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Uganda’s Economy Recovering from COVID-19 Impact Amid Uncertainties

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UGANDA - Investors King

The Ugandan economy is emerging from the devastating impact of the COVID-19 (coronavirus) health pandemic, but prospects for growth are undermined by increasing pressure on its natural resources, according to the latest World Bank economic analysis for the country.

The 17th Uganda Economic Update (UEU), From Crisis to Green Resilient Growth: Investing in Sustainable Land Management and Climate-Smart Agriculture, says that the COVID-19 shock caused a sharp contraction of the economy to its slowest pace in three decades. Household incomes fell when firms closed and jobs were lost, particularly in the urban informal sector. The country’s Gross Domestic Product contracted by 1.1 percent in 2020, and is estimated to have recovered to 3.3 percent during the 2021 fiscal year.

“Following the job losses and closure of small businesses, many people returned to agriculture and other natural resources dependent activities to manage and survive the crisis,” said Tony Thompson, World Bank Country Manager for Uganda. “This further strains natural resources, which were already under pressure from rapid population growth, urbanization, a refugee influx and the country’s drive for industrialization.”

From the severe contraction in economic activity and its subsequent impacts on livelihoods during 2020, the report notes that signs of recovery have strengthened, underpinned by improved business and trading conditions as COVID-19 restrictions ease. Domestic investments picked up during the last quarter of 2020 in line with global invest recovery. Manufacturing and construction recovered during the quarter ending March 2021 while the cash crop sector has sustained agricultural sector growth.

The economic growth outlook is 4.6 percent in the 2022, and acceleration to 6.4 percent in the 2023 fiscal year, as domestic demand conditions improve, and global recovery continues as COVID-19 vaccines are rolled out.

The UEU says that Uganda’s immediate priority remains to save lives by intensifying measures to limit the spread of the coronavirus disease. Yet, the report says sustaining recovery will require the government to manage emerging risks including from widening fiscal deficits, escalating costs for small businesses, and climate shocks and loss of its natural capital.

“As the crisis abates, fiscal consolidation and prioritization of spending towards human capital development and greener investments will be the lynchpin into a greener, resilient and inclusive recovery,” said Rachel SebuddeWorld Bank Senior Economist and lead author of the report.

The significant shift of Ugandans to agriculture in response to the crisis has heightened the urgency for the country to enhance sustainable use of natural resources. According to the report, land degradation, deforestation and climate risks contribute to the country’s economic vulnerabilities and poverty. Annual decline in forest cover, by 2.6 percent, is one of the highest rates of forest loss globally and climate risks, including slow onset change and extreme events exacerbate this natural capital degradation.

The combined cost to the economy of land degradation and unsustainable soil erosion, is estimated at 17 percent of gross domestic product (GDP). Environmental degradation can cause a loss of 27 percent of agricultural GDP, says the report.

The World Bank suggests the macro-economic recovery and stimulus packages to be combined with structural measures that will sustainably increase productivity and build resilience to enhance livelihoods, the economy and general well-being.

“Farmers and producers need greater access to appropriate financial incentives and instruments to overcome the cost barrier adoption of sustainable land management and climate smart agriculture,” said Pushina Ng’andwe, World Bank Senior Agriculture Economist and report co-author.

The Bank also recommends that the government to promote sustainable land management practices to protect, conserve and ensure better use of land, soil, water, and biodiversity resources, while restoring degraded resources and their ecosystem functions. Encouraging climate-smart agricultural practices will enhance resilience, the UEU says, as well as reduce greenhouse gases emissions, and boost national food security.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Ogun Records N13.3B Internally Generated Revenue Monthly in Q1 of 2021

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Revenue - Investors King

Ogun State Government has recorded an average of N13.3billion monthly as Internally Generated Revenue (IGR) in the first quarter of 2021.

The government said it is also planning to raise its yearly Gross Domestic Product (GDP) rate from the current single digit by 25 percent.

The Commissioner for Finance, Dapo Okubadejo disclosed this to newsmen in Abeokuta ahead of the state’s investment summit tagged: ‘OgunIseya21: Becoming Africa’s Model Industrial and Logistics Hub’, slated for July 13th-14th, 2021.

Okubadejo who doubles as the State’s Chief Economic Adviser noted that the state’s IGR had experienced an upward movement after last year’s shortfall due to the Covid-19 pandemic and the attendant lockdown.

“We had a significant turnaround in the first quarter of this year. In fact, as of April, we have done almost N40bn in the Internally Generated Revenue. Our target this year is to exceed all the previous records we have set in IGR. That’s why we have put in place, all these transformation initiatives, friendly policies and also facilitate this investment summit to further showcase Ogun State as the preferred industrial destination,” he said.

The Finance Commissioner was supported in highlighting the investment potentials of the summit by his counterparts from the Ministries of Industry, Trade and Investment, Mrs. Kikelomo Longe; Works and Infrastructure, Ade Adesanya; Culture and Tourism, Toyin Taiwo; Budget and Planning, Olaolu Olabimtan and the Director-General, Public-Private Partnership, Dapo Oduwole.

