Uganda at a Glance: 2001-02

COUNTRY REPORT

Uganda At a glance: 2001-02

OVERVIEW The multiparty opposition remains active. As awareness of political alternatives in the country increases, tension between opposition groups and the government is expected to intensify. Uganda’s poverty reduction and growth facility (PRGF) under the IMF has been extended to end-March 2001, indicating that the Fund is satisfied with Uganda’s performance under the programme. Overall the macroeconomic outlook is fair, and real GDP growth is forecast to average 6.6% per year in 2001-02. However, inflation is forecast to remain at around 6% per year during the forecast period. Key changes from last month Political outlook • The political situation remains unchanged. It will become more heated as the presidential election in March 2001 draws nearer, and the opposition will increasingly question the constitution’s definition of democracy. Uganda’s involvement in the conflict in the Democratic Republic of Congo will continue to create problems for the government, as international pressure mounts for the implementation of the Lusaka accord. Economic policy outlook • With the extension of Uganda’s PRGF programme, economic reforms— including an acceleration of the privatisation programme—will continue in 2001-02. • The privatisation programme is expected to make progress, and the unbundling of the Uganda Electricity Board into separate distribution, generation and transmission companies is scheduled to be completed by end-2001. Economic forecast • Real GDP is forecast to grow by 6.4% in 2001 and by 6.8% in 2002, owing to the recovery of the agricultural sector after the drought in 1999. Moderate rises in foreign investment and continued high levels of donor support will also contribute to overall economic activity.

November 2000

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ISSN 1465-640X

Symbols for tables “n/a” means not available; “–” means not applicable

Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Uganda 1

Contents

2 Summary

3 Political structure

4 Economic structure 4 Annual indicators 5 Quarterly indicators

6 Outlook for 2001-02 6 Political outlook 7 Economic policy outlook 8 Economic forecast

11 The political scene

20 Economic policy

23 The domestic economy 23 Economic trends 25 Agriculture and fisheries 27 Manufacturing 27 Mining 28 Infrastructure and services

28 Foreign trade and payments

List of tables

8 International assumptions summary 10 Forecast summary 24 Total reserves, 2000 25 Consumer price inflation 26 International coffee prices

List of figures

11 Gross domestic product 11 New Ugandan shilling real exchange rates 23 Exchange rate, 2000

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 2 Uganda

Summary

November 2000

Outlook for 2001-02 The political situation will become increasingly heated in the coming months as the presidential and parliamentary elections—which will probably take place in March and June 2001, respectively—draw nearer. Uganda’s involvement in the internal conflict in the Democratic Republic of Congo will remain a sore point for the government, and is likely to be accentuated in the forthcoming elections. Rebel activities in the north and west of the country continue. Real GDP growth is forecast to increase to 6.4% in 2001 and to 6.8% in 2002, owing to a recovery in agriculture and to large inflows for donor-funded infrastructure projects. Higher volumes of coffee exports will help offset the negative effects of lower coffee prices in 2001, as the current-account deficit improves to US$512m. However, the continued fall in prices in 2002 will lead the current- account deficit to worsen to US$533m. Total debt-service payments are estimated to fall from US$111m in 2000 to US$102m in 2001, owing to debt reduction under the heavily indebted poor countries initiative.

The political scene The opposition has taken the government to task in the courts over the parliamentary procedures used to pass the Referendum Acts 1999 and 2000. This forced some quick manoeuvring in parliament, and the enactment of the Constitutional Amendment Bill 2000 has now legitimised the latter act. Corruption is becoming a larger issue, with the World Bank recently alleging that graft is rampant in Uganda.

Economic policy The IMF has completed its first review of Uganda’s third annual arrangement under the poverty reduction and growth facility, and has approved the extension of the arrangement until March 2001, from the original expiry date of November 2000. The government will continue to focus on improving the collection of tax revenue.

The domestic economy Tea output increased by 22% in January-August compared with the same period in 1999. An EU inspection team visited Uganda in early October to review lifting the partial ban on fish exports—a final decision is expected in November, and signs are positive. Manufacturing output fell by 11% between June and August, as the weak shilling hit the import-dependent sector. Annual headline inflation was 2.9% in September, down slightly from August owing to lower food prices. A new power-supply agreement with Kenya will increase electricity sales to 135mw by 2004.

Foreign trade and Revenue from coffee exports has fallen by 46% in the current coffee year payments (October 1999-August 2000) against the same period in 1999, suffering from low international prices and lower-than-expected volumes, and the imports bill has continued to grow. Regional trading organisations are proving a challenge. Editors: Christopher Eads (editor); Pratibha Thaker (consulting editor) Editorial closing date: November 6th 2000 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 Uganda 3

Political structure

Official name Republic of Uganda

Form of state Unitary republic

Legal system Based on English common law and the 1995 constitution

National legislature Parliament of Uganda; 276 members, 214 elected by universal suffrage, with the remainder selected by electoral colleges; all serve five years

National elections May 1996 (presidential); June 1996 (legislative); next elections due by 2001 (presidential and legislative)

Head of state President, Yoweri Museveni; last presidential election May 1996

National government The president and his appointed cabinet; last reshuffle September 2000

Main political parties The Movement (formerly the National Resistance Movement) is the ruling authority, but not a formal political party; the Democratic Party (DP), the Uganda People’s Congress (UPC), the Uganda Patriotic Movement (UPM) and the Conservative Party (CP) are all registered political parties, but election candidates stand as independents

President & commander-in-chief Yoweri Museveni Vice-president Specioza Kazibwe Prime minister Apollo Nsibambi First deputy prime minister & minister of foreign affairs Eriya Kategaya Second deputy prime minister & minister of internal affairs Brigadier Moses Ali

Key ministers Agriculture, animal industry & fisheries Mugerwa Kisamba Education & sports Makubuya Kidhu Energy & minerals development Syda Bumba Finance, planning & economic development Gerald Ssendaula Gender, labour & social development Janet Mukwaya Health Crispus Kiyonga Justice & constitutional affairs Jehoash Mayanja-Nkangi Local government Jabeli Bidandi Ssali Public service Amanya Mushega Water, lands & environment Henry Muganwa Kajura Works, housing & communications John Nasasira Trade, tourism and industry Edward Rugumayo Without portfolio Mondo Kagonyera Attorney-general Bart Katureebe

Ministers in the office of the Presidency Ruhakana Rugunda president Vice-presidency Betty Okwir Security Wilson Mukasa Muruli Information Nsadhu Basoga Economic monitoring Kweronda Ruhemba Ethics & integrity Miria Matembe Parliamentary affairs Rebecca Kadaga Disaster preparedness & refugees Tom Butime

Central bank governor Charles Nyonyintoho Kikonyogo

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 4 Uganda

Economic structure

Annual indicators

1996 1997 1998 1999 2000a GDP at market prices (NUSh bn) 6.6 7.3 7.7 8.6 9.7 GDP (US$ bn) 6.3 6.7 6.2 5.9 5.9 Real GDP growth (%) 9.1 4.7 5.6 4.6 6.0 Consumer price inflation (av; %) 7.2 6.9 0.0 6.4b 6.5 Population (m) 19.9 20.4 21.0 21.6 22.1 Exports of goods fob (US$ m) 639.3 575.6 504.0 514.8a 395.9 Imports of goods fob (US$ m) 986.9 1,042.5 1,119.0a 1,127.2a 1,187.6 Current-account balance (US$ m) –252.3 –387.8 –370.3a –593.7a –582.0 Foreign-exchange reserves excl gold (US$ m) 528.4 633.5 725.4 763.1 700.0 Total external debt (US$ bn) 3.7 3.9 3.9 3.6a 3.3 Debt-service ratio, paid (%) 18.3 20.4 21.4 17.1a 18.5 Exchange rate (av) NUSh:US$ 1,046.1 1,083.0 1,240.3 1,454.8 1,640.0

November 6th 2000 NUSh1,835:US$1

Origins of gross domestic product 1998c % of total Components of gross domestic product 1997c % of total Agriculture 42.8 Private consumption 91.6 Monetary 2.1 Government consumption 11.3 Non-monetary 19.7 Gross domestic investment 17.1 Government & community services 15.1 Exports of goods & services 10.3 Commerce 13.1 Imports of goods & services –30.3 Manufacturing 9.6 GDP at factor cost 100.0 Construction 7.3 GDP at factor cost incl others 100.0

Principal exports fob 1998 US$ m Principal imports cif 1998 US$ m Coffee 296 Machinery incl electrical 203 Fish & fish products 40 Road vehicles 130 Tea 38 Petroleum 112 Tobacco 22 Cereals 72 Gold 19 Medical & pharmaceuticals 54 Iron & steel 47

Main destinations of exports 1999d % of total Main origins of imports 1999d % of total Spain 11.4 Kenya 27.5 Germany 6.7 UK 5.0 Belgium 5.5 India 4.0 Netherlands 5.4 France 19.3 Hungary 5.7 US 21.2 a EIU estimates. b Fiscal years (July-June) beginning year stated. c Actual. d Based on partners’ trade returns; subject to a wide margin of error.

