Uganda

Growth driven by oil-related investments

In 2023, industry (construction) and services (trade, tourism), on the supply side, and domestic demand, on the demand side, were the main drivers of growth, although agriculture remains the country's leading employer (72%) and supports exports. In 2024, the contribution of net imports to growth will remain negative, as the rise in imports will be greater than that of exports (coffee, gold, sugar, fish), due to large-scale spending on oil infrastructure. Private investment, both domestic and foreign, will support growth, and will be directed in particular at construction, largely as part of the development of the oil sector. It will feed into projects launched in 2023 by China National Offshore Oil Corporation (China) and Total Energies (France) in the Kingfisher and Tilenga oil fields, respectively, in the west of the country. These drilling areas are to be linked to the Tanzanian port of Tanga via a 1443km heated pipeline, the construction of which has been postponed until early 2024. Project execution remains uncertain in the face of international outrage over threats to the environment and human rights. In addition, the government will continue to seek external financing and partners for the construction of a refinery near the oilfields with a producing capacity of 60,000 barrels per day, for an estimated cost of $4 billion. Private consumption (72% of GDP) will continue to grow, gradually recovering from multiple shocks (Covid-19, war in Ukraine, Ebola) and benefiting from the development of tourism, albeit in competition with Tanzania and Kenya and weakened by insecurity in the national parks on the Congolese border. It will also benefit from the gradual slowdown in transport, energy and food prices, even though these remain high. Inflationary pressures will be mitigated by reduced supply problems and lower global prices. With growth relatively strong and inflation back on target at 5%, the Bank of Uganda will continue to cut its rate, already lowered to 9.5% in August 2023.

Fiscal consolidation continues

The budget deficit will continue to fall In 2023-2024, supported by governance and administrative reforms. The aim is to rebalance spending, reducing non-priority capital expenditure in favor of social spending, and optimise taxation by eliminating tax exemptions. Fiscal consolidation is guided by the three-year program, backed by a USD 1 billion Extended Credit Facility, agreed with the IMF in June 2021, of which USD 720 million has already been disbursed. Current expenditure (salaries, interest, security) and development expenditure (education, water, electricity, transport) are set to increase, but by less than revenue. The latter is essentially tax-based, but the country should continue to benefit from project aid (1.5% of GDP). Nevertheless, access to future aid and other external financing is threatened by the deterioration of ties with Western countries, following the passing of the anti-homosexuality law in May 2023. In August, the World Bank announced the suspension of new financing until the law is repealed or amended. However, the government will continue to rely on external borrowing, notably from China, to finance its deficit. Fiscal consolidation and growth will make it possible to slightly reduce the weight of public debt, which is essentially external (at 60%).

The current account deficit narrowed slightly in 2022-2023 thanks to lower oil prices and a recovery in gold exports, which had dried up from July 2021 to June 2022 following the introduction of an export tax of 10% on unrefined gold and 5% on refined gold. After negotiations with the industry, a 5% tax on raw gold exports and a levy of USD 200 per kilo of refined gold were introduced in early 2023, but collection of the tax has been suspended. Some 90% of exported gold comes illegally from the DRC, and is mostly smuggled via Entebbe airport to Dubai. In addition, 70% of exported gold is raw, despite the presence of five refineries. Uganda hopes to capitalise on its gold reserves by creating a state-owned mining company, as part of its new mining legislation adopted in 2022. The start-up of the Busia mine, operated by the Chinese company Wagagai, in spring 2024, will increase local extraction of gold, which will be refined before being exported legally. This will provide additional revenue for the State, especially over the 2024-2025 period. As the country's trade balance is structurally in deficit due to its dependence on oil, food, intermediate and capital goods imports, the government will continue its strategy of economic diversification in 2023/2024. Imports of technical services and capital goods required for petroleum development will increase, as will transport costs (compounded by the landlocked position), which will widen the trade and services deficits. The primary income deficit will be deepened by the repatriation of profits by non-residents, but largely offset by the secondary income surplus, which is supported by expatriate remittances and aid from charitable organisations. The current account deficit will be financed by foreign direct investment in the oil sector (the counterpart to a large proportion of imports) and concessional loans.

Security threats on the Congolese border

Re-elected in 2021, President Yoweri Museveni has been in power since 1986, and will be 82 at the next presidential election in 2026. His party, the National Resistance Movement (NMR), has a majority in the Assembly and exercises strong control over the country. However, protests are emerging from time to time over corruption, inequality, the cost of living and disputed oil projects, and the government will not hesitate to use force. Due to high demographic growth (3%) and a youthful population, hundreds of thousands of people enter the job market every year, accentuating youth unemployment and the high level of informality (87.2% of urban employment is informal).

Last updated: November 2023