industrial sector, which would
have as its driving force the agricultural foodstuffs industries and mainly use raw
materials from local commercial crops / promoting contract farming or outgrower
schemes for high-value produce in order to enhance large scale agro-processing and
ensure a steady supply of quality produce that provides a wide range of raw
materials).
To create sectoral interdependence / linkages (through promoting and supporting
private investment in agro-processing of various agricultural products)
To improve the balance of payments position (through promoting agricultural
diversification and the use of improved techniques of production that increases

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output for foreign markets hence more foreign earnings)

To stabilise / increase producers’ incomes (through increasing access to
agricultural finance so as to encourage commercial production that increases the
producer’s income because of increased marketed output)
To minimise seasonal unemployment (through encouraging agricultural
modernization e.g. irrigation that ensures continuity in production thereby
expanding employment opportunities)
To promote food security and ensure a healthy population. This is attained through promotion of
agricultural modernisation programmes that provide better inputs to farmers hence production of a variety
of food items.
To generate more revenue for government (through expanding the scale of
commercial production on which taxes are imposed)
To improve terms of trade (through encouraging agricultural research that results
in production of high quality agricultural products for the export market thereby
fetching high prices on the world market)

THE STRUCTURE OF THE INDUSTRIAL SECTOR IN UGANDA

Structure of the industrial (manufacturing) sector in Uganda

 Mainly (dominated by) small scale industries / mostly small and medium scale.
 Mainly comprises of processing industries / mainly engaged in processing /primarily
engages in raw materials processing
 Most of the firms in the sector are privately owned / mainly privately owned.
 Most of the firms in the sector use labour intensive techniques of production.
 The sector is mainly urban based.
 Production of mainly low quality manufactured goods.
 Many of the industries are agro-based / strongly agro-based.
 Mainly import substituting industries / production is mainly for the domestic market.
 Durable consumer goods industries are mostly assembly plants /mainly final stage
plants / primarily engages in end-product assembly.
 High level / component of imported raw materials and intermediate product content.
 Limited linkages with other sectors in/of the economy.
 Mainly produces low quantity output /mainly produce at excess capacity / low
productivity / low employment.
 Mainly unskilled and semi-skilled labour employed.
 Production of mainly consumer goods / final products / largely engaged in the
production of low-value added goods

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An assessment of the economic implications of the structure of the

industrial sector in Uganda
(EXPLANATIONS ARE GENERATED FROM THE FEATURES OF THE SECTOR- USE: This is
because of …….
Positive economic implications of the structure
 Provides employment to many people (labour intensive manufacturing)
 Provision of tax revenue to the government (mainly privately owned)
 Utilises idle resources hence avoidance of wastage / utilisation of local
resources as primary endowments in production / addition of value (mainly
engaged in processing / strongly agro-based /mainly labour-intensive
manufacturing industries that utilize local raw materials)
 Provision of linkages to other sectors of the economy (mainly engaged in
processing / strongly agro-based / dominance of small- and medium-
scale enterprises that have strong links with the agricultural sector)
 Development of entrepreneurial skills (mainly small scale hence promotes
local ownership of means of production)
 Low government expenditure on subsidisation (industries are mainly
privately owned)
 Reduced dependence on imports (mainly production for the domestic
market)
 Reduced expenditure abroad (mainly import substitution industries)

Negative economic implications of the structure

 Poor terms of trade (low quality of products)
 Sectoral imbalance in development (limited linkages with other sectors of
the economy)
 High prices of final products (high component of imported inputs)
 Promotes income inequality (unequal sizes of firms with dominance of
small scale production)
 Capital outflow (large scale industries are foreign owned)
 High level of environmental degradation in urban centres (mainly urban
based /owned by profit driven individuals who avoid cost of waste
management)
 Dependence on external resources (high component of imported inputs)
 Balance of payments (BOP) problems (high component of imported inputs
/low volume of exports because production is for local consumption)
 Low output hence low economic growth (mainly low quantity of output is
produced)
 Low quality of output (mainly labour intensive / unskilled labour)
 Imbalance in regional development (mainly urban based)

Ways of changing such a structure

• Developing infrastructure. The developing of better road network is intended
to encourage the transportation of industrial raw material and finished industrial

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goods to where they are needed. This is to reduce transport costs and encourage
more investors to set up more industries hence improving the industrial sector in
Uganda.
• Widening markets for industrial goods. This is intended to encourage more
people to invest in the industrial sector because of the increase in sales of output
and profit levels.
• Providing affordable capital for investment for industrialization / loans at lower
interest rates are being advanced to industrial investors. This is intended to help the
investors to expand their capital base to purchase the inputs and increase the level
of output hence improving the industrial sector in Uganda.
• Stabilizing the political atmosphere or climate. This is intended to give
confidence to investors to set up more industries since they are being assured of
security of life and their investments.
• Providing incentives. This is intended to reduce the cost of production in the
industrial sector and thus encourage more people to invest in the industrial sector
due to increasing profits. .
• Improving labour skills. This is intended to increase labour productivity and
efficiency which encourages many people to invest in the industrial sector.
• Encouraging savings. This is intended to provide investment funds which
enable many people to invest in the industrial sector.
• Liberalizing the economy. This is intended to ease the investment procedure
by reducing the unnecessary costs on restrictions and thus encourage many people
to invest in the industrial sector.
• Improving the land tenure system. This is intended to ease accessibility to land
by investors and thus enables many people to establish and expand industries.
• Fighting corruption / ensuring proper accountability. This is intended to enable
many investors to easily acquire licences to establish industries since they are not
being asked for bribes by government officials.
• Stabilizing prices / fighting inflation. This is intended to reduce the cost of
production which encourages many people to invest in the industrial sector due to
increasing profits.
• Modernizing agriculture. This is intended to increase the supply of raw
materials to be used as inputs which encourages the establishment and expansion of
agro based industries.
• Improving entrepreneurship skills. This is intended to encourage better
organization of the factors of production which promotes industrial development.
• Privatisation of public assets or enterprises is being undertaken. This is
intended to increase efficiency in the long run in the privatized firms and to

