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Uganda - ECONOMY
UGANDA WAS ONCE RICH in human and natural resources and possessed a favorable climate for economic development, but in the late 1980s it was still struggling to end a period of political and economic chaos that had destroyed the country's reputation as the "pearl" of Africa. Most of the economic infrastructure, including the power supply system, the transportation system, and industry, operated only at only a fraction of capacity. Other than limited segments of the agricultural sector--notably coffee and subsistence production-- cultivation was almost at a standstill. And in the wake of the much publicized atrocities of the Idi Amin Dada regime from 1971 to 1979 and the civil war that continued into the 1980s, Uganda's once flourishing tourist industry faced the challenges of reconstruction and restoring international confidence. Successive governments had proclaimed their intention to salvage the economy and attract the foreign assistance necessary for recovery, but none had remained in power long enough to succeed.
Agricultural production based primarily on peasant cultivation has been the mainstay of the economy. In the 1950s, coffee replaced cotton as the primary cash crop. Some plantations produced tea and sugar, but these exports did not alter the importance of coffee in the economy. Similarly, some industries developed before 1970, but most were adjuncts to cotton or sugar production, and they were not major contributors to gross domestic product ( GDP). Moreover, Uganda did not possess significant quantities of valuable minerals, such as oil or gold. In sum, although the economy provided a livelihood for the population, it was based largely on agricultural commodities with fluctuating international values. This dependence forced Uganda to import vehicles, machinery, and other major industrial equipment, and it limited development choices. The economy seemed to have the potential to stabilize, but throughout the decade of the 1980s its capacity to generate growth, especially industrial growth, was small.
After 1986 the National Resistance Movement (NRM) succeeded in stabilizing most of the nation and began to diversify agricultural exports away from the near-total dependence on coffee. By 1988 Western donors were beginning to offer cautious support for the three-year-old regime of Yoweri Kaguta Museveni. But in 1989, just as the hard work of economic recovery was beginning to pay off, world coffee prices plummeted, and Uganda's scarce foreign exchange dwindled further. Despite the country's record of economic resilience, it still faced serious obstacles to the goal of economic self-sufficiency.
<> GROWTH AND STRUCTURE OF THE ECONOMY
<> ROLE OF THE GOVERNMENT
<> LABOR FORCE
<> BANKING AND CURRENCY
Peasant agricultural production has been the predominant economic activity since precolonial times. Despite an active trade in ivory and animal hides linking Uganda with the east coast of Africa long before the arrival of Europeans, most Ugandans were subsistence farmers. After declaring Uganda a protectorate in 1893, Britain pursued economic policies that drew Uganda into the world economy primarily to serve Britain's latenineteenth -century textile industry. Cotton cultivation increased in importance after 1904, and once it became clear that cotton plantations would be too difficult and expensive to maintain, official policy encouraged smallholder farmers to produce and market their cotton through local cooperative associations.
By 1910 cotton had become Uganda's leading export. In the following decades, the government encouraged the growth of sugar and tea plantations. Following World War II, officials introduced coffee cultivation to bolster declining export revenues, and coffee soon earned more than half of Uganda's export earnings.
Uganda enjoyed a strong and stable economy in the years approaching independence. Agriculture was the dominant activity, but the expanding manufacturing sector appeared capable of increasing its contribution to GDP, especially through the production of foodstuffs and textiles. Some valuable minerals, notably copper, had been discovered, and water power resources were substantial. In 1967 Uganda and the neighboring countries of Kenya and Tanzania joined together to form the East African Community (EAC), hoping to create a common market and share the cost of transport and banking facilities, and Uganda registered impressive growth rates for the first eight years after independence.
The economy deteriorated under the rule of President Idi Amin Dada from 1971 to 1979. Amin used nationalist, militarist rhetoric and ill-chosen economic policies to eliminate foreign economic interests and build up the military establishment. In 1972 he expelled holders of British passports, including approximately 70,000 Asians of Indian and Pakistani descent. Many Asians had been active in agribusiness, manufacturing, and commerce. Their mass expulsion and Amin's efforts to expropriate foreign businesses undermined investor confidence in Uganda. Amin also increased public expenditures on military goods, a practice that contributed to escalating foreign and domestic debt during the 1970s. Relations with Uganda's neighbors soured, the EAC disbanded in 1977, and Tanzanian troops finally led a joint effort to overthrow the unpopular Amin regime in 1979. By 1980 the economy was nearly destroyed.
Following Amin's departure, successive governments attempted to restore international confidence in the economy through a mixture of development plans and austere government budgets. Beginning in 1980, the second government of Milton Obote obtained foreign donor support, primarily from the International Monetary Fund ( IMF), by floating the Uganda shilling (USh), removing price controls, increasing agricultural producer prices, and setting strict limits on government expenditures. In addition, Obote tried to persuade foreign companies to return to their former premises, which had been nationalized under Amin. These recovery initiatives created real growth in agriculture between 1980 and 1983. The lack of foreign exchange was a major constraint on government efforts, however, and it became a critical problem in 1984 when the IMF ended its support following a disagreement over budget policy. During the brief regime of Tito Lutwa Okello in 1985, the economy slipped almost out of control as civil war extended across the country.
After seizing power in January 1986, the new NRM government published a political manifesto that had been drawn up when the NRM was an army of antigovernment rebels. Several points in the Ten-Point Program emphasized the importance of economic development, declaring that an independent, self-sustaining national economy was vital to protect Uganda's interests. The manifesto also set out specific goals for achieving this self-sufficiency: diversifying agricultural exports and developing industries that used local raw materials to manufacture products necessary for development. The Ten-Point Program also set out other economic goals: to improve basic social services, such as water, health care, and housing; to improve literacy skills nationwide; to eliminate corruption, especially in government; to return expropriated land to its rightful Ugandan owners; to raise public-sector salaries; to strengthen regional ties and develop markets among East African nations; and to maintain a mixed economy combining private ownership with an active government sector.
The NRM government proposed a major Rehabilitation and Development Plan (RDP) for fiscal years ( FY) 1987-88 through 1990-91, with IMF support; it then devalued the shilling and committed itself to budgetary restraint. The fouryear plan set out primarily to stabilize the economy and promote economic growth. More specific goals were to reduce Uganda's dependence on external assistance, diversify agricultural exports, and encourage the growth of the private sector through new credit policies. Setting these priorities helped improve Uganda's credentials with international aid organizations and donor countries of the West, but in the first three years of Museveni's rule, coffee production remained the only economic activity inside Uganda to display consistent growth and resilience. When coffee-producing nations failed to reach an agreement on prices for coffee exports in 1989, Uganda faced devastating losses in export earnings and sought increased international assistance to stave off economic collapse.
When coffee replaced cotton as Uganda's principal export in the 1950s, it was still produced in the pattern of small peasant holdings and local marketing associations that had arisen early in the century. The economy registered substantial growth, but almost all real growth was in agriculture, centered in the southern provinces. The fledgling industrial sector, which emphasized food processing for export, also increased its contribution as a result of the expansion of agriculture.
Growth slowed in the late 1950s, as fluctuating world market conditions reduced export earnings and Uganda experienced the political pressures of growing nationalist movements that swept much of Africa. For the first five years following independence in 1962, Uganda's economy resumed rapid growth, with GDP, including subsistence agriculture, expanding approximately 6.7 percent per year. Even with population growth estimated at 2.5 percent per year, net economic growth of more than 4 percent suggested that people's lives were improving. By the end of the 1960s, commercial agriculture accounted for more than one-third of GDP. Industrial output had increased to nearly 9 percent of GDP, primarily the result of new food processing industries. Tourism, transportation, telecommunications, and wholesale and retail trade still contributed nearly one-half of total output.
