Uganda: July 1995
Ravaged by long periods of political turbulence during the 1970s and mid-1980s, Uganda has spent much of the past decade rebuilding its economy.
Continuing reforms seen as crucial for rebuilding the economy
Ravaged by long periods of political turbulence during the 1970s and mid-1980s, Uganda has spent much of the past decade rebuilding its economy. With the implementation of a comprehensive and ambitious reform agenda, which began with the Economic Recovery Programme of 1987 and continued with the Rehabilitation and Development Plan of 1993, Uganda is starting again to capitalize on its natural assets and favourable conditions for farming and tourism.
According to a WTO Secretariat report, the reforms are supported by more discipline in public expenditure, a rationalized tax system, privatization of a number of State enterprises and the maintenance of an exchange rate in line with market realities. Trade liberalization and internal deregulation, including the derestriction of farm prices, are also injecting a degree of competition into Uganda's limited manufacturing and services industries.
Virtually all quantitative restrictions have gone since the introduction in 1991 of automatic licensing under an Import Certification System. The current "negative list" is confined to beer, soda (soft drinks), car batteries, used car tyres and specified types of communications and electrical equipment. The restrictions protect local industries in the first four categories. The lifting of an import ban on cigarettes in 1994 was made contingent on the beneficiary company buying domestic leaf for processing abroad. Mirroring developments on the import side, the report states that many export-related barriers and disincentives have disappeared. In 1990 export licensing requirements were replaced by a less restrictive export certification system. Export taxes have also been abolished.
As a result of the Uruguay Round, Uganda's level of tariff bindings increased significantly to cover a quarter of all tariff lines (87 per cent of agricultural and fishery products and 15 per cent of industrial products), although many bound rates remain higher than the applied tariffs. Tariffs currently contribute about two fifths of Government revenue, and efforts are underway to shift the revenue base towards indirect and income taxes. In this connection, a value-added tax is to be introduced in 1996.
Rehabilitation and modernization of the infrastructure and of basic business services have been given top priority. The Government has sought, in particular, to make the banking sector more efficient and to deregulate the transport industry. Reforms in telecommunications may follow suit; in this connection, the report notes that the modernization of the basic telecommunications network and reform of the pricing structure would be of significant benefit to Uganda's economy. The same applies to electricity generation and distribution, whose reliability seriously suffers from outdated equipment.
The report states that Uganda's Investment Code, enacted in 1991, reversed long-standing antipathy towards foreign investment. It introduced standard provisions regarding investment incentives (e.g. tax holidays), profit repatriation and protection against expropriation of assets. These provisions, together with the recent wave of privatizations, are creating new opportunities for both local and foreign investors.
Uganda participates in the Common Market for Eastern and Southern Africa (COMESA), which, in December 1994, replaced the Preferential Trade Area for Eastern and Southern African States (PTA). The COMESA Treaty, lays down an ambitious liberalization agenda, including the creation of a free-trade area by 2000, a customs union by 2004 and, eventually, an economic and monetary union. According to the report, co-operation is to be reinforced in such areas as customs procedures, standardization, anti-dumping and countervailing measures, competition policy, capital movements and the prevention of smuggling. While half of the country's exports, mainly coffee, are destined for the European Union, about one quarter goes to other COMESA members.
The report concludes that trade policy and, in particular, the creation of a domestic trading environment in which anti-export bias is diminished or absent has an important rôle to play in Uganda's future development. Enhanced international integration, based on commitments under WTO and COMESA, will help ensure the momentum of reform, spur resource efficiency, provide market potential for emerging industries, and encourage long-term development of trade and investment. Uganda's recent performance testifies to what liberalization and economic reforms can achieve rapidly in a poor, devastated economy; continuation and consolidation of the process is crucial in the rebuilding of the economic structure.
Notes to Editors
1. The WTO Secretariat's report, together with a report prepared by Uganda will be discussed by the WTO Trade Policy Review Body (TPRB) on 27 and 28 July 1995.
2.The WTO Trade Policy Review Body conducts a collective evaluation of the full range of trade policies and practices of each WTO member at regular periodic intervals and monitors significant trends and developments which may have an impact on the global trading system.
