Facing declines in export prices, a slowdown in remittances and continuing high agricultural input prices, Uganda's economy will struggle to hit the 7% to 7.5% growth initially estimated by the International Monetary Fund (IMF). Revised forecasts suggest that 5% to 6% is more realistic in 2009/10, although the east African country is still one of Africa's best performers.
Over the past five years, growth has averaged 7.9% but inflation is the major preoccupation for finance minister Dr Ezra Suruma. Imported inflation from Kenya, food price rises and infrastructures issues, which feed import prices and slow regional economic integration, are feeding into an inflation rate of more than 14%.
Addressing these concerns is likely to be a major focus of the country's finance ministry. In the medium term, Mr Suruma says he intends to encourage investment in building up the country's food reserves as a bulwark against future supply constraints.
"We are encouraging the agricultural sector to expand," he says, "[We are] changing it into a more market-oriented economy, operating in larger scale." Growth in productivity has been only about 1%, he explains, which does not reflect the sector's potential. A "substantial" programme of support for microfinance is among the measures that the government believes could enable farmers to expand their output. Mr Suruma is less convinced by the idea of input support at government level, which is being used elsewhere in Africa for the same purpose. "As an economy, we've tended to trust the markets more, [as opposed to] government action," he says.
Production disruption
Beyond self-sufficiency and food security, Uganda is concentrating on its exports to regional neighbours, particularly Kenya, which has struggled with food security issues since production was disrupted by its post-election violence in early 2008. The problem has since been exacerbated by drought in several agricultural areas.
Climate change is another worry, says Mr Suruma. Heavy rains in January raised fears that the normal patterns of rainfall have been disrupted. "Of course, because of the nature of our agriculture, climate change is a bit confusing for the farmers," he says. "January would usually be a relatively dry period. The farmers didn't know if the rains which we would expect in March had fallen, and if they should plant in January or wait until March. The meteorological department says the rains are still coming, but we don't really trust them."
While it is difficult to substantiate this as evidence of permanent climate change, a slip in agricultural production could be damaging to Uganda's ability to curb inflation and to build regional markets to counteract the effects of the slowdown in demand from its existing export partners. Its agricultural sector is largely based around smallholdings and is mainly rain-fed, making it more vulnerable to climatic volatility.
Infrastructure, a major contributor to the price of fuel and other imports, will have commensurate weight in the budget. A contract dispute over private sector renovation of the railway system has caused "serious supply problems", says Mr Suruma. "We are putting too much stress on the roads."
Mr Suruma advocates spending heavily on the road system. "For the first time, this year the budget for roads is bigger than the budget for education. In the past, education was always the biggest."
The energy sector needs to be expanded and the government is considering public-private partnerships to finance hydroelectric dams. By the time the Bujagali dam is completed in 2011, Mr Suruma says, it will already be far behind the country's capacity demands.
The discovery of an estimated 1 billion barrels-worth of oil in the country has excited investors, and is perceived as another potential brake on inflation. Expected to come on stream in the next two years, the potential of a viable hydrocarbon economy is reflected in recent growth updates from the IMF.
A small refinery, with a capacity of about 4000 barrels a day, should also ease domestic supply constraints. However, the project may be delayed while the government discusses the viability of a larger refinery. With oil prices lowered compared with the highs of 2007 and 2008, a domestic oil industry is no guarantor of explosive growth, but it adds a further weapon against inflationary pressures, and further diversifies the economy.
While Mr Suruma accepts that it is by no means an indefinite solution, "it should provide a basis for us to do other things", he says. "To invest in education. That should provide a foundation for the future."