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encourage people to invest in the industrial sector since they are not scared of their
businesses being nationalised.
• Improving techniques of production. This is intended to increase efficiency in
production and reduce costs of production incurred in the industrial sector.
• Strengthening specialized institutions to improve performance of the sector
e.g. Uganda Investment Authority. This is intended to facilitate investment projects,
attract foreign investors, provide relevant information, advocate for a competitive
business environment and providing serviced land in the industrial parks.
• Carrying out international campaigns to attract investors. This is intended to
create awareness about the investment opportunities in the country which attracts
many foreign investors to invest in the industrial sector.
Reasons for changing such a structure
Rationale / reasons for changing / need to change the structure of the industrial
sector in Uganda
To improve the terms of trade (through building the capacity of domestic
manufacturers to produce value added products of high quality that fetch
high prices on the world market)
To reduce sectoral imbalance in development / to promote sectoral
linkages (through promoting diversification involving creation of
demand for the supply of raw materials / inputs by firms not in
existence and such firms are set up to supply such goods and
services hence promoting forward and backward linkages with other
sectors like agriculture and services)
To stabilise prices of final (industrial) products (through deliberate
efforts to reduce the cost of doing business and encourage more domestic
production of industrial products)
To reduce income inequality (through promotion of large scale industrial
production that will provide income earning opportunities to both the
skilled and unskilled labour employed)
To reduce capital outflow (through providing incentives to indigenous
investors to set up large scale industries)
To reduce the level of environmental degradation in urban centres
(through supporting manufacturing industries to adopt cleaner and more
efficient technologies through targeted programmes that include promotion
of cleaner production practices, recycling of waste, waste disposal
management, and resource (energy and water)
To reduce dependence on external resources (through promoting the
inward looking strategy (import substitution) that discourages the
importation of certain products that are locally available so that the
domestic industry will flourish, given that it has readily available raw
materials and forward linkages)
To improve the Balance of payments (BOP) position / to increase forex

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earnings (through pursuing import substitution that encourages local

production of goods that could have been imported hence reducing
expenditure abroad and / or export promotion strategies that increases
the volume of exports hence increased foreign exchange earnings)
To increase output hence high rate of economic growth (mainly low
quantity of output is produced)
To improve quality of output / to encourage production of quality
goods (by investing in scientific research and innovation / by removing
bottlenecks to value addition processes hence building the capacity of
domestic manufacturers to produce value added or intermediate goods
(e.g. packed juices, plastics and steel) / through developing technology
required to increase the level of value addition and production of
competitive products for domestic, regional and international markets)
To promote balance in regional development (through developing and
implementing special incentives that will promote rural based agro-
industries / through developing industrial parks in all regions of the
country so as to promote spatial distribution of industries)
To create more employment opportunities (through promoting the
development and utilization of indigenous/local technologies that make
use of the abundant labour in the country).
To generate more revenue (by providing incentives like free land to
reduce costs of production and encourage large scale industrial
establishments that offer a wider taxable base).
To encourage technological development (by investing in scientific
research and innovation / providing incentives for firms to innovate which
boosts industrialisation / by training more scientist and engineers to
facilitate technological transfer).
To develop labour skills (by providing incentives to industrialists to
support internship programs for students to acquire the necessary
practical skills in industries).
To increase the level of resource utilisation (through making use of the
locally available raw materials as inputs in the production process).
To promote entrepreneurship (through opening up to both capital inflows
(foreign direct investments) and local investors by providing incentives to
reduce the cost of doing business and affordable loans which will generate
the required capital for industrialisation).

SUBSISTENCE AND MONETARY SECTORS

A distinction between the subsistence sector and the monetary sector.
Subsistence sector is one where production is for one’s own consumption and
exchange, if any is by barter.
While
Monetary sector is one where production is for the market and exchange for goods is by
means of money.

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Subsistence production – production for the producer’s own consumption.

Subsistence output is the amount of goods produced for own/self /use /consumption
Features of subsistence sector
 Mainly small scale i.e. farming is done on small holdings.
 Family labour is mainly used.
 Limited degree of specialisation.
 Mainly use of simple techniques of production.
 Exchange is mainly by barter.
 Highly dependent on nature hence high risks and uncertainty.
 Mainly low levels of output.
 Mainly poor quality output.

Reasons for the persistent dominance of the subsistence sector in most developing
countries:
 Limited market / small domestic market.
 Limited entrepreneurship skills.
 Poor land tenure system.
 High taxation in the commercial sector / less conducive government policies on
investment e.g. high taxation.
 Conservatism of our people.
 Low income making it difficult to invest in other sectors / limited capital required for
large scale production.
 Poor infrastructure.
 High population growth rate and the problem of dependence.
 Unstable prices of primary products.
 Limited supply of some inputs / raw materials.
 Poor skills /limited skills in the fields of management and production.

