Falling household demand and weak growth rates in the industrial and services sectors are hampering the Uganda government’s push to achieve 6-7 per cent economic growth this year.

Even as the Finance Ministry continues to project a rebound, Uganda’s economy is walking a tightrope, with a sharp growth in the current account deficit recorded in the first six months of 2013.

Data compiled by the Bank of Uganda shows household consumption fell by 1.4 per cent in 2012/13, and is projected to rise marginally in the coming year as low salaries and wages continue to take their toll on breadwinners and their dependants.

Public wages are forecast to drop by about two per cent in the financial year 2013/14, a worrying sign for businesses dealing in consumer goods and non-essential items like building materials, alcohol and cosmetics.

Spillover effects from these gloomy indicators have also been felt in the half-year earnings of some listed companies, and sales volumes of large manufacturers dealing in construction materials and beer, among others.

For instance, growth in the industrial sector fell by 0.1 per cent in the first quarter of 2012/13 and recovered slightly to 0.9 per cent in the second quarter, BoU data indicates. Growth in the services sector rose by five per cent in the first quarter of 2012/13, but slowed to 1.5 per cent in the subsequent quarter.

Whereas government officials have stuck to bullish growth forecasts of 5-6 per cent for this year, local economists have cited new inflationary risks tied to resurgent food prices caused by crop failures experienced between January and June. Consequently, inflation rose to 5.1 per cent in July, up from 3.6 per cent recorded in June.

“The remaining four months are too short to reverse the sad state of the economy. High lending rates have persisted for the past six months, but significant crop failure in some parts of the country could spur inflation and constrain consumer demand further. I lost almost 15 acres of maize due to dry conditions, and the impact of such losses is yet to reach its peak. Under such tough conditions, economic growth could gross around 3.4 per cent this year, instead of 5.5 per cent,” said Lawrence Othieno, a research fellow at the Economic Policy Research Centre (EPRC) based at Makerere University.

Though the Uganda Securities Exchange’s All Share Index rose sharply from 1,226.27 points in January to 1,481.38 points at the end of June, half-year results from prominent listed companies tell a contrasting story of falling profits and flat growth in revenues.

Stanbic Bank Uganda’s half-year results reflected the impact of the economic downturn on the country’s most profitable sector. Profit after tax fell to Ush57.32 billion ($22.09 million) at the end of June 2013, compared with Ush58.3 billion ($23.5 million) recorded in June 2012.

Interest incomes declined by 27.6 per cent to Ush137.89 billion ($53.1 million) at the end of June 2013, compared with Ush190.42 billion ($29.01 million) during the same period last year, amid falling credit demand.

“The relatively high interest rates and diminished demand for credit directly eroded growth in interest incomes. Strong growth witnessed during the same period last year proved unsustainable and forced us to ramp up revenue streams for non-interest incomes so as to compensate for lost revenues in the lending book. Looking at our business borrowers, service firms appear to be coping better under difficult conditions and may recover faster than the industrial enterprises,” said Phillip Odera, Stanbic’s managing director.

Its listed peer, DFCU Bank, also experienced flat growth in key indicators. Net income grew to Ush58.2 billion ($22.5 million) at the end of June 2013, compared with Ush50.4 billion ($19.5 million) at the end of June 2012. Profit after tax rose from Ush15.9 billion ($6.2 million) to Ush18.6 billion ($7.2 million) during the same period.

However, both Stanbic and DFCU’s share prices remained stable at Ush25 ($0.009) and Ush1,035 ($0.4) mid last week, reflecting signs of investor apathy in their performance outlook.

While British American Tobacco Uganda’s total revenues rose by 35 per cent to Ush168.9 billion ($65.3 million) at the end of June 2013, compared with the Ush124.8 billion ($48.2 million) at the end of June 2012, profit after tax declined by 40 per cent to Ush4.9 billion ($1.9 million) during the same period. This partly demonstrated the negative impact of the surging sales of illicit cigarettes.

(Read: BAT Uganda moves processing of leaf to Kenya)
Its share priced remained unchanged at Ush2,600 ($1) after the announcement of the results, due to lack of trading activity on the counter.

“The political instability in South Sudan has slowed demand for our exports in the past six months. We believe the situation will improve in the remaining months of the year in light of stabilising political conditions in South Sudan, and further declines in lending rates,” said Sikander Lalani, group CEO at Roofings Group, a manufacturer of iron sheets and building bars.

By Bernard Busuulwa and Isaac Khisa