3.The two reports, together with a record of the TPRB's discussion and of the Chairman's summing up, will be published in due course as the complete trade policy review of Uganda and will be available from the WTO Secretariat, Centre William, Rappard, 154 rue de Lausanne, 1211 Geneva 21.
4.The reports cover developments of all aspects of Uganda's trade policies, including domestic laws and regulations, the institutional framework, trade-related developments in the monetary and financial sphere, trade practices by measure and trade policies by sector. Attached are the summary observations from the Secretariat and government report. Full reports will be available for journalists from the WTO Secretariat on request.
5.Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989 & 1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992), Cameroon (1995), Canada (1990, 1992 & 1994), Chile (1991), Colombia (1990), Costa Rica (1995), Côte d'Ivoire (1995), Egypt (1992), the European Communities (1991, 1993 & 1995), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992 and 1995), Kenya (1993), Korea, Rep. of (1992), Macau (1994), Malaysia (1993), Mexico (1993), Morocco (1989), New Zealand (1990), Nigeria (1991), Norway (1991), Pakistan (1995), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992), South Africa (1993), Sweden (1990 & 1994), Switzerland (1991), Thailand (1991), Tunisia (1994), Turkey (1994), the United States (1989, 1992 & 1994), Uruguay (1992) and Zimbabwe (1994).Back to top
The Secretariat s report: summary
POLICY REVIEW BODY: UGANDA
Report by the Secretariat Summary Observations
The Economic Environment
Between the 1970s and mid-1980s, Uganda suffered long periods of political turbulence - amounting at times to civil war - and poor economic management. By 1986, the economy lay in ruins, with remaining operators discouraged by rampant inflation, rigid price regulation and a highly overvalued currency.
Since the restoration of peace and institutional stability in 1986/87, Uganda has pursued a comprehensive and ambitious reform agenda. With the Economic Recovery Programme (ERP) of 1987 and the Rehabilitation and Development Plan (RDP) of 1993, the authorities have begun again to capitalize on the country's natural assets of fertile soils and a moderate climate and to rehabilitate its once well-developed infrastructure. However, despite strong growth since 1987, at an annual rate of around 5 per cent, recorded per capita income remains among the lowest in the world and many economic and social problems persist, not least in dealing with the effects of AIDS.
Progress has been made in many policy areas. Public expenditure has been disciplined and the tax system rationalized; a number of State enterprises divested and stripped of monopoly rights; the exchange rate brought into line with market realities and, later, allowed to float; and currency surrender requirements abolished. With tightening of monetary policy, inflation has subsided and real interest rates have turned positive. Expropriated assets are being returned to previous owners and new investors attracted through liberal approval practices. Trade liberalization and internal deregulation, including the derestriction of farm prices, are contributing to restore balance in the incentive system, and to inject a degree of competition into Uganda's limited manufacturing and services industries.
Informal economic activities, in particular small-scale crop production and livestock farming, currently represent about one third of GDP. While Uganda's economic survival during the period of civil war, and its present recovery, owe much to the resilience of these activities, their integration in the formal sector could now help mobilize under-utilized factors of production and broaden the resource base for future expansion.
Uganda in World Trade
Uganda's international trade is relatively small and lopsided. Exports are dominated by agricultural products, with coffee contributing over half of merchandise exports in 1993. There has been a degree of recovery in other traditional areas, such as tea, cotton and tobacco, and diversification into non-traditional products, including cereals and fish. This trend has benefited from the reduction of policy distortions, moves towards regional trade integration and, until recently, improved relative terms of trade due to a decline in world coffee prices. About half of Uganda's merchandise exports are taken by the European Union, and may qualify for preferential treatment under the Lomé Convention; an additional quarter is destined for other participants in the Common Market for Eastern and Southern Africa (COMESA), in particular neighbouring Kenya and Tanzania, whose share is growing rapidly.
Merchandise imports have largely exceeded exports, with demand boosted by foreign donor funding in recent years; unrequited transfers represent over 10 per cent of Uganda's GDP. Reflecting the rehabilitation of infrastructure and industry, the import basket consists mainly of machinery, transport equipment and other manufactures. The European Union is by far the most important source; however, imports from Japan have grown rapidly.
Payments for technical assistance and for travel, educational and medical services have translated into significant deficits in services trade. Economic and political stabilization is, however, helping the tourist industry, which seeks to regain its previous rôle as Uganda's second largest export earner.
