The Business Climate Index (BCI) has been produced by the Economic Policy Research Centre (EPRC) for Uganda, since June 2012. It reflects the perceptions of Ugandan business managers on the current and near future (expected three months ahead) business conditions. The BCI is a perceptions indicator of economic activity and the general business environment in which businesses operate. It can be used to forecast turning points in economic activity and thus provides critical information for policy makers both in Government and the Private Sector. A brief overview of the findings is presented in this issue, regarding the business climate surveys conducted between April - June 2012 and July – September 2015.
Business Climate Deteriorates Further as Fears of the South Sudan Conflict Grips Businesses in Uganda
For the second consecutive quarter, the perceptions on Uganda’s business environment deteriorated. This negative sentiment about the business environment could emanate from the lag effects of the electoral cycle, pass through effects of exchange rate depreciation and the re-ignition of political strife in South Sudan, which is a major export destination. Lower than potential domestic demand and uncertainty in macroeconomic conditions have elevated the perceived risks for doing business in the current quarter. Business sentiment in agriculture was positive, for the second consecutive quarter, while business sentiment in the manufacturing and services sector was downcast. A recovery is expected in the next quarter owing to sustained performance by the agriculture sector and a recovery of manufacturing and service sector shored by lower input and production cost improving profitability and capacity utilization. However, the recovery will depend on improved domestic demand, favourable weather, and pacification of South Sudan.
Although there were efforts to improve tax revenue performance, tax revenues have not been responsive to overall GDP growth. This has resulted in a tax-to-GDP ratio that has stagnated at about 13% for some time. The stagnant tax effort has constrained government in its quest to expand public expenditure to support improved service delivery. This policy brief, based on a research paper that examined the principal determinants of tax revenue performance in Uganda, discusses how Uganda’s tax revenue performance can be improved. Bases on auto regressive distributed lag econometric methods, our analysis shows that dominance of the agricultural and informal sectors pose the largest impediments to tax revenue performance in Uganda. In addition trade openness, industrial sector growth and development expenditures are positively associated with tax revenue performance. We propose policies to support the development of value added linkages between agricultural and industrial sectors while emphasizing the need to unlock the potentially large contributions of the informal sector with a view of widening the tax base.
There is a growing strand of literature on the determinants of tax revenue. This paper largely contributes to this tax revenue performance in developing countries, particularly in Sub Saharan Africa. More specifically they estimate the tax elasticities of sectoral output growth and public expenditure. The unique features of this paper are twofold: Firstly, a simple analytical model for tax revenue performance is developed taking into account some structural features pervasive in most developing countries with large informal sectors. Secondly, they test the model predictions on Ugandan time series data using ARDL bounds testing techniques. Results indicate that dominance of the agricultural and informal sectors pose the largest impediments to tax revenue performance. In addition development expenditures, trade openness, and industrial sector growth are positively associated with tax revenue performance. We propose policies to support the development of value added linkages between agricultural and industrial sectors while emphasizing the need to unlock the potentially large contributions of the informal sector with a view of widening the tax base.
Studies on inflation earlier in Uganda did not fully account for the potential role of supply side constraints in agriculture. This paper's purpose, therefore, is to estimate the determinants of inflation in Uganda. It highlights the possible feed through effects emanating from supply shocks in the domestic agricultural sector. Such studies tended to model inflation as emanating from the demand side through disequilibrium in the money and external markets. Only Kihangire and Mugyenyi (2005) and more recently Kabundi (2012) have tried to model Uganda inflationary processes taking into account shocks to the agricultural sector. While Kihangire and Mugyenyi (2005) used rainfall data as a proxy for the agricultural supply shocks, Kabundi (2012) used cereal production as a proxy for agricultural output. These approaches provide good insights into the potential role of agricultural output variability to inflation, but they are not without flaws: the agricultural output gap can arise for other reasons other than rainfall – for example crop failure may arise due to covariate pests or hailstorm shocks. Moreover, the relationship between rainfall and agricultural production may be nonlinear, implying that more than “optimal” rainfall may be detrimental to agricultural production.
"This paper seeks to interrogate three major aspects of oil extraction and revenue management that relate to issues around intergenerational equity in the Ugandan context. The first aspect concerns the management of the process of extracting the oil, refining it, transporting it to export markets, and dealing with the environmental problems associated with such activities; that is, managing the entire oil and gas value chain. The goal is to undertake these activities in such a way that benefits to both current and future generations of Ugandans are maximized. The second aspect concerns public financial management in Uganda. Where a country’s public financial management system is open and transparent, there is a greater chance of achieving efficient and equitable allocation, as well as sustainability—that is, it is more likely that the government will be able to manage the revenues efficiently and in such a way as to provide for the present generation and still invest in enough capacity to enhance the ability of future generations to meet their own needs. The third aspect concerns maintaining the country’s environmental health and minimizing any harm to the ecosystem from oil extraction activities. Efforts must also be made to restore the ecosystem in case of degradation."
"Using time series and the Uganda National Household Survey data, this paper seeks to examine the impact of the electricity reforms on the performance of the sector. Specifically, we investigate the effectiveness of the reforms in terms of sector performance taking into consideration various performance indicators such as electricity access, generation per capita, distribution efficiency, price trends, subsidies and customer growth. These indicators were selected on the basis of the rationale of the reforms. Results show that connectivity is increasing, but cannot be statistically linked to the reforms. In addition, we show that the reforms have tended to favour the urban dwellers with connectivity levels rising from 36 percent in 1992 to 46 percent in 2009 while the rural dwellers have benefitted less due to the slow rural electrification rate. Electricity generation per capita remains low and there is a widening demand - generation gap, increased reliance on thermal generation, and rising cost per unit of electricity. Overall, the results do not generate significant evidence linking improved sector performance to the reforms. However, we recommend that these results be interpreted with caution due to the short time periods involved."
"The BCI reflects the perceptions of Ugandan business executives on the current and expected business economic conditions. The BCI is intended to be an indicator of economic activity, to supplement official statistics. The major advantage of the BCI over other measures is that it will be compiled more frequently and more easily available. More importantly the BCI will be used to forecast turning points in economic activity, with a view of informing policy makers both in Government and business."
"The global food price crisis has worsened the food security situation for many developing countries especially those that are net food importers. In September 2012, the United Nations Food and Agriculture Organization (FAO) raised fears of a repeat of the 2007-2008 world food price crisis (as illustrated in Figure 1) that was characterized by sharp increases in the prices for cereals. High food prices are once again threatening to push millions of people into hunger around the world. The high costs of food imports exacerbated by the surging food prices, have put enormous strains on most developing countries, and have led to social unrest and political tensions."