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Uganda Business Forecast Report Q4 2014

  • August 2014
  • -
  • Business Monitor International
  • -
  • 35 pages

Core Views
The Ugandan economy will expand by 6.2% in real terms in 2014 and 6.4% in 2015, driven by robust public investment in infrastructure and a recovering consumer segment. Economic output will, however, remain below potential over the next two years owing to a sluggish recovery in credit growth and the impact of the ongoing crisis in South Sudan. A structural dependence on consumer and capital goods imports will keep Uganda's current account balance firmly in the red over the next few years. In the absence of meaningful economic diversification and beneficiation, we believe this shortfall will only start to narrow from 2019 as oil production finally begins.

Uganda will sustain a sizeable fiscal shortfall in the range of 3.0-5.0% of GDP over our 2014-2018 forecast period, as efforts to boost a narrow tax base are more than offset by heavy public investment in infrastructure and persistent recurrent spending pressures. The annulment of Uganda's controversial Anti-Homosexuality Act, albeit on a technicality, has been greeted positively by foreign observers but will not improve perceptions towards a country that has seen its political risk profile weaken in recent years.

Major Forecast Changes
Recently published balance of payments data contains both new and revised data, and has prompted some modest adjustments to our forecasts. We now see the current account balance standing slightly lower at -8.6% and -9.3% of GDP in 2014 and 2015 respectively.

Table Of Contents

Uganda Business Forecast Report Q4 2014
Executive Summary 5
Core Views...5
Major Forecast Changes.5
Key Risks To Outlook5
Chapter 1: Political Outlook.. 7
BMI Political Risk Ratings.. 7
SWOT Analysis 7
Domestic Politics. 8
Anti-Homosexuality Law Annulled, Perceptions Unaltered
The annulment of Uganda's controversial Anti-Homosexuality Act has been greeted positively by foreign observers, but will not improve
perceptions towards a country that has seen its political risk profile weaken in recent years.
Table: Political Overview8
Long-Term Political Outlook... 9
Political Challenges For Museveni Ahead
Uganda will face several challenges over the coming decade, such as a presidential succession, the need to overcome the legacy
of civil war in the north and create jobs for its young population. That said, we maintain a positive outlook on Uganda and foresee a
relatively successful resolution of these challenges.
Chapter 2: Economic Outlook.. 13
BMI Economic Risk Ratings.. 13
SWOT Analysis... 13
Economic Activity... 14
Growth Strengthening, Not Yet At Full Potential
The Ugandan economy will experience robust growth over the next five years driven by robust public investment in infrastructure
and burgeoning consumer spending. That said, a number of factors will see economic output remain below potential over the coming
quarters.
TABLe: Economic Activity14
Balance Of Payments .. 16
Wide Current Account Deficit Until Impact Of Oil Production Felt
A structural dependence on consumer and capital goods imports will keep Uganda's current account balance deep in the red over the
next few years. In the absence of meaningful economic diversification and beneficiation, we believe this shortfall will only start to narrow
from 2018 as oil production begins.
TABLE: Current Account.16
Monetary Policy . 18
Currency Woes To Limit Scope For Further Rate Cuts
An economy yet to hit its straps and contained inflationary pressures will see monetary policy remain broadly accommodative over the
coming quarters. That said, we believe that risks posed by a depreciating currency will preclude any aggressive course of monetary
loosening.
TABLE: Monetary Policy..18
Fiscal Policy... 19
Fiscal Deficit To Remain Wide
Persistent recurrent spending pressures and a scaling up of infrastructure investment will cause Uganda to sustain a fiscal deficit in the
range of 3.0%-5.0% of GDP over our 2014-2018 forecast period.
TABLE: Fiscal Policy20
Chapter 3: 10-Year Forecast 23
The Ugandan Economy To 2023 23
A Decade Of Promise, But Also Risk
We are forecasting robust real GDP growth to average over 6.2% over our 10-year forecast period as private consumption and
agricultural exports continue to grow. The country will start to produce oil and electricity generation will increase, 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...23
Chapter 4: Business Environment 25
SWOT Analysis... 25
BMI Business Environment Risk Ratings 25
Business Environment Outlook. 26
Institutions 26
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS....26
Table: BMI LEGAL FRAMEWORK RATING....27
Table: LABOUR FORCE QUALITY..28
Infrastructure. 29
TABLE: AFRICA - ANNUAL FDI INFLOWS.29
Table: TRADE AND INVESTMENT RATINGS30
Market Orientation... 31
Table: Top export destinations 31
Operational Risk. 32
Chapter 5: BMI Global Assumptions. 33
Global Outlook.... 33
US Revision Drags Down Forecast.33
Table: Global Assumptions33
Tab le: Developed Stat es, Real GDP Growt H, %..34
Tab le: BMI VE RSUS BLOO MBERG CONSENSUS REAL GDP GROWTH FORECASTS, %.. 34
Tab le: Em erging Mar kets , Real GDP Growth , %.35

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