The demerits of a large subsistence sector in Uganda (problems of over relying on

subsistence production)
 Low quality output.
 Low economic growth rate /low quantity of output.
 High levels of under – employment and seasonal unemployment.
 Low tax revenue.
 Under exploitation of (natural) resources / leads to under utilisation of available
resources.
 Limited specialisation and trade.
 Limited innovation and creativity in the sector.

Measures that can be taken to reduce dominance of the subsistence sector

Attempts made to reduce the dominance of subsistence sector in Uganda include:
 Equip farmers with skills through training / provide extension services through
training programmes to impart more skills
 Provide incentives for example subsidies.
 Set up small scale industries.

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 Improve or develop infrastructure.

 Encourage co-operative societies.
 Set up research institutes to carry out technological development.
 Create market for locally produced goods.
 Encourage land reforms.
 Diversify agricultural activities.
 Modernise agriculture through irrigation.
 Provide inputs and better seed varieties / provide subsidies to small scale producers.
 Provide affordable credit facilities.
 Control population growth rates

Reasons as to why there is need to reduce the size of the subsistence sector in an
economy.
 To increase productivity.
 To encourage monetisation of the economy.
 To encourage improvement in the quality of final goods through competition.
 To improve the living conditions and livelihood of the rural people.
 To generate more employment opportunities and hence check the problem of
disguised unemployment.
 To widen the tax base due to expansion of production for the market.
 To increase rural incomes due to increase in the volume of production.
 To accelerate rural transformation.
 To expand the market for industrial output, especially output used as inputs in the
agricultural sector like fertilizers.
 To encourage innovation and creativity due to competitive production.

COMMERCIAL OR MARKET OR MONETARY PRODUCTION

This is production aimed for sale. It is market and profit motivated.
N.B. Commercialisation of production is the policy or process of changing the
objective of production from production for own consumption to production for
exchange.
Market production is the production of a good or service for exchange.

Objectives of Commercialisation of production in Uganda

 To increase quantity of output / economic growth.
 To encourage investment.
 To increase quality of output.
 To create more employment opportunities / to reduce unemployment and
underemployment.
 To provide revenue to the government.
 To promote infrastructural development.
 To promote initiatives / technological development.
 To increase the rate of resource utilisation.
 To widen market.
 To encourage specialisation.

Features of commercial production

 High degree of specialisation leading to higher output and exchange.
 Scientific methods of production and management are mainly applied.
 There is mainly an element of foreign ownership and foreign technology.

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 Production is mainly on a large scale aimed at satisfying both local and international
markets.
 Majorly less risks and uncertainties due to insurance, research and better methods of
production.
 There is generally heavy capital investment especially in modern technology.
 It is mainly profit motivated and market oriented.
 Mainly quality output that is competitive is produced.

Merits of commercial production

 Encourages production of quality output that is competitive on the world market.
 Promotes specialisation and exchange hence monetisation of the economy.
 Raises the taxable capacity of the economy hence increasing government revenue.
 Leads to increased incomes and standard of living.
 Creates employment opportunities and helps to reduce disguised unemployment.
 Promotes introduction of scientific methods of production which raises efficiency and
increases agricultural labour productivity.

Demerits of commercial production

 Leads to surplus production hence wastage of resources.
 Results into over exploitation of resources due to high demand hence depletion of
resources.
 A fall in demand on the world market affects the specialised country by reducing
foreign exchange earnings.

Limitations to commercial production

 Limited market size which does not encourage high production levels.
 Limited capital to purchase machinery and for maintenance and purchase of other
inputs.
 Political instability which scares away investors hence fall in agricultural production.
 Price fluctuations of mostly agricultural products greatly affects commercial
production.
 Poor government policies such as unfair taxation on inputs.
 Negative social cultural factors, for example poor land tenure system which does not
favour commercial production.

THE CONCEPT OF DEPENDENCE IN UGANDA’S ECONOMY

MEANING OF ECONOMIC DEPENDENCE:
It is a situation in which an economy relies either mainly on a specific sector (productive activity) for
her survival or relies on other (developed) countries for decisions and resources for her economic
survival as well as stimulate her own economic growth (development).
Economic dependence is manifested in the following forms:
1. Direct economic dependence.
2. External resource dependence
3. Trade dependence
4. Sectoral dependence

DIRECT ECONOMIC DEPENDENCE

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EXTERNAL RESOURCE
DEPENDENCE ECONOMIC DEPENDENCE TRADE DEPENDENCE

 DIRECT ECONOMIC DEPENDENCE

This involves reliance of an economy on economic and political decisions dictated by other
countries or foreign funding bodies.
For example some of the recently implemented policies in Uganda like privatization and cost–
sharing were given to Uganda as conditionality from World Bank and IMF in order for Uganda to
get money from such bodies.
Causes of direct economic dependence
■ Limited export revenue.
■ Low savings.
■ Limited entrepreneurial abilities.
■ Heavy reliance on the agricultural sector.
■ Inadequate public revenue that calls for reliance on foreigners to provide budget support.
Demerits of direct economic dependence
- Leads to loss of political independence.
- Results into socio-cultural dominance.
- Leads to underutilization of resources.
- Encourages profit / income repatriation.
- Leads to inappropriate decisions in non-priority areas.
- Some decisions result into adverse effects for example unemployment, inflation, BOP problems
etc.

