Uganda’s aspirations for economic growth through exports and industrialization are being hindered by a global financial system that favors wealthier nations.
This predatory structure continues to undermine the country’s efforts to diversify and grow its trade, leaving Uganda at a disadvantage on the international stage.
According to monitor.co.ug, for far too long now, Uganda’s economy has been paying the price for being “rendered a squad player” in the global financial and economic systems despite being naturally endowed with valuable commodities, raw materials and sought after natural resources, Monitor can reveal.
This is because the global financial architecture (GFA), currently running or dictating the global economy, is designed to protect the stability and functionality of the global financial and monetary systems of developed economies at the expense of developing nations like Uganda and her peers in the region and the continent at large.
According to Mr Rangarirai Machemedze, a global economic policy expert, GFA, a governance system designed in 1945, wasn’t meant to advance economic agenda of sub-Saharan countries like Uganda because it is deeply rooted in the mid-20th century ideologies skewed in favour for the Global North countries – now the wealthiest and most developed economies in the World.
This became evident In the course of this special project after Monitor discovered that the Ugandan government, for nearly 40 years now, since embracing structural adjustment programs (SAPs), a brain child of the International Monetary Fund (IMF)/ World Bank (WB), also key architects of the global financial system, hasn’t transformed the country into middle income status yet.
As per WB’s classification, Uganda is categorized as low-income status where an average earnings per citizen is in the range of $840 or Shs 3million annually. And this is despite nearly four decades of implementing IMF/WB economic policies intended to make the country more competitive and at the same time reduce its economic dependence.
READ: Africa: Uganda Expands Trade with Nigeria, Exporting Dairy, Coffee, and Pharmaceuticals
On the contrary Uganda’s economy continues to deal with undue pressures exerted by the Bretton Woods (IMF/WB) Institutions influence over policies that affect economic stability, such as exchange rates, interest rates, and capital flows.
This was before issuing conditions that saw Uganda devalue her currency before privatizing industries and parastatals. Then embarked on retrenchment of government employees with a view to reduce spending. And then blindly embraced a liberalized economy with the government having little or no control of the affairs of the economy.
All these conditions, according to the former Uganda’s Ambassador to the United Nations Office, World Trade Organization and also a specialist in multilateral diplomacy and trade negotiations “was a bad deal that resulted in making life harder for developing countries in the Global South like Uganda and her peers across Africa”.
This is because agreement pushed down the government throat was not well thought out as it didn’t consider Uganda’s unique context, an omission that IMF/WB appears to now own up.
One of the significant aspects of this structure – GFA, unearthed in the course of the Monitor investigations is trade dependence on primary commodities, which are subject to volatile global markets.
Uganda heavily relies on agricultural exports such as coffee and tea, which face fluctuating prices determined by international commodity exchange associations often domiciled in the Global North (wealthy economies) — also chief beneficiaries of GFA.
For example, the international coffee council which plays a key role in setting coffee prices is based in London, including the Swiss Coffee Trade Association (SCTA) which handles a volume of more than 50 per cent of global coffee exports.
This dependence not only makes Uganda’s economy vulnerable to global economic shocks but also perpetuates a cycle where low-value exports, particularly in the form of unprocessed commodities, fail to generate sufficient revenue for reinvestment into higher-value industries.
Consequently, Uganda remains stuck in a low-growth trap, reliant on importing finished goods from developed economies at disproportionately higher costs.
This explains why Uganda continues to get raw deal from her exports such as coffee despite producing the most unique coffee bean globally. The same applies to all other cash crops and minerals sourced in the country.
This is so because Uganda, despite being the producer of a commodity consumed globally, have no say in determining the final price, thanks to the global economy set up meant to reward mostly the Global North at the expense of Global South countries like Uganda who are the primary producers of raw materials and exporters of either raw or semi processed commodities.
Monitor also established that the World Trade system has positioned African countries such as Uganda as suppliers of raw materials, perpetuating a dependency on primary commodity export with very minimal value addition. Ms Jane Nalunga, an expert on multilateral trade and agreements, concurs with this findings, saying as a result, “Uganda and many African countries still grapple with a high trade deficit, externalization of our capital, and indebtedness.”
She continued: “There is no doubt that the international trade system has worsened the commodity dependence, preventing meaningful trade opportunities for Uganda and her peers in the continent from materializing into something rewarding and capable of turning the fortune of the economy around as is the case in the developed economies in the Global North.”
For instance, according to the Bank of Uganda and Civil Society Budget Advocacy Group (CSBAG) end of year report, Uganda reduced its trade deficit from $ 3.1 million in 2023 to $ 2.9 million as of October 2024. Worth noting is that the reason behind this has mainly been favourable weather conditions and not the complex financial and economic global structures designed to undercut raw material producing countries like Uganda.
