The finance ministry estimates that this ongoing pandemic will lead to an increase in the number of Ugandans pushed below the poverty line.
By Damali Ssali
The coronavirus pandemic has become a fully-fledged global economic crisis, with governments now issuing Level 4: Do not travel advisories and instituting curfews under partial or full lockdowns.
These lockdowns that started from Wuhan, China, the epicentre of coronavirus outbreak, are fast-turning into the safest way of life with nations, including Italy, Spain, India, South Africa, Uganda, Kenya and Rwanda, which are administering shutdown doses.
The lockdowns mean that factories and private companies cease most economic activities, which translates into disposal incomes for both people and companies reducing in such sectors as health, manufacturing, retail, trade, transport, tourism, entertainment and education.
Conservative estimates indicate that the global economic aftermath of the COVID-19 pandemic could last at a minimum for one year. The Organisation for Economic Co-operation and Development (OECD) estimates annual global GDP growth is expected to drop to 2.4% in 2020, from an already weak 2.9% in 2019. World exports are forecast to decline by more than 5% to US$1.28 trillion in 2020.
Further, the United Nations Conference on Trade and Development (UNCTAD) reports that the number of container cargo ships from China reduced by 30% from 540 ships to 370 ships per day in January 2020.
A March 10, 2020 Baker-McKenzie report highlights that many African countries face a "twin supply-demand shock" due to a decrease in imports of manufacturing inputs and supplies from China and reduced demand from exports in key sectors in various export markets. Reports from the Uganda Ministry of Trade, Industry and Cooperatives indicate that China is our leading import market, accounting for at least 16% or US$5.5 billion of Uganda's total imports bill.
The persistence of the coronavirus crisis will certainly curtail the sourcing of raw materials and capital goods, such as machinery, for Uganda's domestic manufacturing sector.
The European Union (EU) market, which is also in various stages of lockdown, is a strategic market for Uganda's exports and imports.
Uganda exported US$515 million worth of goods, over the past three years, whilst its imports totalled to US$ 561 million over the same period. The main exports to the EU market have been coffee, fish, flowers, and hides and skins. Uganda mainly imports medical equipment, pharmaceutical products, petroleum and oils from the EU.
Generally, Africa is a net importer of medical equipment and pharmaceuticals, which are mainly supplied by Europe and India. Studies from United Nations Economic Commission for Africa (UNECA) indicate that Africa imports over 94%, or on average US$16 billion, per annum of its medical and pharmaceutical products. The current lockdown in Europe and India are likely to increase the risk of drug shortages on the continent, and specifically in Uganda.
Even more worrying for Africa is the fact that only 15 African countries are net exporters of food, with Uganda being one of them. If the COVID-19 pandemic results into an economic crisis lasting for over a year, there will be serious food shortages in over 39 countries on the continent and this could unfortunately fuel civil unrest.
Huge blow to cross-border trade
In 2019 alone, Uganda's formal exports to the Common Market for Eastern and Southern Africa (COMESA) amounted to US$1.23 billion. While total exports to the East African Community (EAC) amounted to US$ 1.15 billion, out of which US$ 537 million went to Kenya, US$ 409 million to South Sudan, US$ 95 million to Tanzania, US$ 54 million to Rwanda, and US$ 51 million to Burundi. Exports to the Democratic Republic of Congo were US$ 567 million.
The restriction of movement of people across borders due to new health protocols that must be adhered to is also going to greatly impact Uganda's trade volumes with neighbouring countries.
As a result, the Ministry of Finance, Planning and Economic Development reported that Uganda's growth projection for the financial year ending June 2020 had been revised downwards from 6% to 5%. Also, imports are expected to decline by 44% over the next four months to June 2020.
In respect to the banking sector, the ministry reports that non-performing loans may increase by 50% due to the coronavirus crisis. Given that domestic taxes contribute over 70% of government revenue, this means that the funds that will be available to government for public service are going to be significantly reduced.
The reduction in global travel as a result of travel bans will significantly affect the tourism industry. A report from International Air Transport Association (IATA) indicates that 75% of the world airlines have cash to cover three months of the fixed expenses and risk becoming insolvent thereafter.
According to UNECA, in the 2008 global financial crisis, Africa's tourism experienced losses of up to US$ 7.2 billion, which mostly impacted Egypt, Ethiopia, Kenya and Mauritius. The COVID-19 pandemic is likely to have a similar, or even higher, impact.
Crude oil prices have seen a dramatic reduction of 32% from US$ 51 to US$34 per barrel in anticipation of the global slowdown of economic activity. This poses a significant risk to the development of Uganda's oil sector, and most urgently, the final investment decision for the oil pipeline as foreign direct investment is channelled to safe assets such as gold.
The finance ministry estimates that this ongoing pandemic will lead to an increase in the number of Ugandans pushed below the poverty line by 780,000 in the best-case scenario or 2.5 million, in the worst-case scenario.
Faced with unprecedented hard times, the banter on the streets is that we should all condense our 2020 resolutions into just one. You should all repeat after me: "Our 2020 resolution is survival".
From a trade and business perspective, here is how we are going to stay alive. There is urgent need for coordination of cross-border trade between Uganda and its neighbouring countries. The EAC had issued a joint communique on movement of people and goods with key guidelines that should always be adhered to by all countries. Bilateral modalities on the movement of goods and people in light of the COVID-19 crisis should also be worked out with DR Congo.
The private sector should engage the government to come up with mitigation measures against non-performing loans so that companies do not become insolvent. This will ensure that risk of unemployment of large numbers of Ugandans is limited as the private sector accounts for over 70% of total employment.
The government, working with telecoms, banks and other financial service players, should accelerate the implementation of a cashless economy.
The government should conduct a risk assessment on the critical medical equipment and pharmaceuticals that are imported mostly from Europe and India. This should be in terms of current stock levels and Uganda's capacity to produce the same in case of supply constraints over the next six months.
Finally, the government should put measures in place to ensure that the supply of basic food, across the whole country is guaranteed. A hungry population is an ungovernable population.
But in all, wash your hands, sanitize, and don't touch your eyes, nose and mouth. More importantly, STAY HOME.
(The author is a trade development expert at TradeMark East Africa)
(Currently, the government is distributing relief food to vulnerable people in Kampala and Wakiso, who have been affected by the lockdown enforced to prevent the spread of the coronavirus)