MARKET UPDATE – AFRICA (Abridged)

A financial Advisory
Company
UGANDA
POLITICAL OUTLOOK
Security Strategy under Focus as Somalia Pullout
looms
Uganda’s regional security strategy is bound to
come under sharp focus in the coming months
as the government revealed plans to withdraw its
troops from Somalia by December 2017, a move
which could bring to an end Uganda’s nine-year
peace keeping mission in the strife torn country.
The country’s troops are the largest contingent
of the African Union-sponsored peacekeeping
mission, about a third of the 22,000 troops, and
the withdrawal could reverse the progress of the
AU mission. Previously, Uganda failed to follow
through on its threat to pull out of all peacekeeping
missions in 2012, following allegations by the
United Nations that it was backing rebels in
eastern DR Congo.
BUSINESS ENVIRONMENT
Import Substitution to Promote Manufacturing
Uganda, like its East Africa counterparts, has shifted
focus to import substitution policy to grow the
country’s manufacturing sector. Manufacturing
was reported as one of the sectors that registered
the lowest performance in financial year 2015/16
with the sector’s growth posting a measly 0.4% in
the year under review from 11.0% in the previous
year. Consequently, the government increased the
specific duty rate on worn clothes and shoes from
0.2 USD/kg to 0.4 USD/kg in the 2016/17 budget,
in line with EAC Summit directive requiring EAC
Partner States to gradually phase out importation
of used clothes and footwear in the region. In
addition, the government proposed to increase
the environment levy on used clothes, shoes and
other articles from the current 15.0% to 20.0% in
the next financial year.
ECONOMIC OUTLOOK
Construction to Drive Economy in 2016/17
Budget 2016/17 posts a 9.2% increase, year-onyear,
on planned government expenditure to
USD 7.8 Billion in line with the country’s National
Development Plan II which seeks to scale up public
investments, with a focus on agriculture, public
works, transport and energy, pointing towards
diversification as the economy gradually shifts
from reliance on agriculture to manufacturing and
services. Construction and public works, which
are considered a vital growth pivot in the face of
lurking macroeconomic pressures, received the
lion’s share of the budget.
DEBT MARKET UPDATE
Marginal Rise in Yields on Liquidity Tightening
and Inflation Signal
There was relative liquidity tightening in the
money market between April and May, 2016 with
the interbank rate rising by 130.0 bps to 13.7% in
May 2016. As such, yields posted a marginal rise
prompted, as well, by subtle inflation uptick ─
inflation increased marginally by 30.0 bps to 5.4%
in the period under review
Monthly Interbank Rate (Average)
17.0%
16.0%
15.0%
14.0%
13.0%
12.0%
11.0%
10.0%
9.0%
8.0%
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Source: Bank of Uganda, StratLink Africa
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JULY 2016 | MARKET UPDATE – AFRICA
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