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Quarterly indicators

1998 1999 2000 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Prices Consumer prices, Kampala (1995=100) 112 115 119 121 122 126 123 124 % change, year on year –2.0 –2.6 1.6 6.1 8.5 9.5 3.4 2.5 Financial indicators Exchange rate NUSh:US$ (av) 1,254.7 1,345.8 1,375.9 1,472.0 1,466.9 1,504.5 1,519.6 1,557.0 NUSh:US$ (end-period) 1,300.5 1,362.7 1,397.1 1,452.6 1,506.1 1,506.0 1,519.9 1,571.7 Interest rates (%) Bank (end-period) 12.97 9.10 9.38 11.15 14.75 15.75 15.88 Deposit (av) 11.05 10.12 9.65 8.45 8.01 8.81 8.79 9.71 Lending (av) 20.22 20.45 21.86 22.08 21.42 20.84 21.36 22.15 Treasury bill (av) 6.60 7.06 5.14 7.04 7.25 10.29 9.88 12.83 M1 (end-period; NUSh bn) 553.19 612.44 624.90 644.04 650.12 693.82 715.72 n/a % change, year on year 15.8 19.5 19.7 13.8 17.5 13.3 14.5 n/a M2 (end-period; NUSh bn) 1,016.0 1,124.9 1,132.8 1,161.6 1,219.0 1,283.7 1,314.4 n/a % change, year on year 21.6 22.9 20.6 13.7 20.0 14.1 16.0 n/a Sectoral trends Production (annual totals; ‘000 tonnes) Coffee ( 196.8 ) ( 198.0a ) ( n/a ) Cotton, lint ( 15.2 ) ( 15.4a ) ( n/a ) Seed cotton ( 45.1 ) ( 46.0a ) ( n/a ) Foreign trade (NUSh m) Exports fob 144,019 196,637 230,422 163,525 136,803 218,112 252,551 199,942 Imports cifb –503,793 –445,428 –435,620 –487,251 –475,610 –557,368 –538,506 –619,353 Trade balance –359,774 –248,791 –205,198 –323,726 –338,807 –339,256 –285,955 419,411 Foreign reserves (US$ m) Reserves excl gold (end-period) 721.8 725.4 760.0 740.1 735.5 763.1 721.2 725.9 a Preliminary. b Cash basis. Sources: UN Food and Agriculture Organisation; IMF, International Financial Statistics.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 6 Uganda

Outlook for 2001-02

Political outlook

Domestic politics The after-effects of the June 29th referendum on multipartyism in Uganda are still felt within the political system. The political situation will become increasingly heated in the coming months, as the presidential and parliamentary elections—which will probably take place in March and June 2001, respectively—draw nearer. Problems have already begun, as restrictions have been placed on opposition parties’ public gatherings and demonstrations, and the government has issued a strong warning to the opposition not to incite public disorder. Overall the opposition parties are fractured, and there is little chance of their prevailing in 2001. The president, Yoweri Museveni, will almost certainly be re-elected for a final, third term. A recent donor-funded poll put President Museveni’s approval rating at 93%, but the approval rating of parliament is much lower, at 52%, and provided that the opposition parties do not indulge in a futile boycott they may win a substantial block of seats in the parliamentary election.

The definition of the democratic freedoms provided for in the Ugandan constitution will come under increasing scrutiny as the opposition pushes for increased expression and organisation. Since the June referendum, opposition leaders have not ceased in their attack on the current Movement government, and have pursued action through the judiciary and in the public forum. In August the Constitutional Court’s decision to overturn the Referendum Act 1999—as well as the opposition’s petition against the Referendum (Political Systems) Act 2000—ended with parliament amending the constitution, for the first time since its promulgation in 1995, to ensure that the latter act could not be contested via the judiciary. This has created tension between the executive, judicial and parliamentary branches of government. With the amendment in place the result of the referendum is now secure, but the court actions have set a precedent by opening up a means of expression of political dissent. This will provide further momentum to the increasingly vocal opposition, as the Democratic Party and the Uganda People’s Congress test the political tolerance of the government.

International relations Relations between Rwanda and Uganda are expected to improve, following the latest meeting between President Museveni and the Rwandan president, Paul Kagame, in Kigali on September 21st. The two presidents have issued a joint communique outlining ways in which their countries can strengthen their bonds of friendship and co-operation in the future, and have also restated their respective commitments to the Lusaka ceasefire agreement. The cause of military clashes between the two countries, which took place in Kisangani, in the Democratic Republic of Congo, has not been clearly identified, but both governments have stressed the importance of a full session of the joint permanent commission—established in late August—to review the situation and make recommendations on avoiding future confrontations. However, Uganda remains suspicious of Rwanda’s long-term goals in the region, and the

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recent military confrontations have re-awakened anti-Rwandan sentiment in some sections of the Ugandan population, particularly the army.

Problems persist in the north, as rebel groups of the Sudan-based Lord’s Resistance Army (LRA) continue to raid villages and abduct Ugandans. The latest attempt to normalise relations between Sudan and Uganda took place on September 26th in Kampala, at a meeting between the foreign ministers of Libya, Egypt, Sudan and Uganda. Previous talks between Uganda and Sudan (as recently as September at the UN General Assembly in New York) yielded little results. The Sudanese government has agreed in principle to disarm the LRA and to relocate it 1,000 km deeper into Sudan. In addition, two pairs of diplomats, one from Uganda and one from Sudan, are scheduled to begin working in the others’ country. This exchange of diplomats is a positive move towards resolving the issue, but the willingness of the LRA to be relocated farther from Uganda remains a major factor in the normalising of relations.

Economic policy outlook

Policy trends In September the IMF approved an extension of Uganda’s poverty reduction and growth facility (PRGF) to March 31st 2001, from the original expiry date of November 9th 2000. The Fund has commended the Ugandan government for its dedication to social-sector spending and its strict adherence to tight fiscal and monetary policies despite the depreciating shilling and lower-than- expected export revenue. Budget outlays for military and defence are still causes for concern for the IMF and World Bank, but the recent extension of the PRGF programme shows that donors are satisfied with the performance of the government in its continuing commitment to economic reforms.

Fiscal policy The budget for the 2000/01 fiscal year (July-June) was published on June 15th 2000. It is based on projected real GDP growth of 7% and an average inflation rate of 5%. Extensive statistical background information for the budget has yet to be published, but the main goals and changes remain very much in line with the recommendations of the IMF and the World Bank. Government spending is set to increase by 20%, to NUSh1.52bn (US$950m). Of the total, education is allocated 27%; health 7.6%; water and sanitation 1.5%; and roads and works 9.3%. Security is a clearly marked priority in the budget—its allocation is set at 14% of the total. Programmes highlighted in the budget once again included primary education capacity, improved transparency and efficiency at the district government level, and road rehabilitation. Public- sector wages are set to rise by 5% for all civil servants, with a 10% rise for the lowest levels. The government estimates that tax and non-tax revenue will increase by 14% in 2000/01. This is an optimistic estimate, given that domestic revenue generation in Uganda is among the worst in the region, at only 11.3% of GDP, and has declined in recent years. The tax regime remains largely the same, but changes include: a 20% industrial building allowance for corporations; removal of the 4% withholding tax; removal of airfreight charges from the cif tax; abolition of the 2% commission on raw materials; and abolition of the import tax on tools for agricultural use. The increase in government spending is covered entirely by increased budgetary support from

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donors. The government continues to depend on donor aid for over 50% of its total expenditure, taking in more money from grants and loans than from domestic revenue.

Monetary policy Monetary policy will remain tight throughout the forecast period. Growth of the money supply will be controlled and interest rates will be set conservatively. The Bank of Uganda (BOU; the central bank) reports that it has sold US$174m on the local foreign-currency market in support of the shilling since January this year. The latest sales were made on September 20th (sale of US$10m), September 21st (sale of US$8m) and October 3rd (sale of US$5m). Also in September, import cover dipped just below the five months recorded in August, raising the question of whether or not the BOU can continue to intervene to support the shilling. The IMF has stated that it accepts the limited interventions of the BOU, and import cover in Uganda is still within IMF programme guidelines. However, the BOU’s ability to intervene will decline as international reserves are unavoidably brought down.

Economic forecast

International assumptions The world economy is entering a period of sustained economic growth. The EIU estimates 3.4% global GDP growth (at market exchange rates) in 2001, owing to a slowdown of the strong expansion in North America and the euro zone. Growth will slow further to 3.1% in 2002, largely because of the continued slowdown in the US and euro zone economies.