Mirroring their importance as trading partners, the European Union and, increasingly, COMESA countries are Uganda's leading foreign investors. Starting from very low levels, commitments have picked up, reflecting confidence in the country's economic management, the abolition of restrictive approval procedures and, possibly, the pull effects of incentives. Food processing, construction and business services are the main areas of new investment.
Legal and Institutional Framework
The Republic of Uganda is headed by an executive President, who chairs a Cabinet of Ministers appointed by him. Most members of Uganda's legislature, the National Resistance Council (NRC), were elected by County Councils; about a quarter were nominated by the President. While the Cabinet has overall responsibility for trade policy formulation and implementation, the NRC exercises its powers mainly through the passing of Statutes, including annual Finance Statutes specifying tariffs and taxes. A comprehensive revision of the Constitution is underway.
The change in policy direction since 1987 has altered Uganda's institutional structure. Various State marketing bodies, including in the areas of coffee and cotton, have been stripped of their monopoly rights and reorganized exclusively with regulatory functions. Since 1993, out of over 100 State-owned enterprises, 18 have been privatized and 11 liquidated, and many more are scheduled for either privatization or liquidation by 1997.
Recent changes in banking legislation are intended to strengthen the Bank of Uganda's rôle as monetary authority and enhance its supervisory functions over financial institutions. The operation of the Uganda Revenue Authority (URA), set up in 1993, is expected to improve revenue and tax collection. Under the Investment Code of 1991, the Uganda Investment Authority (UIA) operates as a one-stop shop for investment approvals and incentives.
Trade Policy Features and Trends
Uganda has been a GATT contracting party since independence in 1962. It ratified the Marrakesh Agreement in September 1994 to become a founding member of the World Trade Organization (WTO).
As a result of the Uruguay Round, Uganda's level of tariff bindings increased significantly to cover a quarter of all tariff lines (87 per cent of agricultural and fishery products and 15 per cent of industrial products), although many bound rates remain higher than the applied tariffs. New WTO rules and disciplines may result in legislative changes in areas such as customs valuation, preshipment inspection, anti-dumping and countervailing actions, safeguards, and trade-related investment measures (TRIMs). Accession to the Plurilateral Agreement on Government Procurement is under study. In services, Uganda's specific commitments governing market access and national treatment are confined to tourism and subject to certain limitations; no exemptions from m.f.n. treatment have been noted in the Uruguay Round Schedule.
Uganda participates in the Common Market for Eastern and Southern Africa (COMESA), which, in December 1994, replaced the Preferential Trade Area for Eastern and Southern African States (PTA). The COMESA Treaty, signed by over 20 African States, lays down an ambitious liberalization agenda, including the creation of a free-trade area by 2000, a customs union by 2004 and, eventually, an economic and monetary union. Co-operation is to be reinforced in such areas as customs procedures, standardization, anti-dumping and countervailing measures, competition policy, capital movements, and prevention of smuggling.
Type and Incidence of Policy Instruments
Trade liberalization has been central to Uganda's reform programme since 1987. Virtually all quantitative restrictions have gone since the introduction in 1991 of automatic licensing under an Import Certification System, which allows certificate holders to import all goods not specifically listed. The current "negative list" is confined to beer, soda (soft drinks), car batteries, used car tyres and specified types of communications and electrical equipment; the restrictions protect local industries in the first four categories. The lifting of an import ban on cigarettes in 1994 was made contingent on the beneficiary company buying domestic leaf for processing abroad.
Improvements were also made in customs procedures, benefiting from the introduction of a Taxpayer Identification Number and review of the Customs and Excise Management Act. The Government hopes to phase out the existing preshipment inspection (PSI) requirement and plans to change the basis of customs valuation from the current Brussels Definition to the WTO Valuation Code. Continued concern has been expressed by some local manufacturers, however, about inefficiency in customs treatment and smuggling, due mainly to insufficient staffing and infrastructural bottlenecks.
Uganda has no specific safeguards law - although the Government plans to introduce such legislation based on the WTO Safeguards Agreement - and provisions for anti-dumping and countervailing actions have not been invoked for at least a decade. There are no import deposit or similar obligations, and importers have unlimited access to foreign exchange at market rates.
