No Fuel Subsidy in Uganda as Pump Prices Remain High

Household budgets and operating costs for businesses in Uganda are expected to remain high following the government’s refusal to provide fuel subsidy, adding uncertainty to the country’s economic recovery.

Already, truckers, hotels that use bulk liquefied petroleum gas and the construction industry that depends on heavy machinery are feeling the heat of high fuel costs.

Many had hoped President Yoweri Museveni would announce fuel cuts and other relief measures during the Labour Day celebrations.

Instead, the president used the occasion to rally Ugandans to substitute imports with locally produced goods to hedge against imported inflation.

His Kenyan counterpart Uhuru Kenyatta had announced a 12 percent minimum wage increase to cushion small wage earners against inflation.

“If there is no bread eat muwogo (cassava),” said President Museveni. “Africans really confuse themselves. If you’re complaining that there’s no bread or wheat, please eat muwogo. I don’t eat bread myself,” Museveni told Ugandans.

But commentators say tax rebates are needed to cool down commodity prices.

“Uganda needs to remove taxes,” John Bosco Rusagara, a board member of East Africa Business Council (EABC), says.

The tax rebates, Rusagara are set to alleviate cost pressures in the short term to buttress Uganda’s economy from current supply shocks.

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Rusagara says EABC has been pushing for local sourcing of goods and services but member states are frustrating the process.

“We have been pushing for local content development but the policy decisions are very slow in terms of East African Community Common External Tariff (CET) and rules of origin,” said Rusagara.

The costs of construction materials have been increasing partly due to freight costs, a function of global supply chains.

The decline in global supplies has a detrimental impact on logistics and transport costs.

On May 4, diesel pump prices soared by 70 percent while petrol prices increased by 47 percent per litre compared to prices in June 2021.

Diesel prices hit Ush5,440 ($1.53) per litre in Kampala from Ush3,200 ($0.90) in June, 2021, while pump prices for petrol have reached Ush5390 ($1.51), from Ush3,700 ($1.04) 11 months ago.

The record-high fuel prices are also impacting the construction industry, with local material producers saying they can no longer bear the costs.

Kenneth Kaijuka, the Chief Executive of National Housing Construction Company (NHCC) says some projects have been put on hold, which will delay the delivery of houses to address Uganda’s planned housing needs.

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The developers and contractors have developed a wait and see attitude. Industrial players fear 600,000 jobs in the industry could be on the chopping board, exacerbating Uganda unemployment rates.

“The slowdown in activities in the construction industry value chain affects the landowner, a brick-maker, sand miner, firewood supplier, transporter, masons…,” Mr Kaijuka explained.

The high global cost of petroleum products has also had a spillover of cement prices in EAC.

Apollo Buregyeya, Chief Executive EcoConcreate, a Kampala-based construction suggests that the region allows in cheap cement to offset the current price hikes, blaming some industrial players for taking advantage of the global commodity crisis to hike prices.

“With the automation, cement plants employ less than 100 people to run their production chain, but construction industry in Uganda employs close to a million people,” said Buregyeya also supporting tax cuts.

Uganda has reported the highest rise in cement prices at 60.7 per cent or Ush45,000 ($12.7) per bag, in the third week of April 2022 from Ush28,000 ($8) in March this year.

But the country is betting on Moroto Integrated cement plant in Karamoja to boost domestic clinker which is estimated to be cheaper by almost 30 per cent.

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The Ush1,058 billion ($300 million) Moroto Ateker Cement Company Ltd (MACCL) is still under construction and will produce clinker, cement, lime and marble.

Uganda’s Trade, Industry and Cooperatives ministry says the country could save Ush745.2 billion ($211 million) on importation of clinker annually.

“The plants will utilise 80 per cent of local raw materials in the production of clinker, cement, lime and marble,” says an official from the ministry.

The cement plants in Uganda rely on the importation of clinker a raw material required in the production of cement, thus an increase in foreign exchange outflow.

The proposed plant will process 1,250 tonnes of cement per day, 300 tonnes of limestone per day and 11,00 square metres of marble per month.

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