Although the government envisioned annual economic growth rates of about 5.6 percent in the early 1970s, civil war and political instability almost destroyed Uganda's once promising economy. GDP declined each year from 1972 to 1976 and registered only slight improvement in 1977 when world coffee prices increased. Negative growth resumed, largely because the government continued to expropriate business assets. Foreign investments, too, declined sharply, as President Idi Amin's erratic policies destroyed almost all but the subsistence sector of the economy.
The economic and political destruction of the Amin years contributed to a record decline in earnings by 14.8 percent between 1978 and 1980. When Amin fled from Uganda in 1979, the nation's GDP measured only 80 percent of the 1970 level. Industrial output declined sharply, as equipment, spare parts, and raw materials became scarce. From 1981 to 1983, the country experienced a welcome 17.3 percent growth rate, but most of this success occurred in the agricultural sector. Little progress was made in manufacturing and other productive sectors. Renewed political crisis led to negative growth rates of 4.2 percent in 1984, 1.5 percent in 1985, and 2.3 percent in 1986.
Throughout these years of political uncertainty, coffee production by smallholders--the pattern developed under British rule--continued to dominate the economy, providing the best hope for national recovery and economic development. As international coffee prices fluctuated, however, Uganda's overall GDP suffered despite consistent production.
This economic decline again seemed to end, and in 1987 GDP rose 4.5 percent above the 1986 level. This marked Uganda's first sign of economic growth in four years, as security improved in the south and west and factories increased production after years of stagnation. This modest rate of growth increased in 1988, when GDP expansion measured 7.2 percent, with substantial improvements in the manufacturing sector. In 1989 falling world market prices for coffee reduced growth to 6.6 percent, and a further decline to 3.4 percent growth occurred in 1990, in part because of drought, low coffee prices, and a decline in manufacturing output.
Uganda had escaped widespread famine in the late 1970s and 1980s only because many people, even urban residents, reverted to subsistence cultivation in order to survive. Both commercial and subsistence farming operated in the monetary and nonmonetary (barter) sectors, and the latter presented the government with formidable problems of organization and taxation. By the late 1980s, government reports estimated that approximately 44 percent of GDP originated outside the monetary economy. Most (over 90 percent) of nonmonetary economic activity was agricultural, and it was the resilience of this sector that ensured survival for most Ugandans.
In 1986 the newly established Museveni regime committed itself to reversing the economic disintegration of the 1970s and 1980s. Museveni proclaimed the national economic orientation to be toward private enterprise rather than socialist government control. Many government policies were aimed at restoring the confidence of the private sector. In the absence of private initiatives, however, the government took over many abandoned or formerly expropriated companies and formed new parastatal enterprises. In an effort to bring a measure of financial stability to the country and attract some much-needed foreign assistance in 1987, it also initiated an ambitious RDP aimed at rebuilding the economic and social infrastructure. Officials then offered to sell several of the largest parastatals to private investors, but political and personal rivalries hampered efforts toward privatization throughout 1988 and 1989.
In Museveni's first three years in office, the role of government bureaucrats in economic planning gave rise to charges of official corruption. A 1988 audit accused government ministries and other departments of fraudulently appropriating nearly 20 percent of the national budget. The audit cited the Office of the President, the Ministry of Defense, and the Ministry of Education. Education officials, in particular, were accused of paying salaries for fictitious teachers and paying labor and material costs for nonexistent building projects. In order to set a public example in 1989, Museveni dismissed several high-level officials, including cabinet ministers, who were accused of embezzling or misusing government funds.
By 1987 the Ugandan government was directly involved in the economy through four institutions. First, it owned a number of parastatals that had operated as private companies before being abandoned by their owners or expropriated by the government. Second, the government operated marketing boards to monitor sales and regulate prices for agricultural producers. Third, the government owned the country's major banks, including the Bank of Uganda and Uganda Commercial Bank. And fourth, the government controlled all imports and exports through licensing procedures.
In July 1988, officials announced that they would sell twenty-two companies that were entirely or partially governmentowned , in an effort to trim government costs and curb runaway inflation. These enterprises included textile mills, vehicle import companies, and iron and gold mines. Officials hoped to sell some of them to private owners and to undertake joint ventures with private companies to continue operating several others. Among the roughly sixty parastatals that would remain in operation after 1989 were several in which the government planned to continue as the sole or majority shareholder. These parastatals included the electric power company, railroads and airlines, and cement and steel manufacturers. Banking and exportimport licensing would remain in government hands, along with a substantial number of the nation's hotels. Retail trade would be managed almost entirely by the private sector. By late 1989, however, efforts to privatize parastatal organizations had just begun, as personal and political rivalries delayed the sale of several lucrative corporations. The International Development Association (IDA) awarded Uganda US$16 million to help improve the efficiency of government-owned enterprises. Funds allocated through this Public Enterprise Project would be used to pay for consultancy services and supplies, and to commission a study of ways to reform public-sector administration.
By the 1980s, more than 3,500 primary marketing cooperative societies serviced most of Uganda's small-scale farmers. These cooperatives purchased crops for marketing and export, and they distributed consumer goods and agricultural inputs, such as seeds and fertilizers. Prices paid by marketing boards for commodities such as coffee, tea, and cotton were fairly stable but often artificially low, and payments were sometimes delayed until several weeks after purchases. Moreover, farmers sometimes complained that marketing boards applied inconsistent standards of quality and that weights and measurements of produce were sometimes faulty. In 1989 the government was attempting to reduce expensive and inefficient intermediary activity in crop marketing, and Museveni urged producers to report buyers who failed to pay for commodities when they were received.
Uganda registered a substantial budget deficit for every year of the 1970s except 1977, when world coffee price increases provided the basis for a surplus. Deficits equivalent to 50 to 60 percent of revenues were not unusual, and the deficit reached 100 percent in 1974. Although declining levels of production and trade, smuggling, and inefficiency all eroded revenues, the Amin government made only modest efforts to restrain expenditures. Amin increased government borrowing from local banks from 50 percent to 70 percent during his eight-year rule.
The budgets of the early 1980s were cautious. They set limits on government borrowing and domestic credit and linked these limits to a realistic exchange policy by allowing the shilling to float in relationship to other currencies. Between 1982 and 1989, current revenue increased continuously in nominal terms, in part because of revisions and improvements in the tax system and depreciation of the shilling. In FY 1985 and FY 1986, export taxes--primarily on coffee--contributed about 60 percent of the total current revenue. Export taxes then declined, contributing less than 20 percent of revenues in FY 1989. The share of sales tax remained roughly constant at 20 percent from FY 1983 to FY 1986 but increased to about 38 percent by 1989. Income tax increased its share of the total revenue from about 5 percent in FY 1986 to about 11 percent in FY 1989.
Government expenditures increased during the early 1980s, and the rate of increase rose after 1984. In 1985 civil service salaries were tripled, but in general, the Ministries of Defense, Education, and Finance, and the Office of the President were the biggest spenders. In 1988 and 1989, the Ministry of Defense spent roughly 2.9 percent and the Ministry of Education about 15 percent of the current budget. The percentage share of the Ministry of Finance declined from about 30 percent in 1985 to about 22 percent in 1989. The 1987 budget ended with a deficit amounting to 32 percent of total spending. This deficit was reduced to about 19 percent in 1988 and rose slightly in 1989 to just over 20 percent.
