Agriculture has been Uganda's predominant economic activity since pre-colonial times. Though an active trade in ivory, slaves and animal hides linked Uganda with Africa's east coast long before the arrival of Europeans, most Ugandans were subsistence farmers. After Britain declared Uganda a protectorate in 1893, it pursued economic policies that drew Uganda further into the world economy, primarily in order to serve Britain's textile industry. Cotton cultivation increased in importance after 1904, and once it became clear that cotton plantations would be too difficult and expensive to maintain, official policy encouraged small-holder farmers to produce and market their cotton through local cooperative associations. By 1910 cotton had become Uganda's leading export. In the following decades, the government encouraged the production of sugar and tea on plantations. Following World War II, officials introduced coffee cultivation to bolster declining export revenues, and coffee soon brought in more than half of Uganda's export earnings.

Uganda enjoyed a strong and stable economy in the years preceding independence. Agriculture was the dominant activity, but an expanding manufacturing sector appeared capable of increasing its contribution to the country's GDP, especially through the production of foodstuffs and textiles. Some valuable minerals, notably copper, were discovered, and water power resources were considerable. In 1967 Uganda joined the neighboring countries of Kenya and Tanzania in forming the East African Community (EAC), with the goal of creating a common market and sharing the cost of transport and banking facilities. These are several reasons why Uganda registered impressive growth rates for the first eight years after independence.

Uganda's economy deteriorated under the rule of President Idi Amin from 1971 to 1979. Amin chose nationalist, militarist policies and ill-chosen economic strategies to eliminate foreign economic interests and build up the military. In 1972 he expelled holders of British passports, including approximately 70,000 Asians of Indian and Pakistani descent. Many Asians had been active in agriculture, manufacturing, and commerce. Their expulsion and Amin's efforts to expropriate foreign businesses undermined investor confidence in Uganda. Amin also increased public expenditures on military goods, a practice that contributed to a foreign and domestic debt that escalated during the 1970s.

Relations with Uganda's neighbors soon deteriorated; the EAC disbanded in 1977; and Tanzanian troops ultimately led a joint effort to overthrow the unpopular Amin regime in 1979. By 1980 the economy had nearly been destroyed. Following Amin's departure, successive governments made attempts to restore international confidence in Uganda's economy through a combination of development plans and tightened government budgets. Beginning in 1980, the second government of Milton Obote obtained significant foreign donor support, primarily from the International Monetary Fund in exchange for floating the Uganda shilling, removing price controls, increasing agricultural producer prices, and setting strict limits on government expenditures. Obote further tried to persuade foreign companies to return to their former premises, expropriated when Amin nationalized many industries. These recovery initiatives created real growth in agriculture between 1980 and 1983. Yet lack of foreign exchange became a major constraint on government efforts, this became critical in 1984 when the IMF ended its support for reorganization following a disagreement over budget policy. During the brief regime of Tito Lutwa Okello in 1985, the economy nearly slipped out of control as civil war extended across the country.

After seizing power in January 1986, the new National Resistance Movement (NRM) government published a political manifesto drawn up in the days when the NRM was an army of anti-government rebels. Their Ten-Point Program[1] emphasized the importance of economic development, declaring that an independent, self-sustaining national economy was vital to Uganda's interests. The manifesto also set out specific goals for achieving self-sufficiency by diversifying agricultural exports and developing industries that would use local raw materials to manufacture products necessary for development. The Ten-Point Program also set out to improve basic social services, including water, health care, and housing; to improve literacy skills nationwide; to eliminate corruption, especially in government; to return expropriated land to its rightful Ugandan owners; to raise public-sector salaries; to strengthen international ties in the region; to develop markets among East African nations; and to maintain a mixed economy combining private ownership with an active government sector. The NRM government proposed a major Rehabilitation and Development Plan (RDP) for fiscal years 1987-88 through 1990-91 with IMF support; it then devalued the shilling and committed itself to budgetary restraint. This four-year plan was intended to stabilize the economy and promote economic growth. Other goals were to reduce Uganda's dependence on external assistance, to diversify agricultural exports, and to encourage the growth of the private sector through new credit policies.[2]

A new Ugandan shilling entered circulation in May 1987. The government's intention was to set it at an exchange rate consistent with national objectives to rehabilitate and stimulate growth in all sectors of the economy. The government also accepted the IMF's Structural Adjustment Facility (SAF) loan without a stand-by credit. The application of the new IMF-backed reform program left the country heavily dependent on foreign assistance, but allowed the economy to move closer in structural terms to realizing the NRA's long-term goals. In 1989 the SAF was replaced with an Enhanced SAF worth SDR179 mn. Inflation had fallen to 33% by May 1990, but serious structural difficulties continued to impede an economic upturn, including the nation's disproportionate dependence on revenue from coffee and massive trade deficits. A prolonged drought in 1990 worsened the situation and slowed GDP growth, which had reached an average of 6.6% per year in 1987-90. Inflation jumped to 60% in 1991, when the 1991/92 budget saw a massive deficit in which revenue made up only about 65% of expenditure. Exchange rates fell from Sh500=US$1 to Sh1000=US$1 by the following year. According to 1991 statistics, school fees rose by 200%, rents by 500%, and food prices by 50%, while government itself raised its poll tax by 1000%. The ordinary citizen suffered acutely in these circumstances.

