By Dr. Francis Mwesigye
Africa-Press – Uganda. As much as the increasingly interconnectedness of the global economy presents valuable opportunities, it also exposes individual countries to significant risks, with emerging economies bearing the most brunt.
The commodity price boom, the global financial crisis, the COVID-19 pandemic and the Russia-
Ukraine war, provide cases of some of the global economic shocks that Africa has experienced in the
past.
And it’s fair to argue, the continent is not out of the woods yet, at least going by the disruptions
prompted by the recent U.S. trade tariffs imposed on all goods imported into the U.S.
Out of the 51 African countries, 29 face the “baseline” 10 percent tariff, while 22 other countries face
tariffs up to a whopping 50 percent for almost all their products, excluding those deemed necessary to
the U.S. economy.
The U.S. goods trade deficit with Africa was $7.4 billion in 2024, a 26.4 percent decrease ($2.6 billion) from 2023. Goods imported to Africa from the U.S. in 2024 amounted to $32.1 billion, up 11.9 percent ($3.4 billion) compared to what Africa exported to the U.S. $39.5 billion.
Global shocks as witnessed with the trade tariffs and ensuing measures by other advanced
economies signify an intensification of trade protectionism and marks the beginning of a new
economic era, one that among other things has a bearing on the dynamics of global supply networks.
Small open economies like Uganda, with large dependence on global markets and heavy reliance on
commodity trade and with weak logistic infrastructure, tend to be more susceptible to disruptions in
global flows of goods and finance.
Though down by 574.3 percent in 2024, there’s still a goods trade deficit between U.S. and Uganda ($26.3 million in favour of the latter).
Building Uganda’s resilience requires among other things expanding the pool of domestic resources
to counter potential external shocks.
Development finance becomes particularly pivotal in this endeavour as it provides patient capital to manufacturers, agribusinesses and service providers.
Equally noteworthy is that development finance institutions play a significant role in de-risking private
investments which crowds-in resources from private players and hence catalyses more growth.
UN Trade and Development (UNCTAD’s) Economic Development in Africa Report of 2024 recommends loan-targeting instruments that can expand private credit at favourable and sustainable rates. This, the report notes, would help diminish the vulnerabilities of businesses to shocks that have an impact on financial conditions.
Take a case of the pharmaceutical industry. Africa’s demand for packaged medicines is worth $18 billion a year, but 61% of these goods are imported and 36% is locally produced and not traded, according to estimates by McKinsey. Just 3% of demand is met by intra-African trade.
Countries across Africa, a continent that struggled to gain equal access to vaccines during the Covid
disruption and one that imports the majority of its packaged medicines from abroad, know all too well
the importance of a strong domestic pharmaceutical industry and trade.
In Uganda’s case, a lot of progress has been made in building local capacity to produce essential
medical supplies needed for the wellbeing of our 45 million human population. In Quarter One of this
year (2025) alone, the country witnessed two milestones – a first consignment of locally manufactured
diagnostic kits for malaria, HIV, and sickle cell disease, and the launch of a $20 million factory that
produces injectable medicines.
Both projects that were funded by Uganda Development Bank (UDB) speak to the enabling role of development financing in derisking businesses that would otherwise struggle to secure affordable, long-term and patient capital.
Uganda currently utilizes approximately 30 million malaria tests and 15 million HIV tests annually.
Until this year, all these Rapid Diagnostic Tests (RDTs) were imported. Beyond cushioning the local
healthcare system from supply chain shocks as those witnessed in the wake of the Covid pandemic, or those triggered by cuts in funding to USAID, financing such local industries creates employment opportunities for thousands of Ugandans, contributes to tax revenue, and creates forex earnings if these products are exported.
A distinct aspect of development finance is its ability to reduce risks that discourage private sector
investment. In addition, DFIs channel investment into productive sectors such as agro-processing,
manufacturing, and services that might otherwise be overlooked due to real or perceived risks.
As global trade becomes more unpredictable and new tariffs disrupt traditional export routes, Africa
must move quickly to enhance her resilience to external shocks and risks through developing import substituting industries especially where they have a comparative advantage.
The African Continental Free Trade Area (AfCFTA) presents a unique opportunity for the continent to build resilience from within. African countries can unlock new economic opportunities across borders by lowering both tariff and non-tariff trade barriers among member states among which is lack of trade finance, and infrastructure—both hard and soft. Development finance institutions will go a long way in stimulating investment within regions, building cross-border infrastructure, and freeing up landlocked
nations from the constraints of unfavourable borders.
The writer is Chief Economist and Director Economic Research and Knowledge
Management at Uganda Development Bank
Source: Nilepost News
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