The government implemented measures to reform the tax system in FY 1988 and FY 1989. A graduated tax rate, with twenty-five grades, rose from a USh300 minimum to a USh5,000 maximum to account for all classes of income earners. Overall income tax rates were raised in order to gain revenue for local authorities and to allow them greater self-sufficiency in rendering public services. The government also called upon local governing bodies, or resistance councils (RCs) to spearhead the war against tax evaders and defaulters by assuming responsibility for assessing and collecting taxes and monitoring the use of public funds. Despite all measures to balance the economy, however, the budget deficit in FY 1989 reached USh38.9 million or nearly one-third of total spending, a substantial increase over the government's original target.
The FY 1989 budget sought to reduce current spending in several government departments, including cuts of 25 percent in the Office of the President and 18 percent in the Ministry of Defense, but defense spending in FY 1989 exceeded budget estimates. At the same time, total government expenditures increased to accommodate civil service wage hikes and infrastructural rehabilitation. The government sought to meet these increased expenditures in part through a major revenue collection effort and increased external aid. To help secure this assistance, it implemented reforms, including cuts in executive spending, advocated by the World Bank and the IMF. The FY 1989 budget also included agricultural producer price increases ranging from 100 percent to 150 percent. But at the same time, its reduced government subsidies for gasoline and sugar prices resulted in substantial price increases for those products.
In FY 1990, total government expenditures amounted to USh169.3 billion, of which USh105.5 billion was for current expenditures and USh63.7 billion for development expenditures. Total receipts came to USh111.4 billion, of which USh86.5 billion was current revenues--only 82 percent of anticipated receipts-- leaving a deficit of USh57.9 billion or about 34 percent of total spending. As in earlier years, the ministries that consumed the bulk of current expenditures were Defense (39 percent) and Education (14 percent), together with Foreign Affairs (4 percent) and Health (4 percent).
Uganda operated under a separate development budget during the 1980s. This budget consisted of domestic revenues and expenditures on development projects, but it excluded revenues from foreign donors. The development budget increased from FY 1981 to FY 1988, primarily because of inflation, but was trimmed slightly in FY 1989. The Ministry of Finance and Ministry of Defense consumed most of the development budget, however, in part because agricultural and livestock projects were often funded by foreign donors. The Ministry of Housing also received nearly 17.3 percent of FY 1988 development allocations, and much of this amount was earmarked for renovations on government-owned tourist hotels.
In June 1987, the government launched a four-year RDP for fiscal years 1988-91. It aimed to restore the nation's productive capacity, especially in industry and commercial agriculture; to rehabilitate the social and economic infrastructure; to reduce inflation by 10 percent each year; and to stabilize the balance of payments. The plan targeted industrial and agricultural production, transportation, and electricity and water services for particular improvements. The plan envisioned an annual 5 percent growth rate, requiring US$1,289 million funding over the four-year period. Transportation would receive the major share of funding (29.4 percent), followed by agriculture (24.4 percent), industry and tourism (21.1 percent), social infrastructure (17.2 percent), and mining and energy (6.9 percent). Although the response of the international financial community was encouraging in terms of debt rescheduling and new loans, the initial rate of economic recovery was modest. In its first phase, FY 1988, twenty-six projects were implemented under the RDP, but by late 1989, officials considered the plan's success to be mixed. Improved security and private-sector development contributed to economic growth; however, external shocks, overvalued currency, and high government spending continued to erode investors' and international donors' confidence in Uganda's future.
In the late 1980s, most Ugandans worked outside the monetary economy, in part because the number of jobs in industry was dwindling and the value of Ugandan salaries was declining. Throughout the decade, official wages failed to keep up with the rising cost of living, and most wage earners were able to survive only because they had access to land and raised food crops. By the mid-1980s, typical average wages at the official exchange rate were only US$10 a month for factory workers, US$20 a month for lower-level civil servants, and US$40 a month for university lecturers. In the late 1980s, the converted value of these wages declined even further as the value of the shilling dropped. In addition, the decline in industrial production in the 1970s and 1980s had reduced the proportion of high-paying jobs. As a result, more industrial workers pursued black market activities in order to support themselves.
Upon seizing power in 1986, the Museveni government tried to improve the status of wage laborers. The 1987 RDP aimed to enhance the country's self-sufficiency by increasing the number of skilled workers in industry. During the late 1980s, the government initiated a number of programs to improve working conditions in industry and provide training for industrial workers as well as government administrators. The Occupational Health and Hygiene Department implemented several projects to minimize occupational hazards in industry and to improve workers' health care. The Directorate of Industrial Training coordinated several vocational training programs, and the Rural Entrepreneurial/Vocational Training Center was established at Bowa. In addition, the government renovated the Institute of Public Administration, which provided training for government employees, and in 1988 it undertook a Public Service Improvement Project to train local administrators. Makerere University also established several training programs in surveying skills, agriculture, environmental studies, pharmacy, and computer science.
A lack of reliable labor statistics hampered the Museveni government's planning efforts in relation to the labor force. To collect reliable data, the government implemented a labor survey in October 1986. The survey concentrated on the formal sector of the economy, assessing available skills, training needs, vacancies in the labor market, and training facilities. In September 1988, the International Labour Office (ILO) surveyed the informal economic sector to assess the potential for growth in this sector.
By the late 1980s, the government, which had become the single major employer in the country, experienced significant problems as a result of almost two decades of economic decline and lax accounting procedures. A major problem was the lack of an accurate count of public wage earners, and to meet this urgent need, the government conducted a census of civil servants in 1987. It discovered 239,528 government employees and a wage bill for the month of May 1987 of USh53.2 million. Teaching and related activities employed 42 percent of all government workers; about 10 percent of civil servants worked in health-related fields. The largest concentration of government workers was in Kampala, although they represented a surprisingly low 15 percent of all government employees. The remaining 85 percent worked in other towns and cities.
Low wage scales led to the second serious problem confronting the government--i.e., corruption and inefficiency in the public sector. Both in government departments and parastatals, charges of corruption were widespread and were often attributed to low earnings. The highest-paid civil servant, the chief justice, received only about USh7,000 a month in 1988 (roughly US$117 at 1988 exchange rates). Gross monthly average pay was USh3,127 (US$52) in government posts, but the lowest-paid civil servants received only USh1,175 (US$20) a month. Workers in parastatal organizations received a monthly wage averaging USh5,786 (US$96), and in the private sector, roughly USh7,312 (US$122). Such income levels explained why a 1989-90 survey showed that more than half of all Ugandans lived below the poverty line, defined by the government as a household income of USh25,000 a month (roughly US$49 at official 1990 exchange rates).
Then in an attempt to streamline the civil service, the government announced plans to eliminate 30 percent of the nation's civil service jobs, leaving about 200,000 people employed by the government. This plan was not implemented, however. A labor survey in 1989 revealed that more than 244,000 people still worked for the national government, in addition to those in parastatal organizations.
Uganda's favorable soil conditions and climate have contributed to the country's agricultural success. Most areas of Uganda have usually received plenty of rain. In some years, small areas of the southeast and southwest have averaged more than 150 millimeters per month. In the north, there is often a short dry season in December and January. Temperatures vary only a few degrees above or below 20° C but are moderated by differences in altitude. These conditions have allowed continuous cultivation in the south but only annual cropping in the north, and the driest northeastern corner of the country has supported only pastoralism. Although population growth has created pressures for land in a few areas, land shortages have been rare, and only about one-third of the estimated area of arable land was under cultivation by 1989.
Throughout the 1970s, political insecurity, mismanagement, and a lack of adequate resources seriously eroded incomes from commercial agriculture. Production levels in general were lower in the 1980s than in the 1960s. Technological improvements had been delayed by economic stagnation, and agricultural production still used primarily unimproved methods of production on small, widely scattered farms, with low levels of capital outlay. Other problems facing farmers included the disrepair of the nation's roads, the nearly destroyed marketing system, increasing inflation, and low producer prices. These factors contributed to low volumes of export commodity production and a decline in per capita food production and consumption in the late 1980s.
