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Uganda has consistently been among Africa’s best performers, with average annual increases of more than 3 per cent in per capita income, but remains among the world’s 30 poorest. In some respects Uganda, a nation the size of the UK with a fast-growing population of 25 million, is not yet back to where it was in 1970. Life expectancy has fallen to 42 years a reflection of the impact of Aids; maternal mortality is higher; a smaller proportion of the population has access to safe water. Real-terms growth has averaged more than 6 per cent in the last five years. As an open, deregulated economy, with investor-friendly conditions and a record of fiscal discipline, it has been coddled by international donors as an African exception.
A large part of its growth is needed just to keep up with a population increase of more than 3 per cent a year. The benefits are more visible in the towns that in rural areas, where 85 per cent of Ugandans live, and more in the south and west of the country than the north. Landlocked and limited by a small domestic market. The country still has a relatively tiny industrial sector, contributing about a tenth of its economic output. Uganda’s track record is considered by economists to be unmatched in Africa except by mineral-rich Botswana. Its finance ministry and independent central bank have earned a reputation for sound management.
The foreign exchange regime has been liberalized since the mid-1990s, and privatization is well advanced. Inflation has stayed in single figures for the last five years, with average annual rates of 5 per cent or less. A rise in the 12-month rate to 7.5 per cent in February is confidently dismissed as a temporary aberration.
Inflows of aid and private capital have so far offset a widening gap in the balance of payments current account. But exports have recently improved with a recovery in world coffee prices, and the country has a comfortable cushion of foreign currency reserves. Officials reckon recent annual growth would have been 1.5 percentage points higher if it had not been for a prolonged deterioration in terms of trade — a combination of high prices for oil, which is imported, and low prices for coffee and cotton, which used to be its dominant exports.
The International Monetary fund warned in its latest report that Uganda was falling short of its target of 7 per cent growth — the top end of government expectations for the next few years. Anything less, the IMF says, would jeopardize the country’s ambitious poverty reduction plan. The proportion of the population living on lees than $1 a day has fallen to 35 per cent from 56 per cent a decade ago, and the plan aims to cut the figure to 10 per cent by 2017. The fund says Uganda requires more private investment and better use of its aid funds to stay on course. Its report also urges Uganda to reduce its reliance on aid, warning of the “serious consequences” of any drop in the inflow and describing the budget as “increasingly vulnerable to a potential reduction in donor support”. A dispute with donors about overruns in military spending caused the UK, Uganda’s main source of bilateral aid, to cut its funding earlier this year.
With a reduction in aid expected as one of the consequences of the Iraq war, some government circles are uneasy about Uganda’s donor dependence. The budget shortfall — at about 12 per cent of gross domestic product — was widening as more support came in. it seemed to be a case of “driving the defect rather than the deficit driving aid”. The country should start programming for aid to come down. The government’s own revenue collection has fallen below expectations in the past few years — partly, economists say, because of corruption and fuel smuggling from Kenya to avoid higher Ugandan taxes. Large aid programmes have led to cost inflation in sectors such as construction and put upward pressure on interest rates, raising borrowing costs, which are one of the handicaps facing business investors. With a strengthened but still small banking industry, credit for the private-sector has grown only slowly.
The formal economy has for years been struggling to muster enough growth to keep up with the rise in population. With an estimated 2 million to 3 million young Nigerians entering the workforce every year, the country badly needs job-creating investment. But outside investors are put off by concerns about insecurity, policy inconsistency and infrastructure deficiencies. Nigeria has a dire image problem. It is not a failing state, but in many ways a state crippled by failings. Oil revenues are not so large they can absorb the magnitude of waste and mismanagement.
The sheer size of some of Nigeria’s organizational problems is mind-boggling. Public health services, yet to face the full impact of the HIV/Aids epidemic, are inadequate to deal with malaria which, by contrast, is a curable disease. The main cause of death among small children, malaria costs the country an estimated $1 billion a year in lost workdays and treatment.
At the same time Nigeria, Africa’s biggest crude oil producer, has been losing an estimated $1.6 billion a year - in an economy of just over $40 billion — importing petrol and other fuel at higher cost than the local retail price, because of a maintenance backlog at its refineries. For much of this year, supply bottlenecks have caused long petrol queues, a situation compounded by pipeline sabotage, the diversion of official-price petrol on to the black market, and the smuggling of some of it out of the country.
Nigeria, once described as the “food basket of Africa” but now a net importer, has huge agribusiness potential. For some years it has been the world’s biggest producer of cassava, a staple food, but unlike Brazil or Thailand does little to process it into higher-value products. Experts say 30 to 40 per cent of its crop is lost post-harvest. It just rots.
The economy, is expected to worsen with lower prices for oil, which makes up more than 95 per cent of exports and three-quarters of government revenue. This will mean hard choices. Foreign donors need to be convinced that financial discipline is being imposed and that the government is making real inroads into systemic corruption. Restoring relations with the International Monetary Fund, interrupted last year, will be key to obtaining relief on the country’s $31 billion foreign debt.
Some ground has been laid for economic improvement, including the development of deep offshore oilfields, and Nigeria’s emergence as an exporter of liquefied natural gas. But the biggest change has been the private-sector revolution in the GDM mobile telephones. In less than two years, these have transformed the way Nigeria works, and revealed a vast consumer market, itself an indication of the size of the country’s informal economy. Many foreign investors are still put off by the country’s reputation for corruption and difficult working conditions. Successes such as the launching of a mobile phone system are set against the continued struggle of manufactures against infrastructure problems and mysterious regulatory changes in areas such as tax and import controls.
After four years marked by modest economic progress and disappointment among Nigeria’s international partners, administration insiders say the stage is set for a more assertive policy aimed at delivering the development the country’s natural resources should make possible. The government is under both domestic and international pressure to move faster after an economically turbulent first four years. Institutions such as the International monetary Fund have said that poverty is worsening, although government officials say estimates of gross domestic product at $316 per head take too little account of the size of the informal economy. The IMF’s estimate of 2.9 per cent real gross domestic product increase in 2001 is substantially lower than the government figure of 4.21 per cent — although that, too, looks modest when compared with official estimates for annual population growth of 2.83 per cent. On foreign debt, which has crept up to an estimated $31 billion, government creditors express dismay at Nigeria’s poor record in honouring repayments.
Against a background of strong efforts in 2001 to stabilize the economy from the effects of a severe terms of trade shock the year before, the 2002 programme aimed to further consolidate the gains and achieve a continued reduction in inflation and strengthening of economic growth. The budget sought to strengthen Ghana’s tax base, allocate resources toward priority areas and reduce significantly the burden of domestic debt. The programme emphasized improved public expenditure management, to ensure that the budget was implemented as envisaged, further pricing reforms to place the finances of key public enterprises on a sustainable footing, the launch of the divestiture strategy, and a continued reduction in inflation.
Notable progress was made in 2002 on a number of fronts. Twelve-month inflation, which had been cut by half in 2001 to 21.3 per cent, continued to fall to 15.2 per cent at end-2002. The Bank of Ghana strengthened its gross international reserve position from the equivalent of 1.2 months of import cover at end-2001 to 1.9 months of imports at end-2002, in line with programme objectives.
