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Select Economic and Financial Indicators2014201520162017e2018f
Real GDP (% change)4.65.63.06.25.2
GDP (USD bn)27.925.225.326.428.4
Inflation (average)3.15.45.55.75.6
Fiscal Balance (% GDP)-4.7-4.9-3.9-6.2-5.4
Broad Money (% change, end period)15.211.711.114.415.0
Population (mn)34.4835.4936.5637.6738.82
Exports (USD bn)4.74.94.54.85.3
Imports (USD bn)7.87.66.47.18.1
Current Account Balance (% GDP)-8.5-7.1-4.3-5.6-7.2
FX Reserves (USD bn, end period)3.33.42.72.83.0
Exchange Rate (average)2,597.83,239.53,418.63,610.83,672.7

Economic Outlook

Economic Outlook

Real GDP: Largely reflecting slack progress on the execution of public investment and the impact of spillovers from conflicts in neighbouring countries (South Sudan and Eastern DRC), growth looks set to soften over 2018 in Uganda. Exacerbating the picture is impact of weak credit growth and subdued consumer demand on the industrial sector (18% of GDP). Nonetheless, we note that improved rainfall is supportive of faster expansion in agricultural output (22% of GDP) which will consolidate on its recovery in 2017 from a drought induced recession in 2016. In a similar vein, growth in the services sector (52% of GDP) will remain strong driven by stronger activity in trade, ICT and real estate. In all, we forecast that growth will decelerate to 5.2% in 2018 (down from 6.2% in 2017).

Inflation: Given sizable base effects as drought shocks drop off from the CPI readings and improvements in food production, food prices look set to continue to disinflationary pattern. Already the softer food prices has helped drive a deceleration in inflation to 3.3% in December 2017. However, we see modest inflationary pressures from rising crude oil prices and likely UGX depreciation which inform our view that inflation will moderate only slightly over 2018 to average 5.6% (2017: 5.7%).

Fiscal balance: In contrast to the expansionary pattern in the last few years, the fiscal posture over 2018 is one of consolidation. In the budget framework paper for 2018/19 submitted to parliament, the Yoweri Museveni government projects fiscal spending at UGX22.5trn (21.2% of GDP) largely flat from UGX22.4trn in 2017/18. As in 2017/18, recurrent expenditure is set to account for 49% of the budget with no provisions for wage increases while capital share of budget spending is at 44%. To finance the budget, the budget assumes that mobilised revenues would rise 5% to UGX16.8trn split between domestic revenues (92%) and grants (8%). To finance the anticipated deficit, the government projects domestic borrowings at UGX940bn (down from UGX1.8trn) while external borrowings will slide to USD1.8bn in 2018/19 from USD1.9bn in 2017/18. In all, consistent with the consolidation stance is a projected moderation in the fiscal imbalance to 5.4% of GDP in 2018/19. (2017/18e: 6.2%).

Current account: Though the improved weather pattern provides an uplift for coffee and tea exports (18% of exports), these gains to exports are likely to be offset by higher oil prices and elevated levels of infrastructure-related imports. This will maintain external sector pressures in 2018 resulting in the current account deficit widening to around 7.2% of GDP (2017e: 5.6%). This will continue to put pressure on the UGX. However, FX reserves and debt will still remain at comfortable levels, moderating the rate of depreciation of the shilling.

Risks

Risks arise from regional unrest – the Great Lakes region remains unstable and spillovers such as refugee inflows would adversely affect the economy. Meanwhile, capacity constraints could lead to slower progress with reforms, weakening prospects for donor funds and overall growth. Finally, a prolonged drought or other external shocks such as an oil price spike remain major threats to the economy.

FX, FI and Commodity Information

FX, FI and Commodity Information

Exchange rate structure

RegimeFloating
TargetNo target, participation from BoU limited to managing liquidity and smoothing volatility
Type of interventionVia spot market
Convertible currency?No
Market participantsBoU, commercial banks, forex bureaus and retail end users
Source: Bloomberg, IMF, and Ecobank Research

FX

FX ProductsSpotForwardsNon-deliverable ForwardsOptionsSwaps
On offerYesYes – up to 2 yearsNoNoYes
Daily trading volume (USD mn)n/an/a
Average trade size (USD mn)
Average spread
Trading hours9.00-16.00
Settlement cycleT+2T+1 to T+Tenor+2n/an/aT+2
FX Market StructureThe BoU participates in the FX market in order to manage liquidity and smooth excess volatility in exchange rate movements, while seeking to maintain an adequate level of FX reserves.
Non-resident FX RegulationsSpotForwardsNon-deliverable ForwardsOptionsSwaps
Trade and FDI flowNo restrictionsn/a
Financial flow
Resident FX RegulationsSpotForwardsNon-deliverable ForwardsOptionsSwaps
Trade and FDI flowNo restrictionsn/a
Financial flow
Source: Bloomberg, IMF, and Ecobank Research