 EXTERNAL RESOURCE DEPENDENCE

This is where a country relies on foreign factor services such as foreign technology, foreign skills
(expatriates) and foreign capital to supplement her productive resources.
NB: The foreign capital is in form of foreign investments and loans secured from other countries.
Reasons for external resource dependence
■ To close the savings-investment gap / to increase the level of investment.
■ To close the manpower gap / to increase the supply of skilled labour.
■ To close the government revenue – expenditure gap.
■ To close the foreign exchange gap.
■ To close the technological gap.
■ To alleviate the effects of natural disasters.

Demerits of external resource dependence

- Heavy debt servicing problem / leads to debt burden
- Increased profit repatriation / accelerates capital outflow
- Under utilisation of local resources
- High payments to expatriates
- Loss of local initiative / kills local initiatives / encourages laziness
- Stunts or stagnates local technological development
- Economic dominance by foreigners / leads to domination of the economy by foreigners

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- Balance of payment deficits / problems

- Leads to underemployment and unemployment
- Leads to cultural erosion
- The economy is subjected to inappropriate and undesirable decisions
- Discourages domestic savings and investment
- Leads to political interference in the country by foreigners
- Distorts economic planning

 TRADE DEPENDENCE
Uganda relies on international trade transactions by exporting primary products to other countries
while importing products like human drugs, petroleum, industrial machines, chemicals, vehicles,
military equipment etc. from other countries.

Demerits of trade dependence in Uganda

■ Leads to poor terms of trade
■ Leads to Balance of payment problems
■ Economic domination by foreigners
■ Political domination by foreigners
■ Leads to unemployment
■ Underutilisation of local resources.

NB: Geographical concentration of trade is one where an economy relies on export to a few
markets.
While
Commodity concentration of trade is one where an economy relies on a few traditional exports
like Uganda mainly relies on coffee, cotton, tobacco, tea etc.

 SECTORAL DEPENDENCE
This is the reliance of a country on one major sector or a few sectors for her economic survival. In
Uganda, there is sectoral dependence on agriculture.

Demerits of sectoral dependence in Uganda

- Limits tax base / government revenue.
- Limits employment opportunities.
- Leads to underutilization of resources.
- Limits the variety / choice of goods to consumers.
- Worsens income inequality.
- Leads to low GDP or low economic growth rates.
- Worsens regional imbalances in development.
- Limits linkages or interdependence among sectors.

Forms of economic dependence in Uganda – a summary (acronym DETS)

Direct economic dependence: this involves Uganda ‘s
Reliance on foreign decisions for her development.
External resource dependence refers to Uganda ‘s reliance on foreign factor services /
inputs namely;

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Reliance on foreign skilled labour,

Reliance on foreign capital and
Reliance on foreign technology for her development.
Trade dependence: this involves Uganda‘s
Reliance on importation of consumer and intermediate products.
Reliance on exportation of mainly primary products.
Geographical concentration of trade / exportation to mainly few countries.
Sectoral dependence: this involves Uganda‘s
Reliance on agriculture sector for her survival.

ECONOMIC DEPENDENCE: is a situation in which an economy relies either mainly on a

specific sector (productive activity) for her survival or relies on other (developed) countries for
decisions and resources for her economic survival as well as stimulate her own economic growth
(development).
Economic inter-dependence: refers to a situation in which two or more economies rely on each
other for mutual benefit of all. This is mainly achieved when countries agree to integrate their
economies.
Economic independence: refers to the reliance of an economy on her own resources for survival /
development.
Form of An explanation of forms of An explanation of forms
economic Theoretical Meaning / economic dependence in of economic dependence
dependence definition: developing in Uganda
(STED): economies(P220/1) (P220/2)
is the reliance of a country • Uganda mainly relies on
• reliance on one sector such as
Sectoral on one major sector or a agricultural sector for
agriculture or tourism or
dependence few sectors for her economic development
economic survival mining
or survival
is one where an economy• dependent on exportation of• Uganda relies on the
relies on a few traditional few products / reliant on exportation of
Trade exports; export to a few importation of goods and agricultural products as
dependence markets and importation services / dependent on trade its major export earner
of consumer and mainly with few countries for economic survival or
intermediate products. development.
is where a country relies • reliant on foreign capital, • Uganda relies on other
on foreign factor services skilled labour and technology countries like USA for
such as foreign for development resources like foreign aid,
External foreign capital for survival
technology, foreign skills
resource or development.
(expatriates) and foreign
dependence
capital from other
countries to supplement
her productive resources
involves reliance of an • reliance on foreign decisions• Uganda relies on
economy on economic decisions and policies
Direct made by foreigners and
and political decisions
economic foreign bodies like IMF
dictated by other
dependence for economic survival and
countries or foreign
funding bodies. development.

