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THE STRUCTURE OF UGANDA’S ECONOMY

This unit talks about the Structure of Uganda's Economy.It shows what it is made up and the different economic activities that are carried out in Uganda.it also talks about other sectors like imports and exports.

The structure of an  economy refers to main feature / outstanding characteristics of a given economy. Uganda’s economy can be fairly described as having the following features.

It’s predominantly an agricultural economy and this predominance in agriculture is seen in a number of ways.

  • Over 80% of the population is employed in agriculture and it’s the biggest employer of the country’s labour force.
  • The agricultural sector contributes over 60% of the country’s G.D.P
  • It’s the major source of raw material for most industries.
  • It is the agricultural sector which contributes greatly to the country’s foreign exchange earnings.
  • It is the major source of food for the increasing population.
  1. It has a small but growing industrial sector. The industrial sector contributes less than 15% of the country’s G.D.P.
  1. Uganda is a dualistic economy. Dualism is the co-existence of 2 contradicting social – economic situations i.e. one modern and other primitive e.g. technology dualism (labour intensive VS capital intensive).
  1. Uganda is a mixed economy where both private and government participate in economic decision in way of resource ownership, distribution and allocation.
  1. Uganda is an open economy.
  1. Uganda has a large subsistence sector where production is for owners’ consumption and it’s characterized by family labour and simple tools like hoes, pangs, slashes, etc.
  1. There is presence of abundant and undeveloped / unexploited resources e.g. and, labour. Much land and minerals are unexploited in Uganda.
  1. Uganda’s tertiary sector that includes banking, transport, communication services is still small but rapidly growing.
  1. Uganda’s trade is mainly on export of agricultural products and imports of manufactured goods and petroleum products.
  1. Uganda mainly depends on indirect taxes as a major source of revenue.
  1. There also exists an informal sector in Uganda i.e. the sector between subsistence and modern e.g. taxi drivers, shoe shiners etc.

STRUCTURE OF AGRICULTURE IN UGANDA

The structure of agriculture refers to the set of characteristics describing the agricultural sector. It is characterized by the following aspects;

  1. There’s a large share of subsistence output. However, attempts are being made to reduce this.
  1. The sector is characterized by rampant unemployment and underemployment.
  1. Production is mainly on small scale undertaken on small plots and this is mainly due to the fragmented nature of the plots.
  1. There’s common use of family labour and this is mainly from where women and children.
  1. There’s wide spread use of rudimentary tools especially hoes, axes, slashes,, etc. and the application of modern technology is very limited which limits farm productivity.
  1. Prices for agricultural produce are low and keep on fluctuating and this is due to the fact that low quality output is produced.
  1. Agriculture mainly depends on nature.
  1. Large scale farms are owned by foreigners and the small scale peasant farms are owned by local people.
  1. There’s instability in agricultural output because the sector suffers from natural hazards like pests and diseases, Floods erosion, etc.
  1. There’s limited agricultural diversification and Uganda still depends on cotton, coffee meaning that the production composition is still small.
  1. Land conservation techniques are hardly used and such include rotation, mulching, terracing and other methods to conserve the soil.
  1. There’s inequality in land ownership. Most people are landless and this limits agricultural production.

Consequences / implications of the agricultural sector in Uganda

Due to poor technology, both the quality and quantity of what is produced is very low leading to the stagnation of the agricultural sector.

  1. It suffers instabilities in prices leading to poor planning in the agricultural sector and the whole economy; planning difficulties in L.D.Cs are attributed to rampant price instabilities in the agricultural sector.
  1. The predominance of peasant small scale farming leads to absence of economies of scale and the agricultural sector never enjoys economies of large scale production.
  1. Given that agriculture is the major form of foreign exchange in Uganda’s economy, any change in international market will cause shortage of foreign exchange leading to balance of payment problems.
  1. Production depends on various natural uncertainties and risks like drought, pests and diseases etc. this discourages investment in the agricultural sector.
  1. With land fragmentation problems, it is very difficult to establish large scale farms hence limiting modern methods of farming usage.
  1. Inequality in land ownership promotes inequality in income distribution.
  1. With poor quality products the sector ends up facing marketing problems in the world e.g. low prices and at times low demand.
  1. The existence of a large subsistence sector hinders capital accumulation process in Uganda since the sector produces mainly for home consumption. This also leads low government revenue since such a set or is not taxed.
  1. Dependence on family labour implies limited agricultural output and low levels of growth.
  1. Given rampant unemployment and under employment there’s rural – urban migration and its associated problems.
  1. Due to ownership of large scale plantations by foreigners, profits are repatriated which limits the level of capital accumulation and general development of the country.
  1. Price instabilities and fluctuations in agricultural production leads to unstable supply of raw materials which hinders industrial development.
  1. Since production is greatly influenced by social and cultural beliefs success of agricultural modernization by the government is always limited.

