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PRESS
RELEASE
PRESS/TPRB/12
28 July 1995Continuing
reforms seen as crucial for rebuilding the economy
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Ravaged
by long periods of political turbulence during the 1970s
and mid-1980s, Uganda has spent much of the past decade
rebuilding its economy. With the implementation of a
comprehensive and ambitious reform agenda, which began
with the Economic Recovery Programme of 1987 and
continued with the Rehabilitation and Development Plan of
1993, Uganda is starting again to capitalize on its
natural assets and favourable conditions for farming and
tourism.
According
to a WTO Secretariat report, the reforms are supported by
more discipline in public expenditure, a rationalized tax
system, privatization of a number of State enterprises
and the maintenance of an exchange rate in line with
market realities. Trade liberalization and internal
deregulation, including the derestriction of farm prices,
are also injecting a degree of competition into Uganda's
limited manufacturing and services industries.
Virtually
all quantitative restrictions have gone since the
introduction in 1991 of automatic licensing under an
Import Certification System. The current "negative
list" is confined to beer, soda (soft drinks), car
batteries, used car tyres and specified types of
communications and electrical equipment. The restrictions
protect local industries in the first four categories.
The lifting of an import ban on cigarettes in 1994 was
made contingent on the beneficiary company buying
domestic leaf for processing abroad. Mirroring
developments on the import side, the report states that
many export-related barriers and disincentives have
disappeared. In 1990 export licensing requirements were
replaced by a less restrictive export certification
system. Export taxes have also been abolished.
As
a result of the Uruguay Round, Uganda's level of tariff
bindings increased significantly to cover a quarter of
all tariff lines (87 per cent of agricultural and fishery
products and 15 per cent of industrial products),
although many bound rates remain higher than the applied
tariffs. Tariffs currently contribute about two fifths of
Government revenue, and efforts are underway to shift the
revenue base towards indirect and income taxes. In this
connection, a value-added tax is to be introduced in
1996.
Rehabilitation
and modernization of the infrastructure and of basic
business services have been given top priority. The
Government has sought, in particular, to make the banking
sector more efficient and to deregulate the transport
industry. Reforms in telecommunications may follow suit;
in this connection, the report notes that the
modernization of the basic telecommunications network and
reform of the pricing structure would be of significant
benefit to Uganda's economy. The same applies to
electricity generation and distribution, whose
reliability seriously suffers from outdated equipment.
The
report states that Uganda's Investment Code, enacted in
1991, reversed long-standing antipathy towards foreign
investment. It introduced standard provisions regarding
investment incentives (e.g. tax holidays), profit
repatriation and protection against expropriation of
assets. These provisions, together with the recent wave
of privatizations, are creating new opportunities for
both local and foreign investors.
Uganda
participates in the Common Market for Eastern and
Southern Africa (COMESA), which, in December 1994,
replaced the Preferential Trade Area for Eastern and
Southern African States (PTA). The COMESA Treaty, lays
down an ambitious liberalization agenda, including the
creation of a free-trade area by 2000, a customs union by
2004 and, eventually, an economic and monetary union.
According to the report, co-operation is to be reinforced
in such areas as customs procedures, standardization,
anti-dumping and countervailing measures, competition
policy, capital movements and the prevention of
smuggling. While half of the country's exports, mainly
coffee, are destined for the European Union, about one
quarter goes to other COMESA members.
The
report concludes that trade policy and, in particular,
the creation of a domestic trading environment in which
anti-export bias is diminished or absent has an important
rôle to play in Uganda's future development. Enhanced
international integration, based on commitments under WTO
and COMESA, will help ensure the momentum of reform, spur
resource efficiency, provide market potential for
emerging industries, and encourage long-term development
of trade and investment. Uganda's recent performance
testifies to what liberalization and economic reforms can
achieve rapidly in a poor, devastated economy;
continuation and consolidation of the process is crucial
in the rebuilding of the economic structure.
Notes
to Editors
1.
The WTO Secretariat's report, together with a report
prepared by Uganda will be discussed by the WTO Trade
Policy Review Body (TPRB) on 27 and 28 July 1995.
2.The
WTO Trade Policy Review Body conducts a collective
evaluation of the full range of trade policies and
practices of each WTO member at regular periodic
intervals and monitors significant trends and
developments which may have an impact on the global
trading system.
3.The
two reports, together with a record of the TPRB's
discussion and of the Chairman's summing up, will be
published in due course as the complete trade policy
review of Uganda and will be available from the WTO
Secretariat, Centre William, Rappard, 154 rue de
Lausanne, 1211 Geneva 21.
