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Uganda’s real gross domestic product (GDP) grew at 2.9% in FY20, less than half the 6.8% recorded in FY19, due to the effects of the COVID-19 (coronavirus) pandemic. GDP is expected to grow at a similar level in FY21. Economic activity stalled during the latter part of FY20 due to a domestic lockdown that lasted more than four months, border closures for all but essential cargo, and the spillover effects of disruptions to global demand and supply chains. This resulted in a sharp contraction in public investment and deceleration in private consumption, which hit the industrial and service sectors hard, particularly the informal service sector.
The medium-term outlook for Uganda has worsened considerably due to the impact of COVID-19, and risks are tilted heavily to the downside. If the impact of COVID-19 lasts longer globally, or the virus spreads more widely in Uganda, this could deter the recovery in Uganda’s exports, adversely impact a rebound in foreign direct investment (FDI), tourism and remittances, and further depress productivity and hence the domestic economic recovery. Such developments could lead to more severe social and economic impacts and amplify external and fiscal imbalances. Following the shock of COVID-19, there have been widespread firm closures, permanent layoffs in industry and services, a rapid slowdown of activity particularly in the urban informal sector, and a movement of labor back to farming. Household incomes have also fallen, which is concerning given the high levels of vulnerability to poverty, limited social safety nets, and impact this might have on human capital development and Uganda’s capacity to benefit from its demographic transition.
Heavy reliance on low productivity agriculture (about 25% of the economy, 50% of exports and 70% of employment) also contributes to income volatility and stagnation. To keep up with growth in the labor force, the economy needs to create at least 700,000 jobs per year, which far exceeds the 75,000 jobs that are currently created each year. Raising incomes further will also require improving productivity in agriculture and opportunities for absorbing excess labor into more productive employment in industry and services.
