STRUCTURE OF UGANDA’S ECONOMY

What is meant by structure of an economy?

This refers the basic of salient features of an economy. When considering the structure of an economy are put into consideration the following

i.           The major or dominant sectors of an economy

ii.           The ownership and control of resources

iii.           The sex, composition and strength of the sector sin the economy

Features of Uganda’s economy

N.BWhen giving the structure of Uganda’s economy (in relation to industrial, agriculture, informal and ex0port sectors) certain words which act as qualifiers/adjectives have to appear in the describing sentence or statement. These qualifiers are words such as mainly; predominantly or dominated by; many; small; high; low; most of…………;

Therefore, to the features are as follows;

·        It is predominantly and agricultural economy/it is dominated by the agricultural sector. The greatest share of production for expert and domestic consumption takes place in the agricultural sector.

·        It has a small but growing industrial sector. The industrial sector is steadily and slowly growing and expanding with emphasize on processing industries and a few manufacturing industries.

·        It is a dual economy. A dual economy is one where there is existence of two contrasting phenomena existing side by side; one being desirable/developed and the other is undesirable/under-developed. For example the subsistence sector or production existing alongside the commercial sector or production.

·        It is a mixed economy. Uganda’s economy has both the public sector and private sector operating side by side. Production activities are carried out by the government entrepreneurs although the current rend puts emphasizes on expanding the private sector.

·        It is an open economy. The country highly depends on foreign trade and participates in other international activities for development.

·        It is a highly dependent economy.

1.     Uganda relies mainly on agriculture as a sector

2.     Uganda also depends on developed countries for decisions and resources for her economic survival. This economic dependence is manifested in the following

·        Direct economic dependence. This is the reliance of a country on economic decisions made by foreign counties and international bodies such as IMF and World Bank

·        External resource dependence. This is the reliance of a country on foreign factor services like technology, capital and labour skills (expatriates) to supplement its local productive resources.

·        Trade dependence. This is the reliance of a country on other countries to provide market for her exports as well as getting imports from specific countries. This type of dependence involves geographical and commodity concentration of trade.

·        Sectoral dependence. This is the reliance of a country a specific sector or a few sectors for her survival, for example, Uganda majorly reliance on agriculture sector.

·        High levels of unemployment in the country. There is widespread unemployment and under employment. This is due to the abundant supply of unskilled and semi-skilled labour force in the country.

·        High population growth rate. As per the 2002 population census, Uganda’s population growth rate was at 3.4% per annum. Current projection or estimates puts it at about 3.6% per annum.

·        High levels of illiteracy characterized by abundant supply of unskilled labour. This is due to low level of education in Uganda.

·        Many firms produce at excess capacity. Many firms produce at less than full capacity due to inadequate technical knowledge and capital.

·        It has poor infrastructure/under developed infrastructure. This is reflected in the poor state of roads, poor power supply, inadequate communication facilities etc.

Implications of the structure of Uganda’s economy

N.B.We generate the implications from the features. The focus if one what comes out of the structure of the economy of Uganda. Since the structure of Uganda’s economy is loop-sided, it obviously generates unfortunate implications and these are;

·        Balance of payments deficit/unfavourable balance of payments position. Uganda mainly exports low priced agricultural products with low value added. At the same time it imports expensive manufactured goods and this increase import expenditure. Earnings from exports are lower than import expenditure hence causing a balance of payment deficit.

·        Low personal income levels. Due to high levels of unemployment, many people receive low incomes. At the same time, the predominance of agriculture which is done or small scale creates to low incomes in the economy. (Many people are carrying out subsistence agriculture).

·        Production of poor quality products. Products produce dint eh informal sector tend to be of low quality due to low value added. This is because the informal sector uses poor methods of production.

·        There is under-utilization of resources. This arises from the existence of poor infrastructure. Due to poor infrastructure, some resources are not exploited and this leads to excess capacity.

·        Low saving and investment levels. The low incomes earned by people give rise to low savings and finally there are low levels of investment.

·        Low levels of government revenue from taxes. This arises from a small industrial sector, high levels of unemployment and a big informal sector which create a narrow tax base in Uganda. Therefore, government gets low (limited) tax revenue.

·        Having predominantly unskilled labour. This arises from the high level of illiteracy and as a result many people do not acquire the necessary skills and training needed in the labour market.

·        Low levels of technological development. This is caused by technological dualism in Uganda. There is still predominance of rudimentary skills of production because of the conservatism of people and limited capital. Capita is still limited, yet it is necessary to carry out research and development in new techniques of production.

·        Low levels of capital accumulation. This arises from a high population growth rate which reduces capital accumulation. Money which would have been saved and invested is being used to cater for the growing population.

·        Acute income inequalities arise. Due to high levels of unemployment, many people are not earning income while the few who are employed are earning high incomes. This causes income inequality in Uganda.

·        Poor terms of trade, import prices of manufactured goods always rise faster than the export prices of agricultural goods. This gives arise to poor terms of trade in Uganda.

·        Foreign domination of economy. This arises from reliance on decisions made by other countries as well as expatriates, foreign technology, capital etc.

·        Repatriation of profits by foreign investors. Since the economy is open, there are foreign investors in Uganda. However, such foreign repatriate profits to their mother countries instead of re-investing such profits in Uganda. This has a danger of lowering investment levels in Uganda.

·        Low labour productivity. This arises from labour having low skills as a result of high levels of illiteracy among people.

·        Low levels of Goods Domestic Product (GDP). Low GDP arises from production at excess capacity where resources remain under-utilized and less goods and services are produced in Uganda.

Questions:

1 a) Describe the structure of the economy of your country

b) Explain where the economic implications that arise from the structure of Uganda’s economy

2 a) Suggest measures that can be undertaken to improve Uganda’s economy

b) In what ways is your country economically dependent?

