14 March 2014.
ESID’s new working paper answers the question “How should Uganda grow?” Authors Ricardo Hausmann, Brad Cunningham, John Matovu, Rosie Osire and Kelly Wyett use product-space analysis that, in light of the country’s structural trends and productivity patterns, the central priority for the Ugandan government is ensuring that its upcoming oil revenue supports export diversification.
Here are some excerpts:
Uganda needs to increase its exports in order to create employment, reduce the current account deficit and sustain the growth it has enjoyed thus far.
There is great potential to improve output and productivity in agriculture in Uganda. However, this will lower the demand for labour, not raise it. Moreover, this will occur in an environment of rapid population growth, further emphasising the need for non-agricultural employment. The challenge for Uganda is therefore to create productive jobs in other sectors to absorb the labour released from agriculture and that generated by population growth.
Uganda will need a plan to manage revenue from the oil boom in order to avoid excessive real exchange rate appreciation and volatility. To address this, the government should make a credible commitment to a stable and competitive real exchange rate by setting a target for the non-oil fiscal deficit that does not respond to short-term fluctuations in oil revenues. This will give stability to spending and reduce both the Dutch disease and the inefficient specialisation that originates from a volatile real exchange rate. This will ultimately lead to a more diversified economy.
Read the entire paper:
- ESID Working Paper No. 30 – Ricardo Hausmann et al., How should Uganda grow?