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Uganda is a landlocked country located in central eastern Africa with a current population of 26.4 million with 35 percent of the Ugandan citizens living at or below the poverty line. Some commentators have suggested that Uganda is the new “Pearl of Africa” with a stabilized monetary policy over the last 15 years reflecting in relative currency stability for the Ugandan shilling. Below is a summary of’s research findings on how it impacts the Ugandan shilling.

POLITICS: relatively stable for most of country however political shortfalls are evident. President Lt. General Yoweri Kaguta Museveni representing his ruling ‘National Resistance Movement’ is President and Chief of State of Uganda holding power since 1986. He won an election held in 1996 and 2001 with the country’s next election scheduled for 2006 as presidential terms are for 5 years. Uganda obtained national independence from the United Kingdom in 1962, accordingly, English is the official language. After disarray in the 1970-80’s when Uganda was under the political leadership of dubious leaders that led the nation to war & anarchy, Uganda today has restored its legal system based on English common law. A sound legal system is crucial in the development of countries both economically (ie. capital markets) and socially. With the arrival of President Museveni in 1986, new poltical reforms were implemented to allow for more efficient governence considering the shape of the country was in at the time. Some of these new reforms include banning policital parties. President Museveni follows the ideology of ‘no party democracy’. His leadership is essentially that of autocratic rule although President Museveni does appoint political opponents to top jobs. Political parties are legal, they just cannot raise monies or campaign - silent democracy. During elections, candidates stand as individuals rather than for a political party. A national referendum in year 2000 had Ugandans supporting President Museveni in voting against a return to an official multi-party democracy as the President argued that political parties divide Uganda by religion, region and tribe.

Ugandan Conflicts - Political
Uganda was caught in domestic disputes, political disarray and violence from the 1970’s to year 1985. At present most of the country is at peace with the central part of the country stable and progressive. A rebel movement based out of north Uganda called the ‘Lord’s Resistance Army (LRA)’ has been steadily involved during the last 18 years in a conflict with the Ugandan government. This insurgency has forced 1.5 million Ugandans from their homes and while the rebel group has killed many innocent Ugandans. More recently in February 2004, the rebels killed 190 citizens. Recently, the rebel leader Joseph Kony whose movement is fighting for the rights of the Acholi people met with Uganda’s ambassador for a possible peace agreement. The Muslim component within Uganda stands at 16 percent. In the southwest of the country, government forces are again in conflict but with a group with an Islamic affiliation, the rebel group is known as ‘Allied Democratic Forces (ADF).’ Uganda has also been connected to the long running civil war in the Congo-DRC as this was primarily a natural resource conflict as Congo-DRC is very rich and endowed with precious minerals & metals. Several neighboring countries had troops within the Congo-DRC including Zimbabwe, Rwanda, etc. In September 2002, a peace agreement with Congo-DRC was reached as Uganda’s military pulled out the last of its troops. Ugandan forces have clashed with Rwandan troops in the Congo-DRC.

ECONOMY: prior to 1986, Uganda for the most part was a closed economy as former Ugandan leaders terrorized the people and destroyed the domestic economy. Today under the leadership of President Museveni, the nation of Uganda has been rebuilt with several areas of the economy flourishing. Uganda has made great strides economically beginning with reforms in year 1986 resulting in the initial structural changes leading to an open, trade liberalized economy as non-tariff barriers have been eliminated, privatization policies implemented and duties lowered. The reforms in 1986 centred on currency reform, programs to reduce inflation and to stimulate GDP growth via increased export earnings with higher domestic production. The next phase of economic reforms took place in the mid-1990’s directed at economic sectors that including banking and social policy such as health & education. With the help of foreign aid donors and financing from the IMF, World Bank and others, Uganda has steered monies towards upgrading its infrastructure and programs to fight poverty. National AIDS infection rates have fallen dramatically for Uganda to the current 10 percent (adult infection rate is down sharply to 4 percent) from 25 percent for the entire population in 1992. Forceful government sponsored AIDS education policies in Uganda can be attributed to these positive results resulting in one of the few AIDS success stories within Africa today.

Uganda’s tourism business was decimated from the fallout of the murder of eight Western tourists in 1999 from a gorilla site seeing tour in Bwindi National Park. Fortunately, the tourism sector is finally rebounding which is an important medium for the country to obtain hard currency foreign exchange monies.

From year 1990-2004, Uganda experienced good expansionary GDP growth with falling inflation levels. The economy has also been supported with external financial support from the IMF/World Bank and other organizations including the Paris Club valued at $2 billion USD. Foreign aid does represent a large portion of the budget. Successful policies that help led to this economic rebound include allowing for the return of exiled Indian-Ugandan and British Asian-Ugandan citizens along with their knowledge and entrepreneurial capital. In 1990, President Museveni put in place policies designed to bring capital back to Uganda to help foster GDP growth. These policy changes attracted home many exiled citizens when property was expropriated from under former leader Idi Amin’s regime during the 1970’s. New successful industries from exiled Ugandans include the likes of organic farming for export markets in Europe and abroad.

Economic risks for Uganda include difficulties in the country’s trade and current account position. Current account deficit 2001 came in at 8.3 percent of GDP which is quite large, without foreign aid this figure would have been closer to 16 percent shortfall. In addition, Uganda faces annual fiscal challenges in its central government budget.

Coffee Industry

Uganda’s coffee crop is a significant export earner as it represents the majority of export earnings as Uganda is presently the world’s 8th largest producer. The coffee industry worldwide is vulnerable to volatile swings in coffee prices. The early 1990’s saw the global coffee market crash in prices and again in year 2001 as the world average price dropped to 49 US cents/lb in March 2001, down almost by half during the previous 6 months. Year 2004 coffee production is down 5 percent year over year but value is up 10 percent due to higher coffee prices. The coffee pricing cycle has returned with prices again peaking recently in June 2004 at just over 90 US cents/lb although dropping to the 75 US cent level by September 2004.