4.The
reports cover developments of all aspects of Uganda's
trade policies, including domestic laws and regulations,
the institutional framework, trade-related developments
in the monetary and financial sphere, trade practices by
measure and trade policies by sector. Attached are the
summary observations from the Secretariat and government
report. Full reports will be available for journalists
from the WTO Secretariat on request.
5.Since
December 1989, the following reports have been completed:
Argentina
(1992), Australia (1989 & 1994), Austria (1992),
Bangladesh (1992), Bolivia (1993), Brazil (1992),
Cameroon (1995), Canada (1990, 1992 & 1994), Chile
(1991), Colombia (1990), Costa Rica (1995), Côte
d'Ivoire (1995), Egypt (1992), the European Communities
(1991, 1993 & 1995), Finland (1992), Ghana (1992),
Hong Kong (1990 & 1994), Hungary (1991), Iceland
(1994), India (1993), Indonesia (1991 and 1994), Israel
(1994), Japan (1990, 1992 and 1995), Kenya (1993), Korea,
Rep. of (1992), Macau (1994), Malaysia (1993), Mexico
(1993), Morocco (1989), New Zealand (1990), Nigeria
(1991), Norway (1991), Pakistan (1995), Peru (1994), the
Philippines (1993), Poland (1993), Romania (1992),
Senegal (1994), Singapore (1992), South Africa (1993),
Sweden (1990 & 1994), Switzerland (1991), Thailand
(1991), Tunisia (1994), Turkey (1994), the United States
(1989, 1992 & 1994), Uruguay (1992) and Zimbabwe
(1994).
The
Secretariats
report: summary
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TRADE
POLICY REVIEW BODY: UGANDA
Report by the Secretariat Summary Observations
The
Economic Environment
Between
the 1970s and mid-1980s, Uganda suffered long periods of
political turbulence - amounting at times to civil war -
and poor economic management. By 1986, the economy lay in
ruins, with remaining operators discouraged by rampant
inflation, rigid price regulation and a highly overvalued
currency.
Since
the restoration of peace and institutional stability in
1986/87, Uganda has pursued a comprehensive and ambitious
reform agenda. With the Economic Recovery Programme (ERP)
of 1987 and the Rehabilitation and Development Plan (RDP)
of 1993, the authorities have begun again to capitalize
on the country's natural assets of fertile soils and a
moderate climate and to rehabilitate its once
well-developed infrastructure. However, despite strong
growth since 1987, at an annual rate of around 5 per
cent, recorded per capita income remains among the lowest
in the world and many economic and social problems
persist, not least in dealing with the effects of AIDS.
Progress
has been made in many policy areas. Public expenditure
has been disciplined and the tax system rationalized; a
number of State enterprises divested and stripped of
monopoly rights; the exchange rate brought into line with
market realities and, later, allowed to float; and
currency surrender requirements abolished. With
tightening of monetary policy, inflation has subsided and
real interest rates have turned positive. Expropriated
assets are being returned to previous owners and new
investors attracted through liberal approval practices.
Trade liberalization and internal deregulation, including
the derestriction of farm prices, are contributing to
restore balance in the incentive system, and to inject a
degree of competition into Uganda's limited manufacturing
and services industries.
Informal
economic activities, in particular small-scale crop
production and livestock farming, currently represent
about one third of GDP. While Uganda's economic survival
during the period of civil war, and its present recovery,
owe much to the resilience of these activities, their
integration in the formal sector could now help mobilize
under-utilized factors of production and broaden the
resource base for future expansion.
Uganda
in World Trade
Uganda's
international trade is relatively small and lopsided.
Exports are dominated by agricultural products, with
coffee contributing over half of merchandise exports in
1993. There has been a degree of recovery in other
traditional areas, such as tea, cotton and tobacco, and
diversification into non-traditional products, including
cereals and fish. This trend has benefited from the
reduction of policy distortions, moves towards regional
trade integration and, until recently, improved relative
terms of trade due to a decline in world coffee prices.
About half of Uganda's merchandise exports are taken by
the European Union, and may qualify for preferential
treatment under the Lomé Convention; an additional
quarter is destined for other participants in the Common
Market for Eastern and Southern Africa (COMESA), in
particular neighbouring Kenya and Tanzania, whose share
is growing rapidly.
Merchandise
imports have largely exceeded exports, with demand
boosted by foreign donor funding in recent years;
unrequited transfers represent over 10 per cent of
Uganda's GDP. Reflecting the rehabilitation of
infrastructure and industry, the import basket consists
mainly of machinery, transport equipment and other
manufactures. The European Union is by far the most
important source; however, imports from Japan have grown
rapidly.