The decline in agricultural production, if sustained, posed major problems in terms of maintaining export revenues and feeding Uganda's expanding population. Despite these serious problems, agriculture continued to dominate the economy. In the late 1980s, agriculture (in the monetary and nonmonetary economy) contributed about two-thirds of GDP, 95 percent of export revenues, and 40 percent of government revenues. Roughly 20 percent of regular wage earners worked in commercial agricultural enterprises, and an additional 60 percent of the work force earned some income from farming. Agricultural output was generated by about 2.2 million small-scale producers on farms with an average of 2.5 hectares of land. The 1987 RDP called for efforts both to increase production of traditional cash crops, including coffee, cotton, tea, and tobacco, and to promote the production of nontraditional agricultural exports, such as corn, beans, groundnuts (peanuts), soybeans, sesame seeds, and a variety of fruit and fruit products.
Uganda's main food crops have been plantains, cassava, sweet potatoes, millet, sorghum, corn, beans, and groundnuts. Major cash crops have been coffee, cotton, tea, and tobacco, although in the 1980s many farmers sold food crops to meet short-term expenses. The production of cotton, tea, and tobacco virtually collapsed during the late 1970s and early 1980s. In the late 1980s, the government was attempting to encourage diversification in commercial agriculture that would lead to a variety of nontraditional exports. The Uganda Development Bank and several other institutions supplied credit to local farmers, although small farmers also received credit directly from the government through agricultural cooperatives. For most small farmers, the main source of short-term credit was the policy of allowing farmers to delay payments for seeds and other agricultural inputs provided by cooperatives.
Cooperatives also handled most marketing activity, although marketing boards and private companies sometimes dealt directly with producers. Many farmers complained that cooperatives did not pay for produce until long after it had been sold. The generally low producer prices set by the government and the problem of delayed payments for produce prompted many farmers to sell produce at higher prices on illegal markets in neighboring countries. During most of the 1980s, the government steadily raised producer prices for export crops in order to maintain some incentive for farmers to deal with government purchasing agents, but these incentives failed to prevent widespread smuggling.
Coffee continued to be Uganda's most important cash crop throughout the 1980s. The government estimated that farmers planted approximately 191,700 hectares of robusta coffee, most of this in southeastern Uganda, and about 33,000 hectares of arabica coffee in high-altitude areas of southeastern and southwestern Uganda. These figures remained almost constant throughout the decade, although a substantial portion of the nation's coffee output was smuggled into neighboring countries to sell at higher prices. Between 1984 and 1986, the European Economic Community (EEC) financed a coffee rehabilitation program that gave improved coffee production a high priority. This program also supported research, extension work, and training programs to upgrade coffee farmers' skills and understanding of their role in the economy. Some funds were also used to rehabilitate coffee factories.
When the NRM seized power in 1986, Museveni set high priorities on improving coffee production, reducing the amount of coffee smuggled into neighboring countries, and diversifying export crops to reduce Uganda's dependence on world coffee prices. To accomplish these goals, in keeping with the second phase of the coffee rehabilitation program, the government raised coffee prices paid to producers in May 1986 and February 1987, claiming that the new prices more accurately reflected world market prices and local factors, such as inflation. The 1987 increase came after the Coffee Marketing Board launched an aggressive program to increase export volumes. Parchment (dried but unhulled) robusta producer prices rose from USh24 to USh29 per kilogram. Clean (hulled) robusta prices rose from USh44.40 to USh53.70 per kilogram. Prices for parchment arabica, grown primarily in the Bugisu district of southeastern Uganda, were USh62.50 a kilogram, up from USh50. Then in July 1988, the government again raised coffee prices from USh50 per kilogram to USh111 per kilogram for robusta, and from USh62 to USh125 per kilogram for arabica.
By December 1988, the Coffee Marketing Board was unable to pay farmers for new deliveries of coffee or to repay loans for previous purchases. The board owed USh1,000 million to its suppliers and USh2,500 million to the commercial banks, and although the government agreed to provide the funds to meet these obligations, some of them remained unpaid for another year.
Uganda was a member of the International Coffee Organization (ICO), a consortium of coffee-producing nations that set international production quotas and prices. The ICO set Uganda's annual export quota at only 4 percent of worldwide coffee exports. During December 1988, a wave of coffee buying pushed the ICO price up and triggered two increases of 1 million (60- kilogram) bags each in worldwide coffee production limits. The rising demand and rising price resulted in a 1989 global quota increase to 58 million bags. Uganda's export quota rose only by about 3,013 bags, however, bringing it to just over 2.3 million bags. Moreover, Uganda's entire quota increase was allocated to arabica coffee, which was grown primarily in the small southeastern region of Bugisu. In revenue terms, Uganda's overall benefit from the world price increase was small, as prices for robusta coffee--the major export--remained depressed.
In 1989 Uganda's coffee production capacity exceeded its quota of 2.3 million bags, but export volumes were still diminished by economic and security problems, and large amounts of coffee were still being smuggled out of Uganda for sale in neighboring countries. Then in July 1989, the ICO agreement collapsed, as its members failed to agree on production quotas and prices, and they decided to allow market conditions to determine world coffee prices for two years. Coffee prices plummeted, and Uganda was unable to make up the lost revenues by increasing export volumes. In October 1989, the government devalued the shilling, making Uganda's coffee exports more competitive worldwide, but Ugandan officials still viewed the collapse of the ICO agreement as a devastating blow to the local economy. Fears that 1989 earnings for coffee exports would be substantially less than the US$264 million earned the previous year proved unfounded. Production in 1990, however, declined more than 20 percent to an estimated 133,000 tons valued at US$142 million because of drought, management problems, low prices, and a shift from coffee production to crops for local consumption.
Some coffee farmers cultivated cacao plants on land already producing robusta coffee. Cocoa production declined in the 1970s and 1980s, however, and market conditions discouraged international investors from viewing it as a potential counterweight to Uganda's reliance on coffee exports. Locally produced cocoa was of high quality, however, and the government continued to seek ways to rehabilitate the industry. Production remained low during the late 1980s, rising from 1,000 tons in 1986 to only 5,000 tons in 1989.
In the 1950s, cotton was the second most important traditional cash crop in Uganda, contributing 25 percent of total agricultural exports. By the late 1970s, this figure had dropped to 3 percent, and government officials were pessimistic about reviving this industry in the near future. Farmers had turned to other crops in part because of the labor-intensive nature of cotton cultivation, inadequate crop-finance programs, and a generally poor marketing system. The industry began to recover in the 1980s. The government rehabilitated ginneries and increased producer prices. In 1985, 199,000 hectares were planted in cotton, and production had risen from 4,000 tons to 16,300 tons in five years. Cotton exports earned US$13.4 million in 1985. Earnings fell to US$5 million in 1986, representing about 4,400 tons of cotton. Production continued to decline after that, as violence plagued the major cotton-producing areas of the north, but showed some improvement in 1989.
Cotton provided the raw materials for several local industries, such as textile mills, oil and soap factories, and animal feed factories. And in the late 1980s, it provided another means of diversifying the economy. The government accordingly initiated an emergency cotton production program, which provided extension services, tractors, and other inputs for cotton farmers. At the same time, the government raised cotton prices from USh32 to USh80 for a kilogram of grade A cotton and from USh18 to USh42 for Grade B cotton in 1989. However, prospects for the cotton industry in the 1990s were still uncertain.
