Dr. Fred Muhumuza, renowned economist and expert on Uganda's financial sector, shares insights on the country's economic challenges and the impact on local investors during a recent gathering at Golden Tulip Hotel. His thought-provoking keynote speech highlighted the need for urgent reforms to address the decline in private sector lending and the growing public debt.
Dr. Fred Muhumuza, renowned economist and expert on Uganda's financial sector, shares insights on the country's economic challenges and the impact on local investors during a recent gathering at Golden Tulip Hotel. His thought-provoking keynote speech highlighted the need for urgent reforms to address the decline in private sector lending and the growing public debt.

Overview:

As a result, Ugandan investors are now exporting goods to Uganda from Tanzania, taking advantage of the East African Community (EAC) arrangement, which allows for tax-free trade. This has led to a surge in imports from Tanzania, making it the largest source of imports in Uganda, followed by China.

KAMPALA – Local investors in Uganda are increasingly fleeing to Tanzania due to a challenging operating environment, characterized by a decline in private sector lending. According to economists, lending to key sectors such as agriculture, manufacturing, and trade has dropped significantly between April 2023 and April 2024. However, lending to housing continues to grow.

“The state of the economy affects the banks,” said Dr. Fred Muhumuza, an economist. He noted that commercial banks are preferring to lend to the government over other key sectors of the economy.

As a result, Ugandan investors are now exporting goods to Uganda from Tanzania, taking advantage of the East African Community (EAC) arrangement, which allows for tax-free trade. This has led to a surge in imports from Tanzania, making it the largest source of imports in Uganda, followed by China.

“Banking is the business of selling trust. You have to trust that you will deposit your money and still find it tomorrow. That is why there is no free entrance and free exit,” said Dr. Kenneth Egesa, Director of Communication at the Bank of Uganda.

The Bank of Uganda has recently closed two financial institutions, EFC Uganda Limited and Mercantile Credit Bank, citing high interest rates, increasing costs of mobilizing funds, and poor loan quality. However, experts assure that depositors’ funds are protected, with a minimum reimbursement of Shs 10 million.

“When a bank closes, it does not mean that depositors lose their money. The Deposit Protection Fund ensures that clients/depositors are reimbursed a minimum of Shs 10 million,” said Dr. Muhumuza.

Despite recent bank closures, the Bank of Uganda assures that the banking sector remains stable. “The closure is done to protect depositors,” said Dr. Egesa. However, experts call for increased sensitization and transparency to maintain trust in the banking system.

“Who pays for the time the depositor has to wait when the bank goes into liquidation?” wondered Dr. Ronnie Mutebi, an auditor and former banker. He appealed to the Bank of Uganda to sensitize the public on what they must know “in the banking game.”