STRUCTURE OF UGANDA’S ECONOMY

This refers to the basic/salient features of the economy of Uganda.

When we are looking at the structure of Uganda’s economy, the following are always put into
consideration;

▪ The pattern of social economic organization.

▪ The major sectors of the economy e.g. agriculture, industry, public, private sector etc.
▪ Composition of the major sector.
▪ The stock of human and non- human resources.

BASIC/SALIENT FEATURES OF UGANDA’S ECONOMY:

Uganda’s economy can be described as follows;
1. It is predominantly an agricultural economy. Agriculture is the major sector/production
activity because it contributes a big percentage of the country’s GDP and employs a
bigger proportion of the country’s labour force. It is also the major source of food and
foreign exchange earner for the country.
2. It is basically a mixed economy. This means that resources are owned and allocated to
different uses by both the government and private individuals.
3. Uganda’s economy has got a small but growing industrial sector with most industries
involved in processing.
4. It is a dual economy. Elements of dualism in Uganda include; Co-existence of the poor
people alongside the rich, rural areas alongside urban areas, the educated alongside the
illiterate people, subsistence sector alongside the monetary sector etc.
5. It is an open economy. This implies that Uganda participates in international trade.
6. It is a highly dependent economy. Uganda relies heavily on foreign economics for
financial and human resources. It also relies on agricultural sector for her exports and
employment.
7. Uganda’s economy is characterized by high levels of unemployment and under
employment. This is due to abundant supply of unskilled and semi-skilled labour force in
the country’
8. Uganda’s economy is characterized by a high population growth rate, this is due to the
high birth rates and low death rates.
9. The labour force is predominantly unskilled due to the low levels of education.
10. It is characterized by a growing informal sector. This is an intermediate sector existing
between the modern and traditional sector.

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 11. It is characterized by a large subsistence sector i.e. most producers produce for home
consumption.
12. It is characterized by poorly developed social and economic infrastructure e.g. roads are
in a poor state but improving, there is shortage of power and inadequate communication
facilities.
13. Excess capacity exists in many sectors of the economy. This means that most firms
produce at less than full capacity due to poor technology, inadequate capital, limited
market size etc.
14. The employment pattern is such that the majority of labour force is in the primary sector
especially the agriculture sector. Few Ugandans are engaged in manufacturing and very
few of the labour force is found in the tertiary sector (service industry).

ECONOMIC IMPLICATIONS/EFFECTS OF THE STRUCTURE OF UGANDA’S

ECONOMY

The following are the social and economic implications of the structure of Uganda’s
economy.

Balance of payments deficit. This is due to the high expenditure on importation of

manufactured products which are highly priced and low earning from exports which are
mainly agricultural products that fetch low prices on the world market hence causing a B.O.P
deficit.

Heavy debt burden. This arises from over dependence on foreign aid inform of loans which
require paying back.

Low tax base and low tax revenue. This is due to the presence of a large subsistence sector
and a small industrial sector whose activities are not taxed.

Low labor productivity. This is due to dominance of unskilled labour force.

High levels of poverty among people. This is due to low incomes resulting from a large
subsistence sector.

There failure of government plans. This is due to dependence on foreign aid which is
inadequate and sometimes unreliable.

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 It implies unfavorable terms of trade. This is because of dependence on primary
agricultural exports which fetch low prices on the world market yet Uganda mainly imports
manufactured goods which are highly priced.

Fluctuation in foreign exchange earnings of the country. This is due to the dominance of
agricultural product exports whose prices are unstable.

Low levels of savings and investment. This is due to a high dependence burden arising from
a high population growth rate.

Low rate of economic growth and development. This is because most of the country’s
natural resources are under-utilized.

There is diminishing returns on land due to dependence on agriculture i.e. decline in

productivity of land arising from over utilization of land.

Income inequality among people. This is due to high levels of unemployment and
dominance of subsistence sector where producers earn low income compared to the few
engaged in monetary products and the employed who earn high incomes.

Low levels of technological advancement. This is caused by technological dualism in

Uganda. There is still predominance of rudimentary/ backward skills of production in many
parts of the country because of conservatism among people and limited capital.

MEASURES THAT CAN BE TAKEN TO IMPROVE UGANDA’S ECONOMY

1. Develop infrastructure. The government can construct and rehabilitate the infrastructure
especially the road network. This can enable easy movement of raw materials to production
centres and finished goods to market areas and at reduced cost. This can encourage more
investment in the economy and thus improve Uganda’s economy.
2. Widen market both local and foreign. The government can expand the market through
joining regional economic integration like East African Community, COMESA, etc. This
can encourage more investments and production in the country because of the assured market
for goods.
3. Provide affordable capital for investment. The government can offer loans at low interest
rate for investment. This can help to expand the capital base of the investors and result into
increase in investment and output.

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4. Stabilize the political climate. The government can ensure relative peace in different parts
of the country through strengthening of defense. This can give confidence to investors since
there are assured of safety for life and property thereby creating an increase in the level of
investment and production.
5. Provide investment incentive like tax holidays, allocation of land for industries etc. This
can reduce the cost of doing business and thus encourage investors to set up more production
units in the country.
6. Control population growth rate. This can be done through promoting family planning in
order to reduce the dependence burden on the working population. This can increase the level
of savings and investments in the country.
7. Improve the techniques of production through research. The government can encourage
technological development and transfer as a way of promoting better techniques of
production that can cause increase in the volume of output and improvement in the quality of
output.
8. Improve the land tenure system. The government can carry out land reforms to give
investors easy access to land and chance to buy land on which to set up production units.
This can promote investment and commercial production.
9. Modernize agriculture. The government can encourage the transformation of agriculture
from subsistence production to commercial oriented production. This can reduce subsistence
production activities in agriculture and increase incomes of produces and the supply of raw
materials and food in the country.
10. Diversify the economy. The government can encourage the starting up of many economic
activities in the country. This can reduce dependence on agriculture and its negative effects
11. Provide labour with skills through training. This can enable labour to acquire the
necessary skills for production and thus increase labour productivity and efficiency.
12. Improve entrepreneurship skills. This can help in ensuring proper organization and
coordination of factors of production in order to increase output.

Questions:
a) Describe the structure of Uganda’s economy.
b) What are the implications/impacts/effects/consequences of the structure of Uganda’s
economy?
c) Explain measures that can/should/may be taken to improve the structure of Uganda’s
economy.

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 THE AGRICULTURAL SECTOR

Agriculture consists of crop husbandry, forestry, fishing and livestock keeping. It is the backbone
of Uganda’s economy. Over 75% of the people in Uganda are dependent on agricultural
activities for their livelihood.