On April 9, 1992 the government announced an anti-inflation package that included limits on government spending and borrowing. It announced a major cut in the size of the army and civil service. Remarkable success was achieved in that year in decreasing inflation to below zero (after a high of 350% in 1986), and in achieving a higher than planned GDP increase of 7%.

The government announced a privatization program in August 1992. While applauding government economic policies and urging its continuation, Western donors sought greater democratization of the country and pressed the government to continue restoring property to the Asians expelled in 1972. A deadline for claims was set for May 1993, by which time over 3,000 properties had been returned. Soon the deadline was extended to October 1993, and again to April 1994. The government pushed ahead with major reductions in the civil service (reducing the staff eventually by 48,000) and the army. GDP growth was 4% in 1993/94, and was projected at 5.5% in the year of the 1994/95 budget, in which revenue was once again far below total expenditure. Inflation rose again in 1993/94, but the overall balance of payments was in surplus in that year.

On September 8, 1994 the IMF agreed to new ESAF loans ($175 million) over the next three years. The World Bank also made available in mid-1995 a credit line of $65 million for private entrepreneurs wishing to buy shares in privatized companies, since Ugandan businessmen had failed to play their full part due to lack of capital. By May 1995 privatization had earned the government Sh56.5 billion. The 24 enterprises due for privatization in 1995 included Uganda Airlines and the Ugandan subsidiaries of British American Tobacco, Agip and Total, Uganda Cement Industries, Nyanza Textile Industries, and a number of other industrial enterprises. ECONOMIC GROWTH AND STRUCTURE: Growth in Uganda's economy slowed in the late 1950s, as fluctuating world market conditions reduced export earnings and the country experienced the political pressures of the growing nationalist movements that swept across much of Africa. For the first five years following independence in 1962, Uganda's economy resumed rapid growth, with a GDP (when subsistence agriculture is included) that expanded approximately 6.7 % per year. Even with a population growth estimated at 2.5 % per year, a net economic growth of more than 4 % suggested that people's lives were improving. By the end of the 1960s, commercial agriculture accounted for more than one third of the nation's GDP. Industrial output increased to nearly 9 % of the GDP, primarily as the result of new food-processing industries. Tourism, transportation, telecommunications, and wholesale and retail trade contributed nearly one half of the total economy.

Although the government foresaw annual economic growth rates of about 5.6 % in the early 1970s, civil war and political instability almost destroyed Uganda's once burgeoning economy. Its GDP declined each year from 1972 to 1976 and registered only slight improvement in 1977 when world coffee prices increased. Declines resumed, largely because the government continued to expropriate business assets. Foreign investment also declined sharply, as President Idi Amin's erratic policies destroyed almost all but the subsistence sector of the economy.

The economic and political destruction of the country during Amin years contributed to a record decline in earnings (14.8 %) between 1978 and 1980. When Amin fled from Uganda in 1979, the nation's GDP measured only 80 % of the 1970 level. Industrial output declined sharply, as equipment, spare parts, and raw materials became scarce. From 1981 to 1983, the country experienced a 17.3 % growth rate, but most of this success occurred in the agricultural sector. Little progress was made in manufacturing and other productive sectors. Renewed political crises led to negative growth rates of 4.2 % in 1984, 1.5 % in 1985, and 2.3 % in 1986.

Throughout these years of political instability, coffee production by small-holders, following a pattern set under British rule, continued to dominate the economy, providing the best hope for national recovery and economic development. With fluctuations in international coffee prices, however, Uganda's overall GDP suffered despite consistent production.

In recent years, the country's economic decline has slowed; in 1987, for example, its GDP rose 4.5 % above the 1986 level. This marked the first sign of economic growth in four years, as security improved in the south and west, and factories increased production after years of stagnation. This modest rate of growth increased in 1988, when the GDP expanded by 7.2 %, with substantial improvements in the manufacturing sector. In 1989 falling world coffee prices cut growth to 6.6 % and drought, low coffee prices, and a decline in manufacturing output brought the figure to 3.4% in 1990.

Uganda escaped widespread famine in the late 1970s and 1980s only because many of its citizens, even urban residents, reverted to subsistence cultivation in order to survive. Both commercial and subsistence farming operated in the monetary and non-monetary (barter) sectors, though the latter presented the government with formidable problems of organization and taxation. By the late 1980s government reports estimated that approximately 44 % of the nation's GDP originated outside the formal monetary economy. Most (over 90 %) of the nation's informal economic activity took place in the agricultural sector, whose resilience ensured survival for most Ugandans.

[1 The "Ten-Point Program, a document written during the guerrilla campaign, reflects the principles with which the National Resistance Army (NRA) created a disciplined army, organizes popular support, and in particular, developed a coherent political and economic explanation of why the NRA was fighting against the Ugandan government.

[2] Byrnes, Rita M. (ed.) 1992. Uganda A Country Study , Library of Congress: Washington D.C. pp. 1566-156