Favorable climate and soil conditions enabled Uganda to develop some of the world's best quality tea. Production almost ceased in the 1970s, however, when the government expelled many owners of tea estates--mostly Asians. Many tea farmers also reduced production as a result of warfare and economic upheaval. Successive governments after Amin encouraged owners of tea estates to intensify their cultivation of existing hectarage. Mitchell Cotts (British) returned to Uganda in the early 1980s and formed the Toro and Mityana Tea Company (Tamteco) in a joint venture with the government. Tea production subsequently increased from 1,700 tons of tea produced in 1981 to 5,600 tons in 1985. These yields did not approach the high of 22,000 tons that had been produced in the peak year of 1974, however, and they declined slightly after 1985.
The government doubled producer prices in 1988, to USh20 per kilogram, as part of an effort to expand tea production and reduce the nation's traditional dependence on coffee exports, but tea production remained well under capacity. Only about one-tenth of the 21,000 hectares under tea cultivation were fully productive, producing about 4,600 tons of tea in 1989. Uganda exported about 90 percent of tea produced nationwide. In 1988 and 1989, the government used slightly more than 10 percent of the total to meet Uganda's commitments in barter exchanges with other countries. In 1990 the tea harvest rose to 6,900 tons, of which 4,700 were exported for earnings of US$3.6 million. The government hoped to produce 10,000 tons in 1991 to meet rising market demand.
Two companies, Tamteco and the Uganda Tea Corporation (a joint venture between the government and the Mehta family), managed most tea production. In 1989 Tamteco owned three large plantations, with a total of 2,300 hectares of land, but only about one-half of Tamteco's land was fully productive. The Uganda Tea Corporation had about 900 hectares in production and was expanding its landholdings in 1989. The state-owned Agricultural Enterprises Limited managed about 3,000 hectares of tea, and an additional 9,000 hectares were farmed by about 11,000 smallholder farmers, who marketed their produce through the parastatal Uganda Tea Growers' Corporation (UTGC). Several thousand hectares of tea estates remained in a "disputed" category because their owners had been forced to abandon them. In 1990 many of these estates were being sold to private individuals by the departed Asians' Property Custodian Board as part of an effort to rehabilitate the industry and improve local management practices.
Both Tamteco and the Uganda Tea Corporation used most of their earnings to cover operational expenses and service corporate debts, so the expansion of Uganda's tea-producing capacity was still just beginning in 1990. The EEC and the World Bank provided assistance to resuscitate the smallholder segment of the industry, and the UTGC rehabilitated seven tea factories with assistance from the Netherlands. Both Tamteco and the Uganda Tea Corporation were also known among tea growers in Africa for their leading role in mechanization efforts. Both companies purchased tea harvesters from Australian manufacturers, financed in part by the Uganda Development Bank, but mechanized harvesting and processing of tea was still slowed by shortages of operating capital.
For several years after independence, tobacco was one of Uganda's major foreign exchange earners, ranking fourth after coffee, cotton, and tea. Like all other traditional cash crops, tobacco production also suffered from Uganda's political insecurity and economic mismanagement. Most tobacco grew in the northwestern corner of the country, where violence became especially severe in the late 1970s, and rehabilitation of this industry was slow. In 1981, for example, farmers produced only sixty-three tons of tobacco. There was some increase in production after 1981, largely because of the efforts of the British American Tobacco Company, which repossessed its former properties in 1984. Although the National Tobacco Corporation processed and marketed only 900 tons of tobacco in 1986, output had more than quadrupled by 1989.
Uganda's once substantial sugar industry, which had produced 152,000 tons in 1968, almost collapsed by the early 1980s. By 1989 Uganda imported large amounts of sugar, despite local industrial capacity that could easily satisfy domestic demand. Achieving local self-sufficiency by the year 1995 was the major government aim in rehabilitating this industry.
The two largest sugar processors were Kakira and Lugazi estates, which by the late 1980s were joint government ventures with the Mehta and Madhvani families. The government commissioned the rehabilitation of these two estates in 1981, but the spreading civil war delayed the projects. By mid-1986 ,work on the two estates resumed, and Lugazi resumed production in 1988. The government, together with a number of African and Arab donors, also commissioned the rehabilitation of the Kinyala Sugar Works, and this Masindi estate resumed production in 1989. Rehabilitation of the Kakira estate, delayed by ownership problems, was completed in 1990 at a cost of about US$70 million, giving Uganda a refining capacity of at least 140,000 tons per year.
The country's natural environment provided good grazing for cattle, sheep, and goats, with indigenous breeds dominating most livestock in Uganda. Smallholder farmers owned about 95 percent of all cattle, although several hundred modern commercial ranches were established during the 1960s and early 1970s in areas that had been cleared of tsetse-fly infestation. Ranching was successful in the late 1960s, but during the upheaval of the 1970s many ranches were looted, and most farmers sold off their animals at low prices to minimize their losses. In the 1980s, the government provided substantial aid to farmers, and by 1983 eighty ranches had been restocked with cattle. Nevertheless, by the late 1980s, the livestock sector continued to incur heavy animal losses as a result of disease, especially in the northern and northeastern regions. Civil strife in those areas also led to a complete breakdown in disease control and the spread of tsetse flies. Cattle rustling, especially along the Kenyan border, also depleted herds in some areas of the northeast.
The government hoped to increase the cattle population to 10 million by the year 2000. To do this, it arranged a purchase of cattle from Tanzania in 1988 and implemented a US$10.5 million project supported by Kuwait to rehabilitate the cattle industry. The government also approved an EEC-funded program of artificial insemination, and the Department of Veterinary Services and Animal Industry tried to save existing cattle stock by containing diseases such as bovine pleuro-pneumonia, hoof-and-mouth disease, rinderpest, and trypanosomiasis.
Uganda's dairy farmers have worked to achieve selfsufficiency in the industry but have been hampered by a number of problems. Low producer prices for milk, high costs for animal medicines, and transportation problems were especially severe obstacles to dairy development. The World Food Programme (WFP) undertook an effort to rehabilitate the dairy industry, and the United Nations Children's Fund (UNICEF) and other UN agencies also helped subsidize powdered milk imports, most of it from the United States and Denmark. But the WFP goal of returning domestic milk production to the 1972 level of 400 million liters annually was criticized by local health experts, who cited the nation's population growth since 1972 and urgent health needs in many wartorn areas.
Local economists complained that the dairy industry demonstrated Uganda's continuing dependence on more developed economies. Uganda had ample grazing area and an unrealized capacity for dairy development. Malnutrition from protein deficiency had not been eliminated, and milk was sometimes unavailable in non-farming areas. Imported powdered milk and butter were expensive and required transportation and marketing, often in areas where local dairy development was possible. School farms, once considered potentially important elements of education and boarding requirements, were not popular with either pupils or teachers, who often considered agricultural training inappropriate for academic institutions. Local economists decried Uganda's poor progress in controlling cattle diseases, and they urged the government to develop industries such as cement and steel, which could be used to build cattle-dips and eliminate tick-borne diseases.
Goat farming also contributed to local consumption. By the late 1980s, the poultry industry was growing rapidly, relying in part on imported baby chicks from Britain and Zambia. Several private companies operated feed mills and incubators. The major constraint to expanding poultry production was the lack of quality feeds, and the government hoped that competition among privately owned feedmills would eventually overcome this problem. In 1987 the Arab Bank for Economic Development in Africa, the Organization of Petroleum Exporting Countries, the International Development Bank, and the Ugandan government funded a poultry rehabilitation and development project worth US$17.2 million to establish hatchery units and feed mills and to import parent stock and baby chicks.