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Costs of economic dependence in Uganda

 Balance of payment (s) deficit / problems (because of the export of mainly low
quality and lowly priced products therefore low export earnings / importing large
volumes of high quality and highly priced goods therefore high expenditure abroad).
 Leads to poor terms of trade (because of the export of lowly priced products /
import of highly priced products).
 Underutilisation of idle / natural resources hence wastage (because reliance on
imports leads to underutilisation of local resources that would have been used for
local production of goods).
 Leads to under employment and unemployment (because of reliance on imported
technology which leads to the substitution of labour with machines).
 Leads to cultural erosion (because of trade dependence which encourages
importation of entertainment products / ).
 Discourages / kills local initiatives / encourages laziness / stagnates the
development of local technology (because it encourages reliance on foreign
resources such as technology hence killing local innovations and inventions).
 The economy is subjected to inappropriate and undesirable decisions (because
of reliance on foreign economic decisions).
 Leads to price fluctuations (because of sectoral dependence on agriculture whose
prices fall and rise due to fluctuations in supply)/ leads to inflation (because of
trade dependence which causes depreciation or fall in the value of local currency in
terms of other currencies).
 Retards the development / survival of local industries/ firms (because of
reliance on imports).
 Leads to domination of the economy by foreigners (because dependence on
foreign capital results in a big proportion of productive activities in the economy
being in the hands of foreigners).
 Accelerates capital outflow (because of reliance on foreign skills, foreign capital and
foreign aid that leads to repatriation of wages and profits and repayment of interest).
 Discourages domestic savings and investment (because of reliance on foreign
capital to finance investment).
 Leads to fluctuation in incomes (of producers) (because sectoral dependence leads
to rise in incomes from sales of output when prices rise and fall in incomes from
sales of output when prices fall).
 Limits import capacity (due to low export earnings / because reliance on foreign
capital leads to outflow of income, for example, through profit repatriation which
incomes would have been used to pay for imports / leads to repayment of loans and
interest yet such funds should have been used for paying for imports).
 Leads to political interference in the economy by foreigners (because of reliance
on foreign political decisions).

Reasons as to why economic dependence is undesirable in Uganda

 It encourages high capital outflow in form of profit repatriation by foreign investors and the
servicing of external debts by the government.

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 It leads to heavy debt servicing burden on the citizens because of reliance on foreign capital
which leads to increase in taxes on citizens to pay back the debts.
 It encourages resource underutilization due to the high reliance on foreign resources / inputs
in the manufacturing sector.
 It discourages domestic savings and investments as people continuously expect foreign
resources as the engine of economic growth.
 Leads to loss of local initiative and increased laziness among the citizens because they hope
to get foreign assistance instead of working hard.
 Stunts local technological development. This is because reliance on foreign technology leads
to limited innovations and creativity in the economy.
 Leads to economic dominance by foreigners due to increased direct economic dependence
where there is high foreign participation in the supply of capital.
 Leads to Balance of payment problems due to reliance on expensive imported manufactured
goods.
 Leads to unfavourable Terms of trade due to exportation of limited / few and poor quality
goods that fetch low prices on the world market.
 Compromises political sovereignty because the political decisions are influenced by the
foreigners.
 Leads to price instabilities in the foreign sector due to dependence on few primary exports.
This affects the import capacity and planning process in the economy.
 Leads to income instabilities in the foreign sector due to dependence on few primary exports.
This affects the import capacity and planning process in the economy.
 Leads to unfavourable pre-conditions / donor decisions. This is because the economy is
forced to tolerate some of the undesirable conditionalities of foreign donors like retrenchment and
privatisation.

Reasons for the high level of economic dependence in Uganda

 Poor education system resulting in high levels of unskilled and semi-skilled labour. This
encourages high dependence on foreign skilled labour.
 Poor infrastructure. There is high dependence on foreign capital by the government to expand the
infrastructure.
 Occurrence of natural hazards resulting in high dependence on relief aid from World Food
Programme and Red Cross.
 Underdeveloped technology. There is increased use of poor or rudimentary technology resulting
into technological dependence.
 Low income. This leads to increased government borrowing and increase in economic dependence
so as to overcome the high level of poverty.
 Poor industrial sector leading to dependence and importation of expensive manufactured goods.
 Low or limited entrepreneurial ability. This causes high dependence on foreign investment.
 Low tax base and tax revenue. There is inadequate public revenue that calls for reliance on
foreigners to provide budget support. This leads to high reliance on foreign capital.
 Limited export revenue. This is because of exportation of a limited variety of products which are
basically of poor quality leading to low foreign exchange earnings and therefore need for foreign
resources to finance import requirements.
 High population growth rate in the country resulting into low savings and low investment. This
calls for foreign resources to improve the welfare of the local people.
 Low saving. In Uganda, like most of the developing countries, the domestic saving average 14% of
GDP. The low rate of saving is not sufficient to achieve the desired rate of growth in the country.

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Foreign loans supplement domestic savings and help in bridging the resource gap between the
desired investment and the domestic savings.
 Heavy reliance on the agricultural sector. Agriculture’s share in Uganda’s economy has
progressively declined due to the high growth rates of the industrial and services sectors, the
sector’s importance in Uganda’s economic and social fabric goes well beyond this indicator. First,
nearly three-quarters of Uganda’s families depend on rural incomes. Second, the majority of
Uganda’s poor are found in rural areas. And third, Uganda’s food security depends on producing
various food crops, as well as increasing its production of fruits, vegetables and milk to meet the
demands of a growing population with rising incomes.