THE STRUCTURE OF AGRICULTURAL SECTOR IN UGANDA:

1. It is dominated by small scale farming activities due to the poor land tenure system.
2. The agricultural sector mainly uses unskilled and semi-skilled labour.
3. It is dominated by food crops. It has a narrow range of cash crops.
4. It is dominated by subsistence production i.e. most of the farmers grow crops and rear
animals for home consumption.
5. The agricultural sector mainly uses simple/rudimentary technology inform of hand
hoes, pangas etc.
6. Mainly labour intensive i.e. the sector mainly uses labour in production activities.
7. There is high dependence on family labour in production i.e. parents and the children
are the major sources of labour in agricultural production.
8. The agricultural sector is mainly rural based. This means most agricultural productions
activities take place in rural areas.
9. The agricultural sector mainly produces low quality output. This is due to the use of
poor techniques of production.
10. Uganda’s agricultural sector mainly produces for the domestic market. It has a narrow
range of export crops.
11. There are low levels of industrialization within the agricultural sector.
12. The agricultural sector basically produces for the local /domestic market i.e most of
the output produced is sold with in Uganda.

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IMPLICATIONS/IMPACTS/EFFECTS OF THE STRUCTURE OF AGRICULTURAL
SECTOR IN UGANDA.

POSITIVE EFFECTS:
Provides employment opportunities. This is because agricultural sector mainly uses labour
intensive techniques of production which employ more labor units than capital.

It encourages effective utilization of land resources which reduces wastage of resources.

This is because majority of the people in Uganda are engaged in agricultural sector and thus
more land is put to use.

Increases GDP/output levels hence economic growth. This is because a bigger percentage of
the population is engaged in farming which leads to high output hence promoting economic
growth.

Reduces dependence on food imports. This is due to the dominance of food crop production.

Provides of revenue to the government. This arises from the taxes which are imposed on
agricultural output as well as incomes of workers employed in the agricultural sector.

Promotes development of infrastructure especially roads. Infrastructure inform of roads are

set up to facilitate agricultural production and marketing of agricultural output.

Provides foreign exchange earnings to the economy. This is through exportation of

agricultural products such as cotton, coffee, tea, tobacco etc.

Provides market for industrial products. This is because agricultural sector uses inputs inform
of chemicals, fertilizers and firm implements which are provided by the industrial sector.

Promotes balanced regional development. This is because agriculture is carried out by many
people in various parts of the country hence promoting balanced regional development.

Provides raw materials for the industrial sector. Agro-processing industries such as sugar
industry and the soft drinks industry use agricultural output as their input hence promoting
industrial development.

Reduces income inequality between the rural people and the urban people. This is because
the agricultural sector provides employment and incomes to the rural people since it is mainly
rural based.

It reduces rural- urban migration with its negative effects. This is because the agricultural
sector is mainly rural based and therefore employs rural population which reduces rural- urban
migration with its evils such as open urban unemployment, high crime rate etc.

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NEGATIVE EFFECTS:
It leads to low output level hence low rate economic growth. This is because most farmers use
rudimentary technology which is inefficient.

Leads to seasonal unemployment. This is due to dependence on nature by most farmers which
makes them unemployed during the unfavorable season. e.g. prolonged drought conditions.

Low government revenue is realized. This is because of the pre-dominance of subsistence

farming which leads to a narrow tax base.

Worsens income inequality. This is due to the dominance of subsistence farming that leads to
low earnings among many farmers compared to those engaged in commercial farming earning
high incomes.

Causes structural inflation. This is due to dependence on nature for production which causes
shortage of goods in the domestic market when natural conditions are unfavorable.

Results into high poverty levels in a country. This is because of the dominance of subsistence
farming which results into low output and low income.

Discourages technological development. This is because the agricultural sector mainly uses
simple tools and most of the farmers are conservative.

It leads to unfavorable balance of payments position. This is because of exportation of mainly

agricultural products that are of low value, quantity and limited variety which fetch low foreign
exchange earnings yet foreign exchange expenditure is high due to importation of highly priced
manufactured goods.

Results into unfavorable terms of trade. This is because of exportation of mainly agricultural
products at low prices due to low quality yet the country imports highly priced manufactured
goods.

Persistent price fluctuations. This is because of dependence on nature by most farmers which
causes instability in output and prices.

Limits employment opportunities. This is because of the dominance of small scale farming
activities.

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 Qns:
1. (a) Describe eh structure of Uganda’s agricultural sector.
(b) Examine the effects/implications/consequences/impacts of the structure on the
agricultural sector in Uganda.
(c) Explain the steps that can be taken to improve on the structure of agricultural sector in
Uganda.
2. Access the role/contributions of the agricultural sector to the economic development of
Uganda.
3. Why is there need to change the structure of Uganda’s agricultural sector.

STEPS THAT CAN BE TAKEN TO IMPROVE ON THE STRUCTURE OF

AGRUCULTURAL SECTOR IN UGANDA
The following are the steps/measures that can be taken to improve the structure of
agricultural sector in Uganda/ To improve performance of Uganda’s agricultural sector;
• Undertake land reforms. This can increase access to land for commercial farming
leading to high output levels.
• Improves infrastructure such as roads and storage facilities. This will enable easy
movement of agro- inputs of firms and also facilitate easy marketing of agricultural
output thus promoting commercial farming.
• Modernize Agriculture. This can be done through use of irrigation farming, application
of fertilizer, pesticides. This can reduce on dependence on nature resulting into increased
output.
• Provide extension services to farmers. This will enable farmers to adopt modern
farming methods which are more productive since it breaks conservatism and improves
on the skills of farmers.
• Ensure political stability in the country. This can reduce the risk of loss of lives and
property and give confidence to investors to invest in the agricultural sector thus
promoting commercial.
• Affordable credits should be provided to farmers. This will enable farmers to buy
adequate in puts such as better seed, pesticides, fertilizers and other required farm
implements which can enable them expand production.
• Encourage formation of co-operative societies by farmers. This can enable farmers to
market their produce collectively and access loans collectively thus facilitating
commercial production.

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 • Diversify the agricultural sector. This can be done through introduction of new crops,
economic activities within agriculture i.e. floriculture, bee keeping, agro-forestry, fish
farming etc. which will reduce dependence on few crops and production activities within
the agricultural sector. Diversified agriculture will reduce on effect of price fluctuation
and also increase incomes of farmers.
• Improve technology. This can be done through research into better methods of
production and technological transfer by way of importing modern production equipment
from developed countries. This can increase efficiency in agricultural production.
• Encourage setting up of agro-based industries. This can be done through provision of
investment incentives to investors in agro- processing. These industries can add value to
agricultural output and thus make them fetch high and stable prices on the world market.
• Improve skills of labour. This can be done through education and training. This will
increase productivity and efficiency in farming /agricultural sector hence expanding
commercial farming.

