In Uganda, the price of fuel determines practically everything. The cause of rise in fuel varies. Currently, although it was believed that the outbreak of Coronavirus pandemic caused an uproar in the living expenses of the citizens, after a drop in infections, it is likely that there are other factors causing this surge. What could have led to this occurance?
BY TIMOTHY KALYEGIRA
There is growing worry in Uganda that the government has mishandled the
economy, which is why the country is seeing a noticeable rise in fuel prices at the pump. A litre of petrol is now at an average of 5,000 Uganda shillings and seems set to remain this way as the new normal. In Uganda traditionally, fuel determines the prices of almost everything else in the economy and so anxiety is mounting about the rising cost of living. At first, the explanation for the rise was that the long process of testing for COVID-19 at Uganda’s two border points with Kenya, Busia and Malaba, was
causing a pile-up of long-distance fuel trucks coming in from Kenya.
Even when this was sorted out, fuel prices remained high. Furthermore, Kenya that has a direct access to the sea via its Mombasa port was also experiencing a major increase in fuel prices, so the reason Uganda’s fuel had shot up could not have been because of the long queue of fuel
trucks at the border. Something else had to explain what was going on. During the first phase of the COVID-19 lockdown, the global economy
experienced something of a deflation. Prices of key commodities like crude oil saw a steep fall due to a lack of demand. Airlines were grounded because of a lack of domestic and international travelers With most people at home and nighttime curfews in place, there was also much less road traffic than usual. Businesses, from alcohol producers to newspapers, real estate developers to food processors, cut back on their production, simply because there was not enough demand to justify it. However, as lockdowns began to be lifted in late 2021, inflation suddenly struck the economy.
Demand started to pick up toward the end of 2021 as production and supply lagged behind. Demand now exceeded supply. In effect, the world economy that had seen an unprecedented shutdown during the first period of lockdowns and work-fromhome arrangements was now required to
resume activity almost on a short notice. There are sectors that have short
production and distribution periods; but there are others, such as car production and food processing that take a while to get started. Over the last 20 years of China’s entry into the World Trade Organization and its rapid economic growth, there has been a steady rise in global demand for
commodities. While China’s fast-growing economy and its production of relatively cheap goods saw lower prices for many consumer goods, the Chinese economy had the effect of also causing high demand for commodities such as: steel, cement, petroleum and natural gas. The world has gradually been approaching a kind of peak demand for commodities. This, at a glance, explains the spike in inflation not just in Uganda but all around the world. Any halt in production anywhere in the world now
leads to inflation. The people most affected during times of inflation are those from lower income categories, since much of their disposable
income goes into buying items like food. For the time being, ordinary people in the lower income brackets still have a relatively affordable range of affordable items, particularly food and second-hand clothes that are sold along streets in all towns. Uganda is fortunate that it is almost selfsufficient in food in most of the country’s regions, otherwise, desperation would be
running high at this point if Uganda had been arid or semi-arid like North Africa, the Horn of Africa, and the Sahel region of West Africa. All this is assuming Uganda has the same good weather we are used to; as any incidence of drought or destructive rain and accompanying mudslides could affect agriculture and lead to higher prices than usual.
The invasion of Ukraine by Russia in late February added to the uncertainty in the global economy. Western countries and Asian countries like Japan and South Korea hit Russia with a series of severe sanctions and steps of economic boycott. Russia is the world’s third-largest oil producer
and so these sanctions and restrictions on international financial transactions are bound to have an effect on Russia’s oil production, further leading to sustained high prices at the pump. For this reason of an interconnected global economy, Uganda might have to get used to a general
increase in prices of basic commodities.
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