SUGGESTED MEASURES TO REDUCE ECONOMIC DEPENDENCE IN UGANDA

1. Diversify the economy in order to reduce dependence on agriculture. Diversification can reduce
sectoral dependence and promote the development of industry, tourism, banking and the service
sector. This can increase the range of economic activities and reduce the impact of fluctuations in
prices and output of the agricultural sector.
2. Promote import substitution strategy of industrialization so that the expensive consumer goods
formerly imported can be produced locally. This can minimise dependence on imports and save
foreign expenditure abroad.
3. Train of local labour to reduce dependence of foreign manpower. Boosting incentives to improve
the quality of education will also be key to producing a skilled workforce.
4. Implement workable import restrictions e.g. total ban, import quotas. This can reduce the
volume of imports into the country.
5. Provide investment incentives to local producers. The government of Uganda should actively
seek to create the enabling environment necessary to boost the local economy though provision of
tax incentives to reduce the cost of doing business. This can attract foreign investment, enable
negotiation of transfer of technology, encourage private sector growth/competitiveness, and
increase regional integration.
6. Develop local technology. Science and technology can act as the basis for the transformation of
Uganda. The government should build expertise in these areas for the economy to take off. When
technological improvement takes place and the capital- output ratio tends to raise the demand for
capital may increase, which induces more investment in the capital goods sector. Again, there may
be innovations like the introduction of the new products, new methods of production, new
markets, etc., on account of which investment is likely to increase in the economy.
7. Encourage local savings and investment. This can provide funds to be used as capital for
investment hence reduce reliance on foreign aid and the problems associated with huge debt
servicing.
8. Improve the political climate. The government should take this opportunity to scale up policies
that spur democracy, creating the enabling environment to build prosperity in Uganda through
concrete priorities such as job creation, regional integration, and economic engagement.
9. Carry out proper and effective planning. By an appropriate economic planning, creation of a
suitable industrial base and the construction of social overhead capital, the volume of investment
can be increased in an economy. The government should undertake a proper and sustainable
development plan - to expedite our growth, expedite the size of our economy and be able to raise
domestic resources to advance our development plan.
10. Diversify markets (in order to reduce dependence on a few export markets). In moving away
from a reliance on Western assistance, the Ugandan government should seek to improve regional
integration initiatives, which are key to sustaining development and encouraging long-term
prosperity for the entire region. Increasing intra-African trade will be a key component to
accelerating economic growth, as it will increase industry competition, job creation, poverty
reduction, inflow of foreign direct investment, improve productivity, and develop local

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infrastructure. It will also decrease Uganda s current heavy reliance on the outside world for its
growth.

WAYS OF REDUCING ECONOMIC DEPENDENCE IN UGANDA

■ Encouraging economic diversification so as to reduce sectoral dependence for example
development of industry, tourism, banking and the service sector. This increases the range of
economic activities and reduces the impact of fluctuations in prices and output of the agricultural
sector.
■ Training of local labour so as to raise worker (and firm) productivity through increase in labour skills
to reduce reliance on foreign skilled labour. This is possible through change of the education
system and proper manpower planning aimed at imparting the necessary technical skills to meet
the needs of the economy.
■ Promoting and developing of local or appropriate technology. This is by encouraging
innovations and creativity in the economy so as to reduce reliance on foreign technology and make
use of local resources. This involves providing incentives and training to local artisans.
■ Improving on the tax base and tax administration so as to increase tax revenue which limits
dependence on foreign capital. This involves re-organising of the tax body (URA) to ensure
effective tax collections for financing government programmes.
■ Controlling population growth rate so as to expand local savings and local investment as opposed
to foreign investment. This is because population control measures like family planning reduce the
dependence burden on the working population hence leaving more funds for investment.
■ Undertaking proper planning by government and allocation of the economic resources to
productive activities that generate more income. This reduces over ambitious plans that usually
entail foreign funding.
■ Fighting against corruption and mismanagement of the limited funds so as to limit dependence
on foreign capital. This is because there is increased transparency and accountability hence
reducing misuse of funds.
■ Maintaining political stability. This is through organizing peace talks with discontented
individuals or rebel groups so as to minimise expenditure on imported military equipment.
■ Encouraging export promotion industries so as to increase foreign exchange earnings. This
involves setting up industries for processing local raw materials and production of manufactured
goods for the foreign market. The addition of value to agricultural products leads to generation of
more export earnings.
■ Providing tax incentives to investors so as to reduce the cost of production and increase
profitability of investment. This leads to increase in the amount of goods and services produced so
that dependence on imported goods is reduced.
■ Diversifying markets / expanding the number of markets that a country exports so as to increase
foreign exchange earnings. This involves exploring new areas and promotion of regional trade to
reduce the effects of geographical concentration of trade.
■ Promoting import substitution industrial development strategy so that the expensive consumer
goods formerly imported are produced locally. This minimises dependence on imports and saves
foreign expenditure abroad.

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■ Encouraging domestic savings for investment to reduce on reliance on foreign aid and the
problems associated with huge debt servicing.

Ways of economic Measures being taken to

dependence Possible measure to reduce it reduce economic dependence

 Diversify the economy in order

to reduce dependence on a few
sectors / can involve developing  Diversifying the economy
Dependence on a in order to reduce
multiple sectors and industries to
particular sector dependence on a few
reduce reliance on a single sector
sectors
hence reducing vulnerability to
external shocks)

Dependence on foreign  Strengthening local institutions

 Build institutional capacity to ensure
decisions for economic so as to make informed
better decision making
development decisions

Dependence on foreign  Train local labour (Increase the

skilled labour availability of skilled labour so as to  Training local labour to
reduce dependence on foreign reduce dependence on
manpower / reduce reliance on foreign manpower.
foreign expertise).