REASONS WHY THE STRUCTURE OF AGRICULTURAL SECTOR SHOULD BE

CHANGED IN UGANDA:
• To increase output levels /productivity hence economic growth. This is achieved
through encouraging research into modern techniques of production and also research
into better yielding crop varieties and animal breeds hence increasing agricultural output.
• To expand employment opportunities and hence reduce on the problem of disguised
and seasonal unemployment. This is through undertaking agriculture modernization
inform irrigation farming that reduces dependence on nature thus enabling farmers to
carryout production throughout the year.
• To widen the tax base/to increase revenue of government through taxation. This is
through encouraging commercial production which increases revenue from taxes
imposed on large scale firms, taxes imposes on workers employed in commercial
farming.
• To increase incomes of rural people. This is through encouraging commercial
production which increases incomes of rural farmers there by reducing rural poverty.

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 • To improve on the balance of payments position in the country. This is through
increasing the value and variety of agricultural exports as a result of commercialization
and diversification of agriculture hence increasing the foreign exchange earnings from
agricultural exports.
• To improve on the terms of trade. This is achieved through promoting agricultural
research, agro processing which results into value addition and production of high quality
products which fetch high prices on the world market.
• To control structural inflation. This is achieved through mechanization and irrigation
farming that lead to increased output levels hence stabilizing the domestic prices of
agricultural products.
• To encourage investment in the agriculture and hence increase utilization of land
resources. This is achieved through expansion of the market for the agricultural output
and commercialization of agriculture which attracts more investment in the agricultural
sector and thus put land resources to effective use.
• To promote the growth of the industrial sector. This is through increasing supply of
agricultural raw materials through diversification and commercialization of agriculture.
• To enable effective economic planning based on stable earnings from agricultural
output. This is achieved through improving on the quality and increasing of the quantity
of agricultural output for both foreign and domestic market resulting into stable earning.
• To ensure food security and a healthy population. This is attained through
modernization of agriculture which increases quantity and quality as well as the variety
of agricultural output.
• To expand market for industrial output. This is due to the linkage between agriculture
and industry where by the development of agricultural sector results into increase in
demand for industrial equipment such as hand hoes, wheel barrows and other chemicals
which are used as inputs by the agricultural sector.
• To encourage monetization of the economy/ To reduce on the size of the subsistence
sector. This is achieved through encouraging modern and commercial agricultural
production activities.
Qns:
(a)Account for the poor performance of the agricultural sector in Uganda.
(b)Explain the measures that have taken to improve performance of agricultural sector in
Uganda.
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THE STRUCTURE OF INDUSTRIAL SECTOR IN UGANDA:
The industrial sector in Uganda can be described as follows;
1. The industrial sector in Uganda is mainly composed of small scale industries.
2. Most of manufacturing industries use imported raw materials.
3. The industrial sector in Uganda mainly produces low quality goods.
4. The industrial sector mainly comprises of agro processing industries i.e. most industries
use agricultural raw materials.
5. The industrial sector mainly produces for the domestic market.
6. Most of the industries produce at excess capacity due to low levels of technology used
and limited market size.
7. The industrial sector mainly produces consumer goods e.g. soft drinks, soda etc.
8. The industrial sector mainly uses the HEP to run the machinery.
9. The industrial sector in Uganda is mainly urban based i.e. most industries are located in
towns.
10. The industrial sector in Uganda mainly uses labour intensive technology.
11. The industrial sector is dominated by import substitution industries i.e. most firms in
industrial sector produces goods which were formally imported.
12. Most of the industries produce at excess capacity due to low levels of technology used
and limited market size.

IMPLICATIONS /IMPACTS/EFFECTS OF THE STRUCTURE OF UGANDA’S

INDUSTRIAL SECTOR
Positive effects (positive contributions/role of the industrial sector towards
development)
1. Provides employment opportunities. This is because most industries use labour
intensive technique of production which reduces on the rate of unemployment.
2. Provides a variety of goods and services to people which widens consumer choice.
This is because most firms are involved in production of different products especially
consumer goods.
3. Widens the country’s tax base which leads to increased government revenue. This is
because government imposes taxes on firms in the industrial sector and also on incomes
of workers employed in the sector.
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 4. Promotes inter sectoral linkages which leads to development of other sectors
especially agriculture in the economy. This is through provision of market for
agricultural output since most firms are involved in agro- processing. In addition to this,
the industrial sector provides inputs to the agricultural sector in form of fertilizers,
chemicals, firm implements.
5. Increases utilization of natural resources in the country. This is because the industrial
sector mainly uses local raw materials and this reduces wastage of resources.
6. Increases output levels/GDP hence economic growth. This is because of the many
firms which are involved in industrial commercial production activities leading to high
output level hence economic growth.
7. Promotes economic diversification. This is because industrial production activities
provide alternative means of income generation to the economy thus reducing
dependence on one sector especially agriculture.
8. Improves on the balance of payments position of the country. This is because most
industries are import substitution i.e. produce goods which were formerly imported which
reduces on the expenditure on imports.
9. It encourages self reliance/reduces dependence on other countries for imports. This
is because most industries produce goods for the domestic market and also produce goods
that are previously imported.
10. Promotes development of infrastructure especially roads and electricity. This is
because infrastructure is set up to facilitate industrial production activities.
11. The industrial sector improves on the labour skills. This is through on-job training
since most industries use labour intensive techniques of production which increases
productivity of labour.
12. Increases capital inflow. This is because most large scale industries are owned by
foreign investors who bring capital into the country hence increasing investment in the
industrial sector.

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NEGATIVE EFFECTS:
• Increases rural urban migration with its negative effects such as high crime rates,
open urban unemployment etc. This is because most industries are urban based which
attracts people from rural areas to move to urban areas to search for employment.
• Leads to high social costs inform of pollution of air and water. This is because of
emission of dangerous fumes into the atmosphere by industries and also dumping of
industrial wastes into water bodies especially in urban areas where most industries are
concentrated.
• Leads to regional imbalance in development. This is because most industries are
located in urban centers which makes them develop faster as the rural areas where
industries are limited lag behind.
• Results into low levels of output. This is because of the sector is dominated by small
scale industries and operation at excess capacity by most industries.
• Low quality of output is produced. This arises from use of simple technology by most
industries.
• Encourages dependence on foreign market for capital and other intermediate goods.
This is because of existing industries mainly produce consumer goods and therefore
country has to import capital goods from other countries resulting into dependence on
other countries.
• Worsens the problem balance of payments. This arises from high expenditures on
imported capital goods and raw materials for use in the industrial sector compared to the
low earnings from exports since they are of low quality and quantity.
• Low revenue to government. This is due to the dominance of small scale industries and
some not taxed at all.
• Causes technological unemployment. This is because some industries especially
manufacturing industries use capital intensive technology where labour is replaced by
machines.
• Leads to increased capital outflow inform of profit repatriation. This is because
foreigners own most of the large scale industries and therefore take profits made back to
their countries.
• Industries tend to produce highly priced goods. This is due to high production costs
inform of high taxes, high costs of raw materials. Etc.

