Uganda’s Economic Rebound Expected in 2024 Following 2023 Slowdown

Summary:

• Uganda’s economic growth in 2024 is driven by strong fixed investment, with the oil sector playing a key role, while positive outlooks for coffee exports and domestic consumption are tempered by risks such as the AGOA suspension and potential currency depreciation.

A key driver of economic expansion lies in robust fixed investment, primarily fueled by ongoing developments in Uganda’s oil sector. Projects such as the $10 billion Lake Albert Oil Project and the $4 billion East Africa Crude Oil Pipeline are attracting substantial investment, contributing to a 2.2 percentage point increase in headline growth in 2024, slightly below the anticipated 2.5 percentage point contribution in 2023. This sustained momentum is expected to drive a 9.2% real growth in imports in 2024, as demand for capital inputs remains high.

On a positive note, the outlook for exports appears promising. Fitch’s Agribusiness team forecasts a 5.3% growth in coffee production in 2024, up from 4.8% in 2023, supported by improved yields, maturation of coffee trees, and government incentives through the National Coffee Policy. Consequently, real export growth is projected at 5.2%, reducing the drag on headline growth from 4.1 percentage points in 2023 to 2.1 percentage points in 2024.

Additionally, domestic consumption is expected to thrive, with private consumption set to grow by 6.4% in 2024, contributing 5.6 percentage points to real GDP growth. This growth is anticipated to be bolstered by lower inflation and the positive effects of monetary easing. The Bank of Uganda’s decision to cut the policy rate by 50 basis points to 9.50% in August 2023, with further expected easing, is likely to stimulate credit demand in the coming months.

However, risks loom over this optimistic outlook. The suspension of Uganda’s eligibility under the Africa Growth & Opportunity Act (AGOA), announced by the United States in October 2023, poses a significant threat to exports in 2024, despite Uganda’s relatively lower exposure to the US market within the East African Community. Furthermore, a potential unexpected weakening of the shilling could elevate import costs, extend inflationary pressures, and discourage further monetary easing.