FI

Primary MarketTreasury billsTreasury notesTreasury bondsCentral Bank billsOMOs
IssuerGovernmentn/aGovernmentn/a
End useGovernment financingGovernment & infrastructure financing
Maturity structure91- to 364-days2- to 15-yrs
CouponZeroFixed
Coupon paymentsn/aSemi-annual
Secondary Market
Daily trading volumeLimited tradingn/a
Average trade sizeLimited trading
Settlement cycleT+3
Ecobank local affiliate contact details:
Ecobank Uganda, Plot 4 Parliament Avenue, Kampala
Tel: +256 417 700 100 / 102
Source: Bloomberg, IMF, and Ecobank Research

FI Primary Market information

FI Primary Market information

Uganda Debt2014201520162017e2018f
Government debt (% GDP)30.733.337.338.639.9
Sub-Sahara average44.552.656.155.655.8
External debt (official creditors, % GDP)15.219.521.325.127.2
Sub-Sahara average25.530.231.932.933.2
External public debt stock (USD bn)4.24.95.46.67.7
Share of total sub-Sahara debt (%)1.72.02.22.73.1
Source: IMF and World Bank

Banking Sector Information

Banking Sector Information

Uganda has the third largest banking sector in the EAC, regulated by the Bank of Uganda (BOU). At end-2015 there were 25 commercial banks operating in Uganda. That year total banking sector assets grew by 11% year-on-year in local currency terms to an equivalent of USD6.4bn. However, in USD terms total assets declined by 9% year-on-year, primarily owing to the 25% depreciation of the local currency (UGX) against the USD. The growth (in local currency terms) of banking assets was driven by a 15% year-on-year and a 56% year-on-year increase in gross loans and interbank balances, respectively. Loans and advances accounted for 46% of total banking sector assets (FY2014:44%).

Uganda's banking sector key balance sheet items, USD millions

AssetsFY2014FY2015
Cash & Cash Assets        285.2        240.3
Balances with BOU        763.2        587.3
Due from Financial Institutions        613.8        780.5
Government Securities    1,618.3    1,204.0
Gross Loans and Advances    2,990.3    2,814.5
Net Fixed Assets        297.8        274.3
Other Assets        243.5        204.9
Total Assets    7,101.6    6,434.3
Funding
Customer Deposits    4,792.9    4,390.1
Due to Financial Institutions        204.3        186.6
Administered Funds        430.6        372.0
Total Funding Liabilities    5,427.7    4,948.8
Source: Bank of Uganda.

Lending is driven by the commercial sector

Lending is mainly driven by SMEs and local & multinational corporates. Retail banking is dominated by the medium-sized Tier II and the smaller Tier III banks; the SME segment is dominated exclusively by the medium-sized Tier II banks; and the large Tier I banks (led by Standard Chartered, Barclays and Stanbic) dominate the large corporates.

In 2015, foreign-currency denominated loans grew faster than the UGX loans, increasing their share of total loans to around 45%. The rising appetite for foreign currency loans is largely driven by the need to hedge against interest rate risks in an environment where local currency borrowing rates remain high (especially in the lead-up to the 2015 election when public spending rose).

Deposits remain key source of funding

Customer deposits remain the key source of balance-sheet funding, accounting for 89% of total funding liabilities at end-2015. Exposure to non-resident banking institutions (in the form of FX borrowings) remains limited, accounting for just 4% of total liabilities (down from 14.4% in FY2014). This indicates that banks were funding their FCY asset book locally. Despite the thin margins of FCY loans, net interest margins (NIMs) have remained broadly stable, and fell moderately in FY2014 to 11%.

Wide margins drive earnings

Commercial banks generated USD1bn in gross revenues in FY2015. Annuity income from loan books accounted for 55% of total gross revenues. Net funded income (net of funding costs and impairment adjustments) accounted for 63% of total net revenues, despite the fact that loans and advances accounted for under half of total assets. This might reflect the fact that margins, both in local and foreign currencies, remain wide. However, owing to relatively high efficiency levels, Uganda’s commercial banks delivered 45% of net revenues as bottom line.

