Kampala, Uganda | URN | As Uganda prepared to impose a lockdown to stem the spread of the coronavirus disease (COVID-19), some investors withdrew billions of shillings from their businesses and ran for safer economic havens, according to Bank of Uganda.
In just one month between February and March 6, 2020, investors withdrew at least 165 billion Shillings from the country. Of this, at least 59 billion Shillings was in government securities while 105.7 billion Shillings had been placed in commercial banks in the country as deposits.
BoU says in the latest report that captures the first seven months of financial year that this was a time of panic and uncertainty and “flight for the havens was unavoidable”.
As the investors flee the country, the Uganda currency, the shilling experienced the biggest depreciation in recent times. For instance, mid-March, the local currency breached the Shs 3,900 mark against the dollar, the lowest level it has traded ever.
Stephen Kaboyo, the managing director of financial firm Alpha Capital said during the panic, investors were exiting countries they were unsure of and were willing to hold the dollar over any other currency.
BoU’s reporting does not capture the months of April and May when the impact of COVID-19 on Uganda’s economy is assumed to have reached the peak. However, the Bank of Uganda captures the extent of plunges expected in key sectors like tourism, remittances and foreign direct investments due to COVID-19.
For tourism, BoU says it expects the sector’s earnings to fall to USD748m in 2019/2020 financial year from $1.1bn in 2018/2019.
This will fall further to USD 369 million in 2020/21 financial, an indicator the pain for the industry is on for at least an extra year. Tourists to Uganda come from countries that have been most ravaged by the virus including Europe and China. Going forward in the next three years, travel might be relegated to essential not leisure.
On remittances – the money sent by Ugandans living abroad to their families – BoU says they will fall from USD 1.3 billion in 2018/19 to USD 955 million in 2019/2020.
This will fall further next year to USD 238 million – indicating an 80 percent plunge of diaspora remittances. This is because most Ugandans working abroad and therefore the source of this money, either lost their jobs or have had pay cuts. For many, it will take a while before they find new work to starting sending money again.
Foreign Direct Investment (FDI), the money that foreigners bring into Uganda to invest in different areas will also drop by 80 percent in the 2020/21 financial year. BoU says FDI will fall from USD 1.4 billion in 2018/19 to USD 766 million in 2019/20. It will fall further to USD 302 million in the 2020/21 financial year.
Bigger recipients of this money like real estate, mining and manufacturing are expected to suffer declines in activity. Falls of this decline have a direct bearing on the revenues government can collect. This means a likely fall in investment in social services like health and education.
The government has written to international lenders to give it money to cover revenue gaps.