In its latest State of the Economy report for December 2023, the Bank of Uganda has revealed critical insights into the country’s import and export activities.

During the last quarter of 2023, Uganda imported goods worth UGX 8 trillion (approx. USD 2.1 billion), while its export earnings during the same period totaled UGX 4.78 trillion (approx. USD 1.26 billion). The disparity between imports and exports highlights key dynamics in the country’s trade balance and economic health.

Overview of Imports and Exports

Between October and December 2023, Uganda’s imports reached UGX 8 trillion, nearly double what the country earned from its exports. While the economy has shown resilience in export performance, with a 22.9% growth in non-coffee exports, the surge in imports has kept Uganda in a trade deficit.

Growth in Non-Coffee Exports

Uganda earned UGX 3 trillion from non-coffee exports during the fourth quarter of 2023. This marked a 22.9% increase, supported by rising international demand for Ugandan products such as agricultural goods and minerals. The growth in non-coffee exports demonstrates the country’s efforts to diversify beyond coffee, which traditionally has been a significant export.

Performance of Coffee Exports

Coffee, however, remains a cornerstone of Uganda’s export earnings. Coffee exports alone generated UGX 1.1 trillion, with a remarkable 40.8% growth.

This increase was driven by both a 22.5% rise in volume and a 15.1% improvement in the global coffee price. Uganda is one of Africa’s leading coffee exporters, and the sector continues to thrive due to favorable weather conditions and government initiatives promoting coffee farming.

Import Dynamics

On the other hand, the UGX 8 trillion in imports mainly consisted of industrial goods, machinery, and consumer products. However, the report from the Bank of Uganda notes that government imports decreased during the period, and private sector import growth was moderate at 8.9%.

This reflects the impact of declining import prices, as well as external pressures such as rising global interest rates, which have made it more expensive to finance large-scale imports.

Implications for Uganda’s Economy

The widening gap between imports and exports can strain the country’s balance of payments, making it more dependent on foreign currency reserves. This could also impact the value of the Ugandan shilling, putting pressure on inflation and making imported goods more expensive.

However, Uganda’s growing export revenues, particularly from coffee and non-coffee products, provide hope that the country can gradually reduce its trade imbalance. Moreover, the Central Bank anticipates that favorable weather conditions will continue to support export growth in the short term.

Global Financial Conditions and Geopolitical Tensions

One of the key points raised in the Central Bank’s report is how global financial markets and geopolitical tensions could affect Uganda’s balance of payments moving forward.

The ongoing tight global financial conditions, due to high-interest rates, pose a risk for Uganda, as it could become more difficult for the government and businesses to access affordable financing. These conditions may also dampen the country’s ability to attract foreign investment.

Current Account Outlook

In the short term, Uganda’s current account balance could improve, bolstered by increased export revenues. However, the report cautions that the global financial landscape remains volatile, and prolonged high interest rates could complicate efforts to secure external financing, especially for the government.

Conclusion

Uganda’s trade report for the final quarter of 2023 offers a mixed outlook. While the country’s exports, particularly in coffee and non-coffee goods, continue to grow, the rapid increase in imports poses challenges for the overall trade balance.

The Bank of Uganda’s analysis underlines the need for careful management of the external environment, particularly global financial markets, to ensure sustainable economic growth moving forward.

As Uganda continues to expand its export base, there is potential for the trade deficit to narrow. However, with rising import costs and limited financing options, Uganda will need to continue to innovate and invest in sectors that drive export growth to achieve a healthier balance of payments in the future