Ugandan economy pressured by investment challenges - CNBC Africa

Ugandan economy pressured by investment challenges

East Africa

by Elayne Wangalwa 0

Kampala, Uganda’s capital faces challenges in private sector investment. PHOTO: Lightfoot

Issues such as bureaucracy, poor infrastructure, insufficient power supply, high energy and production costs, and corruption are some of the things that are hindering penetration into the markets by the private sector.

With growth in private sector investment at 16.8 per cent having dropped 230 basis points. Nonetheless, fastest growing sectors of the Ugandan economy have been reported in the financial services, construction, manufacturing, transportation, telecommunications, energy infrastructure, and recently oil and gas.

(READ MORE: Uganda to announce oil refinery investor in July)

Meanwhile, the country’s annual inflation rate in August slowed down as a result of a sharp drop in food prices. The headline inflation rate dropped to 2.8 per cent in the year to August from 4.3 per cent in July. In August, the country’s central bank retained its main lending rate at 11 per cent. The bank stated that inflation was within its target and the economy was on course to grow at six per cent this financial year.

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David Cowan, Africa economist at Citi Research believes that the bank will hold its lending rate in October despite the downward inflation trend since the country has experienced since April.

(READ MORE: Uganda's bond decision a bold move)

 “Well, at the moment I do not think they are going to do anything. They will probably stay with the policy that they have had simply because of the simple case in Africa where states tend to be buying a balancing act and I think the Bank of Uganda is casing. As you have seen earlier this week with the Kenya shilling weakness, so the central bank of Uganda is probably still a little but worried about what might happen to the Ugandan shilling if they would cut the rate rapidly,” Cowan said.

The growth of the East African nation’s economy has been performing at a relatively slow pace due to several challenges.

“Both in Uganda and Kenya, the growth is not bad but it is also not picking up as first as people thought it would, so that is quickly due to external factors as a whole bunch of issues happening in East Africa including obviously the political problems in Kenya which is impacting on the tourism sector and so on.”

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