Ugandans in the VIP seating area at a recent Sean Kingston concert. Credit: Will Boase/IPS

By Fred Ojambo
KAMPALA, Dec 26 2012 (IPS)

Rising investments in Africa’s service sector, the unlocking of its vast natural resources and the sound economic policies pursued by African countries in the last two decades are spurring the rise of the continent’s middle class at a faster rate than population growth.

Investments in the key areas of banking, telecommunications, information technology, transport, tourism, housing and real estate have lifted the continent’s middle class, Lawrence Bategeka, a principal researcher at the Ugandan-based Economic Policy Research Center, told IPS.

“Liberalisation of African economies resulted in improved efficiencies and saw rapid growth in the service sector. Private sector-led growth has resulted in the growth of the middle class on the continent,” he said.

The African middle class is characterised by a per capita daily consumption of two to 20 dollars, although this class has a high concentration at the lower end of consumption, according to an African Development Bank (AfDB) report titled “The Middle of the Pyramid”.

According to the AfDB, by 2010 Africa’s middle class had risen to an estimated 34 percent of the continent’s population or nearly 350 million people – up from about 126 million or 27 percent in 1980.

“This represents a growth rate of 3.1 percent in the middle class population over the period 1980 to 2000, compared with a growth rate of 2.6 percent in the continent’s overall population over the same period,” the AfDB report said.

The middle class is widely acknowledged to be Africa’s future, the group that is crucial to the continent’s economic and political development. But it is difficult to determine exactly who falls into this key group and even harder still to accurately establish how many middle-class people there are in Africa, according to the AfDB.

In Uganda, being middle class is determined by having a good education, being able to rent or own a good home, having access to the internet, making frequent visits to a supermarket and spending the equivalent of 15 dollars a day, Stephen Kaboyo, the managing partner of Uganda-based research company Alpha Partners, told IPS.

Joseph Nsubuga, a land dealer near Kampala, the Uganda capital, saw an opportunity to be part of the rising middle class and grabbed it.

“Rising incomes for many people in the country sparked off demand for land where I saw an opportunity to advance my own fortunes. I started by selling what I inherited from my parents but it is now my fulltime job to buy and sell land. My fortunes have improved and I am able to send my children to good schools,” Nsubuga told IPS.

James Babalanda, a Kampala-based educationist, also saw an opportunity to improve his quality of life. “Since people with increased incomes wanted good electronic equipment, I decided to open a number of shops dealing in these items in the capital and, believe me, I am living a fairly good life. My business is ever growing because of a ready market,” he told IPS.

Bategeka said that room for further growth of Africa’s middle class abounds,but is dependent on increased government investment in infrastructure.

“Uganda is a good example of how economic reforms are enhancing people’s incomes, and this growth would have been higher if investments in infrastructure were higher. Most countries have been slow in providing faster private growth because of deficits in infrastructure, which is key to growth,” Bategeka said.

By ditching state controls and embracing private sector-led policies, African economies stimulated the growth of the middle class, and there is room for further expansion with more public sector investments in infrastructure projects, Bategeka said.

In the 1990s African economies embraced the World Bank and the International Monetary Fund’s (IMF) structural adjustment programmes, which advocated free market policies.

“The introduction of liberalisation, which focused on private sector-led growth, is key to the growing middle class on the continent,” said Bategeka. “Countries introduced sound economic policies which controlled inflation, benefiting investments in their economies.”

“Investments in the service sector are some of the drivers of middle class growth on the continent. The sound macroeconomic policies at the same time attracted foreign direct investments which helped to grow the middle class,” he said.

North African countries have a higher concentration of middle class society, with Tunisia having the highest proportion at 89.5 percent, followed by Morocco with 84.6 percent.

Liberia has the lowest concentration of middle class among the countries surveyed, with only 4.8 percent of the population falling into this category, followed by Burundi at 5.3 percent.

“Africa’s middle class is a key source for private sector growth in Africa, accounting for much of the effective demand for goods and services supplied by the private sector,” according to the AfDB.

Sub-Saharan Africa remains insulated from the negative factors affecting growth in developed countries and the economic activity in the region is generally robust with growth in 2012-2013 expected to remain the same as it was a year earlier, the IMF said in its October 2012 regional outlook for sub-Saharan Africa.