Uganda's beekeeping industry also suffered throughout the years of civil unrest. In the 1980s, the CARE Apiary Development Project assisted in rehabilitating the industry, and by 1987 more than fifty cooperatives and privately owned enterprises had become dealers in apiary products. More than 4,000 hives were in the field. In 1987 an estimated 797 tons of honey and 614 kilograms of beeswax were produced.
Lakes, rivers, and swamps covered 44,000 square kilometers, about 20 percent of Uganda's land surface. Fishing was therefore an important rural industry. In all areas outside the central Lake Kyoga region, fish production increased throughout the 1980s. The government supported several programs to augment fish production and processing. In 1987 a government-sponsored Integrated Fisheries Development Project established a boat construction and repair workshop at Jinja, a processing plant, several fish collecting centers, and fish marketing centers in several areas of Uganda. They also implemented the use of refrigerated insulated vehicles for transporting fish. China had managed the reconstruction of cold storage facilities in Kampala in the early 1980s. Soon after that, the government established the Sino-Uganda Fisheries Joint Venture Company to exploit fishing opportunities in Lake Victoria.
Uganda's Freshwater Fisheries Research Organization monitored fishing conditions and the balance of flora and fauna in Uganda's lakes. In 1989 this organization warned against overfishing, especially in the Lake Kyoga region, where the combined result of improved security conditions and economic hardship was a 40- percent increase in commercial and domestic fishing activity. A second environmental concern in the fishing industry was the weed infestation that had arisen in lakes suffering from heavy pollution. In late 1989, officials were relatively unsuccessful in restricting the types and levels of pollutants introduced into the nation's numerous lakes.
A few fishers used explosives obtained from stone quarries to increase their catch, especially in the Victoria Nile region near Jinja. Using byproducts from beer manufacturing to lure fish into a feeding area, they detonated small packs of explosives that killed large numbers of fish and other aquatic life. Several people also drowned in the frantic effort to collect dead fish that floated to the surface of the water. Environmental and health concerns led the government to outlaw this form of fishing, and local officials were seeking ways to ban the sale of fish caught in this manner. Both bans were difficult to enforce, however, and fishing with dynamite continued in 1989 despite the widespread notoriety attached to this activity.
In the late 1980s, 7.5 million hectares of land in Uganda consisted of forest and woodland. About 1.5 million hectares, or 7 percent of Uganda's dry land area, were protected forest reserves. Roughly 25,000 hectares of protected reserves were tree farms. The most important forest products were timber, firewood, charcoal, wood pulp, and paper, but other important products included leaves for fodder and fertilizer, medicinal herbs, fruits, and fibers, and a variety of grasses used in weaving and household applications. Production of most materials increased as much as 100 percent between 1980 and 1988, but the output of timber for construction declined from 1980 to 1985, before increasing slightly to 433 million units in 1987 and continuing to increase in 1988. Paper production also increased substantially in 1988.
Nationwide forest resources were being depleted rapidly, however. Deforestation was especially severe in poverty-stricken areas, where many people placed short-term survival needs ahead of the long-term goal of maintaining the nation's forestry sector. Agricultural encroachment, logging, charcoal making, and harvesting for firewood consumed more wooded area each year. An additional toll on forest reserves resulted from wildfires, often the result of illegal charcoal-making activity in reserves. Neither natural regrowth nor tree-planting projects could keep pace with the demand for forest products.
In 1988 the Ministry of Environmental Protection was responsible for implementing forest policy and management. Ministry officials warned that the loss of productive woodlands would eventually lead to land erosion, environmental degradation, energy shortages, food shortages, and rural poverty in general, and they hoped to change traditional attitudes toward forests and other natural resources. In 1989 the government implemented a six-year forestry rehabilitation project financed by the United Nations Development Programme (UNDP) and the Food and Agriculture Organization of the United Nations (FAO). This project included a nationwide tree-planting campaign and a series of three-year training courses for rural extension agents, leaders of women's groups, educators, and farmers. Britain, the Federal Republic of Germany (West Germany), and several multilateral donor agencies also provided assistance in the forestry sector.
Economic crises often hampered efforts to conserve natural resources, however. Many people lacked the motivation to plan for future generations when their own survival was at risk. As a result, illegal activities, including logging, charcoal making, and firewood gathering in posted reserves contributed to rapid deforestation. Government forestry agents, who were generally underpaid, sometimes sold firewood for their own profit or permitted illegal activities in return for bribes. In these ways, entrenched poverty and corruption drained public resources from use by present and future generations. In 1989 officials threatened to prosecute trespassers in posted forest areas, but by the end of the year, it had not implemented this policy.
When the NRM seized power in 1986, Uganda's industrial production was negligible. Manufacturing industries, based primarily on processing agricultural products unavailable in Uganda, operated at approximately one-third of their 1972 level. The mining industry had almost come to a standstill. The rudiments of industrial production existed in the form of power stations, factories, mines, and hotels, but these facilities needed repairs and improved maintenance, and government budgets generally assigned these needs lower priority than security and commercial agricultural development. The city of Jinja, the nation's former industrial hub, was marked by signs of poverty and neglect. The dilapidated road system in and around Jinja provided one of the most serious obstacles to industrial growth.
Industrial growth was a high priority in the late 1980s, however. The government's initial goal was to decrease Uganda's dependence on imported manufactured goods by rehabilitating existing enterprises. These efforts met with some success, and in 1988 and 1989, industrial output grew by more than 25 percent, with much of this increase in the manufacturing sector. Industry's most serious problems, including capital shortages, were the need for skilled workers and people with management experience. Engineers and repair people ,in particular, were in demand, and government planners sought ways to gear vocational training toward these needs.
In the 1980s, local officials estimated that charcoal and fuel wood met more than 95 percent of Uganda's total energy requirements. These two materials produced 75 percent of the nation's commercial energy, and petroleum products, 21 percent; electricity provided only 3 percent of commercial energy. By the late 1980s, the government sought alternate energy sources to reduce the nation's reliance on forestry resources for fuelwood. Alternative technologies were sought for the tobacco-curing and brick and tile manufacturing industries, in particular, because they both consumed substantial quantities of fuelwood. More than 80 percent of fuelwood consumption was still in the home-- primarily for cooking--and to reduce this dependence, the government attempted to promote the manufacture and use of more fuel-efficient stoves. Even this modest effort was difficult and expensive to implement on a nationwide basis, in part because cooking methods were established by long-standing tradition.
Managing the Uganda Electricity Board (UEB) was increasingly difficult during the 1980s. Factors contributing to this problem included increased UEB operating costs and shortages of spare parts, especially conductors and transformers that had been destroyed by vandals during the war years. Supply lines were often vandalized, and oil was even drained from UEB equipment. Despite these problems, the UEB maintained the existing supply system and supplied electricity to a few new coffee factories and corn mills in the late 1980s. The demand for new connections increased, largely as a result of escalating prices of other energy sources, such as kerosene and charcoal. Electricity consumption rose by 21 percent in 1987 despite the upward adjustment of tariffs by 536 percent.
Power generation at Owen Falls dropped from 635.5 million kilowatt-hours in 1986 to 609.9 million kilowatt-hours in 1987. By November 1988, six of the station's ten generators had broken down. Officials hoped that the rehabilitation of Maziba Hydroelectric Power Station at Kabale and the Mubuku Power Scheme at Kasese would ease the pressure on the Owen Falls facilities. As of 1989, planners expected the power generated at the country's existing power station at Owen Falls to be fully used by 1995, so the government rushed to begin a six-year construction project to build a 480-megawatt capacity hydroelectric power station near Murchison (Kabalega) Falls on the Nile River. Officials hoped the new station would meet Uganda's electric power needs up to the year 2020. Environmentalists protested that this project would disrupt the ecosystem of nearby Murchison (Kabalega) National Game Park (one of Uganda's prime tourist attractions), and the government agreed to move the power station two kilometers upstream in response to these complaints.