The Structure of Industries in Uganda

1.Composition

When describing the structure of industries in Uganda the following aspects are considered;

Most industries are agro- based. These process primary raw materials like cotton, sugar, tea processing and coffee.

Industries manufacturing goods for domestic market (consumer goods). These are few and capital intensive e.g. soap making industries, breweries, etc.

Industries doing assembling operations e.g. spear motors

Extractive industries e.g. fishing, lumbering

Power generating industries e.g. BAT.

Food processing industries e.g meat packing, grain milling etc.

2.Size

Uganda has small, medium and large scale industries. However, majority of the industries are small scale with a few medium and large scale industries.

3.Ownership

Most of the small scale industries are owned by the local people while the medium and large scales are owned by foreigners.

However some large scale industries are owned by the government in for of parastatals e.g. Uganda railways corporation, Uganda Electricity Distribution Company while private individuals like Mulwana, Wavamuno won large scale industries.

Foreign owned industries include Mukwano, Madhvan group of companies while some industries are jointly owned by the government and foreigner’s e.g. Masese fishing industry in Jinja.

4.Distribution

Industries in Uganda are evenly distributed. Most of them concentrate in major towns like Kampala, Jinja, Tororo, Mbarara, etc.

5.Contribution to G.D.P industries in Uganda contribute a small percentage to G.D.DP ranging between 10- 15%.

This is mainly due t the problems they face.

6.Employment levels.

Industries in Uganda employ low skilled man power and at times semi- skilled hence contributing a small percentage on the total employment since the majority are small scale industries and yet the large scale ones use capital intensive technology.

7.Market output orientation.

Most of the commodities are consumed domestically with little being exported. This is due to the inward locking development policy by the government of Uganda and the limited levels of competition of our products on the world market.

8.Raw material composition.

Most industries depend on agricultural and mineral products while some few depend on imported raw materials.

9.Productivity

Most industries operate at excess capacity because they lack spare parts have limited market and some are monopolistic in nature.

10.The industrial technology.

Most industries especially those owned by the local people use labour intensive techniques of production and a few that are owned by foreigners use modern capital intensive techniques. 

Effect / implication of the structure of industries

The effects of the industrial structure of Uganda can be both positive and negative.

Negative effects

  1. Most industries in Uganda are small scale which lack economies of large production. This results into efficiencies hence low levels of output, income and employment.
  1. Most industries are agro based and because of this they are affected by natural factors which affect the supply of agricultural raw materials.
  1. Due to the dominance of small scale industries there’s limited employment opportunity in the industrial sector.
  1. The concentration of industries in urban areas brings about regional imbalances, income inequality and rural – urban migration with all the associated problems.
  1. The existence of foreign owned industries favours profit repatriation by these foreign investors. This retards development.
  1. Since most of foreign owned industries are capital intensive, the problem of dependence on foreign capital, imported raw materials and foreign technical man power are persistent.
  1. Because of production of low quality products market for manufactured products in the foreign market is limited.
  1. The poor industrial performance in Uganda promotes the continued existence of the viscous circle of poverty.
  1. The dominance of the import substitution industries as a result of the inward looking development strategy leads to limited foreign exchange in Uganda.

