Coffee bags for export
As the value of the Uganda shilling continues to ebb at an alarming rate against the USA dollar; and the country’s foreign reserves linger on in recede mode for years, Ugandans have been put on red alert.
Not because they understand the inner workings of the economy, but because they are living through the dire effects of what comes with a dwindling foreign exchange reserve — a depreciating shilling which directly translates to inflation.
The value of the shilling and foreign reserves are not stand-alone aspects but are in fact affected by, among others, how much trade a country is doing with others, importing and exporting. This raises the question: What is the actual state of Uganda’s international trade?
A look at Bank of Uganda’s composition of imports and exports paints a graphic picture with the notable highlights being:
• Uganda’s total exports increased by $1.614.26 million [Shs 6.2 trillion] from $3,836.58 million [Shs. 14.9 trillion] in FY 21/22 to $5,450.84 million [Shs 21.1 trillion] in FY 22/23.
• Coffee exports dropped from $862 million [Shs 3.3 trillion] to $845 million [Shs 3.2 trillion] from FY 21/22 to FY 22/23.
• Electricity exports dropped from $41.86 million [Shs 162.5 billion] to $40.79 million [Shs 158.4 billion] in the last two financial years.
• Cotton revenue exports fell from $30.19 million [Shs 117.2 billion] to $22.19 million [Shs 86.1 billion] between FY 21/22 and FY 22/23.
• Beans export revenue shrunk from $113.09 million [Shs 439.2 billion] to $86.76 million [Shs 336.9 billion] in the same period.
• There has been no revenue from textiles in the last thirteen financial years, since FY 10/11. This casts doubt on the impact, if any, AGOA textiles had as this was meant to be their specialized market for as long as the trade agreement with the USA stood.
Collectively, there was a slump recorded in revenues for cocoa beans, simsim, grains and sugar. What is roaringly startling about the central bank’s composition of imports and exports is that the country’s biggest export earner since FY 18/19 todate — gold shockingly raked in $0.00 for FY 21/22!
Prior to this anomaly, the metal had brought in more than $5.5 billion [Shs 21.3 trillion] in export revenue in the last five financial years from FY 18/19. According to the Bank of Uganda (BoU), gold exports generated zero revenue due to a halt in exports caused by a dispute over a levy on gold exports, which the refineries were contesting.
A shortfall of this magnitude achingly affected the revenue of the country at a time it was recovering from the aftershocks of the Covid-19 pandemic. This punched holes in the international reserves which dipped from 4.2 months of import cover in 2021 to 3.5 months presently eight to 10 months of import cover is essential for the stability of a currency.
This communicates the [reserve’s] inability to stabilise exchange rates and keep the shilling stable or pay off the national debt [which is paid in dollars].
In addition, a sizeable forex reserve attracts foreign investment because it signals to investors that the country is already attracting a considerable amount of foreign capital and is, therefore, a desirable trade/ investment destination.
As a result of gold export revenue being a no-show, the shilling diminished, Uganda’s trade deficit widened; and the country struggled to pay off its accumulating debt. On a day-to-day basis, the general price of goods has been shooting up because of a weakening shilling.
On why there was no gold revenue captured for FY 21/22 acting director of Communications at Bank of Uganda Dr Bazinzi Natamba said, “… the data for FY 2021/22 is zero because exports stopped due to a levy on gold exports that the refineries were fighting”.
Two years ago, a levy of five per cent on the value of refined gold, and 10 per cent on unrefined gold was imposed by the Mining and Minerals Act 2022 by parliament. This levy was halted by directives from the ministry of Finance, Planning and Economic Development, and the ministry of Energy and Mineral Development.
Nonetheless, the latest legal developments uphold the payment of this levy for the gold exports of FY 21/22 up until June 2023. More than anything else, it’s important to state that even if Uganda’s exports have gone up by more $2.5 billion [Shs 9.7 trillion] in the last 10 years, it doesn’t translate to much because Ugandan exports have little value added to them and are mostly raw materials.
Therefore, benefits like increased jobs for locals, more revenue that the country could have enjoyed from exporting value-added goods, is eroded in what is known as domestic value-added erosion.
It’s for this reason that the more sophisticated economies have delegated the role of producing raw materials to less developed countries like Uganda who then sell to them on the cheap. They then add value to these raw materials and sell them back as finished goods at a premium.
BoU’s statistics further reveal an apparent trade deficit that has been lingering for years. A trade deficit occurs when a country imports more than it exports. In the case of Uganda for FY 22/23 it exported goods valued at $5.4 billion [Shs 20.9 trillion]; but imported goods worth $8.5 billion [Shs 33 trillion] presenting a trade deficit of $3.1 billion [Shs. 12 trillion].
This tangent continues to spread unevenly: in the last 5 years imports have risen by $2.4 billion [Shs 9.3 trillion] while exports have gone up at a low rate of $1.4 billion [Shs 5.4 trillion].
This [trade deficit] in itself doesn’t necessarily spell danger because no one country can produce everything it consumes, and the money we spend on buying imports is recovered in the form of attracted foreign direct investments.
Seasoned economist Paul Lakuma Corti of Economic Policy Research Centre affirmed this, saying: “The exports are improving. We have always had a trade deficit but that deficit is reducing gradually”.
On the upside, agriculture saw an increase in export volumes. And revenues of tea, tobacco, maize, fruits and vegetables, fish and its products, groundnuts, and vanilla fetched ~$208.35 million [Shs 809.2 billion].
The central bank’s statistics reveal that for seventeen years since FY 06/07, the biggest consumer of Uganda’s exports has been the Common Market for Eastern and Southern Africa [COMESA] a feat previously held by the European Union, implying that trade and regional integration of African countries is firmly taking ground, and that gradually Africa is becoming a market for its own products.
In consequence, dependence on the European market is reducing. COMESA in itself comprises 21 African states some of which are: Ethiopia, Kenya, Rwanda, Burundi, Egypt, Congo (DR) and South Sudan.
As for imports, in the last twenty years since FY 03/04, Uganda has imported most from Asia with China turning out to be the preferred trade destination for Uganda’s traders since FY 16/17, a claim it scooped up from India.
In closing, it’s evident that the backbone of Uganda’s economy is agriculture, mining and energy. In all these sectors, the government needs to step up by allocating more resources to agriculture, design and implement policies for the mining and energy sectors. Only then will the country reap the maximum benefits of international trade.
kidambamark3@gmail.com
Source: The Observer
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