In the 1980s Uganda imported all its petroleum products. The transportation sector consumed about 69 percent of the available supply, while the aviation and industrial sectors required 9 percent and 5 percent, respectively. Roughly 17 percent of Uganda's petroleum imports were for domestic use. Uganda relied on Kenyan road and rail systems to transport oil imports. When political relations with Kenya worsened in the 1970s, the government tried to expand the country's strategic petroleum product reserves by rehabilitating existing storage facilities and constructing new ones. By late 1989, new tanks at Jinja and Nakasongola were expected to provide a six-month oil supply cushion. Officials also changed procurement procedures for oil from an open general licensing system to the use of letters of credit. An oil board was to be established to import and store petroleum products and to supervise their distribution.
Several international companies were also exploring for oil in western Uganda in 1989. A consortium of four oil companies-- Shell, Exxon, Petrofina, and Total--had tendered bids for test drilling to determine if commercial quantities of oil were present. The World Bank provided US$5.2 million to purchase equipment and train Ugandans in drilling procedures. The major areas marked for test drilling were in Masindi, Hoima, Bundibugyo, and Kabarole. Test blocks were also set aside in the southwestern district of Kigezi and portions of Arua and Nebbi districts in the northwest.
In 1989, however, several of these companies appeared to be losing interest in Ugandan oil prospects. Shell withdrew from the consortium, leaving Petrofina operating most oil rigs and Exxon and Total providing most financial backing. Among the reasons for the declining international interest were the slump in crude oil prices worldwide and the high cost of exploring in the relatively remote western region of Uganda. Moreover, uncertain political relations between Uganda and Kenya suggested that prospects for building a trans-Kenya pipeline were becoming more remote, and shipping oil through Tanzania promised to be too costly.
In the late 1980s, most manufacturing industries relied on agricultural products for raw materials and machinery, and as a result, the problems plaguing the agriculture sector hampered both production and marketing in manufacturing. Processing cotton, coffee, sugar, and food crops were major industries, but Uganda also produced textiles, tobacco, beverages, wood and paper products, construction materials, and chemicals.
In the late 1980s, the government began to return some nationalized manufacturing firms to the private sector in order to encourage private investment. The primary aim was to promote self-sufficiency in consumer goods and strengthen linkages between agriculture and industry. By 1989 the government estimated manufacturing output to be only about one-third of postindependence peak levels achieved in 1970 and 1971. Only eleven out of eighty-two manufacturing establishments surveyed by the Ministry of Planning and Economic Development were operating at more than 35 percent capacity. Overall industrial output increased between January 1986 and June 1989, and the contribution from manufacturing increased from only 5 percent to more than 11 percent during the same period.
In the late 1980s, eight companies produced steel products in Uganda, but they were operating at only about 20 percent of capacity, despite increased output after 1986. Their most widely used products were gardening hoes and galvanized corrugated sheets of steel. The production of steel sheets declined dramatically in 1987, leaving some factories operating at only 5 percent of capacity. At the same time, hoe production increased 30 percent over 1986 levels. The government attempted to rejuvenate the industry in 1987 by assessing the availability of scrap iron and the demand for steel products and by providing US$2.7 million in machinery and equipment for use by the government-operated East African Steel Corporation.
The nation's two cement-producing plants at Hoima and Tororo, both operated by the Uganda Cement Industry, also reduced production sharply, from more than 76,000 tons of cement in 1986 to less than 16,000 tons in 1988. Neither plant operated at more than 5 percent of capacity during this time. The government again provided funds, roughly US$3.2 million, for rehabilitating the industry and initiated a study of ways to improve this potentially vital sector of the economy.
In 1989 the government estimated that the nation's four textile mills manufactured about 8 million meters of cotton cloth per year, but Uganda's growing population required at least ten times this amount to attain self-sufficiency. The government began rehabilitating three other mills for weaving and spinning operations, and the United Garment Industries commissioned a plant to manufacture knitted apparel, some of it for export, under a US$3 million rehabilitation loan.
The production of beverages, including alcoholic beverages and soft drinks, increased in the late 1980s, and officials believed Uganda could achieve self-sufficiency in this area in the 1990s. In 1987 three breweries increased their production by an average of 100 percent, to more than 16 million liters. In the same year, five soft drink producers increased output by 15 percent to nearly 6 million liters. In addition, Lake Victoria Bottling Company, producers of Pepsi Cola, completed construction of a new plant at Nakawa.
Sugar production was vital to the soft drink industry, so rehabilitating the sugar industry promised to assist in attaining self-sufficiency in beverage production. The government hoped to reduce sugar imports from Cuba as the Lugazi and Kakira estates resumed production in 1989 and 1990. In 1988 and 1989, Uganda's dairy industry relied on imports of dried milk powder and butter to produce milk for sale to the general public. Processed milk, produced under monopoly by the government-owned Uganda Dairy Corporation, registered an increase of 29.5 percent, from 13 million liters in 1986 to 16.9 million liters in 1987. To improve the local dairy industry, the government rehabilitated milk cooling and collection centers, milk processing plants, and the industry's vehicles. And in the late 1980s, the Ministry of Agriculture, Animal Husbandry, and Fisheries imported 1,500 in-calf freisian heifers to form the nucleus of a restocking effort on private and government farms.
Production of wheat and corn flour increased in 1987, 1988, and 1989, despite continuing low-capacity utilization in the industry. Only one establishment, the Uganda Millers, which worked at just over 20 percent of capacity, produced wheat flour. The company nonetheless increased production to 9.5 thousand tons in 1987, 32 percent more than the previous year. At the same time, corn production increased 87.3 percent in 1987, to 4.6 thousand tons.
In 1988 only one cigarette-manufacturing plant, the British American Tobacco Company, operated in Uganda. Its production increased slightly between 1986 and 1987 to 1,434.8 million cigarettes. In 1988 the government provided a loan of US$1.43 million to rehabilitate the company's tobacco redrying plant in Kampala.
In November 1988, President Museveni opened an edible oil mill at Tororo to process cotton, sunflowers, peanuts, and sesame seeds. The plant had the capacity to process fifteen tons of raw oil daily into 4.3 tons of refined cooking oil and to produce an estimated 300 tons of soap annually as a by-product. The mill was built under a barter deal with Schwermaschinen Kombinat Ernst Thaelmann of the German Democratic Republic (East Germany), which received coffee and cotton in exchange. In its first year of production, the plant encountered operating difficulties, but its officers still expected Uganda to achieve self-sufficiency in edible oil manufacturing during the 1990s. Mukwano Industries, Uganda's largest soap-manufacturing company, doubled production in 1988 and 1989.
The Uganda Leather and Tanning Industry was the nation's only leather producer, operating at less than 5 percent of capacity in 1987, when output dropped by nearly 40 percent from the previous year. Although three footwear producers were in operation, the Uganda Bata Shoe Company produced 98 percent of the nation's shoes, and it increased production in 1988 and 1989.
