{UAH} Uganda faces Sudan Sudan fallout

Uganda faces Sudan Sudan fallout

INSTABILITY: A population on the run is the most distressing sight and especially for business people looking to sell their products.

KAMPALA, Uganda - The conflict in South Sudan has no doubt put Uganda’s economy between a rock and a hard place given that South Sudan is Uganda’s biggest export destination in the COMESA region.

Statistics compiled by Pine Bridge, an Investment Firm show that of all Uganda’s exports to the COMESA region in the FY2012/13, 27% or $346.82m was to South Sudan followed by Kenya at 21% ($268.56m), DR Congo 20% ($255m) then Rwanda 17% ($217.24m).

From the figures, it only goes on to show that prolonged conflict in the World’s youngest economy could scupper Uganda’s growth prospects.

Dr. Louis Kasekende, the Deputy Governor of Bank of Uganda while releasing the February 2014 Monetary Policy Statement recently summed up the situation: “The domestic economy faces a risk of an adverse demand shock if the conflict in South Sudan is sustained.” 

He however maintained that it was too early bring out concrete figures of how much the conflict in South Sudan will affect Uganda.

“We can only be able to find out the full impact in March or April. But if this is sustained, then it will definitely have an impact on imports, exports and the growth of the economy.”

The question now begs, what the impact of the turmoil in South Sudan on Uganda in economic terms will be given that Sudan’s contribution has grown in leaps and bounds and is now a major source of foreign exchange and a major destination of food and manufactured products from Uganda.

Allen Kagina, the Commissioner General of Uganda Revenue Authority (URA) while releasing the half year revenue performance for the FY2013/14 that showed that there was a deficit of Ush246.93 billion ($99m) sounded another alarm. 

“We are closely watching the situation in South Sudan and we see that the pace at which the volumes are growing will not help us recover the lost revenue. We are already seeing volumes to Juba going up but are yet to see an increase in volumes to other cities.”

Corporation tax was the largest contributor (Ush161.19b ($64 million)) to the large shortfall experienced given that a number of companies declared little or no profits at all.

Richard Kamajugo, the Commissioner for Customs at URA explains that a stagnation in exports to South Sudan could eventually lead to a reduction in corporation tax.

He however stresses that South Sudan doesn’t contribute directly in terms of revenue because there are not a lot of imports from there.

“It is a very important destination for our exports because many of our industries here produce for export to South Sudan.  If you look at our exports to South Sudan, they were mainly wheat flour, steel products, Cement, beverages, among others. 

“These sectors are important in that they pay corporation tax after they make profits. Now when the exports decline, it means these companies will not sell and hence not be able to contribute to corporation tax.”

Putting it into perspective, Kamajugo revealed to the East African Business Week that as at the end of January 2014, about 850 containers with goods worth Ush50 billion destined for South Sudan were stuck at the border. He also added that the December 2012 exports were double the exports in 2013.

He was however optimistic that there is hope given that the situation is improving. 

Nazarius Rukanyangira, the Head of Marketing at Uganda Clays Limited told this newspaper that the firm had to close its outlet in South Sudan and currently has outstanding orders.

“Insecurity in South Sudan is seriously affecting our market because it is our leading export market. Currently we have orders of Ush1.2b but we cannot supply because of the situation,” he told the East African Business Week in an interview. 

Dr. Adam Mugume, the Executive Director for Research at Bank of Uganda while speaking to the press at the BoU Headquarters recently explained that the situation in South Sudan trickles down even to the households.

He said, “For those exporting to South Sudan or those involved in activities there, there is a return…there is aggregate demand especially if ‘I can return in home.’ Once there is conflict, there is unemployment of resources. So there is no payment to these resources. So aggregate demand even at household level will go down.”

The conflict in South Sudan started in mid-December, after President Salva Kiir reportedly accused his former deputy, Riek Machar, of attempting a coup. It has since morphed into what is looking like a full-scale civil war, complete with peace talks in another country – Ethiopia. 

Many Ugandans who dominate the informal trade in the capital Juba have suffered heavy losses and a number of them have returned home ever since. 

By Emma Onyango, Monday, February 17th, 2014

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Gwokto La'Kitgum

"Even a small dog can piss on a tall Building", Jim Hightower