Uganda's Economic Growth Hinges on Diversifying Exports and Managing Natural Resources

Uganda is facing unprecedented global economic challenges that are reshaping the world economy. To withstand these disruptions, renowned economic scholar Prof. Stefan Dercon advises the Ugandan government to diversify its exports, manage natural resources prudently, and find practical solutions to emerging economic challenges. Prof. Dercon emphasized that supply alone does not create demand, stressing that Uganda must deliberately identify buyers and respond to what consumers-both global and domestic-actually want. He highlighted the importance of finding buyers before scaling production, citing the success of Bangladesh's garments industry and Ethiopia's approach in attracting textile investors.

Key Takeaways:

• Uganda's wealth in natural resources must be managed prudently to achieve sustainable growth.
• Prof. Dercon advised the Ugandan government to increase and diversify its exports to withstand current global economic challenges.
• The world economy has become more complicated, with growth engines harder to start and sustain than before.
• Supply alone does not create demand; Uganda must find buyers and respond to what consumers actually want.
• Bangladesh's success in garments and Ethiopia's approach in attracting textile investors demonstrate the importance of identifying buyers before scaling production.
• Prof. Dercon stressed that growth needs savings-private savings, tax revenues, and foreign flows-combined with sensible allocation.
• Foreign Direct Investment (FDI) and joint ventures are superior to other foreign flows when applied well.
• Natural resources, including aid, are usually not good for growth and can slow down development.
• The "Dutch Disease" can be treated and avoided by implementing sensible economic management of inflows of resource rents and foreign exchange.
• Uganda's and Africa's future development will increasingly depend on strong leadership, innovative policy approaches, and mobilizing domestic resources.
• Leadership willing to act pragmatically and manage expectations carefully is crucial for success.

Statistics:

• Uganda's GDP has expanded mainly by adding workers, capital, and education, but productivity (TFP) has fallen since 2010.
• Uganda's tax-to-GDP ratio is only 13 percent, which is far too low for a country that wants to grow its economy ten-fold.
• Natural resources can add about 20 percent to tax revenue, but balancing expectations with prudent management will be critical.
• Almost everywhere, natural resources have slowed down growth, according to a World Bank review.

Sources:

• Lecture by Prof. Stefan Dercon, "Uganda's Economic Growth and Structural Change", Economic Growth Forum, Kampala Serena Hotel.
• Statement by Prof. Jonathan Leape, Executive Director, International Growth Centre.
• Presentation by Uganda's Finance Minister Matia Kasaija at the Economic Growth Forum.