International assumptions summary (% unless otherwise indicated) 1999 2000 2001 2002 Real GDP growth World 3.5 4.9 4.2 4.1 OECD 2.9 4.1 3.1 2.7 EU 2.3 3.5 3.0 2.6 Exchange rates (av) ¥:US$ 113.9 106.7 104.0 102.0 US$:¤ 1.07 0.93 0.95 1.05 US$:SDR 1.37 1.30 1.29 1.35 Financial indicators ¥ 2-month private bill rate 0.27 0.26 0.43 0.98 US$ 3-month commercial paper rate 5.18 6.40 6.55 5.25 Commodity prices Oil (Brent; US$/b) 17.9 29.1 25.4 19.1 Gold (US$/troy oz) 278.8 283.2 275.0 270.0 Coffee (robusta; US cents/lb) 67.5 48.6 44.0 33.5 Tea (US$/kg) 1.75 1.82 1.76 1.77 Food, feedstuffs & beverages (% change in US$ terms) –18.6 –6.1 4.2 10.1 Industrial raw materials (% change in US$ terms) –4.3 14.9 8.7 2.3

Note. Regional aggregate GDP growth rates weighted using purchasing power parity (PPP) rates.

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The outlook for the prices of Uganda’s main exports, tea and coffee, is fairly bleak. Coffee accounts for around 50% of Uganda’s export receipts, and its prices, which have fallen to eight-year lows in recent weeks, are expected to decline by nearly 24% in 2000, by a further 16% in 2001 and by 10% in 2002, as African and Asian crops continue to outstrip growth in demand. Tea prices are expected to firm slightly in 2000, as the Kenyan crop appears to be smaller than was initially expected. Tea prices are forecast to decline in 2001, but will stabilise in 2002 as global production continues to recover. We have again raised our forecast for international oil prices—they are now expected to average US$29.1/barrel in 2000, falling to US$25.4/b in 2001 and to US$19.1/b in 2002. This outlook will reduce some of the inflationary and financing pressures on Uganda’s heavily import-dependent economy. Despite falling foreign aid budgets in OECD countries, donor sentiment and support for economic reform in Africa—particularly debt relief—is expected to remain strong throughout the outlook period, and Uganda will be one of the main African beneficiaries.

Economic growth Assuming a return to normal rainfall patterns, we expect real GDP growth to improve to 6.4% in fiscal year 2000/01, on the back of a recovery in agriculture and heavy public-sector investment in infrastructure projects. However, the figure may be lower if drought conditions reduce harvests. Because of the high import content of manufactures in Uganda, increased prices of inputs, coupled with high oil prices, will restrict manufacturing growth to no more than 6% per year. The growth of services is expected broadly to reflect trends in production sectors. With normal weather patterns—and continuing structural reform and donor inflows—we expect real GDP growth to improve again to 6.8% in 2001/02, just below the official target of 7%.

Inflation Year-on-year inflation was 2.9% in September, owing to higher price levels for staple foods, produce, breads and cereals, beverages, transport and com- munication. These price-level increases are largely due to high international oil prices, drought-affected food harvests and the weakness of the shilling. Overall, we expect inflation to fall from an average of 6.5% in 2000 to 6.0% in 2001 and 2002. In 2001 and 2002 oil prices are forecast to decline modestly, depreciation of the shilling is expected to slow and pressure on food prices is expected to ease owing to normal harvests.

Exchange rates From the beginning of the year to end-September 2000, the shilling has fallen by 18% against the US dollar. Lower export earnings will maintain downward pressure on the shilling, but strong donor inflows and limited interventions by the BOU will continue to help slow the depreciation. In a bid to boost the competitiveness of the economy, especially the manufacturing sector, the central bank is expected to allow the shilling to continue to depreciate slowly. We forecast that the shilling will average NUSh1,640:US$1 in 2000, falling to NUSh2,130:US$1 in 2001 and to NUSh2,237:US$1 in 2002, as global commodity prices remain depressed. International reserves are expected to be US$700m at end-2000, as receipts from coffee exports begin to take effect. Reserves are forecast to rise to US$725m in 2001, falling back to US$700m in 2002 owing to low prices for exports and the continued current-account deficit.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 10 Uganda

Forecast summary (% unless otherwise indicated) 1999a 2000b 2001c 2002c Real GDP growth 4.6 6.0 6.4 6.8 Industrial production growth 7.0b 7.0 7.5 7.5 Gross agricultural growth 3.8 6.0 6.5 6.5 Consumer price inflation Average 6.4 6.5 6.0 6.0 Year-end 8.4 7.0 7.0 7.0 Short-term interbank rate 21.6 25.0 24.0 24.0 Government balance (% of GDP) –6.9 –9.5 –9.4 –6.8 Exports of goods fob (US$ bn) 0.5b 0.4 0.4 0.5 Imports of goods fob (US$ bn) 1.1b 1.2 1.3 1.3 Current-account balance (US$ bn) –0.6b –0.6 –0.5 –0.5 % of GDP –10.1b –9.9 –10.0 –9.7 External debt (year-end; US$ bn) 3.6b 3.3 3.1 2.9 Exchange rates NUSh:US$ (av) 1,454.8 1,640.0 2,130.0 2,237.0 NUSh:¥100 (av) 1,277.2 1,537.5 2,048.1 2,193.1 NUSh:¤ (year-end) 1,513.0 1,757.8 2,222.0 2,507.0 NUSh:SDR (year-end) 2,067.1 2,472.6 2,929.2 3,168.7

a Actual. b EIU estimates. c EIU forecasts.

External sector The negative impact of global commodity prices on the external sector will ease over the forecast period, as export volumes increase and international oil prices fall. As a result, we expect Uganda’s total coffee export earnings to rise, from an estimated US$180m in 2000 to US$191m in 2001. In 2001 higher export volumes will almost offset lower prices—however, the continued fall of coffee prices in 2002 will not be offset by increased production volumes, and coffee receipts will fall back to US$180m. The outlook for non-coffee exports is more positive, and will help to mitigate the negative effects of low international coffee prices. As a result, total merchandise exports are expected to increase from US$396m in 2000 to US$441m in 2001 and US$451m in 2002. Import spending is forecast to increase in 2001–02, owing to high donor- supported investments in infrastructure and to increasing domestic demand as the economy regains its momentum.

The invisibles balance will remain firmly in deficit over the forecast period. This is due to Uganda’s structural deficit in the services account and to the country’s lack of a healthy tourism industry. The current-transfers balance will be strongly positive, owing to high external aid inflows. Overall, the current- account deficit is estimated to be US$582 in 2000, narrowing to US$512m in 2001, before expanding to US$533m in 2002 as a result of the continued fall in international coffee prices.

Uganda is one of the largest beneficiaries under the enhanced framework of the IMF-World Bank’s heavily indebted poor countries debt initiative, and is to receive a total of about US$2bn in debt reduction over a 26-year period beginning this year. We forecast that the headline total external debt stock will fall to US$3.3bn by end-2000, to US$3.1bn by end-2001 and to US$2.9bn by end-2002. Currently, public medium- and long-term debt accounts for 86% of

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total debt, with the IMF and short-term debt making up the difference. Total debt-service payments will fall from US$111m in 2000 to US$102m in 2001, but will edge back up to US$106m in 2002 owing to new inflows of medium- and long-term debt needed to finance the continuing fiscal deficit. The debt- service ratio is expected to be 18.5% in 2000, falling to 15.2% in 2001-2002.

The political scene

The opposition takes on the The opposition groups have refused to accept their defeat in the referendum on government in court political parties graciously, and political tension has remained high. The Demo- cratic Party has made life difficult for the government, challenging the validity of its legislation in the Constitutional Court and succeeding in overturning the Referendum Act on the technical point that there was not a quorum of MPs present in parliament when the bill was passed. The judges also ruled that the voting method used in parliament—which requires that MPs shout “aye” or “nay”, and has been in use since independence in 1962—was inconsistent with constitutional provisions. The judgement would have nullified the outcome of the referendum (and all legislation passed since June 1996), had the government not been aware of the likely outcome and hastily enacted alternative legislation in the form of the Referendum (Political Systems) Act 2000. However, the leader of the Democratic Party (DP), Paul Ssemogerere, and his deputy, Zachary Olum, initiated a further challenge on the grounds that the new bill was also unconstitutional, because it was passed without prior reference to a standing committee and because the “aye” and “nay” method of voting was used.

The government amends The leaders of the Movement were divided on how to avert what had become a the constitution looming constitutional crisis. At a meeting of the Movement caucus, some favoured lodging an appeal to the Supreme Court but the majority decided that the most expedient way forward lay in making an amendment to the constitution itself. This had to be done quickly, because Ssemogerere’s petition was due to be heard within a few days. So, for the second time this year, the parliament suspended its rules of procedure and enacted the Constitutional

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Amendment Bill 2000. The purpose of the amendment was to introduce the “aye” and “nay” method of voting and to validate any law passed without recourse to a parliamentary standing committee. By this manoeuvre the government effectively blocked any litigation against the Referendum Act 2000 and saved all legislation passed since 1996.

