Uganda: BoU Wary Over Weak Growth in Major Economies

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The Bank of Uganda has recently expressed fears that Foreign Direct Investments (FDIs) and remittances to Uganda are projected to fall this year due to a slowdown in economic growth in the UK and North America. These economies account for 60% of the inflows to Ugandan.
This implies that Uganda is likely to experience less investment in various sectors of the economy, which could hit job creation and worsen the balance of payments.
Adam Mugume, the director of research at the Bank of Uganda (BoU), stated that in the best case scenario, the financial regulator is projecting both FDIs and workers’ remittances to reach $1 billion each this year.
“The outlook is a little negative. The economic growth in countries that are major sources of FDI and workers’ remittances is projected to weaken in 2016 and symptoms of another financial crisis are visible given the heavy exposure to the oil prices for some major financial institutions,” Mugume said. He added that, should the Chinese economy get a hard landing, this would further aggravate the global economic situation with consequences of lower FDI and workers’ remittances into Uganda.”
China’s economy grew by 6.9% in 2015, compared with 7.3% a year earlier, marking its slowest growth in a quarter of a century, according to the International Monetary Fund (IMF), and there are fears that its growth is expected to slow down further to 6.3% this year and 6% in 2017.
Last year, FDI inflows decreased to $1.039 billion, down from $1.146 billion recorded in 2014, reflective of decline in oil sector related investments due to a fall in international oil prices and the election related anxiety. This is the fourth year in a row that Uganda is registering a fall in FDI since 2011 mainly attributed to lower investments in oil and gas related sectors and a weak domestic and regional market that have traditionally pulled FDIs into the national economy. On the hand, workers’ remittances increased from $886 million to $1.049 billion during the same period – buoyed by positive economic developments in UK and North America. Neighbors Kenya saw remittances reach $1.54 billion in 2015, representing an 8.4% increase, with the money coming mostly from the Kenyan Diaspora in the US and Canada who accounted for almost half of the inflows. The figure rose from $1.43 billion in 2014, according to a report from the Central Bank of Kenya (CBK).
However, BoU is expecting a slowdown in FDIs and workers’ remittances into the country this year because of the projected decline in economic growth in countries that are the main sources of inflows. According to IMF, the growth of UK’s economy is projected to remain unchanged at 2.2% for this year and 2017 – blamed largely on the global financial turbulence.
Compared with the rest of the countries in the East African region, Uganda has been performing better in FDI inflows, according to the World Investment Report 2015.
Kenya’s inflows grew from $505 million in 2013 to $989 million in 2014 while Burundi’s rose five-fold to $32 million, up from $6 million during the same period. FDI’s into Rwanda grew by $10 million to $267.7 million in 2014.
However, Tanzania remained the region’s highest recipient of FDI with $2.14 billion recorded last year, up from $2.13 billion in 2013, mainly helped by gas discoveries. Uganda was a major FDI destination in the mid 2000s when FDI grew from $644.3 million in 2005 to $812.7million in 2008 mainly because of the positive prospects in the development of oil and gas sector.

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