Dependence on foreign  Encourage local savings and

 Encouraging local savings
capital investment (to raise funds for
and investment
development projects)

 Improve on the tax base and tax  Improving the tax base
administration and tax administration

 Undertaking proper
 Undertake proper planning
planning

 Fighting against
 Fight against corruption and
corruption and
mismanagement of funds
mismanagement of funds

Dependence on foreign  Developing local or

technology appropriate technology
 Develop local or appropriate
(encouraging local
technology
innovation and inventions
through research)

Dependence on  Promote import substitution  Promoting import

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Ways of economic Measures being taken to

dependence Possible measure to reduce it reduce economic dependence

importation of consumer strategy of industrialization () substitution strategy of

and intermediate industrialization (reducing
products reliance on foreign imports)

 Carry out proper and effective  Carrying out proper and

planning. effective planning.

 Providing investment
 Provide investment incentives to
incentives to local
local producers
producers

 Improve the political climate

(increase ability to make  Improving the political
independent political decisions hence climate
limit the influence of foreign powers)

 Implement workable import

restrictions / protectionist policies
(e.g. tariffs, quotas) (to promote
domestic industries and investment / 
encourage domestic investment and
innovation / reduce reliance on
foreign imports)

Dependence on  Diversifying the economy

 Diversify the economy in order
exportation of mainly in order to reduce
to reduce dependence on a few
primary products. dependence on a few
products export
products export

 Encourage export promotion

 Encouraging export
industries (increase access to foreign
promotion industries
markets)

Dependence on
exportation to a few  Diversifying markets (in
 Diversify markets (in order to
markets / Geographical order to reduce
reduce dependence on a few
concentration of trade / dependence on a few
export markets)
exportation to mainly export markets)
few countries

Economic inter-dependence
This refers to a situation in which two or more economies rely on each other for mutual benefit

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of all. This is mainly achieved when countries agree to integrate their economies.
Ways in which the agricultural and the industrial sectors are inter-dependent in
Uganda
 Output of agriculture is input to industry and some output of industry is input in
agriculture
 Industrial development leads to infrastructural development that aids farming OR
industrial development leads to infrastructural development that aids development of
the agricultural sector
 Farmers provide market for industrial products and industrialists provide market for
food produced by farmers
 Savings by farmers through financial institutions are borrowed by industrialists for
use as capital for industrial development while savings by industrialists through
banks are borrowed by farmers for agricultural development

THE STRUCTURE OF UGANDA’S IMPORTS AND EXPORTS

(FOREIGN TRADE SECTOR)
Table
Table : FEATURES OF IMPORT AND EXPORT TRADE IN UGANDA
EXPORTS IMPORTS
Exports are mainly primary / agricultural Imports are mainly industrial
products while products
Limited variety of exports while Imports are of wide variety
Basically semi-processed or unprocessed Imports are mainly of high value /
products are exported / exports are mainly of mainly fully processed
low value while
Limited range of markets for exports / exports Imports are mainly from few
are mainly to few countries while countries (geographical
concentration of trade)
Few manufactured consumer goods are Imports are mainly manufactured
exported while consumer and intermediate goods
Exports are mainly of low quality while Imports are mainly of high quality
Few services are exported while Many services are imported
Prices of exports are mainly low and Prices of imports are mainly high
fluctuating while and stable
Exports are mainly of low volume / quantity Imports are mainly of high volume /
while quantity

IMPLICATIONS OF THE FEATURES OF IMPORT AND EXPORT TRADE IN UGANDA

POSITIVE IMPLICATIONS

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■ Increased foreign exchange earnings. This is got from the export of agricultural
products.
■ Leads to economic growth. There is widened market for locally produced
goods in other countries, this increases output thereby contributing to economic
growth.
■ Promotes international friendship and trade (co-operation). There is
improvement in international relations because of the need to import from
other countries as well as exporting locally produced goods to other countries.
■ Leads to utilisation of idle resources. This is due to utilisation of the land resources
to produce more agricultural products for export.
■ Provision of revenue to the government. Revenue is generated by the
government through taxing some imports and exports
■ Provides employment opportunities. There is provision of more employment
opportunities in the import and export trade sector for example people
involved in clearing goods and forwarding, insurers, transporters.)
■ Promotes innovations and inventions in order to compete in the global market.
The importation of industrial machines leads to transfer of better technology
from other countries, this facilitates increased output as well as improving
the quality of goods in Uganda.
■ Widens consumer choices due to importation of a variety of goods. High variety of
goods imported leads to a wider consumer choice for goods and services in the
country hence better standard of living.
■ Fills the technological gap / resource gap due to importation of intermediate
products and capital goods. It encourages technological development and
technology transfer because of high importation of capital goods.
■ Fills the manpower gap. It supplements the locally available skilled labour due to
the importation of high level of foreign skilled manpower.
■ Improved quality of output due to competition with high quality imports. The high
quality manufactured imports help to improve the standards of living of the citizens.
■ Increased efficiency of local firms due to competition from better quality imports.
NEGATIVE IMPLICATIONS
Leads to poor terms of trade because of exporting mostly poor quality,
unprocessed primary products that fetch low prices and importing expensive
manufactured goods.

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Leads to unfavourable Balance of payments position due to limited variety of

exports and high variety of imported goods.

Vulnerability to foreign domination due to geographical concentration of trade.

Under-utilisation of some resources due to narrow range of exports.

High level of unemployment due to collapse of local industries as a result of

competition from high quality imports.

Dependence on some countries, for example, for markets, supplies etc. It leads to
trade dependence where by Uganda relies on a few export markets in the
developed countries. The developed countries in most cases dictate prices at
which they buy Uganda’s exports

High level of capital / income outflow due to importation of intermediate goods.