The opposition receives a Reactions to the decision of the Constitutional Court were varied. President boost to morale Museveni was reportedly very angry, but a government spokesperson denied that the president had described the judges as “enemies”, “legally bankrupt” and “insensitive to the aspirations of ordinary people”. The government was clearly embarrassed by the episode (though the attorney general, Bart Katureebe, has conceded that the challenge on the quorum was correct) and it made sure that it had the necessary two-thirds majority present for the passing of the Constitutional Amendment Bill. For the public, the satisfaction of seeing the judiciary acting in an independent manner was tempered with disappointment at the way in which the legislature was able to steamroller the eventual outcome. For opposition groups the court’s decision provided a huge boost to morale, following the disappointment of the referendum outcome. Initially seen by many as constitutional nit-picking with little chance of success, the challenge ended as a moral victory over the government and ensured that the opposition cause will maintain a high profile during the run-up to the presidential and parliamentary elections next year. The momentum of political confrontation in the courts is being maintained by the Uganda People’s Congress, which is challenging the legality of the current parliament on the grounds that it was not elected in accordance with the provisions of the constitution.

Parliament says “no” to the Illustrating the independence of Uganda’s legislature from the executive, in president September parliament turned down a request from President Museveni to revisit the National Security Council Bill, saying that it had already become law. According to reports, the president wanted parliament to change the punishment for any secretary of the security council who released information without authority from the 14-year jail sentence provided in the bill to the death penalty or life imprisonment. The speaker was advised to write to the president and explain that unless he sends a bill back to parliament and does not give his assent within 30 days, then it automatically becomes law.

Paul Ssemogerere is to Paul Ssemogerere and his entire DP executive are set to resign at the DP’s retire as DP leader national council meeting in November, making way for the election of a new set of party officials. Dr Ssemogerere has been reluctant to quit as party leader, but appears to have yielded to pressure from his own executive and from grassroots level. Seven candidates initially expressed interest in replacing him (although one of them, Anthony Ssekweyama, was killed in a car crash in early October). However, not all members are pleased to see Dr Ssemogerere go. Some would prefer him to carry on, at least until next year’s elections, on the grounds that a new leader will not have sufficient time to mobilise public support against the expected powerful campaign of President Museveni. One influential group is even pressing to have Dr Ssemogerere stand as a presidential candidate, despite his losing heavily against the president the previous time. They say that he is arguably the most prominent and respected

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opposition figure in Uganda. Dr Ssemogerere’s ministerial record in President Museveni’s original National Resistance Movement government gives him credibility, and his resignation from the government in 1995 underlines his independence and determination, but he is old for the job and his previous failure would also count against him.

Replacing the DP leader DP members may face a difficult problem when they come to choose their next may be problematic leader, because the delegate conference called for under DP rules is not technically allowed under the terms of the national constitution, which still bans party activities. Any hopes of the government relaxing its previous hardline stance on party gatherings after its success in the referendum will have been banished by the firm actions of the police, who blocked a DP rally in Kampala in September. The rally was organised by the city mayor, John Kizito, to celebrate the success of the DP action in the Constitutional Court. In the same month, the police also broke up a rally of young democrats in Gulu.

There is pressure to hold If next year’s election schedule remains on course, the presidential poll will be two polls on the same day held in February or March and the parliamentary elections will follow in June. However, there is a move to hold both polls on the same day. According to the MP for Mbarara, Winnie Byanyume, the country would save about NUSh6bn by doing so, and she has a strong body of support. However, it remains to be seen whether the government will agree to this amendment to the procedure (which would require an amendment to the constitution), even though the finance minister, Gerald Ssendaula, has announced that the government is short of money and has cut the funding for the two elections from NUSh32bn to NUSh17bn. Arrangements for holding the elections are said to be well behind schedule. The electoral commission has complained that the necessary legislation has yet to be passed, although it has announced that the electoral register is to be updated from 13th-26th October.

Parliament may undergo The presidential and parliamentary elections will both be held under the major changes “individual merit” method required by the Movement system. The political parties are lobbying to have this replaced by multiparty polls, but the government is unlikely to change its stance on the issue. President Museveni still believes that Uganda’s political parties are fundamentally ethnically based and are too closely linked in people’s minds with the violent divisions of the country’s past to form a suitable framework for the politics of the future. At this stage it remains to be seen whether the parties can forget their differences sufficiently to put forward a single candidate to run against President Museveni, who is assumed to be putting himself forward for a third term although this has not yet been made official. The president of the opposition Justice Forum, Muhammad Myanjar, for example, has declared his intention to stand for election, but said that he would prefer to see a joint multiparty candidate. The general view is that, in the absence of an outstanding opposition candidate with obvious wide appeal, there are likely to be several candidates and President Museveni will win very easily. The parliamentary elections, though, may well throw up a surprise. Despite the legal ban on party activities, the referendum campaign reflected political differences among the electorate, and the freedom of the media makes for lively political dialogue. By

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and large, the public still trusts President Museveni, but his government has come in for a lot of criticism. Provided that the opposition groups do not throw away their opportunities on a futile boycott, as they mostly did during the previous parliamentary elections, the Movement may find its majority considerably reduced.

The president reshuffles President Museveni carried out a minor reshuffle of his government team on his cabinet September 27th, the latest of many in the past decade, though no ministers were sacked and no new government appointments were made. The principal change was the movement of Moses Ali from trade, tourism and industry to internal affairs, taking over from Edward Rugumayo who has moved to trade, tourism and industry. These were the only changes at cabinet level. The other changes involved seven ministers of state: Francis Babu moved from energy and mineral development to housing; Thomas Kiryapawo moved from gender and culture to energy and mineral development; Abel Rwendeire moved from higher education to industry and technology; Vincent Nyanzi moved from industry and technology to gender and cultural affairs; Betty Akachi moved from local government to higher education; Philip Byaruhanga moved from health to local government; and Max Omeda moved from housing to health.

Moses Ali’s military skills The reshuffle caused little excitement in Uganda, as some of the junior will be helpful to the police ministers were hardly known by the public—interest centred on the reasons behind the switching of Mr Ali and Edward Rugumayo. Mr Ali is a veteran politician, who served in the Amin regime and fought against the Obote government as a guerrilla leader before joining with Yoweri Museveni, who was happy to take advantage of Mr Ali’s popularity and standing in West Nile. Recently, he has been featured in the media for demanding promotion from brigadier to general before he retires. The president snubbed this request, though it is not thought likely that Mr Ali’s move to internal affairs represents punishment and demotion. A more likely explanation is that his military skills will be helpful to the police during the period leading up to the elections, when the government will probably use the police to break up demonstrations and rallies called by the opposition groups in contravention of the ban on party activities. Edward Rugumayo, the man Mr Ali replaces, is a former diplomat who had hardly settled in at internal affairs since his appointment in 1999, though he is highly thought of.

The cabinet is growing MPs’ reactions to the changes were also muted—most of them thought a major too large reshuffle was unlikely at this late stage in the presidential term. The junior changes were thought to relate to personal friction within departments. After the reshuffle the president sent the names of two more people to the parliamentary speaker, Francis Ayume, for promotion to his cabinet as ministers of state. They are Mary Mutagamba and Gilbert Bukenya. Ms Mutagamba is a former deputy secretary-general of the DP, having defected to the Movement earlier this year, and Mr Bukenya is chairman of the Movement caucus in parliament. If the appointments are approved it will bring the size of the cabinet to more than the 61 members permitted under the constitution, and there is speculation that another minister will be dropped.

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Corruption is a serious Local investment promotion agencies have reacted sharply to a recent World problem in Uganda Bank report which alleges rampant corruption in Uganda. Officials admit that corruption is present, but claim that the situation is not as bad as it was in the past and that the report exaggerates. Be that as it may, plenty of examples of corruption are still making the headlines. The inspector general of police, John Kisembo, is on record as saying—at a workshop for police officers and civic leaders—that “no organ in the government is free from corruption”. The ethics and integrity minister, Miria Matembe, has taken a hard line in the new leadership code proposals that are currently before parliament. The draft bill is significantly tougher than previous legislation, which has proved ineffective, and proposes the imposition of sanctions on politicians who refuse to declare their assets. She proposes that undisclosed assets should be liable for confiscation and that the guilty persons should be dismissed from office.

Proposition to boost Miria Matembe has described Uganda’s existing anti-corruption institutions as resources for investigators “very weak, underfunded and sometimes politically compromised”. For example, the police force criminal investigation department (CID) does not have the resources to deal with the 50,000 complaints it receives annually; each complaint is likely to take up to 18 months to investigate. The head of the CID has been criticised for his unorthodox methods in a commission of inquiry into the police. Shortage of funds and understaffing also hinder the work of the inspector general of government (IGG), who receives nearly 5,000 complaints of corruption a year and is able to follow up only half of them. Ms Matembe blames the cash nature of much of Uganda’s economy for part of the problem, because—frequently—no records of transactions are kept. Her plan calls for the strengthening of anti-corruption institutions; in the case of the CID this will mean providing officers with better training, hiring accountants and financial analysts, and increasing funding.

