The Uganda Shilling started this week a 12-month low.
On Monday November 21, 2016, the Uganda shilling is trading at an average of 3,585 against the U.S. dollar, a significant weakness from the UGX3,400 average of the past one month.
On April 24, 2016 the shilling traded at 3,301 to the dollar. For much of this year the exchange rate averaged 3,400.
Stephen Kaboyo of Alpha Capital Partners attributes the weakening to a surge in dollar demand from mainly portfolio investors cutting positions in the fixed income space.
At 3,500, it is going to make life even more difficult for Uganda’s business community and eventually, for the Ugandan consumer.
In June, statistics released by the Uganda Bureau of Statistics (Ubos) said that Uganda’s economic growth had slowed down to 4.6 per cent for the financial year 2015/16 from growth rate of 5.0 per cent that was recorded in the financial year 2014/15.
The slump in Uganda’s real GDP growth is attributed to volatilities that were experienced by the economy, affecting various economic activities resulting in low investments in the country, nothing is more telling of the hard times than the number of companies that have either folded, quit the market or are in distress in recent years.
As a sign of low economic activity since beginning of this financial year in July, government has recorded a shortfall of Ush98 billion ($28.5 million) after collecting only Ush2.9 trillion ($843.1 million).
Uganda imports practically everything it needs, meaning the dollar shortage is causing enormous pain.
Businesses, for example, aren’t able to import machine parts leading to a loss of production or even closure.
Critics say the government initially exacerbated the crisis by refusing to devalue the country’s currency although it relented over the summer.
Millions of Ugandans are now struggling with double–digit inflation – the highest rate in more than a decade.
However, economists argue that while some of the shocks like currency depreciation, decline in global demand and low prices for commodities have affected many sub-Saharan African countries, the country has long lacked a strategy to pull itself out of this hole to achieve structural transformation.
The government will also fear that growing unemployment could trigger social unrest.
By Dixon Ampumuza Kagurusi