The Bujagali Hydropower Project, Uganda’s 250 MW power-generating facility, came online in January. Credit: Samson Baranga/IPS

By Fred Ojambo
KAMPALA, Oct 24 2012 (IPS)

Uganda is facing the unwelcome possibility of increased costs for building a projected 600-megawatt hydropower plant at the Karuma Falls, on the Victoria Nile, owing to construction delays.

The East African nation has yet to name a contractor for the two-billion-dollar project, which is situated 220 kilometres northwest of the capital, Kampala. Construction was initially planned to start in April, with inauguration expected in four to five years.

The delay to boost generation may result in future power outages as demand may surpass supply, according to Dickens Kamugisha, the chief executive of the Uganda-based NGO Africa Institute for Energy Governance.

The nation’s power demand increases by an average of 10 percent annually, according to the Ugandan Electricity Regulatory Authority (ERA). The country’s peak demand currently is 509.4 MW, while off-peak demand is 366.4 MW, ERA spokesman Julius Wandera told IPS.

“Every passing day when the project isn’t started is costly to the companies that will undertake it and the country, and delays will ultimately increase the cost of construction,” Kamugisha told IPS.

It will lead to upward revisions in costs, and demand will outstrip supply if more power is not generated in time, Kamugisha said.

But because of the delay in naming a contractor for the Karuma hydropower plant, the construction costs for the project have already been revised to two billion dollars, from the initial 1.3 billion dollars given by President Yoweri Museveni in February 2010.

“With the growing need for power, demand may outstrip supply in approximately three years if more investment into generation isn’t done,” Kamugisha said. But if the delays in commencement of construction can rid the project of irregularities, then the delay would be worthwhile, he said.

Similar delays in the construction of the Bujagali hydro power plant resulted in the final costs rising to 900 million dollars, from an initial projection of 580 million dollars, according to Kamugisha.

The generation capacity in this landlocked country in East Africa rose to 810 MW after the inauguration of the Bujagali Hydropower Project on the Nile, a 250 MW power-generating facility, in January.

Bujagali has helped to eliminate the country’s daily power rationing. It started supplying 50 MW of power to the national grid in January and reached full capacity, 250 MW, in June.

Inadequate power supply hurt economic growth by one to 1.5 percent in the last financial year, according to the Ugandan government.

The nation’s economic growth in the 12 months ending in June 2012 slowed to 3.2 percent from 6.7 percent a year earlier partly due to inadequate power supplies and the Eurozone economic crisis, according to the Ministry of Finance.

“The coming into operation of Bujagali has been a major boost to my business as I have a regular power supply,” Richard Ssemanda, a welder in Kampala, told IPS.

“Initially I would spend a whole day without work or even had to go so far as to work at night if that was the time when power was available,” he said.

“I am happy that there is a steady supply of power but I am only using it for lighting because I can’t use it for cooking due to the high costs,” James Senfuka, a builder in Kampala, told IPS.

Tariffs remain high, limiting household use to lighting and ironing, according to some of the users. In January the ERA approved an average 47 percent increase in rates to reduce subsidies to the sector.

But the minister of state for energy is keen to avoid a repeat of the 2011 loss in economic growth.

“From experience we saw costs for Bujagali rising because of the delays, and if we delay this process we can be sure the tender price will go up,” Simon D’Ujanga, the minister of state for energy, told IPS.

“We are concerned about the delays in the (Karuma) project and we want these issues to be resolved quickly so that we don’t suffer further power shortages which would impede economic growth,” D’Ujanga said.

Power demand may rise from the current peak of 509.4 MW to more than 700 MW in two to three years, D’Ujanga said. The nation has an installed generation capacity of 810 MW, but the capacity can drop to just over 600 MW when water levels decline, he said.

“Small projects may start supplying power to the national grid, but we are worried that if Karuma doesn’t start soon we shall face future power shortages,” said D’Ujanga.

“It is good to always prepare for the worst by starting on the project early,” he added.

The project was delayed when pre-qualification losers for the Karuma hydropower plant lodged appeals in court and with the state procurement agency.

China’s Sinohydro Corporation and China International Water and Electric Corporation as well as Perlite Construction Company of Iran were pre-qualified for the project in February. Italy’s Salini Construttori SPA, Egypt’s Orascom Construction Industries and a consortium of construction companies from South Africa were the other bidders.