Corrupt MPs find no favour A recent survey of public opinion, carried out by the local newspaper Sunday with the public Vision, suggests that people are far from happy with the conduct of their MPs. The poll was based on the views of more than 500 people, and showed public discontent with a broad range of aspects of parliamentary business. There is widespread feeling that MPs do not take their responsibilities seriously enough and are too eager to use their privileged positions to make financial gain. Recently the parliamentary speaker, Francis Ayume, failed to find a quorum present and carried out a roll-call of parliament which revealed that 64 MPs had signed the register—and would therefore receive their allowances—but were not present. The public was outraged to learn that more than 800 government officials, including MPs, ministers and judges, failed to pay their share of the costs of the cars they had acquired under a co-ownership scheme. MPs were already out of favour with the public for refusing to pass the budget finance bill until their own travel allowances had been reviewed. Some MPs suggested the establishment of an amnesty—based on the truth commission principle established in South Africa, and under which no punishment would be imposed on those who willingly confessed their misdemeanours—but the suggestion did not find favour with the IGG, and is unlikely to be taken further given the strength of popular feeling. In the latest survey of corruption in 90 countries to be carried out by Transparency International, Uganda ranked 11th,

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two places higher than Kenya but four places below Tanzania. A recent World Bank report also highlighted the problem of corruption, with 80% of firms operating in the country reportedly having to pay bribes to get services. Observers talk of a corruption culture in Uganda, in which the feeling of shame does not exist.

Corruption in the army The ministry of defence has figured prominently in the latest corruption puts pressure on president scandals. Following earlier revelations about billions of shillings being paid for what turned out to be broken-down helicopters, expired army rations and undersized uniforms, it now also transpires that captain Dan Byakutaga, the paymaster of Operation Safe Haven (the code name for Uganda’s operations in the Democratic Republic of Congo, or DRC) went missing with NUSh1.6bn meant for soldiers’ pay. Similar incidents have occurred in the past, but never before has so much money been involved. The army set up a committee of inquiry but its findings have yet to be made public. A further revelation concerns the defence force’s loss, in 1999, of more than NUSh600m in a deal involving the supply of old, repainted trucks instead of new vehicles. All these incidents have served to highlight the army’s role in the gross misuse of public funds, and the unsatisfactory state of affairs reflects badly on President Museveni, who keeps the armed forces firmly under his own wing. There has been some criticism of the president’s insistence on keeping the defence portfolio for himself, because his busy schedule means that he cannot devote enough time to it. Now that his son, Muhoozi Keinerubaga has graduated from Sandhurst and has been commissioned in the Ugandan Peoples’ Defence Force (UPDF) with the rank of second lieutenant, the president will have to be even more careful to keep his record clean, bearing in mind the disgrace of his brother, Salim Saleh, a banking scandal in 1999.

President Kabila is not The first batch of an estimated 4,000 Ugandan troops to be withdrawn from co-operating on DRC the DRC arrived back home at the beginning of August, following the implementation of the UN-supervised demilitarisation of Kisangani. However, the bulk of the UPDF forces stationed in the DRC will remain until a political settlement is reached between the regime of the president, Laurent Kabila, and the rebel factions opposing it. So far, little progress has been made, and the Ugandan forces will probably have to remain in place for a long time. President Kabila is no longer prepared to be bound by the terms of the Lusaka agreement of July 1999, and claims that, owing to recent events, it is no longer relevant. He also rejected the former president of Botswana, Ketumile Masire—who was appointed by the Organisation of African Unity to act as a mediator between the various parties to the conflict—claiming that Masire was a “complicator” in the problem. President Kabila now wants to enter into direct negotiations with the countries supporting the rebel factions, but Uganda and Rwanda continue to insist that the Lusaka agreement is the only way forward.

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Angola may change sides in Algeria’s general Rashid Lallali, chairman of the joint military commission set up the DRC conflict to apply the Lusaka peace terms, has despaired of the belligerents ever co- operating and has virtually given up on his task. The successful resolution of the DRC problem is long overdue, and Uganda needs to extricate itself from the political and military quagmire as soon as possible. Uganda’s part in events in the DRC has damaged its international image and stretched the patience of the donor community. However, in a move that would greatly please Uganda, it seems that Angola is about to switch sides in the conflict, after months of supporting the Kabila government against the rebels. The nub of the matter appears to be whether Angola is convinced that Uganda is not providing support for the União Nacional para a Independência Total de Angola (UNITA) rebels.

UN intervention is stalled The UN’s attempts at mediation have also met with frustration. The UN had agreed to set up a mission in the DRC (MONUC), consisting of 500 military observers and 5,000 support troops, but deployment is conditional on a full ceasefire. Moreover, President Kabila placed so many obstructions in its way that the UN mission found it almost impossible to begin its work. In a softening of his position, President Kabila waived his objections to the deployment in August, though reports suggest that UN personnel are still experiencing problems. It is difficult to understand how the relatively small UN force will be able to monitor a ceasefire effectively in the DRC, as the country is vast and has a poorly developed infrastructure. In a further attempt to break the deadlock, the UN secretary-general, Kofi Annan, appointed as his special envoy the former president of Nigeria, General Abdulsalami Abubakar, and the Security Council has agreed to an extension of MONUC’s remit until mid- December, pending his report.

Rebels’ squabbling causes According to reports, the Lusaka ceasefire is constantly being violated and the problems for the UPDF situation may degenerate at any time. Most of the recent activity has been in the north, where the Uganda-backed Congo Liberation Movement (MLC), led by Jean-Pierre Bemba, responded to government air raids by threatening to advance and occupy the river port of Mbandaka—where there is a government airfield—about 700 km north-east of Kinshasa. In the east, after its retreat from Kisangani, the UPDF has become involved in a new trouble spot at Bunia, where two local tribes, the Lendu and the Hema (both of whom contribute factions to the Rassemblement congolais pour la democratie (RCD) rebels supported by Uganda), are fighting over land rights. The fighting has cost more than 40,000 lives in the past eighteen months. The UPDF has been trying to mediate between the factions and has come under attack itself, amid accusations of taking sides. The situation deteriorated when the leader of the RCD, Ernest Wamba dia Wamba, sacked his two top lieutenants, both of whom have strong local backing, for allegedly trying to remove him. Their supporters have taken to the bush and have vowed to dislodge Wamba, whose position now appears to depend more than ever on support from Uganda.

Uganda remains deeply The demilitarising of Kisangani helped to ease the tension between Uganda suspicious of Rwanda and Rwanda, but the recent clashes have damaged relations between the two countries. The leaders on both sides appear to have been making strenuous

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efforts to revive their former closeness. The Rwandan president, Paul Kagame, visited Kampala in July, and his visit was reciprocated by President Museveni’s trip to Kigali in September. Both men have been making the right noises in public, stressing the need to strengthen the historical bonds of friendship and co-operation, and pledging to work together for a just and lasting peace in the region. Both have reiterated their commitment to the Lusaka ceasefire agreement. The replacement of Brigadier James Kazini—who was blamed by Rwanda for the mayhem in Kisangani—with Brigadier Katumba Wamala may be interpreted by the Rwandans as a gesture of reconciliation on the part of President Museveni, though Brigadier Kazini has been in London having treatment for a serious illness. However, Uganda remains suspicious of the intentions of its former ally, as there is evidence that Rwanda has been providing support for Allied Democratic Forces (ADF) rebels operating in south- west Uganda.

When the president failed to attend the meeting of the UN General Assembly in early September, the Ugandan authorities justified his absence on the grounds that he needed urgently to visit the Hima region, in the south-west, which had suffered repeated, intense attacks from ADF rebels. According to a report in the Paris-based Indian Ocean Newsletter, the ADF bands have recently been heavily reinforced by militiamen from the DRC, believed to be from the Rwandan Interahamwe forces and to have been recruited by the Rwandan secret service for rebel activity in Uganda. The report was rejected as a gross distortion by the minister for the presidency, Ruhakana Rugunda, but the ADF threat does appear to be increasing. The rebels are now operating in Ankole, Bunyoro and Tororo, regions which lie beyond their traditional territory deep in the south-west, and they are reportedly recruiting in the Baganda areas of Luwero and Mpigi. There are fears, too, that the ADF may be trying to link up with the northern rebels of the Lord’s Resistance Army (LRA).

New liaisons are emerging The souring of relations between Uganda and Rwanda that has occurred during in the region the past year has brought about a reshaping of relations with the other countries in the region. When Uganda first embarked upon its policy of intervention in the DRC (then Zaire), it was generally perceived as the most important developing influence in the Great Lakes region. President Museveni was even thought by some to be entertaining thoughts of a rather grand role for his country at the heart of a Tutsi “empire”. Subsequent events in the DRC—especially the humiliation of the UPDF in Kisangani at the hands of the Rwandan Patriotic Army (RPA)—changed these perceptions, and Uganda is now struggling to recover its standing in the region.

