Uganda - The Economy Historical Background

More about the Economy of Uganda.

Historical background

Peasant agricultural production has been the predominant economic activity since precolonial times. Despite an active trade in ivory and animal hides linking Uganda with the east coast of Africa long before the arrival of Europeans, most Ugandans were subsistence farmers. After declaring Uganda a protectorate in 1893, Britain pursued economic policies that drew Uganda into the world economy primarily to serve Britain's latenineteenth -century textile industry. Cotton cultivation increased in importance after 1904, and once it became clear that cotton plantations would be too difficult and expensive to maintain, official policy encouraged smallholder farmers to produce and market their cotton through local cooperative associations.

By 1910 cotton had become Uganda's leading export. In the following decades, the government encouraged the growth of sugar and tea plantations. Following World War II, officials introduced coffee cultivation to bolster declining export revenues, and coffee soon earned more than half of Uganda's export earnings.

Uganda enjoyed a strong and stable economy in the years approaching independence. Agriculture was the dominant activity, but the expanding manufacturing sector appeared capable of increasing its contribution to GDP, especially through the production of foodstuffs and textiles. Some valuable minerals, notably copper, had been discovered, and water power resources were substantial. In 1967 Uganda and the neighboring countries of Kenya and Tanzania joined together to form the East African Community (EAC), hoping to create a common market and share the cost of transport and banking facilities, and Uganda registered impressive growth rates for the first eight years after independence.

The economy deteriorated under the rule of President Idi Amin Dada from 1971 to 1979. Amin used nationalist, militarist rhetoric and ill-chosen economic policies to eliminate foreign economic interests and build up the military establishment. In 1972 he expelled holders of British passports, including approximately 70,000 Asians of Indian and Pakistani descent. Many Asians had been active in agribusiness, manufacturing, and commerce. Their mass expulsion and Amin's efforts to expropriate foreign businesses undermined investor confidence in Uganda. Amin also increased public expenditures on military goods, a practice that contributed to escalating foreign and domestic debt during the 1970s. Relations with Uganda's neighbors soured, the EAC disbanded in 1977, and Tanzanian troops finally led a joint effort to overthrow the unpopular Amin regime in 1979. By 1980 the economy was nearly destroyed.

Following Amin's departure, successive governments attempted to restore international confidence in the economy through a mixture of development plans and austere government budgets. Beginning in 1980, the second government of Milton Obote obtained foreign donor support, primarily from the International Monetary Fund ( IMF), by floating the Uganda shilling (USh), removing price controls, increasing agricultural producer prices, and setting strict limits on government expenditures. In addition, Obote tried to persuade foreign companies to return to their former premises, which had been nationalized under Amin. These recovery initiatives created real growth in agriculture between 1980 and 1983. The lack of foreign exchange was a major constraint on government efforts, however, and it became a critical problem in 1984 when the IMF ended its support following a disagreement over budget policy. During the brief regime of Tito Lutwa Okello in 1985, the economy slipped almost out of control as civil war extended across the country.

After seizing power in January 1986, the new NRM government published a political manifesto that had been drawn up when the NRM was an army of antigovernment rebels. Several points in the Ten-Point Program emphasized the importance of economic development, declaring that an independent, self-sustaining national economy was vital to protect Uganda's interests. The manifesto also set out specific goals for achieving this self-sufficiency: diversifying agricultural exports and developing industries that used local raw materials to manufacture products necessary for development. The Ten-Point Program also set out other economic goals: to improve basic social services, such as water, health care, and housing; to improve literacy skills nationwide; to eliminate corruption, especially in government; to return expropriated land to its rightful Ugandan owners; to raise public-sector salaries; to strengthen regional ties and develop markets among East African nations; and to maintain a mixed economy combining private ownership with an active government sector.

The NRM government proposed a major Rehabilitation and Development Plan (RDP) for fiscal years ( FY) 1987-88 through 1990-91, with IMF support; it then devalued the shilling and committed itself to budgetary restraint. The fouryear plan set out primarily to stabilize the economy and promote economic growth. More specific goals were to reduce Uganda's dependence on external assistance, diversify agricultural exports, and encourage the growth of the private sector through new credit policies. Setting these priorities helped improve Uganda's credentials with international aid organizations and donor countries of the West, but in the first three years of Museveni's rule, coffee production remained the only economic activity inside Uganda to display consistent growth and resilience. When coffee-producing nations failed to reach an agreement on prices for coffee exports in 1989, Uganda faced devastating losses in export earnings and sought increased international assistance to stave off economic collapse.

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