Trade Imbalance

The Ugandan economy is dominated by three main sectors: Services, Agriculture and Industry. The agricultural sector is a significant player in the economy, and employs most of the country’s population – a majority of whom are poor. The sector is mainly engaged in subsistence production, with very limited orientation towards commercial agriculture. At the moment, there are deliberate efforts to modernize and commercialize the sector. Inevitably, this will lead to some labour displacements from the agricultural to other sectors.

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A majority of the poor are employed in the agricultural sector – a sector that contributes 67% of total employment, and a sector in which earnings are five times less than those in the public sector. Other studies indicate that from 1997/98, agricultural prices have increased by less than 5%, compared to over 30% for both industry and services prices and therefore, farmers who are predominantly rural based and depend on selling agricultural products have experienced a drop in the real price they receive. With falling agricultural commodity prices, the economic livelihoods of these households and the overall development aspirations are threatened.

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In terms of contribution to Gross Domestic Product (GDP), the share of the agricultural sector has declined from 40.8% in 2000/01 to 35.6% in 2004/05 and 34.0% in 2005/06. Other sectors such as Services and Industry have picked up, with the share of Services to GDP increasing from 40.6% in 2000/01 to 43.8% in 2004/05 and 45.5% in 2005/06 while that of Industry increased from 18.6% in 2000/01 to 20.6% in 2004/05 before declining slightly to 20.5 in 2005/06. The Services sector has remained the biggest contributor to GDP growth rates, contributing 4.0 % in 2005/06 while Agriculture and Industry contributed 0.1% and 0.9% respectively in the same period. This is as compared to 3.3%, 1.6% and 1.5% for the respective sectors in 2001/02.

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Imports have been growing faster than exports, resulting into a wider trade imbalance. Between 2001 and 2005 exports increased by 12.5%, 3.5%, 14.2%, 22.4% and 24.1% while imports increased by 5.0%, 6.7% and 28.1% before reducing to 25.5% and 19.0% for the respective years. The real differences in the growth rates between exports and imports should, however, be understood against the background that imports are increasing from a bigger base compared to exports. The trade deficit is estimated at US$ 1,243.2 million for 2005, compared to US$ 841.6 million and US$ 1,072.7 million in 2003 and 2004 respectively. For each of the years 2003, 2004 and 2005, the major imports were petroleum, petroleum products and related materials, with an import bill of US$ 187.3m, US$ 217.8m, and US$ 343.2m for the respective years. Road vehicles, including air cushion vehicles closely followed at US$ 115.1m, US$ 144.7m and US$ 192.2m for the respective years; with cereals and cereal preparations coming third at US$ 106.7m, US$ 134.4m and US$ 141.2m for the same respective years. The higher increase in imports would be desirable and sustainable if most of the imports were used as inputs into the production process. However, most of the imports are consumables rather than industrial/production inputs.

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The country maintains an open and liberal economy. Trade liberalization reforms have been undertaken over the last couple of years, especially through reduction in tariffs rationalization of tariff bands, substantial reduction in Non-Tariff Barriers, and pursuit of regionalism and multilateralism. Export diversification has been a key component of the trade policy reform, and the efforts are yielding positive results. Non-traditional exports account for the bulk of the country’s merchandise export earnings, with the main ones being fish and fish products, flowers, maize, cocoa beans, gold and gold compounds, and beans and other legumes. By value, coffee remains the single largest export commodity, followed by fish and fish products. The contribution of traditional exports (coffee, cotton, tea and tobacco) to total export earnings has declined from 38.4% in 2001 to 33.0% in 2005, while that of non-traditional exports has increased from 61.6% to 67% over the same period. The country’s merchandise exports are still dominated by primary products. This is an issue of major policy concern given the price volatility of primary products at international level, low and unstable production levels at national level, and some inefficiency in the existing marketing framework.

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