Uganda has been particularly suspicious of the rapprochement between Rwanda’s President Kagame and the Kenyan president, Daniel Arap Moi, whose relationship with President Museveni has never been easy. For example, Uganda is unhappy about the Kenyan army’s decision to take on the training of some of Rwanda’s armed forces, given the recent tension between the UPDF and the RPA. The emergence of the Nairobi-Kigali axis has brought a change of heart in Uganda’s attitude towards Burundi—its president, Pierre Buyoya, has, until now, been out of favour with President Museveni. Mr Museveni snubbed Mr Buyoya on a visit to Kampala in 1999, and reportedly called him a thug.

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Moreover, Uganda was furious to discover that Burundi had been providing assistance to the Rwandan army during the clashes at Kisangani. However, President Museveni’s concern at being elbowed out by his Kenyan and Rwandan neighbours has led him to change his attitude towards Burundi; he has received President Buyoya in Kampala and has lent him support in calling on the DRC to stop backing Burundi’s Hutu rebels.

Uganda and Sudan edge There is a glimmer of hope that the truce agreed at the end of 1999 between together slowly Uganda and Sudan may yet lead to something substantive. So far, apart from the exchange of a few nationals and some relatively low-level diplomatic exchanges, no real benefits have been seen. On the main issue—Sudan’s agreement not to provide support for the LRA and Uganda’s agreement not to support the Sudan People’s Liberation Army (SPLA)—there does not appear to have been any movement. The LRA continues to be very active inside Uganda, causing serious problems in the Kitgum district in August and September and forcing the UPDF to deploy additional units to protect the civilian population. In one area of north-western Uganda, local defence units (LDUs) have even been absorbed into the army on the direction of the president. However, recent months have also brought some diplomatic progress. Following meetings earlier in the year in Lome and Winnipeg, in September a two-day foreign- minister-level meeting in Kampala, between Uganda, Sudan, Libya and Egypt, saw the formulation of a set of firm proposals. The most important of these was an agreement, in principle, to disarm the LRA and relocate it at least 1,000 km deeper into Sudan, away from the border with Uganda. Egyptian and Libyan observers will be positioned along the border, to focus on removing the security threat the LRA poses to Uganda. On the diplomatic front, two officials from Uganda and from Sudan will be exchanged—two Ugandan diplomats will be stationed at the Kenyan embassy in Khartoum, and two Sudanese diplomats will work at the Libyan embassy in Kampala.

In addition, the governments of Uganda, Sudan, Egypt and Libya, together with the Carter Centre, Canada, the UN Childrens’ Fund and the UN High Commission for Refugees, will set up a mechanism for locating and repatriating all abducted children from Sudan. Given the lack of progress after previous meetings and, more significantly, the absence of representation of the LRA and the SPLA, expectations should perhaps be kept low. However, in October this meeting was followed, in Khartoum, by a meeting of the four- state technical committee entrusted with the job of working out how to implement the agreements. There does seem to be momentum building up that suggests a degree of commitment on both sides. However, Uganda has objected to Sudan’s bid to become the representative for East Africa on the UN Security Council for the next three years, and has pointed out that Sudan is currently under UN sanctions for terrorism.

Hopes rise for a more A number of developments have taken place in recent months that should settled period in Karamoja contribute to a lowering of the level of violence and disorder in the Karamoja region, at least for a while. The Karamojong are pastoralists, who have more in common culturally with the Turkana people of north-west Kenya than with most of the other ethnic groups in Uganda. Karamoja is a semi-arid region that

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lies outside the effective territory of the state for many purposes, including security. Traditionally the Karamojong have been cattle raiders, and a degree of lawlessness was therefore endemic, but the introduction of guns into the region—especially during the Amin era and its aftermath—seriously raised the level of violence and the incidence of death, and violence frequently spills over into adjacent districts. Estimates place the number of guns in the region at 100,000 and all recent Ugandan governments have struggled with the problem of security.

This year has been especially difficult because the incidence of drought has reduced the quality of pasture and increased the likelihood of confrontations between the main tribal groups. Because the drought has been worse in Kenya some of the Turkana crossed into Uganda in search of better conditions, and this led to additional disputes. The Ugandan security forces have been concerned about the safety of animals in Kidepo National Park, which lies in the region, and the safety of tourists. There is the added worry that the Turkana may form an alliance with units of the LRA that operate in the region. At the beginning of September, at a meeting in Kitido, an agreement was reached giving grazing rights to the Turkana outside the national park, so ending 29 years of hostility between the Turkana and the Karamojong. Later in the month, at a meeting that attracted more than 3,000 tribesmen, the Matheniko and the Bokora clans (within the Karamojong) made peace after two years of warring. The government embarked upon a NUSh5bn Karamojong disarmament programme in July, but progress has been slow. A new FM radio station for the region is about to go on air to help change attitudes towards guns and promote disarmament.

Nigeria wants mission in Following Uganda’s recent decision, taken on economic grounds, to reduce the Abuja to remain open number of its foreign missions, it has been under pressure from the Nigerian government not to close its high commission in Abuja because it is the only one in West Africa. The Nigerian high commissioner in Uganda, Sam Edem, delivered a verbal message to this effect from the Nigerian president, Olusegun Obasanjo, to President Museveni. Mr Edem said that as Uganda was a major voice in African affairs, and an important player in the Great Lakes region, the countries of West Africa needed to retain a contact point.

Economic policy

The IMF is satisfied with The IMF has completed its first review of Uganda’s third annual arrangement Uganda’s economic reforms under the poverty reduction and growth facility (PRGF, which has replaced the enhanced structural adjustment facility), and approved the extension of the arrangement until March 2001, from the original expiry date of November 2000. The completion of the review allows the IMF to release the latest tranche of funding, about US$11.6m, bringing the total disbursed under the three-year programme to around US$119m. The PRGF loans carry annual interest of only 0.5% and are repayable over ten years. In a news brief accompanying the announcement of the completion of the review in September, the IMF made clear its satisfaction with the policies of the Ugandan government. It welcomes

the steps that have been taken to deal with the problems arising from the deterioration in Uganda’s terms of trade and the costs of bank restructuring. The Fund is also pleased with the way the authorities have curtailed non- priority expenditure and enhanced expenditure monitoring, and also maintained a prudent monetary policy, but it is concerned about their failure to prevent a widening of the fiscal deficit.

Uganda is given some The authorities have also been commended for producing a comprehensive leeway with IMF rules poverty reduction strategy through the Poverty Action Fund (PAF) and for integrating this into the medium-term budget framework. However, although PAF funding is planned to increase substantially, with a decline in defence spending, the IMF is concerned that resources will not be enough to enable poverty-reduction targets to be reached. It suggests that the government strengthens revenue performance by improving tax administration and by broadening the tax base, and urges it to tackle issues of governance. In approving its review, the IMF agreed to grant waivers for end-December 1999 performance criteria relating to minimum expenditures on priority areas and domestic arrears not observed, following the government’s request for more time. The finance minister, Gerald Ssendaula, also asked for—and was granted— a relaxation of the ceiling on net bank claims on the government for end-June 2000 of NUSh57bn (0.7% of GDP), together with a modest lowering of the floor on net international reserves of the Bank of Uganda, consistent with five months of imports.

Focus on improved revenue The government will continue to focus on improving the collection of tax collection continues revenue. Fiscal revenue is expected to be 11.6% of GDP in the 2000/01 fiscal year (July-June)—no improvement on the previous year. Building institutional capacity within the Uganda Revenue Authority will be central to improving revenue collection, including: increased co-operation with district governments; improved book-keeping and records systems; computerisation; comprehensive audit programmes; and updated lists of professionals operating outside the tax regime. The government acknowledges the importance of improved revenue collection in meeting targets under its poverty eradication programme, as it attempts to increase anti-poverty expenditure as a proportion of total expenditure.

Privatisation plans make Uganda’s privatisation programme has had difficulty making progress, owing slow progress to elements in parliament resisting the divestment of state-owned assets. The break-up of the Uganda Electricity Board into separate distribution, generation and transmission companies is scheduled for completion by end-2001, and each company will be privatised under a long-term concessions agreement. The recent approval of the Bujagali Falls power project and the opening of a cobalt processing plant in Kasese district offer proof of the government’s commitment to privatisation. Although it has proceeded slowly over the past year, the programme should move ahead.

There is disagreement over At the open forum on the national economy held in October, government the liberalisation policy officials and the private sector disagreed over the way the liberalisation policy is being implemented. The chairman of the Uganda Manufactures’ Association,

James Mulwana, expressed his members’ reservations about the complete opening up of the local market to competition, arguing that even developed countries protected their local industries. Emmanuel Tumusiime Mutebile, permanent secretary at the Ministry of Finance and secretary to the Treasury, argued that protection meant higher prices for consumers and would not be acceptable in Uganda as 44% of the population lives below the poverty line.