The structure of the agricultural sector in Uganda

Explain the structure of the agricultural sector in your country.

The structure of the agricultural sector in less developed countries.

·        Mainly on a small scale due to poor land tenure system.

·        High dependence on family labour in production

·        Basically rural based

·        Uses mainly unskilled and semi-skilled labour

·        Mainly uses simple/poor/rudimentally technology i.e. mainly labour intensive due to limited research and predominance of subsistence production

·        Produces basically low quantity output due to over reliance on natural factors and the use of poor techniques of production

·        Production is basically for the local market

·        Dominated by subsistence production due to conservatism in rural areas

·        Basically dependent on nature

·        Narrow range of products for export

·        Dominated by foodstuff/narrow range of cash crops

·        Produces mainly low quality output because of limited competition n production and use of poor production techniques

Positive implications of such as structure

·        Reduces dependence on food imports

·        Provides employment opportunity

·        Promotes growth of the industrial sector

·        Provides market for the output of the industrial sector

·        Leads to provision of revenue of the government

·        Promotes economic growth

·        Promotes development of infrastructure

·        Increase foreign exchange earnings due to exportation of products

·        Encourages utilization of land resources

Negative implications/demerits of such as structure

·        Persistent price fluctuations due to dependence of nature

·        Unfavourable balance of payments position hence low foreign exchange earnings due to low value, quantity and variety of exports from the sector.

·        Instability in or unfavourable terms of trade due to low value and quality of exports from the sector which are sold at low prices

·        Income inequalities are worsened due to subsistence production hence low incomes for people engaged in agriculture

·        Susceptible to seasonal unemployment and under-employment due to dependence on nature.

·        Limited innovation due to large subsistence sector

·        Limited levels of economic growth due to low output levels yet employing large part of the population.

·        Low levels of government revenue since agriculture provides a narrow tax base due to low levels of monetization of the sector (i.e. since it is mainly subsistence and organized on a small scale).

·        Accelerates or exacerbates economic dependence due to the narrow range of exports from the agricultural sector and as such it contributes less foreign exchange to government. The country has to rely on other countries to fill this foreign exchange gap

·        Persistent high poverty levels in Uganda due to subsistence farming

·        Limited markets for products due to poor quality products from the sector

·        Causes structural inflation due to dependence on nature for production

·        Limited technological growth in the sector due to use of simple tools in farming.

Reasons for changing the structure of Uganda’s agricultural sector

·        To increase productivity/to increase output hence economic growth. This is attained through encouraging agricultural research into better yielding varieties and breeds thereby increasing agriculture output.

·        To encourage monetization of the economy. This is because agricultural development encourages commercial production thereby reducing the size of the subsistence sector.

·        To generate more employment opportunities and hence check the problem of disguised and seasonal unemployment. This is because undertaking agricultural modernization through irrigation reduces dependence on nature which is a cause of seasonal unemployment.

·        To widen the tax base due to expansion of production for the market/to increase revenue to the government/to minimize fluctuations in government revenue. This is through encouraging commercial production that increases government revenue form taxes imposed on large scale firms.

·        To increase rural incomes due to increase in the volume of production/to increase producer’ sin comes. This is attained through encouraging commercial production that increases producer’s incomes thereby minimizing income inequalities.

·        To improve terms of trade/to minimize fluctuations in terms of trade. This is achieved through promoting agricultural research that results into production of high quality products that fetch high prices on the world market.

·        To accelerate rural transforming/to improve the living condition and livelihood of the rural people. This is through encouraging agricultural modernization that has supportive policies like infrastructural improvement which results in better living conditions in the rural areas.

·        To stabilize the balance of payments position. This is through increasing the volume off agricultural exports that increase the foreign exchange earnings of the country.

·        To expand the market for industrial output, especially output used as inputs in the agricultural sector like fertilizers. This is due to the linage effect between industry and agriculture in such a way that agricultural development results into increase in demand for industrial equipment like hoes, slashers, wheel barrows and pangas.

·        To increase foreign exchange earnings. This is attained through encouraging agricultural diversification and the use of modern techniques in agricultural production which increase the agricultural output for export hence more foreign exchange earnings.

·        To enable effective economic planning based on stable earnings from agriculture exports. This is due to the stabilized earnings expected from agricultural exports.

·        To encourage investment in agriculture hence increase utilization of the land resources. This is achieved through reduction of dependence on a few products in the agricultural sector thereby promoting diversification of production.

·        To fight/control structural inflation. This is attained through agricultural development and modernization that lead to increase in output hence stabilizing the domestic prices of food items.

·        To promote the growth of the industrial sector by ensuring a steady source of raw materials through agricultural diversification

·        To ensure food security and ensure a healthy population. This is attained through promotion of agricultural modernization programmes that provide better inputs to farmers hence production of a variety of food items.

a.      Describe the features of the agricultural sector in your country.

b.     What are the implications of such structure of agricultural sector to your country?

c.      Why is necessary to change the structure of the agricultural sector in your country?

The structure of industry in Uganda

Features of the industrial sector in Uganda include:

N.B. When giving the features of the industrial sector in Uganda we include words that serve as qualifiers, for example, most, many, mainly, dominated by etc.

·        It is dominated by small scale industries

·        It is mainly comprised of processing industries

·        Most of the firms in the sector are privately owned i.e. most of the industries are owned and run by private entrepreneurs

·        There is use of simple labour intensive technology in most of the firms

·        The sector is mainly urban-based

·        The sector mainly produces low quality goods

·        Many of the industries are agro-based i.e. many industrial firms use agricultural raw materials like tea leaves, cotton, sugarcane, cotton seeds etc

·        Industries which produce durable consumer goods are mostly assembling plants. E.g industries that assemble small tractors

·        It produces mainly consumer goods e.g. sugar, salt, soap, bread. The industrial sector is made up mainly

·        They are mainly import substitutions industries

·        The industrial firms mainly produce at excess capacitys

·        The sector has high importer draw materials and intermediate product content

·        Many firms use unskilled and semi-skilled labour

·        It has limited linkages with other sectors of the economy

Effects arising out of the structure of the industrial sector

Positive effects

·        Provides more employment opportunities since most small scale firms use labour intensive techniques

·        Promotes utilization of the would be idle resources since many of the industries use local inputs in the production process.

