Kampala, Uganda – The uncertainties surrounding the February 2021 polls could slow Uganda’s recovery from the battering by coronavirus as investors withhold investments until after the polls.
According to Standard Chartered Bank’s country briefing, there is an expected increase in spending in the run-up to 2021 which should boost economic activity. The 2020/21 budget will see an increase in spending by 13 per cent even when the country is expected to hold virtual campaigns.
But this boost from electoral spending will be reduced by an increase in polls uncertainty, Stanchart’s head of Africa Research Raziah Khan said. This will see banks reduce the money they lend in the run-up to February 2021.
Investors usually withhold their money to see the outcomes of the polls even when they are sure of the likely winner. Investors also fear the post-election protests of those claiming to have been rigged. With the reduced foreign investment, the Ugandan currency usually loses its value against major currencies.
Stanchart also projects that the country’s current account deficit, where money earned in exports is less than that spent on imports, to widen to 9.2 per cent of GDP for 2020. An earlier projection put the gap at 5.6 per cent. Meanwhile, the bank says risks to Uganda’s future oil production have subsided since March when oil prices collapsed.
“The recent oil price recovery could potentially support investment in new markets; at the same time, Uganda’s government has shown a willingness to facilitate faster progress towards first oil,” Khan writes in the briefing.
The World Bank indicated last week that Uganda’s dream to be an oil-producing country may not be realized until 2025. In its Economic Update report, the bank says “the sharp decline in world oil prices resulting from the COVID-19 crisis could delay oil sector investments in the medium term and oil production beyond 2025” even when the private sector remains optimistic about oil production in Uganda.
This will bring the wait to have the first oil to more than nineteen years after the country discovered the hydrocarbons in 2006. But Khan says they expect the Final Investment Decision (FID) to be taken by end of this year. The FID is a commercial agreement that will give oil certainty to spend their money on key projects in the oil and gas sector.