Critical Pessimism: The impact of COVID-19 on Uganda’s Economy

[custom_icon name=”sh-icon-pencil2″]
In a very drastic turn of events, the World Health Organisation declared COVID-19 a global pandemic. The virus necessitates no further introduction save for an exclamation about it’s apocalyptic nature. Humanity, with all her scientific advancement, has been caught off guard. China, from which the deadly virus originated and claimed over 3000 lives, is reportedly experiencing a quick recovery. However, Europe is now the epicenter of the pandemic with Italy as the worst hit country with over 4500 deaths so far. Gruesome pictures have emerged on the internet showing paraded coffins with bodies awaiting cremation. The state mortuaries have since been incapacitated to handle the scores and churches have been improvised to temporarily keep the bodies. It is a tragic reality. So tragic that states have closed borders and employed measures that have been termed ‘draconian’ by various human rights organisations and activists. The measures include nation wide lock downs, forced quarantine and other policies as they may deem necessary. Africa has equally registered cases of corona virus. According to WHO, there are more than 700 confirmed cases in Africa with one confirmed case in Uganda.

It is inevitable to weigh the impact of this pandemic on the economy. With flights banned, lock downs enforced, borders closed, movements curtailed, stocks falling, there is an undeniable impact on global economy. In the Wall Street Journal article titled “Rethinking corona virus shutdown”, the author highlights that no society can safe guard public health for long at the cost of its economic health. The article further predicts a replica of the 2008-2009 economic recession if countries don’t adjust the anti-virus strategies. I share in this realistic pessimism though through the domestic lenses.

The recent information from Uganda Bureau of Statistics shows that the country has a GDP of $28.50 USD billion and still out of middle income status range. The national economy survives majorly on the success of the functioning private economy. This therefore means that the state has a very meagre stake in Uganda’s economy. In reference to the Approved Index’s recent analysis which investigates most entrepreneurial countries around the world, Uganda ranks in first position as the world’s most entrepreneurial country. The research estimates entrepreneurship as the percentage of an adult population who own or co own a business that has paid salaries for more than 3 months but less than 42. With an entrepreneurship rate of 28%, Uganda ranks first with almost double the rate of Thailand which is in the second position with 16%.

The future of all these private businesses lies on the mercies of the seeming merciless pandemic. Earlier this week, the president, H.E YK. Museveni directed an immediate closure of all schools and institutions of learning in the country, issued a temporary ban on all gatherings and an immediate closure of bars, restaurants and other lounging facilitates. The directive is to be enforced for a period of 32 days. However, the longevity of this period is not certain and it depends on the prevailing circumstances of the status of the virus outbreak in the country. During this month long period, most businesses shall inevitably make losses, and register bankruptcy. Uganda being the most entrepreneurial country, it can be rightly assumed there are numerous budding enterprises that had been set up either a month, a week or even a day before the presidential communication. These businesses may not be able to resurrect after the lock down is enforced unless of course the government offers economic incentives to private business owners to revamp the economy. Even where that is considered as an option, only a few “important” individual establishments shall benefit, perhaps on the basis of their ‘yellow’ affiliation.

The other sector that is substantially being affected by the crisis is the tourism sector. The growth of the tourism sector leapfrogged other sectors with remarkable results. According to the Uganda Bureau of Statiscs, Uganda received over 1.8 million tourists in 2018 up from 1.4 million in 2017. In 2017, the 1.4 million tourists injected about $1.4 billion into the economy. This contributed to 10 percent of the GDP. The report from the Annual Tourist Sector performance indicates that in the financial year 2018/2019, tourism revenue increased to $1.6 billion and a contribution of 6.7% to the total national employment after creating about 600,000 indirect and direct jobs. This makes tourism the country’s biggest foreign earner.

The success of tourism is premised on a number of factors and world wide state of emergency is certainly not one of them. Uganda announced temporary ban on flights from various destinations in an attempt to contain the virus. This has very drastic impact on the number of tourists in the country. Notably, most tourists are foreign as the domestic tourists are still embarrassingly low to imagine that they would sustain the industry. The eventual consequence is low foreign exchange, minimal contribution to the economy and in the very worst of scenarios, the mass loss of jobs (if the situation worsens).

Consequently, the future of employment is in potential jeopardy. The Wall Street economist, Ed Hyman noted that even the cash rich businesses operate on a thin margin and can bleed through reserves in a month. First, they will lay off employees and then out of necessity, shut down. If the period extends beyond the stipulated timeline, the lay offs will be measured in millions of people.

Columnist Daniel Kalinaki stated that we should not waste this crisis and my conclusion is that one of the most pertinent lessons will be the lesson of digitalisation, massive technological adoption and appreciation. The very few enterprises that are tech based may not relate to any of the above instances and will definitely stay on top of the business even in this period.

 

11 COMMENTS

  1. I think when it comes to issues that concern the very existance of life itself, we as mankind should do all it takes to help avert what would rather end up an unforgettable experience. It should never dawn on us to say “We should have done this and that blah blah…”. I think all measures should be taken no matter what principles they violate in order to contain the situation. Reasonableness is a necessity here.

    And then when we have finally sailed through the storm, the economists can sit down and grade the books in order to determine what the value of Y is.

    • Very nice piece,
      I think this is the time authorities have to really put their heads together and devise policies that cater for everyone. For some people, a lock down implies mere financial losses, but for the small population of people, who live from hand to mouth, a lock down may result into starvation or extremely low standards of living, that may even be more fatal than the virus.

Comments are closed.