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 • Leads to high government expenditure on subsidization of import substitution
industries and small scale industries. This is because such industries need to be
protected against competition with imports to enable them continue in the production
process. This is done through provision of financial assistance by government to enable
them produce at reduced cost and compete with imports.
Questions:
1. (a) Describe the structure of industrial sector in Uganda.
(b) What are the implications of the structure of the industrial sector to Uganda’s
economy?
2. Examine/Assess the contributions of the industrial sector to the development of
Uganda.
3. (a) Account for the poor performance of Uganda’s industrial sector.
(b) Suggest the measures that should be taken to develop the industrial sector in
Uganda.
FACTORS THAT INLUENCE THE DEVELOPMENT OF THE INDUSTRIAL
SECTOR IN UGANDA
1. Availability f raw materials.
Increased availability of raw materials especially for the agro-based industries leads to high
level of industrial production hence high industrial development and limited raw materials
for the agro-based industries results into low industrial production thereby leading to slow
growth of the industrial growth of the industrial sector in some areas.
2. Availability of market for industrial goods.
A widened market for industrial goods encourages more investors to set up industries since
they are assured of market for their goods thereby leading to high levels of industrial
development while limited market results into wastage of resources used in the production of
industrial products thereby discouraging investment in the industrial sector.
3. Government policy on industrial development e.g. taxation and land allocation.
Favorable government policy on industrial development through provision of tax holidays
and land allocation reduces the cost of production and increases profitability of investments
thereby leading to high industrial development while unfavorable government policy on
industrial development in form of high taxes increases production costs which results into
low profits for industrial investors thereby slowing the growth of the industrial sector in
Uganda.
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4. Level of technology.
The use of improved techniques of production e.g. capital intensive techniques results into
large scale industrial operation and production of quality output thereby leading to high
industrial development while increased use of poor techniques of production in form of
labour intensive techniques encourages small scale operation and production of poor quality
output that are not competitive thereby leading to low industrial development.
5. Political climate.
Stable political climate gives confidence to entrepreneurs to set up industrial plants since
they are assured of safety for their lives and property thereby leading to high industrial
development while political instability creates fear among people because they are not sure
about the security of their life and industrial property thereby leading to low industrial
development.
6. Level of infrastructural development.
High level of infrastructural development in form of good roads increases accessibility to raw
materials for industries and market for industrial products thereby leading to industrial
development while poor infrastructure in form of poor roads limits access to raw materials
for industrial output thereby leading to low industrial development.
7. Level of capital stock.
Increased capital stock enables better machinery and more factor inputs to be purchased
thereby leading to high industrial development while limited capital stock results into
acquisition of poor machinery and few factor inputs thereby leading to slow growth of the
industrial sector.
8. Availability of land or the existing land tenure system.
A favorable land tenure system where there is private ownership of land leads to high level of
industrial development because of increased access to land resources while poor land tenure
system e.g. communal ownership of land hinders the setting up of industries due to lack of
access to the land resources thereby leading to low industrial development.
9. Level of accountability in the industrial sector.
High level of corruption results into diversion of funds meant for industrial projects and
denial of licenses to set up industries which leads to low industrial development while high
level of accountability result into adequate financing for industrial activities thereby leading
to high industrial development.

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10. Size and quality of labour force.
High levels of skills of the labour force make it possible to effectively run industries thereby
leading to high industrial development while limited skills of the labour force result into
inefficiency and production of poor quality output that is not competitive thereby limiting
industrial development in the country.
11. Level of entrepreneurial skills.
High level of entrepreneurial skills enable proper organization of other factors of production
thereby leading to high industrial development while low level of entrepreneurial skills
results into poor organization of other factors of production thereby limiting industrial
development in the country.
12. Level of economic stability/ rate of inflation.
High rates of inflation increase the cost of production thereby making the acquisition of raw
materials and power expensive thus limiting industrial development while low rates of
inflation increase the profitability of the industrial investment due to the low cost of
production incurred by investors thereby leading to high industrial development.

FACTORS THAT HINDER THE DEVELOPOMENT OF THE INDUSTRIAL SECTOR

IN UGANDA: (Causes of the poor performance of the industrial sector in Uganda)

• Limited domestic market. This is due to low level of income among people which
discourages industries from producing on a large scale due to fear of making losses.
• Limited capital. This makes it difficult for industrialists to purchase industrial machinery
and other inputs thus making them operate at excess capacity.
• Poor technology used in production. This leads to inefficiency in production hence
limiting industrial development.
• Limited supply of skilled labour. This leads to low productivity of firms and also makes
some firms to use expatriates who are costly hence limiting industrial development.
• Shortage of strategic raw materials. This makes some industries to rely of imported
raw materials which are costly and makes some industries to operate at excess capacity.
• Under developed infrastructure e.g. roads. This makes it difficult to transport raw
materials to production centres and finished goods to market centres which reduces on
the level of profits thus hindering industrial development.
• Political instability in some parts of the country. This scares away investors due to fear
of loss of life and property thus limiting industrial development.
• Unfavourable government policy on investment. This is inform of high tax rates on
industries. This increases the cost of production which reduces the profit margin thus
limiting industrial expansion. Thus limiting industrial development.

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 • Poor land tenure system. This makes it difficult for investors to access land for
industrial establishment and expansion.
• High rate of inflation. This increases the costs of production which reduces the profit
margin thus limiting industrial expansion.
• Low level of accountability /high rate of corruption. This results into diversion of
funds meant for industrial projects and denial of licenses to set up industries which leads
to low industrial development.

Steps being taken to develop the industrial sector:

• Market is being expanded through economic integration and market research.

• Government is providing affordable credit to industrialists.
• Political climate is being stabilized.
• Land tenure system is being reformed
• Government is improving on infrastructure
• Labour skills are being improved through education and training.
• The economy is being further liberalized.
• Government is providing investment incentive to industrialists.
• Inflation is being controlled.
• Proper accountability is being ensured
• Technology is being improved through technological transfer and research
• Skills of entrepreneurs are being improved
• Government is privatizing some public enterprises
• Supply of industrial inputs is being increased through modernization and
commercialization of agriculture.

