Consumption driving economy
Jul 31, 2007
CONSUMPTION not investment or exports, is the main driver of Uganda’s economic growth, a trend that Parliament is concerned is not sustainable. According to a quarterly report due to be debated by Parliament’s economy committee, the economy grew by 6.2% in 2006/07 with consumption accounting for
By Mary Karugaba
CONSUMPTION not investment or exports, is the main driver of Uganda’s economic growth, a trend that Parliament is concerned is not sustainable. According to a quarterly report due to be debated by Parliament’s economy committee, the economy grew by 6.2% in 2006/07 with consumption accounting for 95.8% of these gains, divided between household consumption at 83.5% and 12.3% for public (government) consumption.
Household and government consumption expenditures were affected in real terms by escalating prices and “this could have affected GDP severely.â€
The economy is expected to grow at 6.5% this financial year (2007/08). The MPs, therefore, asked for an explanation from the executive, arguing that if not controlled, the future is bleak.
Factors that helped the economy recover from its low growth last fiscal year were an increase in exports and investments. Investment expenditure contributed 22.5% to the GDP, with private investment accounting for 17.9%.
“This leaves only 4.7% for public investment. This reflects the fundamental problems of the economy and the challenge is to change the structure from consumption to an investment economy,†it says.
“Countries that have developed have had to produce capital goods and cut back on production of consumer goods. Reorienting the economy requires changing the economic structure with policies biased towards investment.â€
“This may be painful at the beginning because it may make some socio-economic groups suffer but the strategy will bring a better future for even the affected groups,†the report proposes.
The committee, led by Ibrahim Kaddunabbi, said that inflation increased to 8% from 5%, severely affecting people’s welfare.
Food prices increased by about 9.9%, while the cost of rent, fuel, utilities, household and personal goods rose by 11.6%.Transport and communication costs went up by 6.1%.
The report said the contribution of the agriculture sector to the economy had declined. The sector’s contribution to GDP declined from 37.3% in 2005/06 to 31.9% in 2006/07.
The committee observed that the above trend had led to increased poverty especially among the low-income groups.
“The agriculture sector employs the majority of the people. Unfortunately, interventions to revitalise the sector are taking long to yield any tangible results,†the MPs said.
They blamed the National Agricultural Advisory Services for not moving fast enough to alleviate rural poverty.
The report said the industrial sector continues to be adversely affected by electricity shortages and rising input costs. However, its contribution to GDP has increased with the highest growth of 21% recorded in 2006/07 from 20% the previous year.
The report said the power crisis can be solved through creation of an energy fund and construction of hydro power dams especially at Karuma and Bujagali.
The Government was asked to speed up establishment of the Kampala and Luzira industrial parks and the Bweyogerere industrial estate in order to boost the sector’s growth.
The service sector, however, recorded continuous growth, contributing 47% to GDP in the 2006/07 financial year. The growth was mainly a result of the increased growth in posts and telecommunication. Growth of hotels and restaurants, however, fell to to 5.4%of GDP in 2006/07 from 7.7%.
The Government’s contribution to private sector credit increased from sh162b in 2005/06 to sh264b in 2006/07, a 63% rise.
The report is yet to be presented to MPs for debate.
CONSUMPTION not investment or exports, is the main driver of Uganda’s economic growth, a trend that Parliament is concerned is not sustainable. According to a quarterly report due to be debated by Parliament’s economy committee, the economy grew by 6.2% in 2006/07 with consumption accounting for 95.8% of these gains, divided between household consumption at 83.5% and 12.3% for public (government) consumption.
Household and government consumption expenditures were affected in real terms by escalating prices and “this could have affected GDP severely.â€
The economy is expected to grow at 6.5% this financial year (2007/08). The MPs, therefore, asked for an explanation from the executive, arguing that if not controlled, the future is bleak.
Factors that helped the economy recover from its low growth last fiscal year were an increase in exports and investments. Investment expenditure contributed 22.5% to the GDP, with private investment accounting for 17.9%.
“This leaves only 4.7% for public investment. This reflects the fundamental problems of the economy and the challenge is to change the structure from consumption to an investment economy,†it says.
“Countries that have developed have had to produce capital goods and cut back on production of consumer goods. Reorienting the economy requires changing the economic structure with policies biased towards investment.â€
“This may be painful at the beginning because it may make some socio-economic groups suffer but the strategy will bring a better future for even the affected groups,†the report proposes.
The committee, led by Ibrahim Kaddunabbi, said that inflation increased to 8% from 5%, severely affecting people’s welfare.
Food prices increased by about 9.9%, while the cost of rent, fuel, utilities, household and personal goods rose by 11.6%.Transport and communication costs went up by 6.1%.
The report said the contribution of the agriculture sector to the economy had declined. The sector’s contribution to GDP declined from 37.3% in 2005/06 to 31.9% in 2006/07.
The committee observed that the above trend had led to increased poverty especially among the low-income groups.
“The agriculture sector employs the majority of the people. Unfortunately, interventions to revitalise the sector are taking long to yield any tangible results,†the MPs said.
They blamed the National Agricultural Advisory Services for not moving fast enough to alleviate rural poverty.
The report said the industrial sector continues to be adversely affected by electricity shortages and rising input costs. However, its contribution to GDP has increased with the highest growth of 21% recorded in 2006/07 from 20% the previous year.
The report said the power crisis can be solved through creation of an energy fund and construction of hydro power dams especially at Karuma and Bujagali.
The Government was asked to speed up establishment of the Kampala and Luzira industrial parks and the Bweyogerere industrial estate in order to boost the sector’s growth.
The service sector, however, recorded continuous growth, contributing 47% to GDP in the 2006/07 financial year. The growth was mainly a result of the increased growth in posts and telecommunication. Growth of hotels and restaurants, however, fell to to 5.4%of GDP in 2006/07 from 7.7%.
The Government’s contribution to private sector credit increased from sh162b in 2005/06 to sh264b in 2006/07, a 63% rise.
The report is yet to be presented to MPs for debate.