·        Reduces income inequality since most of the industries are labour intensive and small and small scale industries are owned by many people.

·        Reduces external dependence since they are mainly import substituting industries

·        Acts as a source of government revenue through taxation of both small scale and large scale industries.

·        Contributes to the country’s GNP/GDP due to increase in the volume of output from the industrial operations.

·        Reduces size of subsistence sector by encouraging commercial/monetary production.

·        Widens variety of goods thus increasing consumer choices due to production of a range of manufactured consumer goods.

·        Promotes infrastructural development due to the need to access areas of raw materials and market for the final industrial products

·        Promotes market to agricultural products that are used as raw materials in the many agro based industries.

·        Small industries act as a basis of research into better technology.

Negative effects

·        Low levels of output due to dominance of small industries and operation at excess capacity

·        Poor quality output on the market due to use of mainly simple technology

·        Gives rise to regional imbalances since industries are mainly urban based

·        Contributes low government revenue due to dominance of small scale industries

·        Perpetuates Balance Of Payment (B.O.P) problems due to the high content of imported raw materials and low earnings from exports of industrial goods

·        Limited levels of economic growth due to small market/excess capacity and use of unskilled labour

·        Worsens problems of income inequalities. This is because areas with industries, people access employment and better earnings compared to other economic activities

·        Encourages rural-urban migration and its negative effects. This I due to concentration of their activities in urban areas

·        Encourages dependence on foreign markets for capital and intermediate goods. This is because the existing industries are mainly production consumer goods

·        Leads to excessive protection offered to firms to survive, this is aimed at facilitating the growth of local industries

·        Increased capital outflow in form of profit repatriation due to foreigner swooning large scale industries. The foreigners usually import raw materials and repatriate the profits.

·        Narrow range of market due to production of poor quality goods. This is due to use of simple methods of production by many firms.

The concept of dualism in Uganda’s economy

Dualism refers to the co-existence of two contrasting socio-economic situations (phenomena), one being superior and desirable and the other is inferior and undesirable. The tow situations exist side-by-side in an economy.

Forms/types of dualism

·        Technological dualism

·        Intra-sectoral dualism

·        Literacy dualism

·        Exchange dualism

·        Income dualism

·        Regional dualism

·        Socio-cultural dualism

Features of dualism:

N.B: The features of dualism are extracted from the general forms of dualism i.e. we consider what makes up a given form of dualism

·        Co-existence of modern technology alongside traditional technology. (Co-existence of capital intensive technology alongside labour intensive technology)

·        Co-existence of commercial sector and subsistence sector

·        Co-existence of literates and illiterates

·        Co-existence of barter exchange and monetary exchange

·        Co-existence of high income and low income earners (co-existence of the rich and the poor people)

·        Co-existence of developed regions alongside under-developed regions

·        Co-existence of traditionalists and modernists. For example the co-existence of traditional birth attendants in many rural areas of Uganda and the modern trained mid wives and nurses who work in hospitals, co-existence of tradition worshiping ad modern worshipping that embraces Christianity and Islam, etc

The meaning of economic dualism: This is the co-existence of tow contrasting economic situations in a country; one being superior and desirable while the other is inferior and undesirable.

The informal sector in Uganda

It is an inter-mediate sector which exists between the modern sector and the traditional sector. It is mainly made up of those activities which have slowly developed from the traditional form of production and are slowly being modernized.

Examples of activities/operators under the informal sector include;

       i.           Cloth tailoring/tailors

     ii.           Bicycle repairers

   iii.           Motorcycle mechanics

   iv.           Small food restaurants

     v.           Petty traders like hawkers, peddlers, street vendors, market stall vendors, chicken roosters

   vi.           Small meal welding units/metal scrap fabricators

 vii.           Small furniture making units and timber sellers etc.

Features/characteristics of an informal sector

1.     Production is mainly on small scale

2.     There is mainly use of poor or simple technology

3.     Mainly low quality output is produced

4.     It is mainly semi or sub-urban based

5.     It is characterized by poor or no book-keeping/financial records

6.     It is basically/mainly run by sole proprietors

7.     It is dominated by semi-skilled and unskilled personnel

8.     There is use of basically local resources

9.     It mainly produces for the local market

The role/contribution/impact of the informal sector in Uganda’s economy

It has both positive and negative impact and contributions:

The positive impact of the informal sector is as follows

·        It creates more employment opportunities

·        The informal sector creates jobs for many people since it is labour intensive. The employed people earn income and are able to sustain their livelihood.

·        If facilitates the utilization of resources (it improves resources utilization)

·        There is use of local raw materials in the informal sector e.g. scrap metals are being put to use, textile materials are being used by tailors to make clothes etc. this reduces resources wastage.

·        It provides a cheap training ground for local labour

·        As people work in the informal sector, they gradually learn new skills on the job. This leads to the development of local skills in the long run

·        There is production of wide variety goods

·        There are many activities in the informal sector which result into provision of a variety of goods to the public. This widens consumers’ choice hence improving the welfare of the people.

·        It promotes innovations and inventions i.e. it promotes technological development. In the long run, better and efficient techniques of production are developed in the informal sector which leads to technological developments

·        It promotes entrepreneurial skills. Through the informal sector, people learn how to bear risks and how to organize the available factors of production. This gives them the confidence to invest hence promoting entrepreneurship in the economy

·        To some extent, it contributes some revenue to government. The investors in the informal sector pay license fee to the government to be allowed to run their activities in a given area. They license fee to the government to be allowed to run their activities in a given area. They also pay some taxes to the government.

