Uganda, scenario status

Dear readers and followers

This week is on Uganda – one of Africa’s fastest growing economies – and possibly the country with the highest growth rate in 2018 when oil comes on-stream. 

As always, contact us on contact@africatrendsmatter.com if you have questions or are interested in the underlying scenarios.

Next week we will share our thoughts on the opportunities and issues related to the rapidly growing African middle class. Who are they, how big is the group, how diverse, what drives them and what matters to them. Exciting stuff, whether your focus in business, politics or development!

 

Underlying-trends:

  1. Continued growth for the short- and medium term. Oil, expected in 2018 will maintain high growth, with world record levels of growth for the year oil comes on-stream.

  2. Two major risks – transition and demography. Museveni is 70 and transition will be tough, no matter what form it takes. Uganda’s 3.5% population growth rate is among the highest in the world and puts high demands on job creation.

Issue

Parameters

Status, July 2014

Why

To watch

Present situation

  • Social development

  • Growth and macro-economy

  • Governance

  • Global drivers

Second best

Trend: ↘

Growth and stability continues, but long-term succession to Museveni will increasingly lead to uncertainty.

Growth

Macro-economic stability

Economic management Corruption ↘

Democracy

Security

  • Delays in oil starting-year (or major fall-out with IOCs)

  • Elections 2016

  • Museveni succession and possible split of NRM

  • Security; visible public dissatisfaction, urban or in oil areas internal

Analysis:

Uganda is on a short- and medium term positive growth trend, but yet on an increasingly downward overall trend with real risks around the politics. Overall sound economic management, combined with continued mileage in Uganda’s relatively market-friendly economy and above all with oil are the main drivers.

The risks are almost entirely political and are closely connected with succession. Key questions are whether Museveni will continue after 2016 (we think he will), how will other NRM ambitious leaders react, can Museveni maintain the patronage network and will a new, credible opposition leader emerge.

The other main risk is around population growth: 3.5% population growth is amongst the higest in the world. The demand for jobs combined with increased urbanisation is an opportunity in some respects, but on balance in the Ugandan context probably more of a risk.

For now, none of the risks are imminent; in the absence of a uniting opposition and with “good enough” growth rates, Ugandans are still accepting NRM and are not willing to seriously challenge status quo. However, this could change rapidly and could be triggered by a range of smaller events.

In terms of security, there are risks of terrorist attacks due to Uganda’s engagement in Somalia. There are also risks of tension related to South Sudanese refugees. Finally, there are risks in the oil areas, both in terms of local violence and with DRC.

Scenario status:

We operate 5 core scenarios. Overall, there are most features from the 2nd best scenario with a few features from the top scenario (continued natural resource finds, growth) and an increasing number from the 3rd scenario (leadership, succession, institutional level/reform, jobs, corruption). An important finding in our scenarios is that parts of scenario 2 and all of scenarios 3, 4 and 5 lead to a downward spiral in the medium- and long-term. Almost everything in the scenarios depend on 3 inter-related issues:

  1. how- and when Museveni handles succession

  2. how oil revenue is managed – with Uganda potentially producing 200,000 barrels of oil per day from 2020, proportions to the economy (and risks) would be similar to Nigeria.

  3. Whether Uganda’s elite and emerging urban (low-end) middle class can channel demands in a constructive, but firm manner.

The indicators and sources:

  • The World Bank CPIA, indicator of public sector quality

  • Mo Ibrahim indicators (rule of law, human development, business opportunities and human rights)

  • PEFA, budgets, revenue data

  • Joel Barkan’s excellent 2011 report, csis.org/files/publication/110623_Barkan_Uganda_Web.pdf

  • Cost of doing business index, fragile states index.

  • Indicative, qualitative indicators: real interest rate, Parliament “noise”, social media activity, handling of corruption cases, blantancy of key politicians.

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