Positive effects

  1. Small scale industries are easy to start in Uganda since they require little capital as compared to large scale industries.
  1. Small scale industries produce little output which is suitable for the limited market in Uganda.
  1. Since these small scale industries produce little output which is suitable for the limited market in Uganda.
  1. Small scale industries require skilled labour intensive and easy to establish even in rural areas they provide employment opportunities to people in those areas.
  1. Small skilled industries require skilled labour which is available in Uganda.
  1. Since these industries are Agro- based they promote inter spectral linkages between the agricultural and industrial sectors.
  1. The dominance of small scale industries promotes self reliance and use of local resources.

Major problems facing industries in Uganda

  1. Inadequate resources (raw materials).

Most industries in Uganda use agricultural raw materials which are quite inadequate and for those that use minerals find it hard to extract the available mineral resources.

  1. Shortage of skilled labour.

There’s a shortage of skilled labour like qualified engineers, mangers, etc who are required for industrial development in Uganda.

  1. Limited foreign investors.

Uganda faces a problem of foreign entrepreneurs who are willing to work in the country. This is mostly as a result of political instability and a poor investment climate

  1. Poor and inadequate infrastructure.

Uganda has limited infrastructure like roads, storage facilities etc which are necessary for industrial development. These result into problems of transporting raw materials finished products and at times labour. Power to run machines are also inadequate.

  1. Limited capital.

Because of poverty of the majority of people and the low taxable capacity, savings are limited leading to low investment because of low capital accumulation.

  1. Limited market.

Domestic market for industrial products is limited in Uganda because of poverty and the foreign markets are limited because of poor quality products and protectionism by foreign countries.

  1. Limited foreign exchange.

This is due to a narrow export base. For industries to develop there’s need for foreign exchange can be used to buy heavy machinery that it not produced domestically.

  1. Political instability.

For the last 2 decades there has been political instability and insecurity in Uganda. This has discouraged investors both local and foreign who would have invested in Uganda hence limiting the level of industrialization.

  1. Limited credit facilities.

There is lack of medium and long term credit to purchase machinery, raw material etc and this has hindered the rate of industrial development.

  1. Corruption and embezzlement
  1. Lack of proper government planning.

The low rate of industrialization in Uganda could be attributed to the government failure to put more emphasis on the industrialization process.

However the rate is slightly increasing with the current emphasis on industrialization.

  1. Dependence on imported capital and foreign resources Uganda has been depending on loans and grants, imported skill man power for industrialization.

This has resulted into high costs of maintaining debts and increase in the debt burden to country hence limiting resources for the industrialization process.

Role of the government in improving the industrial sector of Uganda

  1. The government has tried to establish political and economic stability which attracts private, foreign and local investors.
  1. There has been an improvement and rehabilitation of the related infrastructure e.g. the dam extension (Kiira extension), roads have been rehabilitated and new ones constructed etc.
  2. There has been liberalization of trade and foreign exchange trade in the country such that importing of the essential industrial inputs is no longer difficult.
  1. There has been development in the human resource department whereby people are trained in management and financial skills that are necessary for industrial development.
  1. Government has tried to protect the domestic infant industries from external producers by setting import taxes (tariffs), total ban and other protectionism methods.
  1. Government has set our investment authority which has an investment code that is revised in order to attract foreign investors into the country (ie the Uganda investment authority.)
  1. The government has used incentives like tax holidays, credit facilities etc in order to encourage industrial development.
  1. There’s provision of markets through regional cooperation and integration e.g COMESA, EAC etc. treaties have been signed that bind trade with other countries.
  1. The government has encouraged and promoted U.P.E in order to increase skilled man power that is needed for industrial development.
  1. In a bid to boost industries in Uganda, the government has sold off poor performing industries to the private sector e.g. U.C.B, NUVITA, Lake Victoria Bottling Company Etc.
  1. The government has allowed Asians back and though the custodian board they have repossessed their enterprises.

Role of agriculture and role of other sectors

  • Provides employment
  • Contributes to G.D.P
  • Earns foreign exchange
  • Contributes to government revenue in form of taxes.
  • Leads to infrastructural development (feeder roads)
  • Promotes specialization
  • Leads to technological development and transfer \
  • Major source of food for the growing population.
  • Facilitates industrial development

Other sectors

Industrial sector, trade sector, service sector- transport and communication , education, health facilities.