·        It enhances fairer distribution of income. As people earn income from the informal sector, the income gap among people involved in other sector sin gradually reduced.

·        It promotes commercialization of the economy. The informal sector produces goods which are sold in exchange for money, thereby expanding the commercial sector of the economy. This reduces the subsistence sector in Uganda

·        It leads to greater diversification of the economy. This arises from the many activities carried out in the informal sector

·        There is production of locally affordable goods. As people are able to afford the goods produced in the informal sector, their standard of living is gradually improved.

·        In increases the country’s GDP. More goods are produce in the informal sector and this increases the country’s nations income/GDP

·        There is a production in foreign exchange out flow. The informal sector produces goods that would have been imported, this cuts down on foreign exchange out flow

The negative impact or contribution of the informal sector in Uganda

·        It creates congestion in urban or sub urban areas. This breeds rural urban migrations and its associated problems such as high urban crime rate, open-urban unemployment etc

·        It has encouraged duplication of services/wasteful competition e.g. many people get involved in one line of activity within the informal sector but they all sere as small market. This creates wasteful competition which financially results into resource wastage.

·        It causes public revenue instabilities. The informal sector is not a reliable and significant source of revenue to government since the operators within the sector earn unstable incomes. In addition, the operations in the sector do not keep proper accounting records hence creating difficulties in tax assessment (many operators in the informal sector evade tax payment)

·        It hampers the development and maintenance of quality goods and services. This arises from the use of poor techniques of production in the informal sector. Such poor quality commodities are sold at low prices leading to low profits being earned by producers.

·        It has given rise to disguised unemployment and under employment.N.B. Disguised unemployment is one where labour force papers to be actively involved at work but its marginal product is either zero or negative. Under employment is a situation where labour/resources are under-utilized.

·        It is associated with high administration costs. Operators in the informal sector meet high expense like payment of license fee, high power cots, high transport costs etc and thee operational costs reduce their profits.

·        It causes pollution of the environment (for example metal scrap fabricators pollute the environment through poor disposal of metal cuttings. This is common in place like Katwe and Kisenyi where metal fabrication activities are largely carried out).

Relationship between the informal sector and small scale industries

·        The two sectors produce low output since they operate on small scale

·        The two sectors mainly use local resources

·        The two sector mainly use labour intensive techniques of production

·        The two sectors mainly require little capital for establishment and maintenance

·        The two sectors mainly produced consumer goods for the local market

·        There is low contribution to government revenue by the two sectors

·        The two sector are mainly urban to semi urban based

·        Private ownership of firms is dominant in the two sectors

·        There is limited formal book keeping in the two sectors

·        In both sectors, production units operate at excess capacity

·        On-job training is a common aspect in both sectors i.e. there is apprenticeship of workers who acquire skills on the job through gradual training by more skilled workers

Questions

1 a) What are the features of the informal sector in your country?

b) Suggest the measures which can be undertaken to improve the performance of the informal sector in Uganda.

2 a) Assess the impact of the informal sector in your country.

b) Explain the impact of the factors that limited the effective operation of the informal sector in your country.

The concept of dependence in Uganda’s economy

 Meaning of economic dependence

It is a situation in which an economy relies either mainly on a specific sector/sectors or on other countries for decisions and resources for her economic survival (development).

1.     Direct economic dependence

2.     External resource dependence

3.     Trade dependence

4.     Sectoral dependence

1.     Direct economic dependence

This involves reliance of an economy on economic and political decisions dictated by other countries or foreign funding bodies. For example some of the recently implemented policies in Uganda like privatization and cost sharing were given to Uganda as conditionality from World Bank and IMF in order for Uganda to get money from such bodies

2.     External resource dependence

This is where a country relies on foreign factor services such as foreign technology, foreign skills (expatriates) and foreign capital from other countries to supplement her productive resources. The foreign capital is in form of foreign investments and loans secured from other countries.

3.     Trade dependence

Uganda relies on international trade transaction by exporting primary products to other countries while importing products like petroleum, industrial machines, chemicals, vehicles, military equipment etc from other countries

4.     Sectoral dependence

This is the reliance of a country on one major sector or a few sectors for her economic survival. In Uganda, there is sector dependence on agriculture.

Demerits/negative implications of economic dependence in Uganda

N.B: No single country in the world desires to be dependent or to rely on other countries for its survival. For that reason, economic dependence is one of the macro-economic problems confronting Uganda’s economy. Since it is a problem to the economy, it generates negative implications only/undesirable outcomes i.e. economic dependence does not have the positive side. The negative side of economic dependence is explained below.

·        It creates Balance of payments problems. This arises from import dependence which leads to rising expenditure on buying goods from other countries. However, Uganda has low earnings form abroad and this creates balance of payments deficit.

·        It encourages laziness (It discourages local initiatives). The country always relies on foreign capital and technology. This skill the initiative to develop our local methods of production and the country continues to rely on other countries for such technology.

·        Low volumes of import due to low export earnings. Since earnings from exports are low, Uganda gets difficulties in financing her import expenditure especially importation of vital goods.

·        The economy is subjected to inappropriate and undesirable external decisions. Uganda relies on other countries for decisions which may not be desirable to the country e.g. foreign governments may dictate that priority should be given to industries yet hospitals and schools deserve to be given priority in funding. This frustrates the population.

·        It accelerates capital out flows/it promotes profit repatriation. Uganda relies on foreign investors who bring in capital and invest in the various sectors of the economy. However, these investors repatriate profits to their mother countries and this slow down development process in Uganda.