THE INFORMAL SECTOR IN UGANDA

The informal sector is an intermediate sector which exists between the traditional sector and the
modern sector.
It is mainly made up of economic activities which have slowly developed from traditional form
of production and are slowly being modernized.
Examples of businesses /activities include;
Tailoring, road side trader, petty trading by hawkers and street venders, small furniture making
units, small metal wielding units, car washing units, shoe shiners, motor and bicycle mechanic
workshops etc.

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FEATURES OF UGANDA’S INFORMAL SECTOR:
• The informal sector basically uses local resources/ raw materials e.g. clay, timber etc
• Output produced is mainly of low quality due to the use of simple technology.
• The informal sector business mainly operate under semi- permanent structures.
• Businesses under the informal sector mainly operate under sole proprietorship.
• Informal sector mainly produces for local or domestic market.
• The informal sector mainly produces consumer goods e.g. food stuffs.
• The informal sector mainly uses poor/simple technology due to little capital involved in
business.
• There is limited government control over the informal sector businesses.
• The informal sector is dominated by unskilled or semi-skilled labour due to low levels of
education among local people.
• The informal sector is characterized by poor or no book keeping.
• The informal sector is mainly dominated by unregistered businesses.
• Informal sector businesses activities are mainly semi urban based / mainly take place in
outskirts of cities and towns.
• Production is mainly on a small scale because people employed in the informal sector
have less capital.

ROLES /CONTRIBUTIONS OF THE INFORMAL SECTOR IN THE DEVELOPMENT

OF UGANDA’S ECONOMY:

Positive Contributions:

• Creates employment opportunities. This is because informal sector businesses employ

labour intensive techniques of production which reduces the problem of unemployment.
• Facilitates increased utilization of local resources. This is because businesses in the
informal sector mainly use local raw materials and this reduces resource wastage.
• It reduces income inequality among people. This is because many people are employed
in the informal sector since it is labour intensive and requires less capital to engage in
business.
• Provides a variety of goods which widens the consumer choices. This is as a result of
many production activities that people are engaged in the informal sector.

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 • It provides a cheap training ground for local labour force. As people work in the
informal sector, they gradually learn new skills on jobs which leads to development of
local skills in the long run.
• The sector provides locally affordable goods and services. This is because of the use
of local raw materials which are less costly and the low production costs involved.
• To some extent the informal sector contributes revenue to government. Business
owners in the informal sector pay license fee to government in order to be allowed to do
business and some pay taxes to government.
• Promotes commercialization of the economy. This is because the informal sector
produces goods which are sold in exchange for money thereby expanding the monetary
sector of the economy.
• Develops of entrepreneurial skills. Through the informal sector, people learn to
organize the available factors of production and how to bear risks in business which gives
them confidence to set up business activities.
• Increases the level of output produce in the country. This is because of the many
people involved in different business activities under the informal sector.
• Facilitates development of small scale industries in the country. These are inform of
welding and metal fabrication plants, clay works, carpentry and joinery workshops which
are set up since they require little capital to start the business.

Negative implications

1. Creates congestion in urban and sub-urban areas.

This is because the sector is dominant in semi-urban areas thereby attracting many people in
such areas. This results into a high crime rate and open urban unemployment.
2. Results into duplication of services due to wasteful competition.
Many people get involved in one line of activity or one line of operation within the informal
sector and yet they all serve the same market. This creates wasteful competition which finally
results into resource wastage.
3. Causes pollution of the environment.
Informal sector activities lead to air and water pollution especially in the areas of their
operation due to poor disposal of wastes e.g. in Katwe and Kisenyi, metal scrap fabricators
pollute the environment.

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4. It causes public revenue instabilities.
The informal sector is not a reliable and significant source of revenue to the government due
to the unstable incomes of the operators and the poor record keeping that makes tax
assessment difficult.
5. It is associated with high administrative costs.
Sometimes the government uses local authorities like KCCA to remove businesses of the
informal sector from particular areas and this involves a high on the part of the government.
6. Hampers provision of low quality services because the informal sector uses poor
technology and unskilled labour. This results in production of poor quality commodities that
are sold at low prices.
7. Gives rise to disguise unemployment and under-employment.
This is because of the small nature of the business activities in the informal sector.

PROBLEMS FACED BY THE INFORMAL SECTOR IN UGANDA

• Narrow/limited domestic market. This results into losses hence limiting expansion of
production activities in the informal sector.
• Inadequate capital. This makes it difficult for business men in informal sector to buy
adequate input hence limiting expansion.
• Political instability in some urban centers. This scares away people from doing business
due to fear of loss of life and property and at times it increases cases of theft resulting
into losses and limited expansion .
• Poor technology. Informal sector mainly uses simple technology which is inefficient and
results into production of low quality goods hence limiting expansion.
• Unfavourable natural factors. During the rainy season those who operate business in open
places are disrupted and some of their goods are damaged hence limiting expansion.
• Lack of legal recognition. This leads to harassment from the law enforcement officers
e.g. KCCA and also limits access to credit from commercial banks which limit business
expansion.
• Price fluctuation. This makes it difficult for them to plan as a source of revenue keeps on
fluctuating.
• Limited entrepreneurship skills. This results into poor coordination and organization of
other factors of production hence causing inefficiency in business which limits
expansion.
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MEASURES THAT SHOULD BE TAKEN TO IMPROVE/TRANSFORM THE
INFORMAL SECTOR IN UGANDA

• Government should lower taxes on raw materials used in the informal sector. This will
help in reducing production costs which will enable businesses to expand.
• Government should provide necessary facilities such as water, electricity etc. at a
subsidized rate to the informal sector. This will enable them carry out business activities
with ease and at reduced costs.
• Infrastructure inform of roads should be improved. This will enable producers in the
informal sector to easily transport raw materials and finished goods at reduced cost.
• Affordable credit should be provided to the informal sector businesses. This will enable
them purchase the required inputs and expand their businesses.
• Technological schools should be set up and existing ones expanded. This will provide
appropriate skills to the informal sector operators which will lead to production of better
quality products.
• Informal sector business operators should be encouraged to form co-operative societies.
This will make it easier for them to mobilize funds i.e. to access loans in groups and
expand their business operations.
• Political stability should be ensured. This will reduce on the risk of doing business e.g.
risk of loss of life and property which will give them confidence to expand their business.
• Government should set up permanent structures and rent them to informal sector business
operators at affordable rates. This will enable them acquire permanent premises for their
businesses which will reduce on the losses and disruptions experienced during the rainy
season.

Relationship between the informal sector and small scale industries:

• Both mainly produce consumer goods
• Both operate on a small scale
• Both mainly use simple technology
• Both mainly produce goods for the home or domestic market.
• Both employ semi- skilled or unskilled labour
• Both require little capital to set up business.
• Both produce low quality output.