“We were supposed to start on the project in April, but the process has been delayed by complaints by some losers in court and whistle-blowers who petitioned the Public Procurement and Disposal Authority,” Matovu Bukenya, a spokesman for Uganda’s Ministry of Energy, told IPS.

Italy’s Salini Construttori SPA petitioned the court on grounds that the bidding process was marred with irregularities, and asked that it be reviewed.

The country has potential investment sites for 2,000 MW of major hydropower plants, mini hydropower sites with a total of 200 MW, 200 MW of solar power, 1,650 MW of biomass, 800 MW of peat, 450 MW of geothermal as well as wind energy, according to the government web site.

Museveni has said that increased power generation will spur industrial growth and enable the country to become a middle-income economy “in the next few years,” and ultimately transform it into a high-income country in 50 years.

Coffee being dried on the roadside in Busoga, Eastern Uganda. Credit: Will Boase/IPS

By Fred Ojambo
KAMPALA
, Sep 28 2012 (IPS)

Uganda, Africa’s biggest coffee exporter, is racing against time to boost its production of the crop by 60,000 tonnes, or one million 60-kilogramme bags, within the next three years. But some industry players believe that the feat is unattainable.

This East African nation’s target is to raise annual output from 3.5 million to 4.5 million 60-kilogramme bags, and it plans to do this through an ongoing government replanting programme.

Francis Chesang, the production manager at the state-run Uganda Coffee Development Authority (UCDA), told IPS that he was confident that this landlocked nation would soon reach its target.

“Our replanting programme is yielding results and we should be able to lift annual production in 2015… because more of the new fast-growing and high-yielding trees are coming into production.”

Uganda, the continent’s second-biggest grower of the crop after Ethiopia, launched its coffee replanting programme in 1994, a year after the country detected the coffee wilt disease that devastated half its stock of Robusta trees.

The programme aims “to gradually replace old, diseased coffee trees with new, genetically pure and high-yielding coffee varieties at a rate of five percent per annum for Robusta and two percent per annum for Arabica.”

Currently, Uganda has a combined stock of 300 million Robusta and Arabica trees, according to the authority.

At least 140 million trees, mainly Robusta, were planted over the last 18 years, with the goal to plant a total of 200 million trees by 2015, Chesang said. The replanting aims to “optimise foreign exchange earnings into the country and payments to farmers,” he said.

The crop accounts for 20 to 30 percent of the nation’s annual export earnings, with Uganda earning 448.9 million dollars from the export of 3.15 million bags of coffee from Oct. 1, 2010 through September 2011, according to the UCDA.

The country was the world’s ninth-biggest exporter of the crop during that period, ahead of Ethiopia, which was in 10th place, according to the International Coffee Organization.

Farmer Sera Nafungo picking coffee berries in Bukalasi, eastern Uganda. Credit: Wambi Michael/IPS

According to David Muwonge, the deputy executive director of the National Union of Coffee Agribusiness and Farm Enterprises, Uganda is unlikely to meet its increased coffee production target as yields remain lower than potential because the country is yet to replace all the coffee trees destroyed by the 1993 wilt disease.

“I think it will be really hard to achieve this target because we are yet to plant 60 million trees,” he said. “The target is achievable, but only when all the new trees are in production.”

Muwonge added that the insufficient number of trees, aging trees, poor farming methods and the effects of climate change meant that it was unrealistic to increase coffee production by one million 60-kilogramme bags over the next three years.

Fred Kyobe, a 64-year-old farmer in the Wakison District in Uganda’s Central Region, told IPS that production volumes have taken long to recover from the wilt disease devastation as the youth did not have the patience to venture into coffee farming. He said that the lure of fast-paying jobs in urban centres resulted in the youth abandoning coffee farming because it takes more than three years before the crop starts yielding.

“My sons have abandoned farming in favour of motorcycle taxi businesses in town, and my vigour is reducing due to old age,” he said. “The blow I received when the coffee wilt disease attacked my crop made me less enthusiastic about it.”

Coffee here is grown by at least half a million smallholder farmers, 90 percent of whom own fields ranging from 0.5 to 2.5 hectares, according to the UCDA. The sector employs 3.5 million people.

“Coffee continues to play a pivotal role in the Ugandan economy, contributing immensely to the export earnings to the tune of 449 million dollars in 2010/11 and providing a livelihood to about 1.32 million of the 3.95 million agricultural households,” the UCDA said on its website.