·        It worsens the external debt burden. This s caused by reliance on external resources in form of loans got from other countries, the World Bank (IBRD) and IMF. These debts accumulate and must be paid back with interest. The country has to sacrifice a lot to pay back these debts by foregoing the development of some sectors.

·        It results in to fluctuation of prices of agricultural exports. This arises from dependence on exportation of a few agricultural products whose prices are unstable on the world market. These unstable export prices frustrate the exporters due to fluctuating incomes

·        It results into underutilization of natural resources. There is reliance on external resources/goods which render exploitation of natural local resources to be neglected. For example Uganda’s dependence on other countries for importation of oil/petrol may cause underutilization of local oil deposits in western Uganda

·        It worsens causes technological unemployment. This arises from reliance on imported capital in form of modern machines which replace manual labour in industries. The number of manual workers is reduced and this brings about technological unemployment.

·        Ti breeds political domination of Uganda by foreigners. Direct economic dependence involves adopting political decisions made by foreign countries. This cause loss of political independence in Uganda since major political decision is got from other countries and donor agencies.

·        It leads to economic domination of Uganda by foreigners. Foreign countries on which Uganda relies for external resources like technology and skills dictate economic policies such as cost – sharing in public universities and hospitals. Such policies must be implemented to secure external funding hence making Uganda to take on economic policies designed by foreigners.

·        It leads to social cultural domination/cultural erosion

·        It discourages domestic savings and investment. Since Ugandans is relying on buying goods and services from other countries, the capacity to save and invest is reduced.

Reasons why economic dependence is undesirable in Uganda

·        It encourages high capital outflow in form of profit repatriation by foreign investors and the servicing of external debts by the government

·        It leads to heavy debt servicing burden on the citizens because of reliance on foreign capital which leads to increase in taxes on citizens to pay back the debts

·        It encourage resource underutilization due to the high reliance on foreign resources

·        It discourages domestic savings and investments and people continuously expect foreign resources as the engine of economic growth.

·        Leads to loss of local initiative and increased laziness among the citizens because they hope to get foreign assistance instead of working heard.

·        Stunts local technological development. This is because reliance on foreign technology leads to limited innovations and creativity in the economy

·        Leads to economic dominance by foreigners due to increased direct economic dependence where there is high foreign participation in the supply of capital

·        Leads to balance of payment problems due to reliance on expensive imported manufactured goods.

·        Leads to unfavourable terms of trade due to exportation of limited and poor quality goods

·        Compromises political sovereignty because the political decision are influenced by the foreigners

·        Leads to price and income instabilities in the foreign sector due to dependence on few primary exports. This affects the import capacity and planning process in the economy.

·        Leads to unfavourable preconditions/donor decision. This is because the economy is forced to tolerate some of the undesirable conditionalities of foreign donors like retrenchment and privatization.

Account for the high level of economic dependence in your country

·        Poor education system resulting in high levels of unskilled and semi-skilled labour. This encourages high dependence on foreign skilled labour.

·        Poor infrastructure. There is high dependence on foreign capital by the government to expand the infrastructure.

·        Occurrence of natural hazards resulting in high dependence on relief aid from world food programme and Red Cross.

·        Underdeveloped technology. There is use of poor or rudimentary technology resulting into technological dependence.

·        Low income. This leads to increased government borrowing and increase in economic dependence so s to overcome the high level of poverty.

·        Poor industrial sector leading to dependence and importation of expensive manufactured goods.

·        Low entrepreneurial ability. This causes high dependence on foreign investment.

·        Low tax base and tax revenue. This leads to high reliance of foreign capital.

·        Exportation of a limited variety of products which are basically of poor quality leading to low foreign exchange encouraging and therefore need for foreign resources.

·        High population growth rate in the country resulting into low savings and low investment. This call for foreign resource sot improves the welfare of the local people.

Explain the ways of reducing economic dependence in your country.

·        Encouraging economic diversification so as to reduce sector all dependence for example development of industry, tourism, banking and the service sector.

·        Training of local labour so as to increase labour skills to reduce reliance on foreign skilled labour.

·        Promoting and developing of local technology by encouraging innovations and creativity in the economy.

·        Improving on the tax base and tax administration so as to increase tax revenue which limits dependence on foreign capital.

·        Controlling population growth rate so as to expand local savings and local investment as opposed to foreign investment.

·        Undertaking proper planning by government and allocation of the economic resources to productive activities that can generate more income.

·        Fighting against corruption and mismanagement of the limited funds so as to limit dependence on foreign capital.

·        Maintaining political stability so as to minimize expenditure on imported military equipment

·        Encouraging export promotion so as to increase foreign exchange earnings.

·        Improving on the investment climate so as to reduce the cost of production, this can lead to increase in the amount of goods and services produced so that dependence on imported goods is reduced.

·        Promoting import substitution industrial development strategy so that the expensive consumer goods formerly imported can be produced locally.

Suggest measures to reduce economic dependence in Uganda

·        Diversification of the economy in order to reduce dependence agriculture.

·        Promote import substitution strategy of industrialization.

·        Training of local labour to reduce dependence of foreign manpower.

·        Implement workable import restrictions e.g. total ban, import quotas.

·        Provision of investment incentives to local producers.

·        Develop local technology.

·        Encourage local savings and investment.

·        Improve the political climate.

·        Carry out proper and effective planning.

·        Diversification of markets (in order to reduce dependence on a few export markets).

Question

1 (a) Explain the forms of economic dependence in your country.

(b) Suggest measures that should be taken to reduce economic dependence in your country.

N.B: The meaning of economic inter-dependence:

This refers to a situation in which two or more economies rely on each other for mutual benefit of all. This is mainly achieved when countries agree to integrated their economies.

The structure of Uganda’s imports and exports: foreign trade sector features of import and export trade in Uganda; a summary 

Implications of the features of import and export trade in Uganda positive implications

·        Foreign exchange earnings. This is got from the export of agricultural products.