Export and import of Uganda’s economy

The structure of trade refers to the nature of import and export trade. It refers to conditions of exchange and the contribution of trade to G.D.P.

Uganda’s export in 2003 was worth $522.5million, registering 8.2% increase from 2002/… Uganda’s import, export trade is characterized y the following;-

Imports

  1. Uganda mostly imports consumer goods e.g. alcohol drinks, beverages, textile, vehicles, etc.
  2. Uganda also imports producer or capital goods e.g. industrial and agricultural machinery, spare parts, construction materials, etc.
  3. Uganda also imports petroleum products and other chemicals.
  4. Uganda also imports skilled man power to fill the man power gap.
  5. The import sources are undiversified since most imports come from former colonial masters (Britain) and to associates like U.S.A, Japan, and Canada.
  6. Uganda’s imports are high value compared to its exports.
  7. Uganda’s imports more than it exports.
  8. The contribution of the import- export sector is very low. It is about 5% of the total G.D.P.
  9. Of recent, Uganda has had a cut down in its imports especially consumer goods because of the import substitution strategy.

Exports

  1. Uganda exports mainly agricultural primary products like cotton, coffee and tea account for more than 80% of the total monetary value.
  2. Other agricultural crops also play a significant role in the economy and these include vanilla, simsim, flowers etc.
  3. There’s limited exportation of manufactured goods due to insufficient processing and manufacturing.
  4. The total volume of exports declined I the 1970s due to political instability however after 1986, there was an improvement.
  5. More than 75% of Uganda’s exports visible exports while some invisible exports like tourism, electricity, etc are also present.
  6. Of recent, Uganda has had export diversification and value addition to its exports.

Problems / implications arising from this structure

The problems facing Uganda’s economy mainly result from the import, export structure and these include;

  1. Persistent balance of payment problems arising from import value exceeding the export value. Uganda’s balance of payment deficit ranges at 400 million US dollars annually.
  1. Uganda can’t attain self reliance since she depends too much on trade. Trade dependence reduces her economic freedom.
  1. Un diversification exports imply that the sources of foreign exchange are limited since export trade is dominated by a few export productions.
  1. Depending on primary export crops whose prices are falling on international markets causes constant deteriorating terms of trade which reduces our benefits from trade.
  1. Uganda cannot develop without trade since it depends on capital, labour which is imported. This has limited the economy to adopt an inward looking development strategy.
  1. Uganda has a narrow market for her exports and this reduces her earning capacity and bargaining power.
  1. Since most Ugandans depend on agricultural products whose prices keep fluctuating there will be constant fluctuation in people’s incomes leading to poverty.
  1. The existence of a large foreign sector and an equal exchange implies that Uganda loses a lot of resources through trade and this reduces her potential for development.
  1. Because Uganda depends on primary exports which cause balance of payment problems and deteriorating terms of trade, this implies that Uganda will continue depending on other countries for assistance in its survival and development process.

Policy measures to change this structure

  1. In order to be self sufficient in future there’s need to import commodities like machinery and other productive inputs while limiting importation of non essential goods and fire arms.

This will reduce on our imports hence improving the country’s balance f payment position.

  1. There’s need to adopt an inward looking development strategy by establishing import substitution industries. This will reduce dependence on imports.
  1. Uganda should embark on enlargement and development of the invisible sector such as banking services, tourism etc so as to increase foreign exchange earnings.
  1. Economic diversification should be encouraged so as to move away from dependence on a few primary exports.
  1. Export promotion industries and exportation of manufactured goods should be encouraged to reduce the dependence of the export sector on a few agricultural products.
  1. The government should also embark on a comprehensive policy of training local man power in order to reduce importation of man power.
  1. Further processing of agricultural products to higher stages should be done so as to increase the value of our exports.
  1. The government should take measures of widening the market per our goods through regional groupings (economic integration) e.g. COMESA.

 

ASSIGNMENT : THE STRUCTURE OF UGANDA’S ECONOMY-S.5 assignment MARKS : 10  DURATION : 1 week, 3 days

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