The crop remains a key export commodity for Uganda in spite of it dropping from contributing 60 percent of export earnings to the current 20 to 30 percent, Muwonge said.

“Coffee is still central to the Ugandan economy for employment, farmer incomes and hard currency earnings in spite of the drop in its export revenue share due to the diversification of exports,” he said. “Increased investment in the sector may bear fruit in the government’s poverty reduction programmes.”

Uganda reduced a heavy reliance on coffee for its hard currency earnings by promoting non-traditional exports including fish, horticultural products, maize, cocoa, hides and skins.

Ugandan President Yoweri Museveni underlined the importance of the crop last week by stating that anyone caught contaminating the coffee quality should be arrested and prosecuted. In the past, some farmers have been accused of harvesting immature beans, while dealers were accused of mixing low-grade coffee with higher grade brands and selling it as superior quality.

“The urge to pick immature coffee is driven by poverty, since at times urgent needs may arise before your crop fully matures,” Sunday Mugaga, a coffee farmer in of Kayunga District in Uganda’s Central Region, told IPS.

Mugaga’s income from coffee is barely enough to support his family so he supplements it by selling the fish he catches from the Nile River, which flows through his district. The lure to expand his almost one-hectare coffee farm is strong, but he is constrained by a lack of available land.

“My two brothers and I inherited only four hectares of land from our father, which limits my expansion. But with time I will plant more coffee when I acquire more land,” he said.

“I treasure coffee because income from the crop has enabled me to send my five kids to school, although I must admit that the money isn’t enough to cover my needs,” he said.

But Uganda can still bank on the crop for most of its export revenue over the next three years, ahead of the planned commencement of its oil production in 2016, Robert Kasozi, an independent economics researcher, told IPS.

London-based Tullow Oil Plc, France’s Total SA and China National Offshore Oil Corporation are jointly developing Uganda’s oilfields, whose reserves the government upgraded to 3.5 billion barrels from 2.5 billion barrels.

“With oil production not expected to reach commercial levels until 2016, coffee production still has a significant role in the country’s economy,” he said. “Uganda could thus benefit from increasing its output over the coming three years in the form of higher export revenue.”

The country also stands to benefit from rising global demand, which is projected to outstrip production in the next few years. This is especially driven by rising demand for coffee in Russia, India, and China, Kasozi said.

Meanwhile, many farmers remain committed to coffee because of the high prices they receive for their crops amidst the rising global demand, Isaac Ntumwa, a coffee farmer in the Central Region district of Masaka, told IPS.

“Many farmers in my district have embraced the crop with hopes for a better harvest in the next few years,” Ntumwa said.

Uganda’s Mandela National Stadium, commonly referred to as Namboole, and located 10 kilometres from the country’s capital, Kampala, was built by the Chinese. Credit: Ronald Kabuubi/IPS

By Fred Ojambo
KAMPALA, Sep 21 2012 (IPS)

Almost a decade since Uganda initiated negotiations with China for the favourable export of coffee beans to the Asian giant, it is struggling to create even trade relations with the world’s second-biggest economy. But economic experts predict that the East African nation could close the gap through the promotion of agriculture and the eventual export of oil.

“Although there is an imbalance currently, the gap will narrow as there are efforts to diversify Uganda’s export base,” Stephen Kaboyo, the managing director of Alpha Partners, a financial research company in the capital, Kampala, said in an interview with IPS.

“China is a high consumption nation with a mass market, and agricultural commodities and oil will have potentially large markets there. Already China’s demand for oil is so huge that its demand controls the pricing of this commodity,” he added.

In 2004, Uganda negotiated a preferential treatment agreement for its coffee exports to China, leading into the formation of Uganda Crane Coffee, a joint venture between the Uganda Coffee Development Authority and the Beijing North Star Industrial Group, for the promotion of the East African nation’s beans in the world’s most populous nation.

At least 2,200 tonnes of coffee beans worth 7.6 million dollars were exported to China in the first half of 2010, according to figures from the Ugandan embassy in China. Uganda, which is Africa’s second-biggest producer of the beans after Ethiopia, exports around 180,000 tonnes of coffee beans mainly to Europe annually.

Concerted promotion of Uganda’s other exports to China, including the diversification of products like cocoa, cotton, wood, copper concentrates, and hides and skins, saw the value of shipments soar from 15,000 dollars in 2003 to 26.71 million dollars in 2011, according to figures from the state-run Uganda Bureau of Statistics.