·        Leads to economic growth. There is widened market for locally produced goods in other countries, this increase output thereby contributing to economic growth

·        Promote international friendship and trade (Co-operation). There is improvement in international relations because of the need to import form other countries as well as exporting locally produced goods to other countries

·        Leads to utilization of idle resources. This is due to utilization of the land resources to produce more agricultural products for export.

·        Provision of revenue to the government. Revenue is generated by the government through taxing some imports and export.

·        Provides employment opportunities. there is provision of more employment opportunities in the import and export trade sector for example people involved in clearing goods and forwarding, insurers, transporters)

·        Promotes innovations and inventions in order to compete in the global market. The importation of industrial machines leads to transfer of better technology from other countries, this facilitates increased output as well as improving the quality of goods in Uganda.

·        Widens consumer choices due to importation of a variety of goods. High variety of goods imported leads to a wide consumer choice for goods and services in the country hence better standard of living.

·        Fills the technological gap/resource gap due to importation of intermediate products and capital goods. It encourages technological development and technology transfer because of high importance of capital goods.

·        Fills the manpower gap. It supplements the locally available skilled labour due to the importation of high level of foreign skilled manpower.

·        Improved quality of output due to competition with high quality imports. The high quality manufactured imports help to improve the standards of living of the citizens

·        Increased efficiency of local firms due to competition from better quality imports.

Negative implications

·        Leads to poor terms of trade because of exporting mostly poor quality, unprocessed primary products that fetch low prices and importing expensive manufactured goods.

·        Leads to unfavourable balance of payments position due to limited variety of exports and high variety of imported goods.

·        Vulnerability to foreign domination due to geographical concentration of trade

·        Underutilization of some resources due to narrow range of exports

·        High level of unemployment due to collapse of local industries as a result of competition from high quality imports

·        Dependence on some countries, for example, for markets, supplies etc. it leads to trade dependence where by Uganda relies on a few export markets in the developed counties. The developed countries in most cases dictate prices at which they buy Uganda’s exports

·        High level of capital/income outflow due to importation of intermediate goods

·        Low foreign exchange earnings due to low price, low quality, low quantity and limited variety of exports

·        Collapse of local firms due to competition from imports of high quality.

·        Leads to income inequality. Falling export prices of agricultural commodities lead to declining incomes of farmers and exporters, this again worsens income inequalities in Uganda.

·        Fluctuations in foreign exchange earnings due to fluctuations in prices of exports.

Measures aimed at improving the structure of the import-export trade in Uganda.

·        Establishing import substitution industries with a view of creating self-sufficiency and saving the scarce foreign exchange

·        Promoting and supporting export promotion industries which produce for the foreign market. Emphasis should be put on those industries that add value to the exports

·        Improving the basic infrastructure such as roads and communication network

·        Widening of foreign markets through regional economic integrations like COMESA, EA customs union.

·        Attaining a stronger bargaining power on the international market. The aim is to get better improving the stabilize incomes from agricultural exports

·        Improving the invisible export sector for example, by promoting tourism, export of Hydroelectric Power (H.E.P) and export of insurance services. The aim is to create diversification of export products.

Suggested measures to increase export earnings in Uganda

·        Diversify export products. This can be achieved through production of a variety of products for the export market instead of relying on the traditional agricultural products

·        Non-traditional products like flowers, horticultural products and vanilla among others can be exported and this can increase export earnings

·        Diversify export markets. Uganda should sell her products to a wider market to increase the volume of exports. The government can look for new markets in Asia, Europe and Africa. This can increase the country’s export earnings

·        Join regional integration to widen market for exports. This can enable Ugandan producers sell off their products in the regional market and earn more revenue from the exports

·        Increase volume of exports/produce more for export. Uganda can increase her export earnings through production of more goods for export to other countries. The increase in volume of exports can enable her accumulate more earnings

·        Strengthen commodity agreements. Uganda can be an active member in international commodity agreements such as the international coffee agreement. This can enable her bargain for higher/better prices in the international market. This can enable her increase her export earnings.

·        Allow the local currency to depreciate. The automatic fall in the value of local currency can increase the volume of exports. This is because the exports can ebb considered to be cheaper on the world market. This can increase export earnings.

·        Process primary products to add value. The government can set up agro-based processing industries to add value to exports. This can enable Uganda to sell her products at higher prices abroad. This can lead to increase in export earnings

·        Lower costs of production. The government can subsidize local producers so that they are able to produce more products at a minimal cost for sale to foreign markets. This can increase the volume of exports and can also increase the export earnings

·        Intensify publicity of Uganda’s products in the foreign markets. The government through the Uganda export promotion council and the ministry of trade should embark on a campaign to advertise our products in the foreign market to make them known to foreign buyers. This can increase the volume of goods sold abroad hence increase export earnings.

·        Campaign for the removal of trade barriers in export markets such as removal of total ban, quotas, administrative controls etc. the government can negotiate with other trade partners to remove unnecessary restrictions on trade in goods form Uganda. This can increase the s of goods sold by Uganda to foreign markets hence increase her exports earnings.

·        Improve quality of the exports. Exporters can be encouraged to improve on the quality of their products through better sanitary standards, better packaging and better branding. This can enable exporters to sell their goods at higher prices and thus increase export earnings.

Questions

Differentiate between foreign resource dependence and direct economic dependence.

What are the demerits of economic dependence of your country on the More Developed Countries (MDCs)?

Examine the impactof Uganda’s import-export sector on the economy. 

THE STRUCTURE OF UGANDA’S ECONOMY

An economy is the material resources and administration of a country. It is a system or vehicle through which the resources of a country are utilized to achieve the development goals of the country.

By structure of an economy, we mean the composition of the salient or basic features of an economy.

