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Prices to go higher in 2009

By Vision Reporter

Added 10th January 2009 03:00 AM

2008 has been the most expensive year for Ugandans since the turn of the millennium according to statistics by the Uganda Bureau of Statistics.

2008 has been the most expensive year for Ugandans since the turn of the millennium according to statistics by the Uganda Bureau of Statistics.

2008 has been the most expensive year for Ugandans in eight or even more years. Inflation hit 14 year record high of 15.8% in August, food prices rose by an alarming 27.8% with prices for essential items like salt rising by 70%.

Yet, experts say that 2009 is going to be even worse.

Fuel price will continue rising, seasons will remain unpredictable so food production will continue to be affected yet there may be increased demand for our locally produced food by Sudan and Congo.

By Lydia Namubiru
2008 has been the most expensive year for Ugandans since the turn of the millennium according to statistics by the Uganda Bureau of Statistics.

The cost of living this year exceeded that of 2000 by over 58% according to the consumer index department of the bureau.

Gertrude Namuleme, a market vendor in Bugolobi, a Kampala suburb, could not agree more with these statistics.

She says she has never seen a year as financially hard as 2008. Never mind that her clientele is mostly comprised of the up-market Bugolobi residents. “You would look for money from Monday to Monday but you still cannot find enough,” she laments. She is convinced we (Ugandans) are cursed.

Marching their inelastic incomes with the unrelentingly rising commodity prices is a frustration almost every Ugandan has endured in 2008 and complaints like Namuleme’s have been common place. With good reason too.

“This has been a unique year. Prices have been going up throughout the year,” says Vincent Mubiru, the principal statistician of the Uganda Bureau of Statistics.

In the same year, the cost of living for the average Ugandan rose by 13% from 115.5 index points in January to 130.5 points by December. Some essential items became more expensive by even more alarming margins.

Salt went up by 70%, millet floor 56%, cooking oil 54%, match boxes 52%, mattresses 37%, sweet potatoes 35% and maize flour 33%. Nearly all items increased by more than 20%, but sugar and tea leaves fell by 13% and 16% respectively.

Food prices saw the most dramatic increase of 30.8 index points or a 27% rise. However, compared to prices just two years ago (2005/06), food prices have gone up by a whopping 44%.
Dennis Sempa, an insurance marketer, says he used to spend sh150,000 on food for his family of three.

Now he has just stopped recording how much he spends. “I simply make sure there is food in the house and ignore the cost. I have temporarily suspended my monthly savings,” he says.

According to the consumer price index statistics for this year, Ugandans have had to struggle with much more than high food prices.

All expenses including rent, utilities like electricity and water, education and health increased considerably. Prices for household and personal goods rose by 13%, beverage and tobacco by 12%, while prices for clothing and footwear rose by 9%, the same percentage by which the cost of health services rose.

Rent, communication or transport and education costs had the calmest rises with 8%, 4% and 7% respectively. However it should be noted that in comparison to other expenses rent, was most expensive right from the beginning of the year.

What went wrong?
It all began in January with the Kenya crisis which created a fuel crisis. Expensive and scarce fuel ordinarily translates into more expensive manufactured goods due to high cost of production and higher food prices due to higher transport costs for the traders bringing it to the market.

Then, Ugandans hoped that it would be a temporary crisis that would quickly pass and life would go back to normal. It passed but life did not return to normal. The effect of that period was felt for the whole first quarter of the year. By April, inflation had gone up four-months high of 9.5%. A higher inflation shows that people are spending more money to buy the same amount of goods as previous.

Then, just as that effect slid off, the global fuel prices started rising in April through to July when it hit the record $145 per barrel point. Again, local prices of fuel soared and the resultant expensive life rose again.

Eventually global fuel prices came down but before consumers could let out a sigh of relief; the global financial meltdown came tumbling onto their heads. While economists do not agree on whether or not the global financial crisis did substantially affect Uganda, it certainly did not help matters.

For instances; remittance back home by the Ugandans in the diaspora have plunged. Central Bank governor Tumisiime Mutebile is on record for saying that this plunge is what has caused the Uganda shilling to tumble against the dollar.

Additionally, food prices have been driven up all year long by other factors unique to Uganda. First is the increased demand of locally grown food by our neighbours especially in recovering South Sudan and destabilised Democratic Republic of Congo.

