On all fronts, there is convergence of views that Uganda’s business environment is improving. The recent Economic Policy Research Centre has a business climate index based on 179 business establishments indicates that the Business Climate Index improved by 20.21 percentage points to 91.14, during the current quarter (July – September 2017), from 70.93 points during the preceding (April – June 2017) quarter. The expected index for October– December 2017 is 119.77 underpinned by vibrant performance of the manufacturing and service sector. All sectors remained optimistic about future business prospects. The improvement was perceived to be largely driven by falling electricity tariffs and improving tax policy. Nevertheless, the index remained well below potential partially due to political uncertainty emanating from prolonged electoral process in Kenya. The index is found on http://eprcug.org/research/the-uganda-business-climate-index?task=document.viewdoc&id=539
The 2018 World Bank Doing Business Indicator showed that Uganda’s score improved but it still slid 7 positions from 115 position to 122 out of 190 countries. Uganda registered improvement on the 4 of the 10 indicators that are assessed, 4 remained with no change and while 2 declined.
The lowest ranks were in two indicators were in getting electricity followed by starting a business. Uganda continues to have a low score on accessing electricity despite continuing to enjoy excess electricity supply over the peak demand. Electricity generation capacity has increased to 929.6MW and maximum demand (including exports) registered by UETCL increased from 557.4 MW in October 2016 to 597.4 MW as of October 2017.
Access to electricity is at 22.5% but still low. The low accessibility and excess supply in part illustrates the limited distributional network, slow growth demand in last couple of years due to slowing overall growth and limited affordability.
Nearly 800MW are expected to be commissioned in 2018/19 but the total installed capacity will be short of the 2020 target of 2500 MW. The medium term challenge will be in the utilisation of the idle generation which is a cost on the tax payer.
Uganda’s Global Competitiveness improved to 113th position out of 138 economies in FY 2016/17 from the 115th position in FY 2015/16. Uganda’s best rank is in macro-economic environment and rating better than the EAC4 (Kenya, Rwanda, Tanzania and Burundi) counterparts while the worst rank is with higher education and training trailing behind both Rwanda and Kenya amongst the EAC4. Areas that showed deterioration include; macro environment, labour market efficiency, technology readiness and business sophistication. Other areas that continue to perform poorly are: higher education & training (129/189), infrastructure (126/189) and health and primary education as well as technology readiness both at 118 out of 189.
The high frequency indicators of economic activity (Business Tendency Index and Composite Index of Economic activity) remained positive the through 2017, showing the confidence investors have about doing business in the country as well as a continued recovery in the level of economic activity.
The recovery is also mirrored in the November Stanbic’s Purchasing Manager’s Index that shows improvements in all indicators of New Orders, Output, Employment, Suppliers’ Delivery Times, and Stocks of Purchases. Business activity increased at Ugandan private sector companies in November, marking the tenth successive month of growth.
The improving environment in part could explain the increase in Foreign Direct Investment by 18.5 percent in 2017 compared to a decline of 30.5% in 2016; improving shilling credit extension by 10.8% in December 2017 compared to 7.9% in December 2016; and an increase of imports of raw materials and capital goods, which grew by 17.4% in 2017 compared to a decline of 21.1% in 2016.
In conclusion, recovery in private sector should boost the recovery of growth to 5-6% in 2017/18. However, private sector activity and credit growth remain below the historical average and the expected potential. Commercial bank interest rates continue to adjust sluggishly and with a lag to the monetary policy statement.
The recent increase in electricity tariff rates may also constrain full recovery. The risks to the economic outlook remain skewed to the downside over the medium term inter alia the sluggish regional growth, protracted global policy (including the in-ward looking policies) uncertainty, lower commodity prices, and persistent geopolitical tensions continue to weigh on global growth.