SALIENT FEATURES OF UGANDA’S ECONOMY

1.     It is dominated by the agricultural sector. Majority of Uganda’s population is employed in the agricultural sector. It is also the major source of food and foreign exchange earner for the country.

2.     It has a small but growing industrial sector. Most of the industries are small and mainly concentrated in urban or semi-urban areas. The few large industries are owned by foreigners. The industrial sector contributes less than 15% of GDP

3.     It is a dual economy. A dual economy is one where there is co-existence of two contrasting sectors one being superior, modern and desirable and the other being inferior, traditional, backward and undesirable. Uganda is technologically, socially, economically and regionally dualistic in nature.

4.     High level of excess capacity existing in many sectors. Many sectors produce at less than optimal capacity due to inadequate technical knowledge and capital.

5.     It is a mixed economy. The ownership of resources, making of economic decisions and allocation of resources are undertaken by both the government and the private sector.

6.     Highly dependent economy. Uganda heavily relies on foreign resources and foreign decision making for her survival and development.

7.     High population growth rate. The population growth rate is about 3.4% which is very high due to high birth rate, high fertility rate and declining death rate.

8.     Widespread unemployment and underemployment. This is due to abundant supply of unskilled and semi-skilled labour force in the country.

9.     Underdeveloped infrastructure. Both the social and economic infrastructure in Uganda is still underdeveloped.

10. It is an open economy. The country highly depends on foreign trade in order to promote her development.

11. High level of illiteracy characterized by abundant supply of unskilled labour. This is due to low levels of education.

12. The employment pattern is such that the majority of labour force is in the primary sector especially the agriculture sector. Few Ugandans are engaged in manufacturing and very few of the labour force is found in the tertiary sector (service industry).

IMPLICATIONS OF THE STRUCTURE OF UGANDA’S ECONOMY

1.     Unfavourable balance of payments position (B.O.P). This is mainly because of exporting agricultural products that fetch low prices therefore generating low foreign exchange earnings and importing expensive manufactured goods which increases import expenditure hence causing a B.O.P deficit.

2.     Low personal income levels. This is due to the high levels of unemployment and the predominance of subsistence agriculture where many people receive no income.

3.     Production of poor quality goods. This is because of using poor methods of production and unskilled labour.

4.     Low levels of technological advancement. This is caused by technological dualism in Uganda. There is still predominance of rudimentary/ backward skills of production in many parts of the country because of conservatism among people and limited capital.

5.     Having predominantly unskilled labour. This arises from the high levels of illiteracy and as a result of many people failing to acquire the necessary skills and training needed in the labour market.

6.     Low levels of government revenue from taxes. This arises from the small industrial sector, high levels of unemployment and a big informal sector which create a narrow tax base in Uganda.

7.     Low savings, low investments and low levels of capital accumulation. This arises from the high population growth rate which increases the dependence burden on the working population such that most of the income is for consumption. This gives rise to low savings among the working population, low levels of investments and finally low levels of capital accumulation.

8.     Acute income inequalities arise. This is due to the high levels of unemployment where many people are not earning income while the few who are employed are earning high income.

9.     Poor terms of trade. Import prices of manufactured goods always rise faster than the export prices of agricultural products. This gives rise to poor terms of trade in Uganda.

10. Foreign domination of the economy. This arises from reliance on decisions made by other countries as well as reliance on foreign skilled labour, foreign technology and capital.

11. Low labour productivity. This arises from labour having low skills as a result of high levels of illiteracy among people.

12. Low levels of Gross Domestic Product (GDP). This arises from production at excess capacity where some resources remain underutilized and less goods and services are produced in Uganda.

MEASURES THAT CAN BE TAKEN TO IMPROVE UGANDA’S ECONOMY

1.     Develop infrastructure. The government can construct and rehabilitate the infrastructure especially the road network to enable movement of raw materials to production centres and finished goods to market areas. This can encourage more investment in the economy.

2.     Widen market both local and foreign. The government can expand the market through joining regional economic integration like east African community, COMESA, etc. This can encourage more investments in the country because of the assured market for goods.

3.     Provide affordable capital for investment. The government can offer loans at low interest rate for investment. This can help to expand the capital base of the investors and result into increase in output.

4.     Stabilize the political climate. The government can ensure relative peace in different parts of the country to give confidence to investors thereby creating an increase in the level of production.

5.     Provide investment incentive like tax holidays, allocation of land for industries etc. This can encourage investors to set up more production units in the country.

6.     Control population growth rates. This can be done through promoting family planning in order to reduce the dependence burden on the working population. This can increase the level of savings and investments in the country.

7.     Improve the techniques of production through research. The government can encourage technological development and transfer as a way of promoting better techniques of production that can cause increase in the volume of output and improvement in the quality of output.

8.     Improve the land tenure system. The government can carry out land reforms to give investors chance to buy land on which to set up production units.

9.     Modernize agriculture. The can encourage the transformation of agriculture from subsistence production to commercial oriented production. This can increase the supply of raw materials and food in the country.

10. Diversify the economy. The government can encourage the starting up of many economic activities in the country in order to reduce dependence on agriculture e.g. promote industrialization.

11. Provide labour with skills through training. This can enable labour to acquire the necessary skills for production.

12. Improve entrepreneurship skills. This can help in ensuring proper organization of factors of production in order to increase output.

THE AGRICULTURAL SECTOR

Agriculture consists of crop husbandry, forestry, fishing and livestock keeping. It is the backbone of Uganda’s economy. Over 75% of the people are dependent on agricultural activities for their livelihood.