Payments
for technical assistance and for travel, educational and
medical services have translated into significant
deficits in services trade. Economic and political
stabilization is, however, helping the tourist industry,
which seeks to regain its previous rôle as Uganda's
second largest export earner.
Mirroring
their importance as trading partners, the European Union
and, increasingly, COMESA countries are Uganda's leading
foreign investors. Starting from very low levels,
commitments have picked up, reflecting confidence in the
country's economic management, the abolition of
restrictive approval procedures and, possibly, the pull
effects of incentives. Food processing, construction and
business services are the main areas of new investment.
Legal
and Institutional Framework
The
Republic of Uganda is headed by an executive President,
who chairs a Cabinet of Ministers appointed by him. Most
members of Uganda's legislature, the National Resistance
Council (NRC), were elected by County Councils; about a
quarter were nominated by the President. While the
Cabinet has overall responsibility for trade policy
formulation and implementation, the NRC exercises its
powers mainly through the passing of Statutes, including
annual Finance Statutes specifying tariffs and taxes. A
comprehensive revision of the Constitution is underway.
The
change in policy direction since 1987 has altered
Uganda's institutional structure. Various State marketing
bodies, including in the areas of coffee and cotton, have
been stripped of their monopoly rights and reorganized
exclusively with regulatory functions. Since 1993, out of
over 100 State-owned enterprises, 18 have been privatized
and 11 liquidated, and many more are scheduled for either
privatization or liquidation by 1997.
Recent
changes in banking legislation are intended to strengthen
the Bank of Uganda's rôle as monetary authority and
enhance its supervisory functions over financial
institutions. The operation of the Uganda Revenue
Authority (URA), set up in 1993, is expected to improve
revenue and tax collection. Under the Investment Code of
1991, the Uganda Investment Authority (UIA) operates as a
one-stop shop for investment approvals and incentives.
Trade
Policy Features and Trends
Uganda
has been a GATT contracting party since independence in
1962. It ratified the Marrakesh Agreement in September
1994 to become a founding member of the World Trade
Organization (WTO).
As
a result of the Uruguay Round, Uganda's level of tariff
bindings increased significantly to cover a quarter of
all tariff lines (87 per cent of agricultural and fishery
products and 15 per cent of industrial products),
although many bound rates remain higher than the applied
tariffs. New WTO rules and disciplines may result in
legislative changes in areas such as customs valuation,
preshipment inspection, anti-dumping and countervailing
actions, safeguards, and trade-related investment
measures (TRIMs). Accession to the Plurilateral Agreement
on Government Procurement is under study. In services,
Uganda's specific commitments governing market access and
national treatment are confined to tourism and subject to
certain limitations; no exemptions from m.f.n. treatment
have been noted in the Uruguay Round Schedule.
Uganda
participates in the Common Market for Eastern and
Southern Africa (COMESA), which, in December 1994,
replaced the Preferential Trade Area for Eastern and
Southern African States (PTA). The COMESA Treaty, signed
by over 20 African States, lays down an ambitious
liberalization agenda, including the creation of a
free-trade area by 2000, a customs union by 2004 and,
eventually, an economic and monetary union. Co-operation
is to be reinforced in such areas as customs procedures,
standardization, anti-dumping and countervailing
measures, competition policy, capital movements, and
prevention of smuggling.
Type
and Incidence of Policy Instruments
Trade
liberalization has been central to Uganda's reform
programme since 1987. Virtually all quantitative
restrictions have gone since the introduction in 1991 of
automatic licensing under an Import Certification System,
which allows certificate holders to import all goods not
specifically listed. The current "negative
list" is confined to beer, soda (soft drinks), car
batteries, used car tyres and specified types of
communications and electrical equipment; the restrictions
protect local industries in the first four categories.
The lifting of an import ban on cigarettes in 1994 was
made contingent on the beneficiary company buying
domestic leaf for processing abroad.
Improvements
were also made in customs procedures, benefiting from the
introduction of a Taxpayer Identification Number and
review of the Customs and Excise Management Act. The
Government hopes to phase out the existing preshipment
inspection (PSI) requirement and plans to change the
basis of customs valuation from the current Brussels
Definition to the WTO Valuation Code. Continued concern
has been expressed by some local manufacturers, however,
about inefficiency in customs treatment and smuggling,
due mainly to insufficient staffing and infrastructural
bottlenecks.
Uganda
has no specific safeguards law - although the Government
plans to introduce such legislation based on the WTO
Safeguards Agreement - and provisions for anti-dumping
and countervailing actions have not been invoked for at
least a decade. There are no import deposit or similar
obligations, and importers have unlimited access to
foreign exchange at market rates.
