The ongoing surge in commodity prices in Uganda may not let up in the short term as contributing factors like the COVID-19 pandemic and the Russia-Ukraine conflict still persist, economists have said.
Fred Muhumuza, an economic analyst and lecturer at Uganda’s Makerere University, told SAT in a recent interview that the east African country in the short run may have to brace itself for hard times until the causes, mainly external ones, subside.
Over the past several weeks, fuel prices in the country have skyrocketed with some filling pumps running dry, Muhumuza said, attributing this partly to the Western sanctions on Russia over its special military operation in Ukraine.
He said that countries, especially in Europe, which used to rely on Russian petroleum and gas, have resorted to other markets for fossil fuels, a move that has pushed up the demand and thus increased prices.
“Oil is bought in the futures market. The oil bought now will be used in August and September. The price (increase) may persist longer,” he said.
The already-strained global supply chains caused by the pandemic have also compounded the situation, said Muhumuza.
Several COVID-19 controls like lockdowns and stoppages have led to the closure of factories, warehouses and shipping ports, which in turn have triggered shortages of raw materials, finished goods and services, Muhumuza said.
“In Uganda, it is more of the disruption in the availability of goods and services. The logistical supply chains globally have yet to recover. You cannot get all the items you want at the same time, and when they come in, they are coming in at a higher price,” he said.
The COVID-19 pandemic continues to cause uncertainty, said Muhumuza, noting that the pandemic has already had devastating economic effects on developing countries and that the ongoing pandemic is clouding forecasts.
The removal of some “COVID-19 restrictions has supported some improvement in consumer demand, but rising prices seem to also have restrained demand. Higher prices were largely a function of increasing input costs, with companies increasing their selling prices for the seventh consecutive month,” said Ferishka Bharuth, a local economist.
Uganda’s Ministry of Health recently announced that it was integrating COVID-19 vaccinations into routine immunizations in most of the health facilities in the country. Previously, there were special COVID-19 vaccination campaigns across the country following an increase in the number of cases.
What’s more, Kenya’s general elections scheduled in August this year also have an impact on Uganda, as the latter heavily relies on Kenyan seaports for trading, Muhumuza said.
“Kenya is a country to watch … the uncertainty alone is already being responded to by the business community,” Muhumuza said.
David Bahati, minister of state for trade, industry and cooperatives, told parliament on Thursday that while most of the causes of the price increases are external, the government is implementing possible short-term remedies.
While some members of the public are calling for price controls and tax reductions, those will not be possible due to the effects on the economy, Bahati said.
“The use of subsidies and tax reductions are not only unsustainable but also cause other problems for the economy. For example, they have the unintended consequence of creating market distortions such as smuggling, and they lead to revenue loss to the government which negatively impacts service delivery,” Bahati said.
The minister said the government has set up a committee to monitor the price increases with power to arrest those taking advantage of the situation, and that those found guilty of hoarding fuels risk losing their licenses.
He said that in the medium and long term, the government is fast tracking the commercial production of oil in the country.
The central bank, the Bank of Uganda, said Bahati, will continue to monitor the situation and implement a favorable monetary policy that will ensure that inflation stays within target and macroeconomic stability is maintained.
Uganda, according to the finance ministry, targets inflation of 5 percent and below, and the year-on-year inflation last month was at 3.7 percent.