But the Chinese government has a different total. Chinese Ambassador Zhao Yali estimates that Uganda’s imports to his country totalled 40 million dollars last year.

This pales in comparison, however, to China’s exports, which have grown in the last decade. The Asian country was Uganda’s third-biggest source of imports last year, with goods valued at 522.5 million dollars, compared to 70.2 million dollars worth of imports nine years ago.

China remains a preferred source of imports for Uganda because of “competitive prices and very adaptive products,” Moses Kalule, the chief executive of Kampala City Traders Association, told IPS in a phone interview.

Footwear, textiles, motorcycles and parts, bicycles, rubber items, pharmaceuticals, and telecommunication, electronic, and medical equipment, are some of the major imports from the Asian nation, according to China’s Ministry of Commerce.

The entry of the Chinese into petty trade in this country favoured them since they could cheaply procure goods from their homeland to the disadvantage of Ugandans importing the same range of products from China, Kalule said.

But the control of Chinese engaging in petty trade has erased unfair competition that locals faced against them, he said. He would not elaborate on the controls.

Issa Sekitto, the spokesperson of the Kampala City Traders Association, said that the body had been collaborating with immigration authorities to monitor Chinese engaging in petty trade. Currently, the investor threshold in Uganda is 100,000 dollars, but he said that a number of Chinese had forgone investing and instead merely engaged in petty trade. In July, local traders protested against the situation, claiming that the Chinese had kicked them out of business.

India remains Uganda’s biggest trade partner, exporting goods worth 928.08 million dollars to this East African nation. Kenya is its second-biggest trade partner, exporting goods valued at 671.61 million dollars to this country, according to the Uganda Bureau of Statistics.

But Uganda is keen to grow its exports to China at an average annual rate of 25 percent, Kaboyo said.

Uganda can boost its exports to China if it enhances agricultural productivity, especially for commodities that are in demand in China, Paul Mugerwa, an economics lecturer at Uganda’s Bugema University, told IPS.

“The government should come up with a strategy to promote agriculture for the Chinese market as we have productive capacity in this area,” he said.

China is not only a source of imports for this East African nation but a source of foreign direct investment as well. The Asian nation was the leading source of licensed planned investments here from 2009 to 2010, according to the Uganda Investment Authority.

China accounted for 31 planned projects worth 246 million dollars in leather tanning, food processing, information and communication technology and real estate, according to the Uganda Investment Authority.

Successful Chinese investment from 1993 to 2011 amounted to 596 million dollars, with 265 companies from the Asian giant operating in Uganda and providing at least 280,000 jobs, the state-run New Vision, Uganda’s leading daily, quoted Yali as saying on Feb. 24.

“Uganda can improve its trade imbalance with China with more exports, while Chinese investors can lift Uganda’s narrow industrial base,” Lawrence Bategeka, a principal researcher at the country’s Economic Policy Research Centre, told IPS.

Yanli Ren, the second secretary at the Chinese embassy in Uganda, agreed: “Chinese companies are involved in construction and manufacturing in Uganda because policies favour their investments. These factories will help Uganda reduce its imports.”

The 2006 discovery of crude oil and a host of other minerals in Uganda are expected to enhance Chinese investment in the country and narrow the trade imbalance between the two nations.

“The discovery of oil and abundant mineral resources will definitely see a lot more players (in the Ugandan economy), including Chinese companies,” Arthur Nsiko, a researcher with the investment bank African Alliance Uganda Ltd., told IPS.

“Oil will reduce the country’s overall trade deficit since it accounts for about eight percent of the country’s imports,” he said.

The China National Offshore Oil Corporation or CNOOC is already involved in the development of Uganda’s oilfields after it acquired a third of interests in two oil blocks from the London-based Tullow Oil Plc in February. CNOOC and France’s Total SA paid a combined 2.9 billion dollars in shares in the two oil blocks.

Uganda may start oil production in 2014 with an initial 10,000 barrels per day for power generation, according to the government. Partial completion of a refinery will be achieved in 2015 with its capacity expected to reach 60,000 barrels a day, the government says.

(*Adds reaction from the spokesperson of the Kampala City Traders Association. Story first moved at 08.13 GMT Sep. 19, 2012)