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 • Both operate at excess capacity/produce low output
• There is limited formal book keeping in both sectors.
• On-job training is common aspect in both sectors.
• Both contribute low revenue to government.

FEATURES OF THE FORMAL SECTOR IN UGANDA:

• It is made up of predominantly registered business

• It mainly has proper book keeping
• Businesses are mainly governed by government laws.
• It mainly provides paid employment.
• Mainly uses skilled labour
• Production is mainly for commercial purposes
• Basically produces improved quality output.
• Dominated by corporate ownership of resources.
• Basically has employees and employers unions or associations.

QUESTIONS:

1) (a) What are the features of the informal sector in Uganda

(b) Assess the contributions of the formal sector in the development of Uganda.

2) (a) Explain the challenges/problems faced by the informal sector in Uganda.

(b) Suggest the measures which can be taken to improve performance of the informal
sector in Uganda.

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 THE CONCEPT OF DUALISM IN UGANDA’S ECONOMY

Dualism is the co-existence of two contrasting social economic situations/structures in an

economy one being superior and undesirable and the other being inferior and undesirable.

The two situations exist side by side in an economy.

A dual economy is an economy where there is co-existence of two contrasting sectors or

economic structures one being superior and desirable and the other being backward/inferior and
undesirable.

FORMS/TYPES OF DUALISM

1. Technological Dualism
This involves co-existence of modern technology which is superior and desirable alongside
traditional technology which is inferior and undesirable. e.g. the use of tractors alongside hand
hoes in agriculture.
2. Sectoral dualism
This involves co-existence of two contrasting sectors in an economy where one is superior and
desirable while the other is inferior and undesirable e.g. co-existence of the formal sector
alongside the informal sector, the industrial sector alongside the agricultural sector.
3. Intra-sectoral dualism
This is the co-existence of two contrasting structures within a given sector whereby one is
superior while the other is inferior. e.g. co-existence of commercial agriculture alongside
subsistence agriculture within the agricultural sector.
4. Exchange dualism
This involves co-existence of two contrasting mediums of exchange. e.g. barter exchange
alongside monetary exchange.
5. Regional dualism
This involves the co-existence of developed regions alongside under developed regions with in
the country e.g. urban areas existing alongside rural areas.
6. Income dualism
This involves the co-existence of high income earners alongside the low income earners i.e. the
poor alongside the rich people.

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 7. Literacy dualism
This involves co-existence of the literate people alongside the illiterate people e.g. the educated
people alongside the uneducated.
8. Social –cultural dualism
This is the co-existence of the modern culture which is desirable alongside the traditional culture
which is undesirable i.e. the co-existence of modern religions that embrace Christianity and
Islam alongside the traditional shrines.
9. International dualism
This involves co-existence of developed economies alongside less developed economies e.g. the
co-existence of more developed countries alongside less developed countries.
10. Labour dualism
This involves co-existence of skilled labour which is desirable alongside unskilled labour which
is undesirable.

FEATURES OF DUALISM /EXAMPLES OF DUALISM IN UGANDA’S ECONOMY

• Co-existence of modern technology alongside traditional technology.
• Co-existence of literate people alongside the illiterate people.
• Co-existence of barter exchange alongside the monetary exchange.
• Co-existence sector of rich alongside the poor people
• Co-existence of commercial sector alongside subsistence sector with in agriculture.
• Co-existence of rural areas alongside the urban areas.
• There is co-existence of traditional cultural alongside the modern culture.
• Co-existence of skilled labour alongside unskilled labour.
• There is co-existence of the formal sector alongside the informal sector.
• There is co-existence of developed economies alongside less developed economies.
QUESTIONS:
1. (a) How far can Uganda’s economy be described as a dual economy?
Or
Explain the elements of dualism that exist in Uganda economy
.

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CAUSES OF ECONOMIC DUALISM IN UGANDA
1. Differences in the level of education among people.
This creates social classes in the economy e.g. the co-existence of illiterate people alongside
the literate people.
2. Differences in natural resource endowment in regions.
This makes regions which are endowed with adequate natural resources to develop faster
than the regions that lack natural resources hence causing regional dualism.
3. Differences in the level of development among sectors and regions as a result of
negligence of some sectors by government and the private sector. This makes sectors that
are neglected to lag behind hence causing sectoral dualism.
4. Limited implementation of policies meant to reduce on the undesirable economic
situations. This makes the undesirable structures to persist hence causing dualism.
5. Political influence in resource allocation. This leads to the development of regions and
sectors that are favored by government in power while the other regions and sectors that
are not favoured lag behind hence causing sectoral and regional dualism.
6. Difference in the rate of economic growth among countries. This results into international
dualism.
7. Difference in accessibility to credit. This leads to income dualism because those who
have access to credit obtain capital and use it to create more wealth whereas those who
have limited access to credit remain poor.
8. Conservatism among some people. This leads to technological dualism and social cultural
dualism because the conservative people stick to traditional methods of production and
culture since they refuse to adopt modern technology and culture.
ADVANTAGES OF ECONOMIC DUALISM
(Merits of a dual economy)
1. It increases employment opportunities. This is because both the formal and
informal sectors provide jobs.
2. It enables government to raise more revenue. This is through imposing taxes on
the modern sector and the rich people.
3. It awakens the government to its responsibilities of providing facilities to less
developed regions/inferior structures and planning to cater for the poor.
4. It promotes diversification in /of the economy. This is due to the existence of
firms in both the formal and informal sectors which are involved in different
production activities.

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 5. It encourages factor mobility from a traditional sector which is less productive to
the modern sector which increases productivity of labour and other factors of
production.

DISADVANTAGES:

1. It leads to rural urban migration with its negative effects. This results from
regional dualisms that make people to shift from rural areas to urban areas in search for
better economic activities/opportunities hence causing high crime rates, development of
slums and open urban employment.
2. It makes planning by government difficult. This is because government finds it
hard to determine which sector should be boosted first i.e. choosing between agriculture
and industry, rural areas and urban etc.
3. Leads to unemployment. This is because of technological dualism where the use
of modern technology inform of machines replaces labour in the production process
resulting into technological unemployment.
4. Leads to poor standard to living among the undesirable structures e.g. the poor
people cannot afford to buy the basic needs hence causing low standards of living.
5. Leads to under exploitation of economic resources. This is because the inferior
structures e.g. the subsistence sector, unskilled labour, uses of rudimentary technology
results into operation at excess capacity.
6. Leads to exploitation of the poor by the rich. This is because the poor are
subjected to low pay/low wages and poor working conditions by the rich as the poor
struggle to earn income for survival from the rich.
7. Creates conflicts and social discontent between the poor and the rich,
traditionalists and the modernists because the rich look at the poor as people with low
status.
8. Dominance of the inferior structures such as the poor, the illiterate, rudimentary
technology etc makes government unpopular because people blame government for
failing to improve on the inferior structures.
Questions
1. (a)What is meant by economic dualisms?
(b)Describe the forms of dualism in Uganda’s economy.
(c) Explain the causes and effects of economic dualism.
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 THE CONCEPT OF ECONOMIC DEPENDENCE
Economic dependence is a situation in which an economy relies either mainly on a specific
sector or on other countries for decisions and resources for her economic survival and
development.
Forms/Types of Economic Dependence:
• Direct economic dependence
• External resource dependence
• Direct trade dependence
• Sectoral dependence
1. Direct economic dependence
This is the reliance of an economy on economic and political decision dictated by other countries
or foreign funding bodies. Such as the World Bank etc.
E.g. some of the policies that are being implemented in Uganda such as privatization,
liberalization of the economy, cost sharing etc were given to Uganda as a conditionality by the
world bank.