Given the importance of infrastructure rehabilitation, government procurement practices may have a strong impact on trade flows. Under current procurement procedures, some 80 per cent of central government purchasing is in principle subject to open tendering. Ugandan suppliers are generally afforded a preferential margin of 15 to 20 per cent over imports. Significant purchases are effected via bilateral and multilateral donors, and are therefore subject to their specific criteria.
With non-tariff barriers disappearing, Uganda's customs tariff is the dominant protective instrument. After rationalization in recent years, the 1994/95 schedule has five ad valorem rates between zero and 60 per cent. More than 95 per cent of all tariff lines fall between 10 and 30 per cent, and the simple average rate stands at 17.1 per cent. Preferential rates on intra-COMESA imports, covering the whole product range, average 11.7 per cent. Higher tariffs are concentrated in sectors of interest to Ugandan producers such as farm products, fish, processed food, textiles and leather. Effective tariff protection is likely to be reinforced through the widespread use of duty and tax exemptions on basic inputs. Tariffs currently contribute about two fifths of Government revenue; efforts are underway to shift the revenue base towards indirect and income taxes. In this connection, value-added tax is scheduled for introduction in 1996.
Mirroring developments on the import side, many export-related barriers and disincentives have disappeared. In 1990 export licensing requirements were replaced by a less restrictive export certification system; export taxes have also been abolished.
Coffee remains a special case. Exporters must be registered, and shipments are subject to "indicative" prices and quality controls. The Government has reserved the right to restrain export volumes "in line with the demands of international obligations", in particular the Coffee Retention Scheme agreed to by major producing countries in 1993. A Coffee Stabilization Tax, introduced in 1994, is intended to ease upward pressure on the exchange rate resulting from coffee price increases and, thus, improve conditions for other exporting or import-competing sectors.
The Investment Code enacted in 1991 reversed long-standing official antipathy towards foreign investment and introduced standard provisions regarding investment incentives (e.g. tax holidays), profit repatriation and protection against expropriation of assets. These provisions, together with the recent wave of privatizations, are creating new opportunities for both local and foreign investors. A few constraints remain, however. Foreign investment is subject to prior, although near automatic, approval and higher qualification levels for tax incentives apply to foreign investors than to Ugandans. Moreover, the régime contains sectoral preferences for foreign investment in designated Priority Areas.
Sectoral Policy Patterns
Small-scale coffee growing and subsistence farming were among the few activities that emerged largely unscathed from Uganda's slide into political and economic disarray. However, other agricultural production, particularly of tea, cotton, and tobacco, has responded swiftly to the rehabilitation programme. To encourage product diversification and promote food self-sufficiency, many farm sectors have been granted above-average tariff protection on final products, combined with free entry for inputs (fertilizers, pesticides, seeds, agricultural machinery and tools).
Past import-substitution policies for manufacturing have largely - on paper at least - been abandoned. Uganda's small industrial sector accounts for some 6 per cent of GDP. Its current mainstays are farm-based processing industries such as coffee, beverages (beer and soda), textiles and leather. As in agriculture, the Government has sought to enhance industrial efficiency through deregulation, privatization and trade liberalization. Again, however, a combination of high tariffs and duty exemptions - or, in some cases, import bans under the negative list - is geared to promoting selected "infant" industries and may maintain substantial effective protection. In addition, under the Investment Code, the UIA may grant investment incentives conditional upon the use of local inputs or export performance.
While the incentive scheme is intended to broaden the regional and sectoral pattern of production, its continuing imbalances may discourage activities which could perform better in a more neutral environment. The planned reform of the tax system could provide scope for further, broader-based tariff cuts and help reduce such risks.
Rehabilitation and modernization of the infrastructure and of basic business services have been given top priority. The Government has sought, in particular, to make the banking sector more efficient and deregulate the transport industry. Reforms in telecommunications may follow suit; in this connection, modernization of the basic telecommunications network and reform of the pricing structure would be of significant benefit to Uganda's economy. The same applies to electricity generation and distribution, whose reliability seriously suffers from outdated equipment.
