Job Lakal

By Job Lakal

Unless otherwise delayed, UK’s breakaway from the European Union is bound to happen on Friday 29 March 2019. This should be of interest to Ugandans, because even when the UK’s influence on the world economy has dwindled over the years, its relationship with Uganda remains close knit, especially through Aid, immigration and consequently remittances. 

This means a shock in the UK’s economy could still have considerable spill over effects to Ugandans. BREXIT has already had some economic effects on Uganda, both expected and unexpected, some of which may be rekindled by the fast approaching deadline, the rejection by the UK parliament of the deal Teresa May agreed with the EU.

A prime shock that should be expected to affect Ugandans is exchange rate fluctuation, as financial markets respond to speculations surrounding BREXIT outcomes. In the near past, the exchange rate between the Uganda shilling and the pound sterling has been very sensitive to BREXIT activities, with the latter taking some beating every time controversies over the subject heat up. 

By October 2016, four months after the BREXIT vote, the pound sterling lost against the shilling by about 11.5 percent. Increased speculation from mid 2018 saw the pound sterling drop 7.6 percent of its value against the shilling by December. Keeping other factors constant, we are likely to see a similar trend as we draw closer to March 2019. Given that this fluctuation affects both trade and remittances between Uganda and the UK, it is pertinent for Ugandans to plan around it.

The UK is an export-import hub for Uganda. In the Financial Year (FY) 2017/18, UK was the 26th largest export destination and the 16th largest import origin for Uganda. Given that the pound is expected to stay low against the shilling, Ugandans importing from UK could spend less and/or import more while exports to UK could get more expensive. 

Keeping other factors constant, exports could reduce. Note, however that this wasn’t the case in FY 2016/17 when the shilling hugely appreciated against the pound based on BREXIT speculation. Instead of more imports, Uganda reported a 16 percent decline in UK imports and a 10% increase in exports to UK compared to FY15/16, with the bi-lateral trade deficit reducing by about 23%. It was the lowest trade deficit Uganda reported against the UK since FY1999/2000. 

The anomaly in balance of trade could be explained by the possibility that with a weak pound, UK consumers were substituting developing markets like Uganda for European Union markets.

As of 2018, 9% of Ugandan immigrants (70,000 Ugandans) lived in the UK. This figure could be more since it is not exhaustive of the generation of Ugandan immigrants born in the UK. These have been remitting an average US$292 million to Uganda since 2013, which is about 28% of total remittances to Uganda registered during 2013 to 2017. 

From 2015 to 2016, the value of remittances increased by 42 percent, but got stagnant at 4.8% of Uganda’s GDP since 2016 when BREXIT surfaced. Instead, remittances declined by declined by 3 percent. Much of 2017 was not shook by major BREXIT undertakings, and it is therefore not surprising that remittance value picked up with a 35 percent increase in the period. 

However, the December 2018 confidence vote against the British prime minister as well as the rejection of the BREXIT deal in January 2019 by MPs served as an early catalyst to a heightened BREXIT environment as we match closer to the March 2019 deadline. As expected, the pound dropped some points against the shilling and is expected to stay low at least until after March 2019. 

Remittances are therefore expected to remain stagnant, diasporas will either have to dig deeper or recipients may have to adjust their spending accordingly.

In conclusion, in regard to the events leading up to March 2019, Ugandans are unlikely to experience new effects out of BREXIT, but a rebound of what has already been seen. The Uganda shilling appreciated against the pound in the last quarter of 2018, and is expected to remain relatively strong through the first quarter of 2019. This may affect the balance of trade between Uganda and UK. Keeping other factors constant, exporters may lose while importers may gain. 

The exchange rate fluctuation is also expected to affect both the decision to remit funds and the value of remittances. A further weakening of the pound is likely to see more UK immigrants holding on to their money overseas as they wait for things to stabilize. Those who will continue remitting may either have to send a little extra for the same purpose or their recipients may have to cut down their expenditure as they receive less.

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