WB cut Uganda's growth forecast, citing South Sudan

Uganda is facing economic challenges as the World Bank recently cut its 2016/2017 growth forecast for the country to 5.5 percent from the previous estimate of 5.9 percent. The impact of South Sudan's conflict on Uganda's exports and sluggish investments due to slower economic activity globally have been cited as the main reasons for the downgrade. Salima Nakiboneka, Head of Research and Fixed Income at Crested Capital, shed light on the factors contributing to this revised forecast during an interview with CNBC Africa. Nakiboneka highlighted that Uganda's economy faced a slow start in the first half of the year, attributed to factors such as the uncertainty surrounding the election process and post-election period. Additionally, high lending rates exceeding 24 percent led to a decline in private sector credit, thereby impacting demand for various commodities. The conflict in South Sudan further exacerbated the situation, resulting in reduced business and export activities between the two neighboring countries. These challenges in the business environment have contributed to the overall sluggish economic performance observed in Uganda. The stock market in Uganda also saw a decline in total turnover, with Omeme maintaining a dominant position by accounting for 70 percent of the market activity. While some sectors like government securities remained stable, Nakiboneka emphasized that the performance of individual companies, particularly in the banking sector, is crucial in influencing stock market activity. Investors positioning themselves to qualify for dividends led to increased activity in the second quarter, while a wait-and-see approach prevailed in the third quarter as investors had already secured their dividends. However, Nakiboneka anticipated a potential uptick in market activity in the fourth quarter following the release of half-year financial reports. Government securities, considered as risk-free investments, continued to attract significant demand despite declining yields in the market. The ongoing demand for government securities, coupled with a positive economic and inflation outlook, indicates investor confidence in these instruments. The Bank of Uganda's successful auctions in the third quarter reflected strong market participation, with the government capitalizing on lower interest rates to meet borrowing needs. In conclusion, while Uganda grapples with a revised growth forecast and challenges in its export and investment sectors, there are signs of optimism on the horizon. The government's proactive approach to managing demand for securities and the expected rebound in stock market activity in the upcoming quarter present opportunities for economic resurgence. As the country navigates through these economic headwinds, stakeholders will closely monitor developments and adapt strategies to support sustainable growth.