Low foreign exchange earnings due to low price, low quality, low quantity and
limited variety of exports.

Collapse of local firms due to out-competition from imports of high quality.

Leads to income inequality. Falling export prices of agricultural commodities

lead to declining incomes of farmers and exporters, this again worsens income
inequalities in Uganda.

Fluctuations in foreign exchange earnings due to fluctuations in prices of exports.

.NB: Demerits of the structure of imports of Uganda- a summary

- Worsens Balance of payments problem.

- Unfavorable terms of trade.

- Worsens economic dependence.

- Low rate of industrialisation.

- Low incomes.

- Low level of resource utilization.

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Demerits of the structure of exports of Uganda- a summary

- Low and fluctuating incomes.
- Worsens income inequalities.
- Limited creation of employment opportunities.
- Worsens Balance of payments problem.
- Unfavorable terms of trade.
- Worsens economic dependence

MEASURES AIMED AT IMPROVING THE STRUCTURE OF THE

IMPORT-EXPORT TRADE IN UGANDA
Establishing import substitution industries with a view of creating
self - sufficiency and saving the scarce foreign exchange.
Promoting and supporting export promotion industries which
produce for the foreign market. Emphasis should be put on those
industries that add value to the exports.
Improving the basic infrastructure such as roads and communication
network.
Widening of foreign markets through regional economic
integrations like COMESA, EA Customs union.
Attaining a stronger bargaining power on the international market.
The aim is to get better improving the stabilize incomes from
agricultural exports.
Improving the invisible export sector, for example, by promoting
tourism, export of hydroelectric power (H.E.P) and export of
insurance services. The aim is to create diversification of export
products.

SUGGESTED MEASURES TO INCREASE EXPORT EARNINGS IN

UGANDA
■ Diversify export products. This can be achieved through production
of a variety of products for the export market instead of relying on the
traditional agricultural products. Non-traditional products like flowers,
horticultural products and vanilla among others can be exported and
this can increase export earnings.

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■ Diversify export markets. Uganda should sell her products to a

wider market to increase the volume of exports. The government can
look for new markets in Asia, Europe and Africa. This can increase the
country’s export earnings.
■ Join regional integration to widen market for exports. This can
enable Ugandan producers sell off their products in the regional
market and earn more revenue from the exports.
■ Increase volume of exports / Produce more for export. Uganda
can increase her export earnings through production of more goods
for export to other countries. The increase in volume of exports can
enable her accumulate more earnings.
■ Strengthen commodity agreements. Uganda can be an active
member in International Commodity Agreements such as the
International Coffee Agreement. This can enable her bargain for
higher / better prices in the international market. This can enable her
increase her export earnings.
■ Allow the local currency to depreciate. The automatic fall in the
value of local currency can increase the volume of exports. This is
because the exports can be considered to be cheaper on the world
market. This can increase export earnings.
■ Process primary products to add value. The government can set up
agro-based processing industries to add value to exports. This can
enable Uganda to sell her products at higher prices abroad. This can
lead to increase in export earnings.
■ Lower costs of production. The government can subsidise local
producers so that they are able to produce more products at a
minimal cost for sale to foreign markets. This can increase the volume
of exports and can also increase the export earnings.
■ Intensify publicity of Uganda’s products in the foreign markets.
The government through the Uganda export promotion council and
the ministry of trade should embark on a campaign to advertise our
products in the foreign market to make them known to foreign
buyers. This can increase the volume of goods sold abroad hence
increase export earnings.
■ Campaign for the removal of trade barriers in export markets
such as removal of total ban, quotas, administrative controls etc. The

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government can negotiate with other trade partners to remove

unnecessary restrictions on trade in goods from Uganda. This can
increase the volume of goods sold by Uganda to foreign markets
hence increase her export earnings.
■ Improve quality of the exports. Exporters can be encouraged to
improve on the quality of their products through better sanitary
standards, better packaging and better branding. This can enable
exporters to sell their goods at higher prices and thus increase export
earnings.

Measures that should be taken to increase export

earnings or foreign exchange earnings in developing
countries – a summary
Diversify export products (by adding new products to existing export
baskets).
Diversify export markets (to reduce dependence on a few sources of
demand or to reduce the dependence upon one or a limited number
of geographical destinations for exports).
Strengthen commodity agreements.
Process primary products to add value (making it possible for the
country’s products to be internationally competitive so as to fetch high
prices).
Allow the local currency to depreciate in value (to boost
competitiveness of export products on the world market by making
exports cheaper, and there will be an increase in the quantity of
exports).
Lower cost of production to lower prices of exports (e.g. pursue a
policy of liberalisation /deregulation which may help to increase the
efficiency of the economy hence would translate into lower costs of
production and more exports).
Strengthen regional economic cooperation / regional trade
cooperation; Countries can boost intra-regional trade by improving
transport links and simplifying customs and inspection procedures.

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Increase quality of exports (making it possible for the country’s

products to be internationally competitive so as to fetch high prices).
Increase volume of exports.
Intensify publicity of the country’s products in foreign markets.
Manufacture products for exports.
Negotiate for the granting of preferential tariffs by developed
countries to exports of manufactured goods, particularly from the least
developed countries. This can permit developing countries to earn
more foreign exchange from selling their industrial products in
developed-country markets at higher prices than would otherwise be
possible.

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