Economic Statistics
GDP as measured by purchasing power parity is at 36 billion USD (2003) with corresponding GDP/Capita at 1,400 USD. Strong GDP growth of 7.8 percent in 1999 as years 1997-01 recorded 4 to 8 percent GDP growth, year 2001 at 6.5 percent, year 2003 came in at 4.4 percent, year 2004 is projected at 5.7 percent and year 2005 at 6 percent. Inflation for 1999-2000 was in the 5 percent range, year 2003 at 8 percent, both years 2004-05 is estimated at 3.5 percent. Public debt to GDP stands at 62 percent (2003), external debt stood at 3.4 billion USD (2001). Trade figures have exports at 500 million USD (2003) to countries such as the Netherlands, Belgium, United States, etc. Conversely, imports were measured at 1.18 billion USD (2003) from Kenya, South Africa, etc. Year 2001 fiscal deficit shortfall stood at 12 percent of GDP largely financed by foreign aid/donor money. Economic structure consists of agriculture at 36 percent, industry at 21 percent, services at 43 percent. Industries include sugar, brewing, tobacco, textiles, cement, mining, agriculture - coffee, etc.

POSITIVE: satisfactory literacy rate at 70 percent, media freedom, conservation policies including a call for the return of wildlife and forests that have been badly taken advantage, educational reforms providing universal elementary schooling, affirmative action policies for women. CONCERN: political corruption, 1 million kids under the age of 16 whose mothers or both parents have died of AIDS, high infant mortality rate, life expectancy is only 45 years, environmental: poaching - wildlife, draining of wetlands, deforestation, overgrazing. Inadequate telecommunication system although exceptional growth in cellular phones.

BANKING SYSTEM: sound monetary policy administered by the Uganda’s central bank, Bank of Uganda (BOU). During years 1998-99, Uganda experienced three bank failures in the face of banking scandals resulting from unsecured loans. The Ugandan government is committed to improving the country’s banking sector to ensure minimum capital requirements are satisfied. The Ugandan banking system has been strengthening from the bank failures as privatization and mergers have taken place over the last 5 years. In year 2002, privatization of the Uganda Commercial Bank (UCB) was successful. Uganda’s foreign exchange reserves amounted to $1 billion USD (2003).

REGIONAL ANALYSIS: Kenya, Sudan, Tanzania, Congo-DRC, Rwanda
There are security concerns as the region is very volatile with conflicts, history of violence including Uganda itself but particularly in Rwanda with the genocide and currently in Sudan & within the Congo-DRC. In January 1998, national stock exchange was established which is a key component for economic development with links to Kenya and Tanzania by improving access to capital.

KNOWLEDGE: Uganda’s Natural Resources & Commodities Boom
Uganda has significant copper and cobalt resources along with other substantial undeveloped natural resources. In year 1997, the Ugandan government opened up oil & mineral licenses for exploration and development. Some of Uganda’s natural resources include copper, cobalt, hydropower, limestone, salt, vast agricultural production including organic farming, etc. Coffee prices have rebounded from the year 2001 lows with the market experiencing strong demand as noticed with global conglomerate retail coffee chain Starbucks raising coffee prices for their customers. Regular rainfall maintains a healthy agriculture output sector which employs 80 percent of the working population. Uganda has no oil or natural gas reserves although consumption is relatively small at 8,750 barrels/day (2001) since the economy is mostly agrarian. Oil does represent the country’s largest component for capital outflows. Hydropower will be a new important foreign exchange earner as Uganda is building new electrical plants to take advantage of energy markets in neighboring countries of Kenya, Rwanda and Tanzania. Major hydropower plants have been upgraded or under planned development, Uganda to be a net exporter of electricity. In order for a continuation and development of Uganda’s wide array of natural resources, the government must foster for an improvement in the country’s legal system to facilitate the development of these resources with a sound framework for foreign investors and capital markets. In the long term, Uganda with its natural resources is positioning itself to take advantage of the upcoming global commodities boom that in enveloping. Uganda’s natural resources will help the nation with increased capital inflows and to reverse the country’s negative trade position.

ISO symbol ‘UGX’, Ugandan shilling. At time of review on September 27, 2004, the shilling had an exchange valuation of 1750.50 UGX to the US-dollar (USD) and/or 2148.9 UGX to the Euroland euro (EUR). Uganda’s exchange rate regime follows that of a float, fully convertible. The Ugandan authorities are committed to a flexible market determined exchange rate policy with stability in the foreign exchange market.

CURRENCY HISTORY: currency reforms were introduced in 1986 with the arrival of new political leadership of President Museveni. Historical exchange valuations for the Ugandan shilling are as follows: year 2003 at 1963.7 UGX to the USD, 2002 at 1797, 2001 at 1755, year 2000 at 1644, 1999 at 1455, year 1998 at 1240, 1997 at 1083, year 1996 at 1046, 1995 at 969, 1994 at 980 and year 1993 at 1195.

CURRENCY FORECAST: relative stability performance most likely to remain par for the course although difficulties remain. The arrival of new market policies including privatization has led to corruption. Caution remains for the Ugandan shilling as political conflicts remain such as war with domesitic insurgent rebel groups. The Ugandan economy is vulnerable to known historical swings in the world coffee price that can greatly impact the country’s challenging current account/trade shortfall position. The economy is struggling from the fallout with AIDS, infrastructure and institutions require continued developing. The Ugandan shilling warrants a moderate currency risk ranking due to many variables as mentioned although there are many good things happening to the country with a new spirit of entrepreneurialism taking hold.
UPDATED: September 27, 2004

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