Last Updated 23 Jan 2023

The coronavirus effect on global economic sentiment

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COVID-19 is a disease precipitated by a certain virus (SARS-CoV-2) and also identified as “coronavirus” or “novel coronavirus” (Bachman, 2020). The first case of COVID-19 was reported in mainland China in December 2019 (East African Business Council, 2020), and at the beginning, it was mostly seen as China’s problem. Now it is a global crisis that has caused major impacts on the global economy which has been suffering.

The East African Community (EAC) member countries are among countries that have been impacted as their economic performances are triggered by the internal and external economic environment.

This East African union was established in 1967 consisting of six East African countries such as Rwanda, Kenya, Tanzania, Uganda, Burundi, and South Sudan for the purpose to strengthen the custom union, monetary union, common market, and political federation. The current COVID -19 situation has established a significant challenge to EAC economies due to its strong links with each other and the world.

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The sectors highly affected in their economies include trade, supply chains, investment, infrastructure, tax collection, construction, and tourism (Gbenga, 2020). For this analysis, Uganda will be the country of focus.

In terms of trade, the COVID-19 pandemic is disrupting ease of trade because of transport and logistics restrictions (East African Business Council, 2020). Globally, EAC trade is set to experience trade shocks due to trade ties globally and internally.

As imports and exports are limited, Uganda and the rest of the EAC are affected by the shortage of raw materials and goods increasing in prices of products. Consequently, reduced imports from international countries can intensify inflationary pressure and minimizing earnings to EAC economies (Kamulegeya, 2020).

Tourism is one of the promising foreign exchange earnings which is growing very fast in the EAC. The outbreak of COVID-19 has made this sector to decline because of stricter travel restrictions and people trying to stay safe. Similar to the other EAC member states, Uganda has already halted air travel services. This impacts lower earnings from tourism and air travel services (East African Business Council, 2020).

Tax collection supports the economy of a country and increases opportunities in growth. About 42% of the tax collected in Uganda is from International trade (Kamulegeya, 2020¬), and the limited movement of cargo reduces the flow of tax within each region and globally.

Supply Chain is another affected factor that the outbreak of COVID-19 has disrupted in all EAC partner states because of transport and logistic complications. The supply chain is affected by the hindrance to ease in the volume of raw materials and products supplied. Similar to the other EAC countries, Uganda’s small and medium enterprises experience the affect as the supply of cargo is demanded to run businesses.

The pandemic has not made Foreign Direct Investment (FDI) and domestic investments easy and desirable in Uganda and the other EAC regions. Investment determiners such as business opportunity, security, capital, and labor seem risky. A decline in FDI and internal investments reduces employment opportunities, the flow of money and therefore reduces the earnings rate with lost revenue.

Uganda and the rest of the EAC countries are likely to be impacted with ineffective Construction and Infrastructure as a result of a reduction in tax collection, FDI, and internal investment. External countries contribute to importing capital goods like transport equipment, building, and construction materials for the construction of infrastructure.

The pandemic has suspended major projects, leaving Uganda and EAC pending to construction and infrastructure that have been planned.

Most of the EAC countries have had similar economic effects, but may differ to some degree which is evident in Uganda. COVID-19 has triggered negative results in the financial sector in EAC. The United States Dollar (USD) has rallied against East African currencies because of the global volatility of the FX Buffer degraded by the arrival of COVID-19, which increases import cost and inflation.

From this. the currency performance in Uganda reached a higher low compared to the other EAC countries. In March it had hit a low of 3,800 and is predicted to demonstrate a new stage of 3,900.

The disadvantage of sinking currency value is that the stock of external debt contributes to an increase as internal currencies drop against the US dollar. This is influenced by the reduction of foreign exchange reserves due to reduced financial inflows from FDI’s, tourism earnings, and export revenue.

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