Ugandans across board have over the last number of months lamented about the rising costs of living. It all started a few months after the full reopening of the economy which had been locked down to curb the spread of the Covid-19 virus. What at first seemed like small shock waves that would soon be overcome once the country gained momentum after reopening, has slowly grown presenting significant difficulties.
Quarterly data released by the Uganda Bureau of Statistics (UBOS) in March 2022 shows that the economy grew by 5.2% in the second quarter of FY2021/22, compared to the 0.4% decline the previous financial year. It was explained that this was mainly driven by a pick-up in economic activity following the gradual easing of pandemic-related restrictions. Stronger performances were recorded in industry and services sectors particularly construction activities, mining and quarrying, hotel and accommodation services according to Bank of Uganda.
But as the country found its footing, the war in Ukraine broke out, causing trickle down effects on economies across the globe. Sanctions were imposed and many countries in Africa, Uganda inclusive, which depend on wheat and oil imports faced rising prices for bread and fuel. This has hit hard causing negative impact on the country’s economy.
According to the March 2022 report issued by the Central Bank on the performance of the economy, consumer prices have shot up causing annual headline inflation to hit the 3.7% mark in March 2022, from 3.2% registered the month before. “There was a significant increase in prices of cooking oil and laundry bar soap on account of a global shortage of inputs like vegetable oil. The price of liquid fuel also went up, consistent with the spike in international oil prices,” the report reads.
It further states that Uganda’s import bill increased by 3% to USD 584.94 million in February 2022 compared to the month before, following increased import volumes and higher prices for private sector imports such as chemical & related products, machinery, vehicles among others.
“Consumer prices continued on an upward trend in March 2022, with annual headline inflation recorded at 3.7% up from 3.2% the previous month. All three sub-components of headline i.e. Core inflation, Food crops inflation and Energy Fuel and Utilities (EFU) inflation increased during the month. These increments were majorly driven by significant rises in prices of key consumer commodities including laundry bar soap, cooking oil, cement, liquid fuels and food crops such as cooking bananas (matooke), sweet potatoes and onions among others,” states the report by Bank of Uganda.
It states that core inflation increased to 3.6% in March 2022 from 3.1% the previous month, majorly driven by continued increase in prices for laundry bar soap and cooking oil. Essential items like bar soap and cooking oil have become expensive, which the Central Bank explains that emanates from a global shortage in the supply of crude vegetable oils which are a major input for the production of both products. In addition, higher prices were recorded for flour and its products, clothing, motor vehicle maintenance and repairs, educations services and international flight costs among others.
The increase in fuel and other commodity prices has in effect led to an increase in annual food crop and related items inflation which has moved up to 1.9 % in March from 0.7% in February. The Bank of Uganda states that there is a significant increase in prices for beans, round onions, fresh milk, cooking bananas (matooke), sweet potatoes, green leafy vegetables, green pepper, fruits and Irish potatoes among others, all of which are essential household items.
Owing to increase in international oil prices (brent crude oil price has remained above USD 100 per barrel) occasioned by supply & demand imbalances and exacerbated by the war in Europe, pump prices have drastically shot up in Uganda. A litre of Petrol now averages Shs5,300 up from Shs3,800 almost a year ago. Meanwhile Diesel pump prices have hit a record high passing the Shs5,000 mark for the first time in history. At many fuel stations, the price of diesel in unprecedentedly higher than that of petrol.
The Central Bank has also noted a slowdown in economic activity stating that the Composite Index of Economic Activity (CIEA) declined marginally by 0.05% from 147.24 in January 2022 to 147.16 in February 2022, which signaled a slowdown in economic activity in some sectors of the economy. This was the first time there has been a decline in the index since September 2021.
According to BoU, the slowdown is partly explained by supply shocks for raw materials such as sunflower seeds and palm oil as well as the impact of increased prices for fuel during the month. This has been exacerbated by the geo-political tensions in Europe that have distorted global trade patterns, increasing inflation levels in developed economies and increase of crude oil prices with OPEC declining to increase production.
Not all is grim
But despite the notable effects on the economy, hope is most certainly not lost for Uganda, which according to data has recorded increase in trade performance with its neighbours. “In the month of February 2022, Uganda traded with a deficit with all regions save for the Rest of Africa and the EAC. Uganda registered the highest trade deficit with Asia, which increased from USD 201.14 million in January 2022 to USD 223.33 million in February 2022. This was on account of an increase in the import bill from the region which more than offset the increase in export receipts during the month,” the report reads, further stating: “On the other hand, Uganda recorded trade surpluses worth USD 63.99 million and 49.10 million with the Rest of Africa and the EAC respectively. This performance was majorly due to increased export receipts and a reduction in the import bill from these regions.”
According to the Finance Ministry Permanent Secretary, Ramathan Ggoobi, the causes of the current spike in prices were as a result of Supply related External and Global effects, which government should respond to by focusing on addressing the supply constraints most of which are external and affecting the entire world. The Secretary to the Treasury states that anything else implemented would be a wrong medicine to a known ailment.”
He outlined some of the measures being undertaken by the Government to include “Ensuring that we maintain a competitive environment to support a continuous supply of the goods and services whose stream is currently constrained – that is, fuel, soap, cooking oil, cement, steel, etc.- and avoid creating more shortages. We cannot afford to make demand outstrip supply. Most of the things some people want us to do are good common sense but very bad economics.”
Ggoobi also noted that they were supporting farmers to grow more food to ensure the country does not suffer food shortages since food is the main driver of Uganda’s inflation.
“We are also facilitating more exports to take advantage of the shocks and earn more foreign exchange to pay for the now expensive imports.”