2. External resource dependence

This is where a country relies on foreign factor services such as technology, expatriates and
foreign capital inform of loans, grants etc. to supplement her productive resources.
3. Trade dependence
This is where a country relies on internal trade inform of imports or exports for her economic
survival e.g. Uganda relies on imported manufactured products which are consumer and capital
goods.
It also relies on few countries for her export market and relies on few products for her exports.
4. Sectoral dependence.
This is the reliance of a country on majorly one sector or few sectors for her economic survival
/development. e.g. Uganda relies mainly on the agricultural sector for her economic
development.

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 CAUSES OF ECONOMIC DEPENDENCE IN UGANDA.
1. Poor education system. This result into high levels of unskilled labour hence making a
country to rely on expatriates/highly skilled labour force especially in fields of medicine
and engineering.
2. Underdeveloped infrastructure. This makes Uganda to rely on foreign capital inform of
loans to develop and expand her infrastructure such as roads, railway etc.
3. Occurrence of natural calamities Such as drought, landslides, floods, epidemic diseases
etc. This results into high dependence on relief aid from the world food programme, red
cross etc.
4. Under developed technology. This is due to the use of traditional technology and low
levels of invention and innovation in the country hence resulting into reliance on
imported technology inform of machines.
5. Under development industrial sector. This results into reliance on imported
manufactured goods.
6. Low tax base and tax revenue. This leads to reliance on foreign capital inform of loans
and grants in order for the country to supplement her local revenue and meet her re-
current and development expenditures.
7. High population growth rate in the country. This result into high government
expenditure to cater for the increasing population which calls for foreign resources
inform of loans, grants and donations in order for government to provide social services
e.g. education, and health to the increasing population.
8. Limited domestic market. This makes Uganda to depend on external markets for her
exports hence causing trade dependence.
9. Low levels of entrepreneurship skills and abilities. This results into dependence on
foreign capital and foreign direct investments.
10. Exportation of limited variety of goods which are basically of low quality. This leads
to low foreign earnings hence causing the need for foreign resources so as to reduce on
the balance of payment deficit.

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DANGERS/NEGATIVE IMPLICATIONS/DEMERITS OF ECONOMIC DEPENDENCE
1. It worsens balance of trade payments problem. This arises from reliance on imported
manufactured goods which are highly priced resulting into increased foreign exchange
expenditure yet the earnings from the exports are low due to dependence on agricultural
exports.
2. It encourages laziness/discouraged local initiatives. This results from reliance on foreign
capital and technology that makes people reluctant to develop their own technology and create
more capital through saving.
3. The economy is subjected to inappropriate and undesirable external decisions as a result of
direct economic dependence e.g MDC’s and international agencies such as the world bank
dictate on how and where the aid should be used leaving the priority areas such as
agricultural underdeveloped.
4. It leads to economic domination of Uganda by foreigners. This is because the foreign
countries especially MDCs on which Uganda relies for foreign capital and direct foreign
investors dictate on economic policies hence having economic control over Uganda’s
economy.
5. It results into fluctuation of prices of agricultural products. This is due to reliance on
agricultural sector whose output is unstable since the sector relies on natural conditions.
6. It leads to low volume of imports. This is due to low export earnings arising from limited
variety and low quality exports making the country to have shortages of foreign exchange.
7. It leads to culture decay. This arises from reliance on foreign investors and other countries for
finished consumer goods that makes the local people to adopt foreign cultures at the expense
of traditional cultures.
8. It accelerates outflow of capital. This is inform of profit repatriation by foreign investors due
to reliance on foreign capital.
9. It worsens the external debt burden. This is because of reliance on external resources inform
of loans obtained from the world bank and other countries have to be paid back with interest
and in the process the country has to forego development of some sectors.
10. It causes technological unemployment. This arises from reliance on foreign technology
inform of machines which replaces labour especially in the industrial sector.
11. Results into underutilization of domestic resources. This is because of reliance on
external raw materials and finished goods which discourages domestic firms.

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MEASURES THAT SHOULD BE TAKEN TO REDUCE ON ECONOMIC
DEPENDENCE IN UGANDA

1. Undertake economic diversification. This can be done through developing the industrial
sector, tourism, banking etc. This can reduce on reliance on agricultural sector since it
provides alternative sources of income.
2. Train the local labour force. This will improve on labour skills hence reduce reliance on
foreign skilled labour.
3. Promote and develop local technology. This is through encouraging research, innovations
and investments in the economy which will reduce reliance on imported technology.
4. Increase the tax base and improve on tax administration. This can be done through
identifying new taxable economic activities and equipping tax officials with relevant skills.
This can increase tax revenue which reduce dependence on foreign capital inform of loans.
[Link] population growth rate. This can reduce on the dependence burden which
encourages local savings and promotes local investment thus reducing dependence on foreign
resources.
[Link] proper planning and allocation of resources. This can expand on productive
activities which can increase income thus reducing reliance on external resources.
[Link] political stability. This can minimize expenditure on military equipment hence
reducing reliance on foreign capital inform of loans to finance such expenditure.
[Link] local savings and investments. This can be done through offering high interest
on savings, reducing interest on loan and providing other investment incentives to local
entrepreneurs. This will reduce dependence on foreign private investor and dependence on
loans from foreign institutions.
[Link] corruption and mismanagement of public funds or ensure proper accountability. This
will ensure that domestic revenue is put to proper use which reduces dependence on foreign
capital in form of loans acquired by people.
10. Promote import substitution industries. This can enable the country to produce the goods
locally that were formerly imported hence reducing dependence on other countries for
imports..
11. Encourage establishment of export promotion industries. This will increase the volume,
variety and quality of exports which can increase foreign earnings hence reducing on reliance
on foreign capital.

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 12. Diversify the economy. This can be done through economic integration and carrying
research which reduces on reliance on few countries for the export market.