Even our more stable neighbours Rwanda and Burundi are buying local produce moreover at higher prices than Ugandans ordinary would offer.

Farmers in Kabale say that Rwandan businessmen even pay for the food before it is harvested from the garden. “They say, I am paying sh20m for this garden (usually of Irish potatoes). Do not sell to anyone,” says one farmer.

The booming export trade in fish fillet to the European Union is also seen as an upward driver of fish prices. Even the left over bits from the exported fish fillet called fish chops are exported to Chad and the DRC together with the bones and fish heads.

This regional export trade in what fish businessmen call mugongo wazi or fille (a Luganda corruption of fillet) is reportedly much more lucrative that local fish trade. “People in Chad want these fish parts and they pay in dollars,” Kyanywanyi, a fish monger at the Port Bell landing site reveals.

More recently fuel prices have been driven up by the ongoing renovation of the Mombasa-Nairobi pipeline, which feeds Uganda as well.

That has disrupted flow to the country. The bureaucracy and inefficiency of Ugandan imports handling at the Mombasa port and even at the Kenya-Uganda is also contributing. Petroleum dealers say that they pay upto $30,000 for every day they fail to offload a ship. They claim that these delays can take up to 30 days and the resulting additional expenses would then have to be reflected in the price.

The World Trade Indicators 2008 report of the World Bank Institute also says that our neighbours Kenya and Tanzania are partly responsible for high commodity prices in Uganda and other great lakes countries because imports from the ports of Dar-es-Salaam and Mombasa take unnecessarily long times to be cleared.

Uganda’s inflation rate rose to 15.6 percent in August, the highest in 14 years, as food and fuel costs increased. The rate was the highest sine June 1994, when it rose 16.1 percent.

Will 2009 be any better?
In his state of the nation address aired on the 2nd of January, President Museveni assured the nation that the economy would be robust in 2009 and the country would not be affected by the global credit crunch. In October, the IMF predicted that the Ugandan economy would recover and that core inflation will have fallen to 7% by June 2009 and to 5% by August 2009.

That may well be true but healthy economy apparently does not translate into a lower cost of living for the ordinary man. Even as Ugandans have suffered in 2008, the economy was reportedly growing at an impressive 7%.

Gerald Twijukye, a consultant economist, fears that 2009 may be as expensive if not even more expensive than 2008. “I do not see things becoming a lot better in 2009,” says Gerald Twijukye, a consultant economist with experience in social ecomonic development work.

He predicts that the international credit crunch will eventually reach our borders and hit us hard. “It is coming slowly but steadily,” he asserts. One of the effects of the global financial crisis on Uganda has so far been a plunge in remittance by the Ugandans in the diaspora.

Twijukye also warns that fuel prices will remain high unless the government intervenes. “Dealers (in petroleum) always find reasons to hike the prices. They are taking Ugandans for a ride,” he accuses.

He is, however, not the only one who holds that view. Dickens Kamugisha of the Africa Institute of Energy Governance has also in the past accused the dealers of taking advantage of the mass ignorance of consumers to hike petroleum prices.

Nevertheless, President Museveni made it clear in his address that the Government would not set prices for any commodity as it would discourage business. “The government cannot set prices. Prices are set by the market,” he said.

Neighbouring Tanzania’s government has however deferred from that stance. In November, their energy ministry gave oil companies an ultimatum to lower prices to reflect the global trend or face government regulations. Interestingly, upcountry filling stations like those in Arusha complied but the city ones in Dar –es- salaam were less compliant initially.

President Museveni has also said that high food prices would be countered with increased agricultural output. He cited that NAADS has been redesigned to more effectively help farmers increase their production.

However economists remain sceptical but this too. “Food prices are not going down either,” Twijukye predicts saying that if production does increase, they may just stabilise at their current high points.

He also points out that the old factors like unpredictable seasons due to climate change will continue to affect production. But, there is another possibly emerging new factor – the Kony war in the DRC. “If Kony is not captured or killed and he continues to destabilise Congo, DRC will be demanding more food. If he manages to come back into northern Uganda, the people there will also be unable to grow their own food,” he warns.

In that scenario, there will be even more demand for the existing food supplies from other regions hence higher prices.

Prices to go higher in 2009

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