Basic weakness of Ugandan It is hard to understand how the authorities can hope to have any significant economy is showing impact on the weakness of the shilling, when the cause of the problem lies in the fundamental weakness of the Ugandan economy. In an economy as structurally weak as Uganda’s, the openness achieved through liberalisation policies makes the country more vulnerable to the kind of shock it is now experiencing from the collapse of its main export earner. In the absence of controls the situation can only be rectified by an increase in the value of exports or a reduction of imports—the former is impossible, the latter painful. The finance minister, Gerald Ssendaula, has made it clear that the government will not reintroduce currency controls, as some MPs have suggested. Instead, he indicated, Uganda should press on with its reforms. Speaking at a forum on the state of the economy, at the international conference centre, he said that several indicators point towards an acceleration of economic activity, and argued that the depreciation of the shilling would have a limited impact because of the low proportion of imports in business expenditure. He will also be hoping that flows of donor assistance will help to ease the situation. Speaking at an international trade fair in Lugogo the president, Yoweri Museveni, tried to reassure worried businessmen by reminding them of the country’s good record of economic growth, and suggested that the problem was temporary. He did, however, partly blame Uganda’s trade imbalance on imports of non-essentials such as videos and perfumes.

HIPC debt relief is In addition to the funding associated with the PRGF programme, Uganda will approved by the Paris Club soon be receiving debt relief worth US$145m under the heavily indebted poor counties (HIPC) scheme, following the September meeting of the Paris Club. In order to qualify for this assistance, countries must demonstrate clear progress towards economic growth and stability, and direct their economic policies towards poverty reduction and social progress. Earlier this year donors were threatening to exclude Uganda from the HIPC scheme because of the country’s decision to buy a new plane for President Museveni’s frequent foreign trips— it was argued that the money should have been spent on poverty reduction. Eventually, however, the government was able to make a valid case for the expenditure and to show that it would not be taken out of poverty programmes. Uganda now qualifies for debt-service relief, under the enhanced HIPC initiative, worth about US$1.3bn (US$660m in net present value terms, or about two-fifths of external debt). If the US$650m which was provided under the original initiative is included, the grand total of debt relief under the HIPC schemes is about US$2bn.

The domestic economy

Economic trends

The slide in the value of the Concern is growing about the sluggish performance of the economy, which is shilling accelerates thought by some to be at its lowest ebb since 1986. Manufacturers are experiencing difficulties with the rising cost of foreign exchange, and importers say they are failing to unload stocks because of the depressed nature of local demand. Demand is said to be particularly low in the rural areas because drought has hit the production of food and cash crops, and famine has been reported in several regions. Uganda is currently experiencing the biggest fall in the value of the shilling since 1987, and the pace of the decline is accelerating. Over the period of the past fiscal year (from end-June 1999 to end-June 2000) the depreciation of the shilling against the US dollar was about 8%, though it was only 3% against a weighted basket of trading currencies. Throughout August and September, though, it fell by about 15%, reaching NUSh1,830:US$1—a depreciation of nearly 20% since the beginning of the year. There are fears that the rate may tumble as low as NUSh2,000:US$1 by the beginning of next year, which would represent a drop of 33% compared with the previous year.

Intervention policy puts a The Bank of Uganda (BOU; the central bank) has continued its policy of strain on reserves limited intervention in the exchange market, in an attempt to support the shilling and maintain stability, but it has had little effect. The interventions have been of the order of US$5-10m, significantly less than the turnover on an average day on the foreign-exchange market. Sometimes funds provided by the interventions have been almost the only foreign exchange on offer. On occasion, the injection of dollars by the bank has even had the effect of pushing the dollar rate up further, as dealers have scrambled for the additional currency. Towards the end of September, however, local currency was so tight that not all the dollars on offer were taken up. The authorities have introduced a requirement that all banks must deposit the local equivalent of their foreign- currency holdings with the central bank, in order to reduce the opportunities

for speculation. So far this year the bank has spent more than US$150m to support the shilling, and it will be unable to spend any more without running down reserves to less than the equivalent of five months’ imports— maintaining reserves at this level is one of the benchmark measures required by the IMF as a condition of its support. According to the central bank the reserves fell to a (provisional) low of 5.77 months of merchandise import cover in June, and the situation for July may prove worse, when the figures become available, because the rate of depreciation of the shilling was faster. Some sources have suggested that the reserves position in June was actually worse, at only 4.38 months of cover.

Total reserves, 2000 (US$ m) Jan Feb Mar Apr May Jun 736.8 710.3 721.2 768.4 723.5 725.9 Source: IMF, International Financial Statistics, October 2000.

Foreign-currency deposits The Bank of Uganda’s financial and economic indicators show that the money continue to increase supply (M3, which includes foreign-currency deposits) at end-June 2000 stood at NUSh1,344bn (US$746m), compared with NUSh1,318bn at end-May, representing growth of 1.9%. The foreign-currency element, which has been increasing more rapidly, increased by 3.7% during the same period to NUSh310bn (23% of the total). Demand and time deposits remained fairly stable, each showing only marginal increases, standing at NUSh413bn and NUSh305bn, respectively, at the end of June. Currency in circulation rose by just under 4% during the same period, reaching NUSh303bn at end-June.

Treasury bill rates rise Annualised interest rates in the Treasury-bill market increased significantly steeply in August across all yields in August 2000, compared with July. The 91-day and 182-day bills rose from 15.6% and 13.4% to 17.8% and 19.0%, respectively. The 273- day bills rose from 12.3% to 22.1%, and 364-day bills rose from 12.6% to 20.8%. An important development took place during August, with the issuing of all maturities on a weekly basis. The stock of Treasury bills increased to NUSh440bn at the end of August 2000, representing a rise of 8.5% compared with July. The increase reflected the need to absorb additional liquidity arising from maturing promissory notes issued to people holding deposits in closed banks. The majority of these bills (NUSh351bn, about 80%) were held by the commercial banks.

New CPI measures recent Uganda’s bureau of statistics introduced a new consumer price index (CPI) in consumption patterns August, replacing the one that had been in use since 1989. The new CPI has a base period of 12 months (July 1997-June 1998), compared with the one- month period (September 1989) of the old index. The weighting system used in the new CPI is based on the analysis of data collected for the household budget survey of 1989 and reflects a more recent pattern of expenditure. In the old CPI, food, beverages/tobacco, clothing/footwear and household/personal goods accounted for over 77% of the weightings, but this has fallen to about 64% in the new CPI, with food alone dropping from 50.1% to 45.2%. New items, such as restaurant meals, mobile phone charges and mineral water, are

now included and a number of items from the old CPI have been omitted. A new centre, Gulu, has been added to the existing five—at Kampala/Entebbe, Jinja, Mbale, Masaka and Mbarara—to give the index wider regional coverage. Evidence from the short period during which the two systems overlapped suggests that the trends identified are similar.

Prices are expected to The annual rate of headline inflation (all items) has remained relatively steady reflect external pressures at around 3% since February, well within the Government’s target of 5%. Underlying inflation (without food crops) has also been steady, though marginally higher. The annual rate of headline inflation in September was 2.9%, compared with 3.1% in August. Underlying inflation was 3%, compared with 2.9% in the previous month. During the year to September 2000, headline and underlying inflation have both followed a downward trend. The trend of food-crop inflation during the same period shows an abrupt fall in prices, from 20% rates towards the end of 1999 to very low—sometimes negative—rates for most of this year, as the effects of the drought in 1999 have worked out of the system.

However, the drought conditions affecting some regions this year are already having an impact on the prices of a number of food crops, with increases of 20- 30% recorded in some places. Moreover, the sharp depreciation of the shilling, coupled with high international oil prices, will exert upward pressure on prices during the coming months, notably on oil-related items such as fuel and transportation costs. Petrol, diesel and kerosene prices all rose by about 4% at the end of August, partly in response to the increase in benchmark oil prices from US$30 to US$32 per barrel, but also to accommodate the currency depreciation. Because the depreciation during the current year has been felt against most currencies, unlike 1999 when it was mainly against the US dollar, the rising price of imports will be felt across the board. During the second half of the current financial year, therefore, prices in general may be expected to rise again, with headline inflation averaging about 7% or 8% for the year.

Consumer price inflation (%; annual rate) 1999 2000 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Headline inflation 9.8 6.5 2.0 3.2 2.0 2.4 2.2 2.8 3.1 2.9 Source: Bank of Uganda.