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Unemployment To Push More Nigerians Into Poverty – NESG

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Nigerian Economic Summit Group- Investors King

On Friday, The Nigerian Economic Summit Group said that many more Nigerians are expected to fall into the poverty trap amid rising unemployment in the country.

The NESG, a private sector-led think-tank, noted in its economic report for the first quarter of 2021 that the country’s economic growth in the period under review was relatively weak.

It said, “Nigeria’s economic growth trajectory is better described as jobless and less inclusive even in the heydays of high growth regime in the 2000s.

“While the Nigerian economy recovered from the recession in Q4 of 2020, the unemployment rate spiked to its highest level ever at 33.3 percent in the same quarter.

“With the COVID-19 crisis heightening the rate of joblessness, many Nigerians are expected to fall into the poverty trap, going forward.”

The group noted that the World Bank estimated an increase in the number of poor Nigerians to 90 million in 2020 from 83 million in 2019.

“This corresponds to a rise in headcount poverty ratio to 44.1 percent in 2020 from 40.1 percent in 2019. The rising levels of unemployment and poverty are reflected in the persistent insecurity and social vices, with attendant huge economic costs,” it said.

According to the report, huge dependence on proceeds from crude oil, leaving other revenue sources unexplored, indicates that Nigeria is not set to rein in debt accumulation in the short to medium term.

The NESG noted that public debt stock continued to trend upwards, with a jump from N7.6tn ($48.7bn) in 2012 to N32.9tn ($86.8bn) in 2020.

It said public debts grew by 20 percent between 2019 and 2020, adding, “This is partly due to the need for emergency funds to combat the global pandemic and alleviate its adverse economic impacts on households and businesses.”

According to the group, Nigeria needs more than an economic rebound, and there is a need to improve growth inclusiveness.

It said, “Nigeria has struggled to achieve inclusive growth for many decades. Since recovery from the 2016 recession, the economy has been on a fragile growth path until it slipped into another recession in 2020 due to the COVID-19 pandemic.

“This suggests that the country needs to attain high and sustainable economic growth to become strong and resilient.

“The relationship between economic growth and unemployment rate in Nigeria suggests that economic growth has not led to a reduction in the unemployment rate – jobless growth.”

The NESG said to reverse this recurring trend, there was an urgent need for collaborative efforts between the government and relevant stakeholders towards addressing the constraints to value chain development in high-growth and employment-elastic sectors, including manufacturing, construction, trade, education, health and professional services, with ICT and renewable energy sectors as growth enablers.

It noted that despite the re-opening of the land borders that the Nigerian government shut since October 2019, inflation reached a four-year high of 18.1 percent in April 2021.

“While we expect improved agricultural production in coming months to partially ease inflationary pressures, this positive impact could be suppressed by recurring key structural bottlenecks including insecurity in the food-producing regions, electricity tariff hike, fuel price increase and hike in transport and logistic costs,” it added.

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IMF Queries FG Strategies On Fuel Subsidy, Unemployment, Inflation

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IMF - Investors King

The International Monetary Fund has raised the red flag over Nigeria’s resumption of petrol subsidy payments, describing it as injurious to the economy.

It also reiterated the importance of introducing a market-based fuel pricing mechanism and deployment of well-targeted social safety nets to cushion any adverse impact on the poor.

In a report produced after a virtual meeting with Nigerian authorities from June 1 to 8, the IMF also expressed concerns over the rising unemployment and inflation rates, even as it admitted that real Gross Domestic Product was recovering.

The IMF team, led by Jesmin Rahman, further hailed the Central Bank of Nigeria for its efforts at unifying the exchange rate by embracing needed reforms.

The Fund said: “Recent exchange rate measures are encouraging, and further reforms are needed to achieve a fully unified and market-clearing exchange rate.

“The resurfacing of fuel subsidies is concerning, particularly in the context of low revenue mobilisation.

“The Nigerian economy has started to gradually recover from the negative effects of the COVID-19 global pandemic. Following sharp output contractions in the second and third quarters, GDP growth turned positive in Q4 2020 and growth reached 0.5 percent (y/y) in Q1 2021, supported by agriculture and services sectors.

“Nevertheless, the employment level continues to fall dramatically and, together with other socio-economic indicators, is far below pre-pandemic levels. Inflation slightly decelerated in May but remained elevated at 17.9 percent, owing to high food price inflation. With the recovery in oil prices and remittance flows, the strong pressures on the balance of payments have somewhat abated, although imports are rebounding faster than exports and foreign investor appetite remains subdued resulting in continued FX shortage.

“The incipient recovery in economic activity is projected to take root and broaden among sectors, with GDP growth expected to reach 2.5 percent in 2021. Inflation is expected to remain elevated in 2021, but likely to decelerate in the second half of the year to reach about 15.5 percent, following the removal of border controls and the elimination of base effects from elevated food price levels.”

The IMF also recognised that tax revenue collections were gradually recovering but noted that with fuel subsidies resurfacing, additional spending for COVID-19 vaccines and to address security challenges, the fiscal deficit of the Consolidated Government is expected to remain elevated at 5.5 percent of GDP.

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