Kenya to benefit from rebound of Ugandan economy

Kenya’s single largest export market, Uganda, is seeing its economy rebound faster than expected thanks to the ability to sell food to its neighbours and contain consumer prices.

According to a report just released by the International Monetary Fund (IMF) growth is expected to rebound to GDP growth of seven per cent from mid next year after holding at 6.3 per cent between June this year and June next year. Headline inflation is at an average of 13.3 per cent.

Kenya’s exports to Uganda, have grown steadily over the years, reaching a peak of Sh42 billion in 2008 up from Sh17.7 billion 13 years ago. This growth underscores its importance to local businesses. The increase in imports from Kenya has been driven by steady growth of the Ugandan economy over the past 15 years.

For example, the Ugandan economy expanded at a bullish 8.6 per cent in 2007 and, as a result, Kenyan exports to her western neighbour jumped by over Sh6 billion to stand at Sh33.6 billion.

are oil products and manufactured goods. Kenya primarily re-exports processed petroleum products and is expected to continue to do so until Uganda builds its own refinery. Kenya is expected to register no more than a 2.5 per cent growth in GDP this year, with the possibility of growing to 4 per cent in 2010 depending on how the global crisis continues to impact the country. Domestic inflation currently stands at 6.6 per cent. Strong regional markets as well as rising international prices of coffee and tea are expected to help Kenya recover from the slowdown of 2008 and 2009. Ms Martine Guerguil, IMF mission chief for Uganda said in a statement that: “The Ugandan economy is weathering the impact of the global financial crisis better than expected.” A mission from the African department of the IMF visited Uganda between October 14th and 27th to conduct the sixth review under Uganda’s three-year economic programme supported by the IMF’s Policy Support Instrument (PSI). PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support The PSI helps countries design effective economic programmes that, once approved by the IMF’s executive board, signal to donors, multilateral development banks, and markets the fund’s endorsement of national policies. The mission met with the Uganda Minister of Finance, Development and Planning, Syda Bbumba, governor of the Bank of Uganda (BOU), Prof Emmanuel Tumusiime-Mutebile, and other senior government officials. Prof Mutebile said in a publication posted on the BOU website recently: “Against the background of a truly global economic crisis on an unprecedented scale, it is unrealistic to expect that Uganda will emerge unscathed. Nevertheless, if we continue to manage the macroeconomy in a sound manner, we can mitigate the worst effects of the global crisis and ensure that the Ugandan economy avoids recession and continues to grow, although growth will inevitably slow down from the very robust rates averaging 9.4 per cent per annum recorded during the period (2006 to 2008).” Ms Guerguil cautioned that there were downside risks to the economic outlook in Uganda, largely related to the uncertain prospects of the global economy, as well as the regional security situation and possibility of high food prices. The regional drought, while devastating for some of Uganda’s neighbours, has boosted Ugandan exports of food, thus offsetting some weakness in external demand for traditional exports such as coffee. “The mission shares the authorities’ concern with the recent surge in food prices. It recognises that the resulting high level of headline inflation is clearly driven by drought-related factors, and welcomes the continued decline in core inflation, which excludes the impact of food and energy prices,” said Ms Guerguil. The decline in core inflation is evidence that the BOU’s monetary policy framework is appropriate though its main challenge will be to prevent the high levels of food prices from spilling over to underlying or core inflation. “The mission supports the emphasis in the June 2010 fiscal year budget on infrastructure investment to promote future growth, while consolidating and expanding the gains of poverty reduction efforts of recent years,” she said. Structural reform is however needed in Uganda is order to increase the capacity of using the funds to rebuild infrastructure. The mission intends to return to Kampala in March 2010 to discuss with the authorities a possible new three-year PSI that would be timed to be aligned with Uganda’s annual budget cycle.. http://www.businessdailyafrica.com/-...d/-/index.html