Although the government recognized the existence of several commercially important mineral deposits, it had not conducted comprehensive exploration surveys for non-oil minerals and, therefore, lacked estimates of their size. In the early 1970s, copper, tin, bismuth, tungsten, rare earths, phosphates, limestone, and beryl were being mined by commercial companies. The mining sector employed 8,000 people and accounted for 9 percent of exports. By 1979 almost all mineral production had ceased, and in 1987 only the mining and quarrying sector recorded any growth. Mining output increased an estimated 20 percent, largely because of the rapid growth in demand for road and housing construction materials, such as sand and gravel. In 1988 the government established a National Mining Commission, intended to encourage investment in the mining sector through joint ventures with the government. This commission also provided some support for small mining operations. In early 1988, the government introduced regulations of gold mining operations that gave the Bank of Uganda monopoly rights to buy gold mined in the country and to market gold at its discretion. In addition, the government initiated projects to rehabilitate the Kilembe copper mine and to extract cobalt from slag heaps at the mine at a combined cost of US$70 million. By late 1990, financing had been secured for preliminary rehabilitation of the mine's facilities, part of it from the Democratic People's Republic of Korea (North Korea). The French were involved in the cobalt venture; plans called for processing and export to France of at least 1,000 tons per year once technology was in place.
During the 1960s, revenue from tourism, including restaurants, hotels, and related services, increased faster than any other sector of the economy. In 1971, the peak year for tourist receipts, more than 85,000 foreigners visited Uganda, making tourism the nation's third largest source of foreign exchange, after coffee and cotton. After 1972, however, political instability destroyed the tourist industry. Rebels damaged and looted hotels, decimated wildlife herds, and made many national park roads impassable. Part of the airport at Entebbe was also destroyed.
Recognizing the role tourism could play in economic development, the government assigned high priority to restoring the tourism infrastructure in its RDP. To this end, the government planned to rehabilitate hotels and promote wildlife management. In February 1988, ministry officials announced a plan to build four new hotels worth US$120 million as part of a barter trade agreement with Italy. The Italian company Viginter agreed to construct the 200-room hotels at Masaka, Fort Portal, Jinja, and Mbale. International tourist arrivals gradually increased, from about 32,000 in 1986 to more than 40,000 in each of the next two years. Tourism earned roughly US$4.2 million in 1988. At the same time, continuing unrest in the north halted rehabilitation efforts in Murchison (Kabalega) Falls and Kidepo national parks, and many tourist attractions awaited a reduced climate of violence before maintenance and repairs could be improved.
Uganda's years of political turmoil left the country with substantial loan repayments, a weak currency, and soaring inflation. During the 1970s and early 1980s, numerous foreign loans were for nonproductive uses, especially military purchases. Even after the Museveni regime seized power, debts climbed while the productive capacity of the country deteriorated. To resolve these problems, the government tapped both external creditors and domestic sources, crowding out private-sector borrowers. The Museveni government then attempted to reduce the percentage of government borrowing from domestic sources and to reschedule payments of foreign loans. The government also implemented successive devaluations of the shilling in order to stabilize the economy.
Government-owned institutions dominated most banking in Uganda. In 1966 the Bank of Uganda, which controlled currency issue and managed foreign exchange reserves, became the Central Bank. The Uganda Commercial Bank, which had fifty branches throughout the country, dominated commercial banking and was wholly owned by the government. The Uganda Development Bank was a state-owned development finance institution, which channeled loans from international sources into Ugandan enterprises and administered most of the development loans made to Uganda. The East African Development Bank, established in 1967 and jointly owned by Uganda, Kenya, and Tanzania, was also concerned with development finance. It survived the breakup of the East African Community and received a new charter in 1980. Other commercial banks included local operations of Grindlays Bank, Bank of Baroda, Standard Bank, and the Uganda Cooperative Bank.
During the 1970s and early 1980s, the number of commercial bank branches and services contracted significantly. Whereas Uganda had 290 commercial bank branches in 1970, by 1987 there were only 84, of which 58 branches were operated by governmentowned banks. This number began to increase slowly the following year, and in 1989 the gradual increase in banking activity signaled growing confidence in Uganda's economic recovery.
By 1981 the rate of growth of domestic credit was 100 percent per year, primarily as a result of government borrowing from domestic sources. The 1981 budget attempted to reestablish financial control by reducing government borrowing and by floating the shilling in relation to world currencies. This measure led to a sharp decline in the growth rate of domestic credit and to a temporary decline in the central government's share of domestic credit from 73 percent to 44 percent in 1986. The following year, however, domestic credit recorded growth of over 100 percent, primarily reflecting credit extended to private-sector owners for crop financing. During 1987 crop financing for private owners again increased, while the government's share of domestic credit fell even further, from 45.3 percent to 30.7 percent. Crop finance accounted for 86 percent of all financing for agriculture, crowding out commercial credit to other areas within agriculture. Commercial lending for trade and commerce also increased during 1987, rising from 15.6 percent to 23.7 percent of total lending in 1986. Commercial lending to manufacturing, building and construction, and transportation rose marginally, while lending to other sectors declined.
The Uganda Commercial Bank introduced a new program, the "rural farmers scheme," to help small farmers through troubled economic times. This program aimed to boost agricultural output by lending small sums directly to farmers, mostly women, on the basis of character references but without requiring loans to be secured. Most of these loans were in the form of inputs such as hoes, wheelbarrows, or machetes, with small amounts of cash provided for labor. The farmers repaid the loans over eighteen months, with interest calculated at 32 percent--marginally lower than commercial rates. Under this program, the bank had loaned USh400 million to approximately 7,000 farmers by 1988. The scheme attracted more than US$20 million in foreign aid, including US$18 million from the African Development Bank.
Between 1981 and 1988, the government repeatedly devalued the Ugandan shilling in order to stabilize the economy. Before 1981 the value of the shilling was linked to the IMF's special drawing right ( SDR). In mid-1980 the official exchange rate was USh9.7 per SDR or USh7.3 per United States dollar. When the Obote government floated the shilling in mid-1981, it dropped to only 4 percent of its previous value before settling at a rate of USh78 per US$1. In August 1982, the government introduced a twotier exchange rate. It lasted until June 1984, when the government merged the two rates at USh299 per US$1. A continuing foreign exchange shortage caused a decline in the value of the shilling to USh600 per US$1 by June 1985 and USh1,450 in 1986. In May 1987, the government introduced a new shilling, worth 100 old shillings, along with an effective 76 percent devaluation. Ugandans complained that inflation quickly eroded the new currency's value. As a result, the revised rate of USh60 per US$1 was soon out of line with the black market rate of USh350 per US$1. Following the May 1987 devaluation, the money supply continued to grow at an annual rate of 500 percent until the end of the year. In July 1988, the government again devalued the shilling by 60 percent, setting it at USh150 per US$1; but at the same time, the parallel rate had already risen to USh450 per US$1. President Museveni regretted this trend, saying "If we can produce more, the situation will improve, but for the time being we are just putting out fires." The government announced further devaluations in December 1988 to USh165 per US$1; in March 1989, to USh200 per US$1; and in October 1989, to USh340 per US$1. By late 1990, the official exchange rate was USh510 per US$1; the black market rate was USh700 per US$1.
All of the government's efforts to bring the economy under control succeeded in reducing the country's staggering inflation from over 300 percent in 1986 to about 72 percent in 1988. Then the government contributed to rising inflation by increasing the money supply to purchase coffee and other farm produce and to cover increased security costs in early 1989, a year in which inflation was estimated at more than 100 percent. Low rainfall levels in the south contributed to higher prices for bananas, corn, and other foodstuffs. Shortages of consumer goods and bottlenecks in transportation, distribution, marketing, and production also contributed to rising prices. Moreover, the depreciation of the United States dollar increased the cost of Uganda's imports from Japan and Europe. The government tried to curb inflation by increasing disbursements of import-support funds and tightening controls on credit. These measures helped lower the rate of inflation to 30 percent by mid-1990, but by late 1990, inflation had once again resumed its upward spiral.
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