The Corona Virus pandemic has severely impacted the health, economic and social status of Ugandans. Several aspects of life were adversely impacted, though evidence shows resilience and we should congratulate ourselves as a country. According to a study by the Economic Policy Research Centre (EPRC) and the International Growth Centre (IGC), only 10% of Micro, Small and Medium Enterprises in Uganda remained open during the lockdown, and 93% of all Micro, Small and Medium enterprises were back in operation by October 2020.#Buyinza.com
According to World Bank Uganda Office, Uganda’s real gross domestic product (GDP) grew at 2.9% in FY20, less than half the 6.8% recorded in FY19, due to the effects of the COVID-19 (coronavirus) pandemic. GDP is expected to grow at a similar level in FY21.
Economic activity stalled during the latter part of FY20 due to a domestic lockdown that lasted more than four months, border closures for all but essential cargo, and the spillover effects of disruptions to global demand and supply chains. This resulted in a sharp contraction in public investment and deceleration in private consumption, which hit the industrial and service sectors hard, particularly the informal service sector.
On a calendar year basis, real GDP growth is expected to contract by up to 1% in 2020, compared to 7.5% growth in 2019, and, as a result, real per capita GDP growth is expected to contract by about 4.5%. Even if GDP growth rebounds strongly by 2022, the level of per capita GDP is likely to remain well below its pre-COVID trajectory. The medium-term outlook for Uganda has worsened considerably due to the impact of COVID-19, and risks are tilted heavily to the downside. If the impact of COVID-19 lasts longer globally, or the virus spreads more widely in Uganda, this could deter the recovery in Uganda’s exports, adversely impact a rebound in foreign direct investment (FDI), tourism and remittances, and further depress productivity and hence the domestic economic recovery.#Buyinza.com
Such developments could lead to more severe social and economic impacts and amplify external and fiscal imbalances.
Furthermore, while lower oil prices are beneficial to Uganda’s trade balance and real growth outcomes, they also mean increasing risks to investment plans in the Ugandan oil sector, which was expected to start producing and exporting by 2024/25. Finally, heightened uncertainty in the post-2021 election period and weather shocks could further exacerbate the aforementioned risks.
Prior to the COVID-19 outbreak, structural transformation was driving a decline in poverty, despite a slowdown in average economic growth over the last decade. The transformation was characterized by a reduction in the total workforce employed in agriculture and a take-off in industrial production, largely in agro-processing. Notwithstanding shifts to higher productivity jobs, per capita real GDP growth decelerated to 1.3% in the five years prior to the COVID-19 crisis, from 2.2% between 2010 and 2015, as population growth climbed further to 3.7% per year. Furthermore, poor people remain highly vulnerable to shocks, as seen in the temporary rise in poverty following the 2016/17 drought.
Following the shock of COVID-19, there have been widespread firm closures, permanent layoffs in industry and services, a rapid slowdown of activity particularly in the urban informal sector, and a movement of labor back to farming. Household incomes have also fallen, which is concerning given the high levels of vulnerability to poverty, limited social safety nets, and impact this might have on human capital development and Uganda’s capacity to benefit from its demographic transition.
Heavy reliance on low productivity agriculture (about 25% of the economy, 50% of exports and 70% of employment) also contributes to income volatility and stagnation. To keep up with growth in the labor force, the economy needs to create at least 700,000 jobs per year, which far exceeds the 75,000 jobs that are currently created each year. Raising incomes further will also require improving productivity in agriculture and opportunities for absorbing excess labor into more productive employment in industry and services.
Human Capital in Uganda
Uganda’s Human Capital Index (HCI) is low; a child born in Uganda today is likely to be 38% as productive when she grows up, as she could be if she enjoyed complete education and full health. A child who starts schooling at the age of 4 is only expected to complete 6.8 years of school by their 18th birthday, compared to the Sub-Saharan average of 8.3. However, actual years of learning are 4.3, with the 2.5 years considered ‘wasted’ due to poor quality of education. For instance, 83%of 10-year-olds cannot read and understand a simple text by the end of primary school. This is higher than the average for its region (80%).
Only 95 out of 100 children born in Uganda survive to age 5. Undernutrition is high and stunting affects 29% of children in Uganda aged 5 years and below. At 3%, Uganda’s annual population growth rate is among the highest in the world, despite a reduction in fertility rates. Uganda’s population of 42 million is expected to reach 100 million by 2050, while the annual urban growth rate of 5.2% is among the highest in the world and is expected to grow from 6.4 million (2014) to 22 million by 2040.
Beyond disrupting the economy, the COVID-19 pandemic risks rolling back the recent gains in health and human capital development if effective prevention and control measures do not continue to be implemented rapidly and at scale.
Uganda’s refugee population has almost tripled since July 2016 and is currently around 1.4 million, making it the largest refugee host in Africa, and third largest in the world. While its open-door refugee policy is one of the most progressive in the world, with refugees enjoying access to social services, land and jobs, the continued influx—coupled with limited resources—is placing tremendous pressure on existing amenities and straining the delivery of services in host communities.
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