Given
the importance of infrastructure rehabilitation,
government procurement practices may have a strong impact
on trade flows. Under current procurement procedures,
some 80 per cent of central government purchasing is in
principle subject to open tendering. Ugandan suppliers
are generally afforded a preferential margin of 15 to 20
per cent over imports. Significant purchases are effected
via bilateral and multilateral donors, and are therefore
subject to their specific criteria.
With
non-tariff barriers disappearing, Uganda's customs tariff
is the dominant protective instrument. After
rationalization in recent years, the 1994/95 schedule has
five ad valorem rates between zero and 60 per cent. More
than 95 per cent of all tariff lines fall between 10 and
30 per cent, and the simple average rate stands at 17.1
per cent. Preferential rates on intra-COMESA imports,
covering the whole product range, average 11.7 per cent.
Higher tariffs are concentrated in sectors of interest to
Ugandan producers such as farm products, fish, processed
food, textiles and leather. Effective tariff protection
is likely to be reinforced through the widespread use of
duty and tax exemptions on basic inputs. Tariffs
currently contribute about two fifths of Government
revenue; efforts are underway to shift the revenue base
towards indirect and income taxes. In this connection,
value-added tax is scheduled for introduction in 1996.
Mirroring
developments on the import side, many export-related
barriers and disincentives have disappeared. In 1990
export licensing requirements were replaced by a less
restrictive export certification system; export taxes
have also been abolished.
Coffee
remains a special case. Exporters must be registered, and
shipments are subject to "indicative" prices
and quality controls. The Government has reserved the
right to restrain export volumes "in line with the
demands of international obligations", in particular
the Coffee Retention Scheme agreed to by major producing
countries in 1993. A Coffee Stabilization Tax, introduced
in 1994, is intended to ease upward pressure on the
exchange rate resulting from coffee price increases and,
thus, improve conditions for other exporting or
import-competing sectors.
The
Investment Code enacted in 1991 reversed long-standing
official antipathy towards foreign investment and
introduced standard provisions regarding investment
incentives (e.g. tax holidays), profit repatriation and
protection against expropriation of assets. These
provisions, together with the recent wave of
privatizations, are creating new opportunities for both
local and foreign investors. A few constraints remain,
however. Foreign investment is subject to prior, although
near automatic, approval and higher qualification levels
for tax incentives apply to foreign investors than to
Ugandans. Moreover, the régime contains sectoral
preferences for foreign investment in designated Priority
Areas.
Sectoral
Policy Patterns
Small-scale
coffee growing and subsistence farming were among the few
activities that emerged largely unscathed from Uganda's
slide into political and economic disarray. However,
other agricultural production, particularly of tea,
cotton, and tobacco, has responded swiftly to the
rehabilitation programme. To encourage product
diversification and promote food self-sufficiency, many
farm sectors have been granted above-average tariff
protection on final products, combined with free entry
for inputs (fertilizers, pesticides, seeds, agricultural
machinery and tools).
Past
import-substitution policies for manufacturing have
largely - on paper at least - been abandoned. Uganda's
small industrial sector accounts for some 6 per cent of
GDP. Its current mainstays are farm-based processing
industries such as coffee, beverages (beer and soda),
textiles and leather. As in agriculture, the Government
has sought to enhance industrial efficiency through
deregulation, privatization and trade liberalization.
Again, however, a combination of high tariffs and duty
exemptions - or, in some cases, import bans under the
negative list - is geared to promoting selected
"infant" industries and may maintain
substantial effective protection. In addition, under the
Investment Code, the UIA may grant investment incentives
conditional upon the use of local inputs or export
performance.
While
the incentive scheme is intended to broaden the regional
and sectoral pattern of production, its continuing
imbalances may discourage activities which could perform
better in a more neutral environment. The planned reform
of the tax system could provide scope for further,
broader-based tariff cuts and help reduce such risks.
Rehabilitation
and modernization of the infrastructure and of basic
business services have been given top priority. The
Government has sought, in particular, to make the banking
sector more efficient and deregulate the transport
industry. Reforms in telecommunications may follow suit;
in this connection, modernization of the basic
telecommunications network and reform of the pricing
structure would be of significant benefit to Uganda's
economy. The same applies to electricity generation and
distribution, whose reliability seriously suffers from
outdated equipment.