Agriculture and fisheries

The world coffee market is Market conditions are unlikely to bring about any improvements to the coffee oversupplied situation. Despite steadily increasing global demand, fuelled by growth in the less mature markets of North Africa, Asia, Eastern Europe and South America, and by the fashion for speciality coffees and “gourmet” coffee shops in Western Europe and North America, the problem of oversupply remains fundamental and will continue to exert downward pressure on prices. This scenario will only change if the retention plan of the Association of Coffee Producing Countries (ACPC) succeeds, or if weather problems cause a shortfall

in the huge Brazilian coffee crop. The ACPC countries account for about 85% of world coffee output, and their retention plan (to hold back 20% of exportable production until the 15-day average of the International Coffee Organisation composite price reaches 95 cents/lb) came into operation on October 1st. Most analysts within the coffee trade believe that the scheme will fail because of internal strain—some countries will not be able to afford to forego the income, or will be tempted by a slight improvement in prices— though they agree that it stands a better chance if Brazil takes the lead.

Coffee prices are expected Assuming that the ACPC scheme does fail, and that the weather does not to continue to fall significantly affect the Brazilian crop, world exportable coffee production is expected to reach 83.8m 60-kg bags in 1999/2000, increasing to 88.7m bags in 2000/01 and 89m bags in 2001/02. The balance between production and consumption will increase from 3.4m bags in 1999/2000 to 7.2m 60-kg bags in 2000/01, and to 6m bags in 2001/02, causing the stocks/consumption ratio to rise from 50.7% to 58.9% and 65.1%, respectively, in the same period. In these circumstances the EIU believes that prices will continue to fall throughout this year and next year—they had already reached an eight-year low in October. Average robusta prices in 2000 are expected to be only 44.7 US cents/lb, a fall of 33.8% compared with 1999, and this is forecast to fall by a further 16.8% to 37.2 US cents/lb in 2001. Spot prices for Ugandan coffee at end-August were just above 44 US cents/lb. According to the state-run Uganda Coffee Develop- ment Authority, coffee production in Uganda in 2000/01 (October/September) may remain at the 1999 level of 3.2m 60-kg bags. Exports in 1999/2000 came to 3.65m bags, approximately the same as in 1999/2000. Ugandan stocks of coffee at the end of the 1999/2000 season were estimated by German commodity analysts, F O Licht, at 2.247m bags, an increase of about 7% over the year. The stocks are now equivalent to about 70% of annual production.

International coffee prices (US cents/lb; robusta) 1999 2000 2001 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 78.3 67.6 61.4 62.8 49.4 43.8 43.0 42.5 38.0 Source: EIU, World Commodities Forecast.

Tea exports are buoyant Tea output during January-August 2000 increased by 22% to 17.9m kg, this year compared with 13.1m kg during the same period in 1999. Exports also rose during this period, by about 15%, from 12.7m kg to 14.6m kg. The Uganda Tea Association (UTA) expects output to total 26m kg this year, compared with 24.7m kg in 1999, unless it is affected by drought. At the moment tea only accounts for about 5% of commodity export revenue, but it is one of the crops the authorities are promoting as part of the diversification programme to reduce dependence on coffee, and officials hope that output will reach 40m kg by 2004.

The EU fish ban is expected Hopes are high that the EU ban on imports of fish products from Uganda will to be lifted in November finally be lifted, following a visit from a team of inspectors in early October. A final decision is due to be made by the EU in November. The ban has been

costing Uganda about US$30m a year in lost hard-currency earnings since it was imposed in March 1999. It was partially lifted in August, but only for exports to individual countries on bilateral terms, and only Italy, Holland and Belgium expressed any interest. If the inspectors give the industry a clean bill of health in October, the whole of the EU will be open to receive Uganda’s fish exports. The minister of agriculture, animal industry and fisheries, Mugerwa Kisamba, said that Uganda was ready for the inspection, and he is confident that all will be well. His department now routinely inspects fish for export and sends samples to Europe for testing. Next year, the government will be using its own laboratories for this task.

Manufacturing

The falling shilling hits The depreciation of the shilling has had a serious impact on the manufacturing manufacturing sector, which relies heavily on imports for its raw materials, as firms have been compelled to raise their product prices. Data from the bureau of statistics show that between June and August manufacturing output fell by 11%, marking a dramatic reversal of the 22% growth achieved during the previous financial year. Fifteen major producers have recorded falling output, and more than one hundred firms have reportedly collapsed completely or gone bankrupt. Opinion among local businessmen shows little confidence that the Bank of Uganda’s policy of intervention will be able to halt the slide.

Steel Rollings, of Jinja, which makes steel products, has won a second major contract to export 250 tonnes of quality steel to Kenya for the Kipevu power project near Mombasa, following its success earlier this year in landing the contract for another major project at Machakos, near Nairobi. The steel order is worth US$150,000 and is seen as an exciting new development in the non- traditional export sector. The company’s production of quality steel will soon reach 3,000 tonnes a month.

AGOA increases potential Uganda’s manufacturing industry may benefit from the landmark initiative of for growth the US Africa Growth and Opportunities Act (AGOA) to extend new trade benefits to countries in Africa. Uganda is one of the named countries qualifying for greater duty-free access to the US market. The benefits will apply to a wide range of products, although critics complain that it sets a cap on clothing made from African fabric of 1.5% of US clothing imports (rising to 3.5% by 2008) to protect US companies.

Mining

Attempts are made to get The government is seeking US$17m from the World Bank to fund a new five- mining on track year development plan to boost mining in the country. A World Bank mission visited Uganda in August, and a joint action programme has been outlined for a public-private investment programme with an emphasis on small-scale mining. Areas identified for priority attention include Busia gold fields in south-east Uganda (for gold, zinc, copper and lead), the area around Tororo

and Mbale (for carbonatite) and the Buhweju and Kigesi gold fields (for gold, nickel and several other minerals).

The cobalt processing plant at Kasese was finally commissioned by the president, Yoweri Museveni, in September. The plant will extract cobalt from the waste heaps of pyrites from the old Kilembe copper mine.

Small oil potential is The drilling of an exploration well in western Uganda is scheduled for February being explored 2001, by a Canadian-based company, Heritage Oil and Gas. Estimates put the potential amount of oil at between 700m and 1bn barrels. Although this is not enough for Uganda to become a major oil producer, it may help to ease the country’s complete dependence on imports. Commercial drilling will not be possible for about three years, assuming the find is commercially viable.

Infrastructure and services

When President Museveni met the Kenyan president, Daniel Arap Moi during his recent two-day visit to Kenya, they discussed a new power-supply agreement under which Uganda will increase sales of electricity to Kenya from 80 MW to 135 MW by 2004. The new agreement will help to create more favourable conditions for Uganda’s hydroelectricity developments, and forms part of the strategy for a linked East Africa electricity grid.

Foreign trade and payments

Coffee prices continue to Total merchandise exports are expected to increase from US$396m in 2000 to affect exports US$441m in 2001. Coffee exports in August this year fell by 24% in volume and 29% in value, compared with July, with unit prices falling by about 6%. For the current coffee year as a whole (October 1999-August 2000), exports have fallen to 2.7m bags—compared with 3.4m bags in October 1998-August 1999—leading to a 46% drop in revenue. Uganda’s total coffee export earnings are expected to rise from an estimated US$180m in 2000 to US$191m in 2001, when higher export volumes should offset lower prices. The outlook for non- coffee exports is more positive and will help to counter the effects of low international coffee prices. The final lifting of the EU ban on fish exports now seems likely, and Uganda should begin to recover ground in this industry within six months of the final decision, which is expected to be announced in November. Tea exports have risen by 27% in the period January-August, against the same period in 1999, showing a recovery after two years of bad weather. Cotton exports have also increased by 46% in the 1999-2000 season compared with the previous season, with expected revenue of around US$30m.

Reduced oil prices will not Import spending is forecast to increase from US$1.19bn in 2000 to US$1.26bn slow growth of imports bill in 2001, owing to high donor-supported investments in infrastructure and to increasing domestic demand as the economy regains expansionary momentum. With the lowering of international oil prices in late 2000, carrying into 2001, oil imports’ share of the commodity imports bill—which reached 8% in

1999—should fall closer to the 6% experienced before the major oil price rises in 1999.

The EAC drafts a trade A draft trade protocol for the East African Community (EAC) is expected to be protocol ready by June 2001. It will outline the measures required for eliminating tariff barriers and the establishment of a customs union. The absence of such an agreement was the main reason why the EAC failed to get off the ground in 1999, with Uganda and Tanzania concerned that local industries would not be able to compete successfully with Kenya.

Uganda’s membership of Three more countries—the Democratic Republic of Congo, Swaziland and the SADC is in doubt Namibia—have pulled out of the Common Market for Eastern and Southern Africa, the free-trade area due to be launched in October, leaving only 17 members. The three are expected to rejoin when they have resolved economic problems. A senior official of the Southern African Development Community (SADC) has cast doubt on whether Uganda can be admitted into the community as its 15th member. Uganda’s minister for regional development, Amama Mbabazi, who has been fronting Uganda’s application for membership, claims that integration of the SADC and EAC would make sense because it would result in bigger markets and greater specialisation. However, Prega Ramsamy, the acting executive secretary of SADC, believes that the original members should aim to deepen the community before enlarging it.