Damali Ssali.
The Coronavirus pandemic
– COVID-19 has become a fully-fledged global economic crisis with governments now
issuing Level 4 – DO NOT TRAVEL advisories, instituting curfews, partial and full
lockdowns.
These lockdowns that
started from Wuhan, China - the epicentre of coronavirus outbreak, are fast
turning in to the safest way of life with Italy, Spain, India, South Africa,
Uganda, Kenya, and Rwanda among countries administering shutdown doses.
The lockdowns mean that
factories and private companies cease most economic activities. Therefore,
disposal incomes for both people and companies is reduced in sectors of the
economy including the heath, manufacturing, retail, trade, transport, tourism,
entertainment, education and many others.
Conservative estimates
indicate that the global economic aftermath of 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 percent, in January 2020 alone from
540 ships to 370 ships per day.
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 per cent or US$5.5 billion of Uganda’s total imports bill.
The continued persistence
of the corona 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$515 million
worth of goods, over the past three years, whilst it imports totalled to US$ 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 percent, or on average
US$ 16 billion per annum, of its medical and pharmaceutical products. The
current government 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 in to an economic crisis lasting for over a year,
there will be serious food shortages in over 39 countries on the continent and
this may 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. Whilst
total exports to 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 (MoFPED) 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 COVID-19 pandemic.
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, due to 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 3 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 MoFPED estimates that this
on-going COVID-19 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
2.5million, in the worst-case scenario.
Way Forward.
Faced with unprecedented hard times, the banter on the streets is that we
should all condense our 2020 resolutions in to just one. You should all repeat
after me, our 2020 resolution is surviving.
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. Bi-lateral modalities on the
movement of goods and people in light of the COVID19 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 6 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.
Damali Ssali is a Trade Development Expert at
TradeMark East Africa.
Daily Monitor URL - https://www.monitor.co.ug/OpEd/Commentary/-economy-survive-COVID19-pandemic-Uganda-employment-Kenya-/689364-5515906-mdkjssz/index.html