Asset quality has declined, but banks remain well capitalised

Although commercial banks’ asset quality declined in 2015, with the gross non-performing loans ratio rising from 4.1% in 2014 to 5.3% in 2015, there was no discernible impact on banks’ earnings. Only 13% of commercial banks’ net funded revenues (net of funding costs) were impaired by impairment adjustments. However, we expect this level to have risen over the following years owing to the slowdown in economic growth which is likely to have impacted Uganda’s SME sector.
Capital adequacy in Uganda’s banking sector remained satisfactory at end-2015. Data from the BOU indicate that all commercial banks met the minimum regulatory capital adequacy requirements, with an aggregate industry-wide Tier 1 capital adequacy ratio and total capital adequacy ratio of 18.6% and 21%, respectively. The leverage ratio (regulatory Tier 1 capital to total assets plus off-balance sheet items) was relatively stable at 11.1% in 2015.

Commodity and trade information

Commodity and trade information

Hydrocarbon & mineral production

Uganda is estimated to hold reserves of 3.5bn barrels of crude oil and could potentially produce 200,000 bpd, with commercial production set to start in 2019. The country’s output will largely be exported via a pipeline to be built either to Kenyan or to Tanzanian ports, while small volumes could be used to fuel a planned thermal power plant in the Lake Albert region. Around 60,000 bpd will be processed by a new refinery to be built in Hoima by RT Global Resources, a consortium owned by the Russian Group Rostec. Uganda currently imports all its fuel requirement of around 17,000 bpd. Once the new refinery becomes operational the country will become a regional refining hub, meeting all domestic needs and exporting the balance across East Africa.

Uganda has reserves of gold, copper, tin, diamonds and uranium, but there has been little exploitation to date. Uganda produces small quantities of gold from artisanal miners (8 tonnes in 2016), and is the conduit for illicit flows of gold from neighbouring DRC to the UAE, via the daily flight from Kampala to Dubai. Uganda is an important producer of cement, with installed capacity of 357,000 tonnes in 2016.

Soft commodity production

Uganda’s agricultural sector produces food and cash crops for local, regional and world markets. Food production is focused on plantains (3.7mn tonnes in 2016), cassava (2.9mn tonnes), maize (2.6mn tonnes) and sweet potatoes (2.1mn tonnes).

Uganda is Africa’s second largest coffee producer (after Ethiopia) with output of 3.8mn 60-kg bags in 2016/17 (October-September). Robusta constitutes three-quarters of the country’s total output, with Arabica making up the balance. Uganda’s coffee production has fluctuated in recent years, owing to erratic weather and disease outbreaks. Uganda is the second largest tea producer in Africa, with estimated output of 55,736 tonnes in 2016.

Uganda is an increasingly important sugar producer, with total output of 480,000 tonnes in 2016/17, a level which has been steady for the past three seasons. Uganda also produces small volumes of groundnuts (210,000 tonnes in 2016), sesame seed (130,000 tonnes), tobacco (31,500 tonnes), cotton lint (27,000 tonnes in 2016/17) and cocoa (24,000 tonnes), the bulk of which are exported via Kenya to international markets.

Trade flows

Imports

Uganda’s imports totalled US$4.9bn in 2016. Given the country’s landlocked status and the relatively underdeveloped manufacturing sector, the bulk of imports were capital and consumer goods, and industrial raw materials. Imports of petroleum products totalled US$756mn in 2016, reflecting the lack of refining capacity. Machinery, vehicles, electronics and pharmaceuticals made up a further US$1.4bn of imports in 2016. The country also imported iron & steel (worth US$281mn), plastics (US$244mn) and cement (US$77mn) for its construction and logistics sectors. Large volumes of these goods were re-exported to the Lakes region, reflecting Uganda’s status as a re-export hub. Uganda also imported large volumes of food, including palm oil (US$217mn), wheat (worth US$128mn) and sugar (US$82mn).

Exports

Uganda’s exports totalled US$2.5bn in 2016. Coffee was the largest export, worth US$372mn (one third of Africa’s coffee exports), over half of which went to Italy, Sudan, Belgium and Germany. The other key export was gold, worth US$339mn, of which a large part is believed to originate from neighbouring countries. The country’s other soft commodity exports are led by fish (mainly Nile Perch from Lake Victoria), worth US$121mn in 2016, two-thirds of which went to Hong Kong, Belgium and the Netherlands. Uganda also exported US$100mn worth of sugar, US$76mn of cocoa, US$72mn of vegetables, US$71mn of tea and US$64mn of tobacco. The country acts as a re-export hub for petroleum products (worth US$142mn), and iron & steel (U$96mn) to landlocked countries such as Rwanda, Burundi and the DRC.

  • Flag
  • Population
    38.82M
  • Area
    241,038 sq km
  • Capital
    Kampala
  • Largest city
    Kampala
  • Official language
    English and Swahili
  • Major languages
    English, Luganda, Swahili and Arabic
  • Currency
    Ugandan shilling

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