QUESTIONS;
1. (a)What is meant by economic dependence?
(a)Explain the causes of economic dependence in Uganda.

2. (a)What are the adverse effects of economic dependence in Uganda

(b)Explain the measures that should be taken to reduce economic dependence in
Uganda.
(c) Why is economic dependence undesirable?

ECONOMIC INDEPENDENCE
This is a situation in which economy is self-sustaining/self-reliant i.e. the economy does not rely
heavily on other countries for her economic development /survive.

FEATURES OF ECONOMIC INDEPENDENCE:

• There is limited importation of goods.
• Most of the economic needs of people are provided by the country domestically.
• Most productive sectors /enterprises are owned and managed by the local people.
• Economic decisions are mainly made by the nationals and government with no direct
foreign influence.
• Most of the government projects are financed using domestic revenue.

Economic interdependence is an economic situation in which two or more countries rely on

each other for mutual benefit.
Geographical concentration of trade. This is where a country relies on exports to a few
markets.
Commodity concentration of trade. Is where a country relies on a few traditional exports
e.g. coffee, cotton.

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 THE STRUCTURE OF UGANDA’S IMPORTS AND EXPORTS (FOREIGN TRADE)

Features/Traits of Uganda’s Exports:

1. Exports are mainly agricultural products e.g. coffee, cotton, tea etc.
2. Exports are mainly semi- processed goods or unprocessed goods.
3. The exports are mainly of low quality i.e. have low value added on them.
4. Uganda exports few manufactured consumer goods.
5. Uganda exports few services e.g. labour, electricity, education etc.
6. Prices of exports are mainly low and fluctuating
7. Exports are mainly of low volume/quantity.
8. Export prices are mainly determined by the importers
9. There is limited variety /range of exports.
10. The export market is mainly limited to few countries i.e. developed countries like USA,
Britain, China and the regional market comprising of Kenya, Tanzania Rwanda, and
South Sudan etc.

Features of Uganda’s imports:

1. Imports are mainly comprised of finished consumer goods and manufactured
capital goods.
2. Imports are mainly of high value and high quality since they are mainly
processed.
3. Prices of imports are mainly high and stable.
4. Imports are mainly of high volume/quantity.
5. Imports are of a wide variety e.g. consumer goods, electronics, capital goods etc.
6. Many services are imported e.g. there is importation of highly skilled labour force
in the fields of medicine, research, engineering etc.

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 IMPLICATIONS OF STRUCTURE OF IMPORTS AND EXPORTS IN UGANDA
Positive Effects/implications:
1. The country earns foreign exchange. This is mainly through exportation of agricultural
products.
2. Expansion employment opportunities. People are employed in transporting good, ware
housing, clearing and forwarding.
3. It promotes international friendship/co-operation. This is because of the need to import from
other countries and export to other countries which creates basis for cooperation.
4. Increases output hence economic growth. This is because of the widened market for the
locally produced goods which helps consumers to increase output levels so as to earn
revenue.
5. Leads to production of better quality goods. This is because of competition between imports
and locally produced goods that make domestic producers to improve on quality so as to
complete with imports.
6. It increases government revenue. This is through taxing imports and exports.
7. It widens consumer choices. This is due to importation of variety of consumer goods from
other countries.
8. Improves technology in Uganda. This is through importation of industrial machinery which
leads to transfer of better technology from MDC’s to Uganda.
9. It fills the manpower gap. This is through importation of skilled labour which supplements
on the locally available skilled labour force hence reducing man power gap.
10. Promotes innovations and inventions. This is because of the need to compete in global
market that makes the country adopt modern methods of production hence increasing
efficiency in production.
Negative Effects/implications:
1. It leads to poor terms of trade. This is because exports are mainly of poor quality and
semi-processed resulting into low prices on the world market yet imports are highly priced
manufactured capital and consumer goods.
2. Leads to collapse of local firms. This is due to stiff competition with imports which are of
high quality that make local firms fail to compete on the world market.
3. Promotes dependence on other countries for export. This is risky because in case countries
relied on get a problem, supply is cut off and market for exports is closed.

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 4. There is fluctuation in foreign exchange earnings. This is due to exportation of mainly
agricultural products whose prices fluctuate in the world market.
5. Leads to unfavorable balance of payments position. This is due to limited goods exported
that lead to low foreign exchange earnings yet foreign exchange expenditure is high.
6. Results into high levels of capital outflow. This is due to high expenditure on imported
manufactured goods which are highly priced.
7. Underutilization of domestic resources. This is due to reliance on capital and consumer
goods which would have been produced locally using domestic resources.
8. Leads to unemployment. This is due to importation of highly skilled labour force that
replaces the local labour force and also importation of modern machinery/capital goods
that replace labor in the production process.

MEASURES THAT SHOULD BE TAKEN TO IMPROVE THE STRUCTURE

OF UGANDA’S IMPORT AND EXPORT TRADE
(To increase export earnings and reduce expenditure on imports)
1. Diversification of exports should be undertaken. This can increase the variety and
volume of exports hence increasing earnings from exports.
2. Establish value addition industries. This will improve on the quality of exports which
enables them fetch high prices hence increasing foreign exchange earnings.
3. Expand market for exports. This can be done through economic integration and
penetrating new markets such as China and India. This can reduce dependence on few
countries for export market hence increasing foreign exchange earnings.
4. Encourage establishment of export promotion industries. This can be done through
providing incentives to investors. Export promotion industries can increase the volume
and value of goods produced for the export market hence increasing foreign exchange
earnings.
5. Modernize agriculture through irrigation farming and mechanization. This can improve
on the quality and increase the volume of agricultural products for the export market
hence increasing earnings from exports.
6. Encourage establishment of import substitution industries. These produce goods that
were formerly imported and hence reduce expenditure on imports.

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 7. Venture into new export sources e.g. tourism by setting up more facilities such as
hotels, transport, and infrastructure etc. This will increase on the variety of exports and
reduce on reliance on few export commodities.
8. Strength commodity agreements such as the international coffee agreement. This will
enable the country to bargain for better prices in the world market hence increasing
export earnings.
9. Intensify publicity of Uganda’s products in the foreign markets /advertise Uganda’s
products in the foreign market. This can increase on demand for exports thus improving
export earnings.
10. Campaign for the removal of trade barriers in the export markets such as removal of
total ban, quotas, this can be done through the government negotiation with other trade
patterns to remove unnecessary restrictions on goods from Uganda. This will increase
the market and hence increase export earnings.
11. Allow the local currency to depreciate. This will result into a fall in exchange value of
local currency which will lower prices for exports and increase volume of exports
hence increasing earnings.

NB: write down these notes.

END

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