Uganda - Growth and Structure of the Economy

Growth and structure of the economy

When coffee replaced cotton as Uganda's principal export in the 1950s, it was still produced in the pattern of small peasant holdings and local marketing associations that had arisen early in the century. The economy registered substantial growth, but almost all real growth was in agriculture, centered in the southern provinces. The fledgling industrial sector, which emphasized food processing for export, also increased its contribution as a result of the expansion of agriculture.

Growth slowed in the late 1950s, as fluctuating world market conditions reduced export earnings and Uganda experienced the political pressures of growing nationalist movements that swept much of Africa. For the first five years following independence in 1962, Uganda's economy resumed rapid growth, with GDP, including subsistence agriculture, expanding approximately 6.7 percent per year. Even with population growth estimated at 2.5 percent per year, net economic growth of more than 4 percent suggested that people's lives were improving. By the end of the 1960s, commercial agriculture accounted for more than one-third of GDP. Industrial output had increased to nearly 9 percent of GDP, primarily the result of new food processing industries. Tourism, transportation, telecommunications, and wholesale and retail trade still contributed nearly one-half of total output.

Although the government envisioned annual economic growth rates of about 5.6 percent in the early 1970s, civil war and political instability almost destroyed Uganda's once promising economy. GDP declined each year from 1972 to 1976 and registered only slight improvement in 1977 when world coffee prices increased. Negative growth resumed, largely because the government continued to expropriate business assets. Foreign investments, too, declined sharply, as President Idi Amin's erratic policies destroyed almost all but the subsistence sector of the economy.

The economic and political destruction of the Amin years contributed to a record decline in earnings by 14.8 percent between 1978 and 1980. When Amin fled from Uganda in 1979, the nation's GDP measured only 80 percent of the 1970 level. Industrial output declined sharply, as equipment, spare parts, and raw materials became scarce. From 1981 to 1983, the country experienced a welcome 17.3 percent growth rate, but most of this success occurred in the agricultural sector. Little progress was made in manufacturing and other productive sectors. Renewed political crisis led to negative growth rates of 4.2 percent in 1984, 1.5 percent in 1985, and 2.3 percent in 1986.

Throughout these years of political uncertainty, coffee production by smallholders--the pattern developed under British rule--continued to dominate the economy, providing the best hope for national recovery and economic development. As international coffee prices fluctuated, however, Uganda's overall GDP suffered despite consistent production.

This economic decline again seemed to end, and in 1987 GDP rose 4.5 percent above the 1986 level. This marked Uganda's first sign of economic growth in four years, as security improved in the south and west and factories increased production after years of stagnation. This modest rate of growth increased in 1988, when GDP expansion measured 7.2 percent, with substantial improvements in the manufacturing sector. In 1989 falling world market prices for coffee reduced growth to 6.6 percent, and a further decline to 3.4 percent growth occurred in 1990, in part because of drought, low coffee prices, and a decline in manufacturing output.

Uganda had escaped widespread famine in the late 1970s and 1980s only because many people, even urban residents, reverted to subsistence cultivation in order to survive. Both commercial and subsistence farming operated in the monetary and nonmonetary (barter) sectors, and the latter presented the government with formidable problems of organization and taxation. By the late 1980s, government reports estimated that approximately 44 percent of GDP originated outside the monetary economy. Most (over 90 percent) of nonmonetary economic activity was agricultural, and it was the resilience of this sector that ensured survival for most Ugandans.

More about the Economy of Uganda.

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