FEATURES OF UGANDA’S AGRICULTURAL SECTOR

1.     Depend on family labour.

2.     Mainly rural based.

3.     Mainly small scale i.e. farming is mainly carried out on a small scale.

4.     Mainly labour intensive or mainly uses simple tools or rudimentary technology.

5.     Mainly dependent on nature.

6.     Mainly low quality output of output.

7.     Dominated by subsistence production or production is largely for subsistence.

8.     Uses mainly unskilled labour and semi-skilled labour.

9.     Production is mainly for the local market.

10. Quantity of output is generally low. The sector mainly produces food stuffs or there is a narrow range of cash crops. There is a narrow range of products for export.

IMPLICATIONS OF THE STRUCTURE OF THE AGRICULTURAL SECTOR

POSITIVE IMPLICATIONS

1.     Provides employment opportunities. Agriculture provides employment opportunities to many people either directly or indirectly due to being mainly labour intensive.

2.     Reduces dependence on food imports. This is because the sector mainly produces foodstuffs for the rural and urban population in the country.

3.     Promotes the growth of the industrial sector. This is because the sector is the major supplier of raw materials to agro processing industries.

4.     Source of foreign exchange earnings due to exportation of some of the food crops and cash crops. This helps to improve on the balance of payments position of the country.

5.     Provision of revenue to the government. This is in form of market dues and taxes imposed on farmers carrying out commercial production.

6.      Encourages the utilization of the land resources especially in the rural areas where agricultural production is dominant.

7.     Promotes economic growth. The production of food crops and cash crops leads to increase in output from the agricultural sector thereby promoting economic growth.

8.     Promotes development of infrastructure especially the road network in rural areas. This is to enable easy transportation of agricultural output from the production areas to the market centres.

9.     Provides market for the output of the industrial sector. The agricultural sector avails market to industrial output e.g. fertilizers, tractors, manufactured goods required by the workers, etc.

NEGATIVE IMPLICATIONS

1.     Balance of payment problems or unfavourable B.O.P. This arises from having a narrow range of exports from the sector hence low export earnings for Uganda.

2.     Fluctuating prices of agricultural products. This arises from dependence on nature which causes instability in output and prices.

3.     There is seasonal unemployment. This arises from dependence on nature whereby due to changes in climate, farmers are unemployed between harvesting and planting seasons.

4.     Unfavourable terms of trade (T.O.T). This arises from the sale of low quality agricultural exports from Uganda at low prices compared to importation of expensive goods. This results into poor terms of trade.

5.     Persistent high poverty levels in Uganda due to the dominance of subsistence farming where farmers produce for own consumption and have little or nothing for sale.

6.     Income inequalities are worsened. The farmers continue earning less than the industrial workers due to subsistence production and this worsens income differences in Uganda.

7.     Limited markets for the agricultural products on the world market. This arises due to the poor quality goods from the agricultural sector that cannot compete on the world market.

8.     Unstable or fluctuating incomes in the agricultural sector. This arises from dependence on nature which causes fluctuating production levels. This gives rise to unstable incomes to farmers.

9.     Limited technological growth in the sector. This is due to use of simple tools in farming e.g. pangs, hand hoes, etc. this results into low levels of innovations.

10. Low government revenue is generated from the agricultural sector. This arises from the sector being mainly subsistence and organized on a small scale. Subsistence production limits the size of tax revenue collected by government from the agricultural sector.

11. Accelerates or exacerbates economic dependence. This is due to the narrow range of exports from the agricultural sector and as such it contributes less foreign exchange to the government. The country has to rely on other countries to fill this foreign exchange gap.

12. Structural inflation may arise. This is due to dependence on nature for production that may cause shortages in the supply of agricultural output in times of bad weather.

REASONS FOR CHAGING THE STRUCTURE OF THE AGRICUTURAL SECTOR IN UGANDA

1.     To reduce seasonal unemployment by avoiding over dependence on nature. This is done through encouraging agricultural modernization e.g. irrigation that ensures continuity in production thereby expanding employment opportunities.

2.     To widen the range of products for exports. This is achieved through encouraging agricultural diversification that increases on the range of products for exports e.g. exportation of flowers, avocado.

3.     To facilitate increase in output hence economic growth. This is achieved through encouraging agriculture research that avails high yielding varieties like colonial coffee thereby increasing on the quantity of output from the agricultural sector.

4.     To reduce income inequalities that is common due to subsistence production. This is achieved through encouraging commercial production that increases the producer’s income because most of the output is put on the market.

5.     To increase foreign exchange earnings. This is achieved through promoting agricultural diversification and the use of improved techniques of production that results in increase in the quantity of output for foreign markets. This leads to increase in export earnings thereby improving the balance of payment of payment position.

6.     To provide more revenue to the government. This is achieved through expanding the scale of production by way of encouraging commercialization of agriculture. This enables the government to charge taxes on commercial agriculture in order to raise more revenue.

7.     To promote the growth of the industrial sector by providing a wide range of raw materials. This is achieved through promoting agricultural diversification that avails a variety of raw materials to the agro based industries.

8.     To release labour to other sectors of the economy. This is achieved through mechanization of agriculture whereby machines replace labour in production. This encourages the surplus labour to look for employment opportunities in other sectors e.g. the informal sector, tourism sector, industrial sector, etc.

9.     To stabilize agricultural output by making it less vulnerable to natural condition. This is achieved through promoting irrigation that enables continuity in agricultural production.

10. To avoid/ control structural inflation. This is achieved through increasing the quantity of output from the agricultural sector by way of encouraging mechanization, diversification and agriculture research. This results in stable prices for the agriculture products.

11. To improve the terms of terms. This is achieved through encouraging agricultural research that results in production of high quality agricultural products for the export market thereby fetching high prices on the world market compared to the prices of imports.

12. To monetize the economy by reducing the dominance of subsistence production where barter exchange is encouraged. This is achieved through encouraging commercial production which facilitates the growth of the commercial sector.

13. To promote food security and ensure a healthy population. This is achieved through providing better inputs to farmers thereby encouraging them to grow a variety of food crops for food consumption.