As Uganda prepared to declare a national lockdown as a measure to control the spread of the coronavirus, a number of foreign business people withdrew billions of money from their businesses and ran to safer economic havens, according to Bank of Uganda.
Between February and March 6, 2020, the business owners withdrew at least Shs165 billion from the country, according to latest information from the Central Bank.
Out of this total, at least Shs59 billion was in government securities, while Shs105.7 billion had been placed in commercial banks as deposits.
BoU’s latest report captures the first seven months of 2019/20 financial year as a period of panic and uncertainty and “flight for the havens was unavoidable”.
As the investors fled the country, the shilling experienced the biggest depreciation in recent times, according to the report.
For instance, in mid-March, the local currency breached the Shs3, 900 mark against the dollar, the lowest level it has traded ever.
Mr Stephen Kaboyo, the managing director of Alpha Capital, said that 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, however, 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.
The report 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 $748 million in the 2019/2020 financial year from $1.1 billion in 2018/2019.
This will fall further to $369 million in 2020/21 financial year, an indicator that the sector has to endure pain for an extra year.
This is because tourists to Ugandan 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 by the targeted travellers.
On remittances from Ugandans working abroad, BoU says they will fall from $1.3 billion in 2018/19 to $955 million in 2019/2020.
This will fall further next year to $238 million indicating an 80 percent plunge of Diaspora remittances.
This is because most Ugandans working abroad, either lost their jobs or their pay was cut.
Foreign Direct Investment (FDI)-the money that foreigners bring to Uganda to invest in different sectors- will also drop by 80 percent in the 2020/21 financial year.
BoU predicts that FDI will fall from $1.4 billion in 2018/19 to $766 million in 2019/20. It will fall further to $302m in 2020/21 financial year.
Major recipients of this money like real estate, mining and manufacturing are expected to suffer declines in activity and such declines have direct bearing on revenues government can collect and as a result, a likely fall in investment in social services like health and education.
Uganda has gone to international lenders to give it money to cover revenue gaps.
