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Construction surges while economy falls

The value of goods and services produced in Uganda between July and September fell compared to the period between April and June, according to figures from the government statistics bureau.

Uganda Bureau of Statistics (Ubos) said that real gross domestic product (GDP), an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given period, declined by 0.2 per cent between July and September of 2016/17. In the last quarter of 2015/16 (April-June), GDP grew by 0.6 per cent.

“The decline in real GDP is largely from the contraction in agriculture where its value added is estimated to have declined by 1.1 per cent between [July and September],” said Ubos report.

Between April and June, agriculture, where at least three quarters of Ugandans earn a living, had shrunk by one per cent. Ubos said the contraction was mainly due to the fall in the value added in cash crops and food crops.

Sales from cash crops declined by 5.5 per cent while those from food crops also slumped by 0.8 per cent from an earlier decline of 1.3 per cent in the fourth quarter of financial year 2015/16. Other activities that declined are forestry, fishing, livestock activities and agricultural support services.

Most farmers in Uganda were affected by last year’s prolonged dry spell. This meant that their production was lower than expected. In its state of the economy report for December 2016, Bank of Uganda said: “Indeed, food crop prices reversed trend since June and the full impact of the dry spell is yet to be reflected in prices”.

Ongoing construction at Mulago

According to Ubos, the poor performance of agriculture had a spill-over impact on the manufacturing sector. Manufacturing activities declined by 4.6 per cent “on account of poor sales of cash and food crops that resulted in decline in agro-processing,” according to Ubos.

Uganda has no major manufacturing sector and it does mostly agriculture processing, also on a small scale. At least 69 per cent of Ugandans are doing peasantry farming with no major addition to the economy, according to the 2014 census report.

On the services sector, Ubos says the value added remained stable, similar to that added in last quarter of the financial year 2015/16.

Ubos said while trade and repairs, information and communication, real estate, education, human health and social work, transportation and storage and accommodation did well, their impact was offset by the reduction in value added of public administration and financial and insurance services.

CONSTRUCTION SURGES

Meanwhile, the construction sector posted a positive performance. The construction sector grew by 9.2 per cent. The construction sector surged particularly because of government projects going on in the country. Construction at Karuma and Isimba are in high gear.

While the demand for rentals and houses for sale has declined, the appetite for construction has not fallen. Bank of Uganda said such construction had been made on speculative basis and had had one of the highest defaulters.

“There was a lot of borrowing to finance real estate in anticipation of high demand for housing in the event of a take-off of the oil sector,” BOU said. The oil and gas sector has had a lull period but a lot more activity is expected this year as more exploration and the beginning of major projects like the pipeline take shape.

A BOU survey of the industry banks found that the three most important causes of borrower default, which were behind more than 60 per cent of the current non-performing loans were: failure of government to pay its contractors and suppliers; cost overruns and insufficient cash flows; the effect of the political instability in South Sudan, and the diversion of funds by borrowers away from their intended use.

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