Trade Policies and Foreign Trading Partners
Autonomous trade and investment liberalization has been a key to Uganda's economic performance since the mid-1980s. It has helped to attract foreign donors and investors and create the conditions for rapid economic recovery. To improve the resource base for continued expansion, investment flows would need to be complemented by enhanced domestic capital formation. Although the principal macroeconomic conditions are in place - fiscal prudence and a low-inflation environment - private savings have remained low. However, with confidence growing in Uganda's economic and institutional stability, this is likely to change.
Trade policy and, in particular, the creation of a domestic trading environment in which anti-export bias is diminished or absent has an important rôle to play in Uganda's future development. Enhanced international integration, based on commitments under WTO and COMESA, will help ensure the momentum of reform, spur resource efficiency, provide market potential for emerging industries, and encourage long-term development of trade and investment. Uganda's recent performance testifies to what liberalization and economic reforms can achieve rapidly in a poor, devastated economy; continuation and consolidation of the process is crucial in the rebuilding of the economic structure.Back to top
POLICY REVIEW BODY: UGANDA
Report by the Government
Uganda which became independent in October 1962 is an East African country whose post-independent history has been characterised by civil strife and political instability. However, with the coming into power of the ruling National Resistance Movement Government, the rule of law, peace and stability have been restored.
About 90 per cent of the 17 million population of Uganda live in rural areas where they depend directly on agricultural and related activities for livelihood. At the moment the country relies heavily on coffee and a few primary commodities for its exports. In order to widen (expand) the export base, the Government of Uganda has embarked on an ambitious Export Diversification Programme to promote the non-traditional crops.
Since May 1987, the Government of Uganda has been pursuing bold macro-economic policies and implementing an Economic Recovery Programme aimed at achieving economic stabilization in the short-term and sustained growth in the medium to long term.
As a result of these measures, Uganda's economy registered an average annual growth of 5.7 per cent for the last six years. Over this period, per capita incomes rose by 2.8 per cent per annum. However average per capita still remains very low at US$170.
The Economic Recovery Programme (ERP) aimed at three major objectives:
(a) Restoring economic stability by reducing inflation through fiscal management and monetary performance;
(b) Accelerating growth in production for export through price liberalization, deregulation of economic activity and encouraging saving and investment;
(c) Expanding social and economic infrastructure to increase productivity, reduce poverty and improve standards of living of the populace.
Uganda's economy was devastated by political and civil conflict extending over two decades between 1966-1985. When the NRM came to power in 1986, it embarked upon structural adjustment programmes aimed at reviving the economy as quickly as possible.
Due to Government's determination in pursuing sound macro-economic policies and the implementation of structural reforms, inflation has been brought under control, there has been improvement in the budgetary deficit and a substantial rise in private transfers to the economy. Uganda has made good progress in economic recovery as Government moves from rehabilitation to development.
The Government has made great efforts to provide an attractive and appropriate environment for foreign direct investment through realistic policies. Government's action to return over 2,500 foreign expropriated properties has sparked off major rehabilitation investments with a resultant expansion of employment and income opportunities. This move has rekindled business enthusiasm and restored confidence and security to the aspiring investors.
Efforts have also been made to broaden he country's tax base without discouraging savings and investment. In order to streamline and enhance tax collection a tax body known as the Uganda Revenue Authority (URA) was established in 1991 and since its inception, it has made remarkable success in revenue collection.
Priority objectives in the trade sector have focused on a plan to regain Uganda's previous peak export levels and setting the stage for enhancing export volumes and earnings with a view to achieve a self sustaining export sector. To this effect, measures that have been adopted include the rehabilitation of the traditional export sector and the promotion, development and expansion of non-traditional products; promotion of sustainable industrialisation; promotion and facilitation of the efficient marketing of agricultural produce; adoption of a market-determined exchange rate system; trade and marketing liberalisation including removal of licensing and price controls. Other measures are tariff and tax reforms and the rehabilitation of the essential infrastructure.
Although the above measures have led to some improvement in the performance of the export sector, Uganda still has a narrow export base. The government has therefore, mounted a vigorous export and investment promotion drive to expand the export base through diversification and penetrating into new markets.
While the market improvement in the economy will certainly enhance the success of this effort, a more liberalized and open multilateral trading system resulting from the Uruguay Round Agreements will no doubt contribute a great deal to the attainment of Uganda's objectives. It is for this reason that Uganda fulfilled all the necessary conditions to become an original member of the WTO. Back to top