The virus that was initially seen as a China-centric problem has escalated to a global crisis ravaging beyond the obvious public health, but attacking global trade harder than anticipated by experts in fact some suggest a “worst economic crisis” than the one of 2008!
As the world grapples with COVID-19 pandemic, public health is the priority of governments with drastic measures being deployed to contain and prevent transmissions of the disease. However, make-no-mistake, the negative impact of coronavirus on the economies around the world is dier. As government have moved swiftly to implement strict measures such as lock-downs, closure of factories, restriction of movements of people and goods, etc…, global supply chains are left exposed creating high levels of uncertainties. These levels of uncertainty beg the question ” what is the impact of COVID-19 on Ugandan economy so far?”
How does all this impact Uganda’s economy?
According to PWC, Uganda’s economic performance is influenced by developments in the global economic environment. Therefore, a slowdown in the global economy as a result of coronavirus will have a negative impact on Uganda’s economy. This impact will be in many ways.
Supply chain disruptions
China is Uganda’s major trading partner, and the effects of coronavirus are already being felt in Uganda. With China having shut down its manufacturing centres and closed its ports, there has been a resultant decrease in demand for Uganda’s commodities. Importers in China are cancelling orders from Uganda due to port closures and as a result of a reduction in consumption in China. This has resulted in a reduction in the demand for the country’s exports which are mainly agricultural commodities and natural resources. For example, the three-day China International Coffee Specialty Expo that was scheduled to take place this week has been postponed indefinitely. China is a major market for Uganda coffee and Uganda was to be the “portrait country” at this Expo. This was going to give our country a great opportunity for increased awareness, visibility and market penetration in the China and Asia Pacific speciality coffee market. The impact of coronavirus will also be felt in Uganda’s manufacturing sector. Factory closures in China have resulted in supply chain disruptions for manufacturers in Uganda, with delays, raw material shortages, increased costs and reduced orders. With the widespread nature of the virus, it is difficult to envisage how supply chains could be adjusted rapidly to meet demands.
A disruption in global supply chains as a result of factory closures in China is going to have a negative impact on small and medium enterprises in Uganda. These are the enterprises that trade mainly with China and are in the trade and retail sector (abasubuuzi). This sector constitutes 13% of Uganda’s economy. Nearly 20% of all the goods traded in this sector are imported from China. The main imports from China are textiles and apparels, electronics, building and construction material, pharmaceuticals, heavy machinery, raw materials, iron and steel, as well as household consumer goods.
The decline in FDI and remittances from the diaspora
China is the second-largest recipient of foreign direct investment (FDI) in the world. There will be a significant decline in FDI inflows into China as a result of the coronavirus. A decline in FDI into China together with lost revenue, lower profits which will translate into lower earnings will also affect China’s ability to continue making huge investments elsewhere in the world. For example, in the last financial year, China topped the list of planned investments in Uganda. According to the data from the Uganda Investment Authority (UIA) 45 per cent of all the planned FDI into Uganda was to come from China. The investments were mainly in capital infrastructure projects and manufacturing. This means that we should expect a slowdown in FDI as a result of the coronavirus.
There will also be a decline in the foreign currency inflows and remittances from the diaspora as a result of the disruption in the business and economic activities in many of the countries where the majority of Uganda diaspora live and work.
Decline in tourism and its related industries
The tourism sector will be the hardest hit by coronavirus as the as Government issues travel warning to people travelling to, and out of Uganda, under its policy “social distancing” in order to prevent and contain infections. As of now, tourism is the number source of foreign exchange in Uganda. It constitutes 7.7 per cent of the country’s GDP and employs close to 700,000 people. We all now know that the fewer people interact with each other, the less the virus spreads. This is the “social distancing” policy that WHO is advising all countries, including Uganda to follow.
This is having a negative effect on the travel and hospitality industry in Uganda. The most affected sectors are hotels, travel and tour agencies, bars, restaurants as well as international conferences and summits. For example, Uganda was supposed to host the 3rd UN G77 and China Summit next month, but this has been postponed, due to the coronavirus. This summit was going to be a major boost to our country’s international image and tourism sector. It was expected to be attended by over 6,000 international delegates from 135 countries. Delegates were expected to discuss trade between countries, investment and humanitarian aid related issues.
Decline in tax collections
Currently, about 42% of all the tax collected in Uganda is from international trade. This tax is mainly in the form of VAT and import duty on imports and excise duty on the importation of petroleum products. A slowdown in international trade as a result of the coronavirus is likely to have a massive negative impact on tax collections this year. The situation will be made worse by the reduced economic activity in the retail and trade, services, hotels, tourism and manufacturing sectors which will translate in both reduced VAT remittances and corporation tax payments to the URA.
