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Uganda Business Forecast Report Q3 2014

  • May 2014
  • -
  • Business Monitor International
  • -
  • 36 pages

Core Views

We maintain our view that economic growth in Uganda will quicken in pace in 2014 driven by a fast-growing consumer segment and accelerating investment into the infrastructure and extractive sectors. Still, we believe the outlook has softened slightly in recent months owing to the effects of the intensifying crisis in South Sudan and a
weaker-than-expected recovery in credit growth. We are more pessimistic than the government in our projections for the country's fiscal balance in FY2014/15. Official tax collection targets are likely to prove overly ambitious, particularly set against a recent softening in the outlook for the economy and Uganda's deteriorating relationship with foreign donors. Limiting expenditure to a 10% rise may also prove challenging against a backdrop of soaring capital spending and wage and election-related current spending pressures. Despite negative international headlines, the approval of new antihomosexuality legislation has provided a much-needed domestic popularity boost for President Yoweri Museveni ahead of the elections in 2016.

Major Forecast Changes

We believe that the outlook for the Ugandan economy over the coming months has dimmed slightly since our last update. We now predict that real GDP growth in the East African country will expand by 6.3% this year and 6.4% next year, compared to our previous projections of 6.6% and 6.8% respectively.

Table Of Contents

Uganda Business Forecast Report Q3 2014
Executive Summary . 5
Core Views 5
Major Forecast Changes ..5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis .. 7
BMI Political Risk Ratings .. 7
Domestic Politics . 8
Museveni's Calculated Gamble To Bring Election Boost 8
Despite negative international headlines, the approval of new anti-homosexuality legislation has brought a much-needed boost for
President Yoweri Museveni ahead of the elections in 2016.
Table: Political Overview 8
Long-Term Political Outlook . 9
Political Challenges For Museveni Ahead 9
Uganda will face several challenges over the coming decade, including a presidential succession as well as the need to overcome
the legacy of civil war in the north and create jobs for its youthful population. That said, we maintain a positive outlook on Uganda and
foresee a relatively successful resolution of these challenges.
Chapter 2: Economic Outlook . 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
Growth Forecast Trimmed, But Outlook Still Bright 14
We maintain our view that economic growth in Uganda will quicken in pace in 2014 driven by a fast-growing consumer segment and
accelerating investment into the infrastructure and extractive sectors. Still, we believe the outlook has softened slightly in recent months
owing, in part, to the effects of the intensifying crisis in South Sudan and a weaker-than-expected recovery in credit growth.
TABLE: ECONOMIC ACTIVITY .14
Balance Of Payments . 16
Damaged Perceptions Add To External Account Pressures .16
Uganda's current account deficit will widen over the next few years driven by a deteriorating trade balance. The impact of controversial
new anti-homosexuality legislation is likely to add to these pressures - notably through donor and tourism channels - though we do not,
at this stage, believe it poses a threat to the foreign direct investment that underpins the stability of Uganda's external accounts.
TABLE: CURRENT ACCOUNT ..17
Monetary Policy .. 19
Inflation To Rise, But Mild Response Warranted ..19
In response to rising inflationary pressures and currency weakness we believe that the Bank of Uganda (BoU) will hike interest rates
by the end of H214 in a bid to anchor inflation expectations. However, given that economic output, though improving, remains below
potential and a recovery in credit growth is yet to fully materialise, we believe that monetary tightening will be modest.
TABLE: MONETARY POLICY 19
Fiscal Policy .. 21
Fiscal Accounts To Remain Under Pressure Until Onset Of Oil ..21
The Ugandan government's plans to rein in recurrent spending and boost revenue generation over the coming years will be hampered
by waning donor support, public sector wage pressures and election-related spending commitments. We predict that Uganda's fiscal
deficit will range between 4.0-6.0% of GDP until the planned onset oil production in 2017.
TABLE: FISCAL POLICY ..21
Chapter 3: 10-Year Forecast . 25
The Ugandan Economy To 2023 .. 25
A Decade Of Promise But Also Of Risk ..25
We are forecasting robust real GDP growth averaging more than 7.5% over our 10-year forecast period as private consumption and
agricultural exports continue to grow; the country starts producing oil; and electricity generation increases, which together have the
potential to stimulate non-agricultural sectors and reduce the country's energy import bill. That said, the country will remain vulnerable to
energy shortages and adverse unpreventable climatic conditions, certainly in the short term.
TABLE: Long-Term Macroeconomic Forecasts .25
Chapter 4: Business Environment 27
SWOT Analysis 27
BMI Business Environment Risk Ratings .. 27
Business Environment Outlook 28
Institutions . 28
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS 28
Table: BMI LEGAL FRAMEWORK RATING .29
Table: LABOUR FORCE QUALITY ..30
Infrastructure 31
TABLE: AFRICA - ANNUAL FDI INFLOWS 31
Table: TRADE AND INVESTMENT RATINGS 32
Market Orientation . 33
Table: Top export destinations .33
Operational Risk . 34
Chapter 5: BMI Global Assumptions .. 35
Global Outlook . 35
Growth Increasingly Polarised ..35
Table: Global Assumptions ..35
Table : Developed States , Real GDP Growt H, % 36
Table : BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % .. 36
Table : Emerging Mar kets , Real GDP Growth , % ..37

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