In his expert analysis, titled: Built for the Sharks: How the global economic structure is undermining Uganda’s trade and investment efforts, Mr Africa Kiiza, PhD Fellow, Faculty of Business, Economics and Social Sciences; Universität Hamburg, wrote: “The global economic structure has long been shaped by a set of institutional arrangements, financial systems, and trade rules that privilege developed economies while marginalizing those in the Global South.
“For countries like Uganda and others in the East African Community, these structural imbalances perpetuate economic dependency, restrict policy autonomy, and hinder meaningful economic growth,” Mr Kiiza who is also an accomplished researcher, further noted in his analysis.
Also, Uganda, just like most African countries, faces significant trade barriers due to absence of backward and forward linkages between the agricultural sector and Industrialization programs, limiting the country’s ability to industrialize in a coordinated manner.
With forward linkages, production of raw material like cotton should result in a vibrant textile industry. In other words, availability of raw material should contribute to the emergence of other new industries. As for backward linkage, a product like coffee should induce a vibrant value chain of its own including supply industries.
But what Monitor found out is that a lot of time has been dedicated to diversifying raw materials for export rather than deliberately shifting towards export of value added products. President Museveni has been at both ends of this discussion. He is in favour of diversification and also an advocate of value addition.
The move towards import substitution, however, is progressing at a snail pace due to high cost of finance, reliance on foreign technology and dependence on foreign direct investment – all of which make up a chapter in the global financial architecture and economic structure play book.
“This is further compounded by restrictive trade policies which impede access to global markets for African products perpetuating trade imbalances, stifling Industrial growth and hindering the development of value chains that could boost intra – African trade,” reveals Ms Nalunga who is also an author of several policy reports as well as an astute trade and investment specialist.
Rearing ugly heads…
Just like the IMF/WB, the World Trade Organization (WTO), a multilateral institution whose main purpose is to regulate international trade, is increasingly becoming an extension of the developed economies at the expense of the developing countries like Uganda. Distinguished scholars, researchers, diplomats and analysts interviewed for this article all concur that it is no longer a secret that WTO has been doing the bidding for developed economies.
This is evident by the absence of a competition agreement at WTO level, creating an uneven playing field, allowing developed industrialized economies to dominate global markets while undermining the industrialization efforts of developing countries.
“This imbalance is exacerbated by the influx of heavily subsidised products from developed nations which outcompete local industries in developing nations, stifling growth, innovation and economic diversification.
“This is further reinforced by the Economic Partnership Agreements signed between European Union and African, Caribbean and Pacific countries that call for liberation of trade with the EU by up to 80 percent, restricting application of export taxes undermining value addition efforts of countries like Uganda.
“As a result, developing economies remain trapped in cycles of dependence on raw material exports limiting their ability to build resilient and self-sustain economies,” reads a report titled: the need to reform the global financial and economic architecture.
The report authored by Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI – Uganda), African Forum and Network on Debt and Development (AFRODAD), Tax Justice Network – Africa, and stop the Bleeding campaign further disclosed that Multinational Corporations (MNCs) have increasingly leveraged trade agreements to prioritize their profits, often at the expense of host countries economic and social interests.
Revenue gap
Also, the report by continental experts and CSOs, noted that Uganda, just like in many African countries have established Economic Processing Zones (EPZs)which often times provide significant concessions including tax exemption and holidays, free industrial land, subsidized electricity, and the ability of foreign investors to repatriate profits in hard currency. For the case of Uganda, given the liberalisation policy, foreign investors can repatriate up to 100 percent profit as and when they deem fit.
“While this is intended to stimulate economic growth, such policies frequently result in minimal returns for host nations, perpetuating dependency and limiting the potential for sustainable development,” says Mr Julius Mukunda, an economist and a policy analyst. The aforementioned report corroborates Mr Mukunda’s assertion.
This has further been corroborated by the Auditor General’s latest report, revealing that the benefits of tax exemptions and incentives are not matching the objectives of the initiative.
The Value for Money Audit Report on the Management of Tax Incentives and Expenditure in Uganda done by the Auditor General for Ministry of Finance, Planning and Economic Development, found out that although the tax incentives and exemptions are expected to free up the capital so as to enable companies employ more staff, this key objective hasn’t so far been achieved.
According to the report, a total of 22 companies out of the 36 obtained incentives, but were performing below the 50 per cent threshold in terms of achieving “the desired employment levels”.
The December 2023 report further discloses the government continues to take the cost of tax waivers, advising the Ministry of Finance to limit the number of tax exemptions to businesses that qualify under the Tax Laws. The then Auditor General, Mr John Muwanga, noted in the report that over the period under review, taxes waived by the government amounted to Shs1.4 Trillion.
