Uganda needs response plan to the global crisis

Dec 01, 2008

The US-born global financial crisis of 2007-2008 and beyond is the nastiest financial calamity in the world since the NRM government ascended to power in 1986.

By John Ssempebwa

The US-born global financial crisis of 2007-2008 and beyond is the nastiest financial calamity in the world since the NRM government ascended to power in 1986.

This catastrophe has reduced the US real GDP by 0.3% in the third quarter of 2008 and real disposable income fell by 8.7%. The crisis has a global domino effect. In the UK, the Ernst and Young Item Club has predicted growth of only 1.5%, slowing to 1% in 2009 with consumer spending almost stagnant. Bank of England Governor Mervyn King predicts negative growth in 2009.

US and UK response
Governments in the developed world have responded. The US passed the Emergency Economic Stabilisation Act, 2008 and launched a $700b (sh1,155 trillion) plan to bail out the private sector while the UK launched a £500b bail-out plan after the Bank of England had given liquidity support to Northern Rock before taking it over as it choked to death in September 2007.

China has approved a plan to invest 4 trillion Yuan (nearly $3 trillion ) in infrastructure, housing, transportation, industry and social welfare by 2011.

Uganda’s position
In Uganda, the Government has received advice from the financial sector experts who have said Uganda’s financial sector is sheltered from the global financial crisis. The Governor of Uganda’s Central Bank is sure that the banks in Uganda are immune to the global crunch (The New Vision, November 4) But Uganda’s trade sector is already injured; for example, the $1.4b remitted by Uganda’s exported labour will not be realised in 2008/9 because of the massive lay-offs and salary cuts; already, the immigration office in Entebbe is receiving 71 deported blue collar Ugandan professionals per month (Saturday Vision, November 24).

And this has several domino effects on the economy; for instance the construction industry will not earn as much as $550m out of the now-reduced remittances. The telecoms, hotels, breweries, transporters, entertainment sub-sectors will not reap as much as they reaped last year from the Ugandans working abroad over Christmas. Tourist numbers are on their way down, and so is the price they are willing to pay to enjoy the Uganda’s beauty.

The frequency of orders for Uganda’s exports of flowers, fish, honey, horticulture, coffee, tea and cotton is falling, and so is the price offered.

The cost of spare parts is rising because the suppliers in Europe cannot access credit from their banks. EU and US banks have several of their own firms in long queues waiting for credit to be able to supply raw materials, machinery and spare parts; this means that many Ugandan manufacturers are paying an extra $2,000 to extend expiry dates of the letters of credit to the European suppliers ahead of their old expiry dates. Very soon manufacturers will not be able to replace their mortars that are blown by the fluctuating power sent to factories in Uganda.

What is going to happen to Aid for Trade? Will Uganda get the usual $800m annual aid flows in the 2009/10 financial year?
Will the European Union provide all the Euro 439m under the 10th EDF? If this aid is not offered, who else but the private sector and the consumer is to be taxed to fill the gap in government’s expenditure? Is a trade crisis looming in Uganda?

Uganda has no response plan yet! Is it not time, therefore, for Uganda to draft a response strategy to this crisis? Now that the World Bank will help Africa mitigate the impact of the crisis, (The Monitor, November 26), what form of intervention will Uganda present to the World Bank? Must we wait for somebody else to prepare our own response to this debacle? Do we have a team of experts on this matter? Don’t we need to seriously review our bilateral trade agreements with other economic giants such as China, India and Brazil?

Don’t we need to also fast-track the COMESA/EAC/SADC Free Trade Area? Shouldn’t’ the list of Uganda’s raw materials be maintained after 2010, in light of the difficulties such non tariff barriers, the Kenya Crisis and the energy crisis as experienced during the EAC Customs Union?

Don’t we need, more than ever before, a national tourism marketing plan, that works for Uganda?
Shouldn’t the import duty on luxury goods of ostentation now be increased to 60% in the EAC common external tariff now that US consumers will want to dump them in Uganda? Or is having no response strategy, our strategy? Does Uganda have a response strategy to the global financial crisis?

The writer is the director, trade
development Private Sector Foundation

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