Trade
Policies and Foreign Trading Partners
Autonomous
trade and investment liberalization has been a key to
Uganda's economic performance since the mid-1980s. It has
helped to attract foreign donors and investors and create
the conditions for rapid economic recovery. To improve
the resource base for continued expansion, investment
flows would need to be complemented by enhanced domestic
capital formation. Although the principal macroeconomic
conditions are in place - fiscal prudence and a
low-inflation environment - private savings have remained
low. However, with confidence growing in Uganda's
economic and institutional stability, this is likely to
change.
Trade
policy and, in particular, the creation of a domestic
trading environment in which anti-export bias is
diminished or absent has an important rôle to play in
Uganda's future development. Enhanced international
integration, based on commitments under WTO and COMESA,
will help ensure the momentum of reform, spur resource
efficiency, provide market potential for emerging
industries, and encourage long-term development of trade
and investment. Uganda's recent performance testifies to
what liberalization and economic reforms can achieve
rapidly in a poor, devastated economy; continuation and
consolidation of the process is crucial in the rebuilding
of the economic structure.
Government
report
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TRADE
POLICY REVIEW BODY: UGANDA
Report by the Government
Overview
Uganda
which became independent in October 1962 is an East
African country whose post-independent history has been
characterised by civil strife and political instability.
However, with the coming into power of the ruling
National Resistance Movement Government, the rule of law,
peace and stability have been restored.
About
90 per cent of the 17 million population of Uganda live
in rural areas where they depend directly on agricultural
and related activities for livelihood. At the moment the
country relies heavily on coffee and a few primary
commodities for its exports. In order to widen (expand)
the export base, the Government of Uganda has embarked on
an ambitious Export Diversification Programme to promote
the non-traditional crops.
Since
May 1987, the Government of Uganda has been pursuing bold
macro-economic policies and implementing an Economic
Recovery Programme aimed at achieving economic
stabilization in the short-term and sustained growth in
the medium to long term.
As
a result of these measures, Uganda's economy registered
an average annual growth of 5.7 per cent for the last six
years. Over this period, per capita incomes rose by 2.8
per cent per annum. However average per capita still
remains very low at US$170.
The
Economic Recovery Programme (ERP) aimed at three major
objectives:
(a)
Restoring economic stability by reducing inflation
through fiscal management and monetary performance;
(b)
Accelerating growth in production for export through
price liberalization, deregulation of economic activity
and encouraging saving and investment;
(c)
Expanding social and economic infrastructure to increase
productivity, reduce poverty and improve standards of
living of the populace.
Uganda's
economy was devastated by political and civil conflict
extending over two decades between 1966-1985. When the
NRM came to power in 1986, it embarked upon structural
adjustment programmes aimed at reviving the economy as
quickly as possible.
Due
to Government's determination in pursuing sound
macro-economic policies and the implementation of
structural reforms, inflation has been brought under
control, there has been improvement in the budgetary
deficit and a substantial rise in private transfers to
the economy. Uganda has made good progress in economic
recovery as Government moves from rehabilitation to
development.
The
Government has made great efforts to provide an
attractive and appropriate environment for foreign direct
investment through realistic policies. Government's
action to return over 2,500 foreign expropriated
properties has sparked off major rehabilitation
investments with a resultant expansion of employment and
income opportunities. This move has rekindled business
enthusiasm and restored confidence and security to the
aspiring investors.
Efforts
have also been made to broaden he country's tax base
without discouraging savings and investment. In order to
streamline and enhance tax collection a tax body known as
the Uganda Revenue Authority (URA) was established in
1991 and since its inception, it has made remarkable
success in revenue collection.
Priority
objectives in the trade sector have focused on a plan to
regain Uganda's previous peak export levels and setting
the stage for enhancing export volumes and earnings with
a view to achieve a self sustaining export sector. To
this effect, measures that have been adopted include the
rehabilitation of the traditional export sector and the
promotion, development and expansion of non-traditional
products; promotion of sustainable industrialisation;
promotion and facilitation of the efficient marketing of
agricultural produce; adoption of a market-determined
exchange rate system; trade and marketing liberalisation
including removal of licensing and price controls. Other
measures are tariff and tax reforms and the
rehabilitation of the essential infrastructure.
Although
the above measures have led to some improvement in the
performance of the export sector, Uganda still has a
narrow export base. The government has therefore, mounted
a vigorous export and investment promotion drive to
expand the export base through diversification and
penetrating into new markets.
While
the market improvement in the economy will certainly
enhance the success of this effort, a more liberalized
and open multilateral trading system resulting from the
Uruguay Round Agreements will no doubt contribute a great
deal to the attainment of Uganda's objectives. It is for
this reason that Uganda fulfilled all the necessary
conditions to become an original member of the WTO.
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