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News > World

Sanctions on Russia Foster Commodity Prices Surge in Uganda

  • A gas station in Uganda, April 2022.

    A gas station in Uganda, April 2022. | Photo: Twitter/ @burgs24

Published 15 April 2022
Opinion

European countries have resorted to other markets for fossil fuels, a move that has pushed up the demand and thus increased prices.

Fred Muhumuza, an economic analyst and lecturer at Uganda's Makerere University, holds that the ongoing surge in commodity prices in Uganda may not let up in the short term as contributing factors like the COVID-19 pandemic and the Russia-Ukraine conflict still persist.

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EXTERNAL FACTORS

Fuel prices in the country have skyrocketed with some filling pumps running dry, Muhumuza said, attributing this to the sanctions on Russia. European countries, which used to rely on Russian petroleum and gas, have resorted to other markets for fossil fuels, a move that has pushed up the demand and thus increased prices.

"Oil is bought in the futures market. The oil bought now will be used in August and September. The price (increase) may persist longer," he said, adding that the already-strained global supply chains caused by the pandemic have also compounded the situation. Several epidemiological controls have led to the closure of factories, warehouses and shipping ports, which in turn have triggered shortages of raw materials, and finished goods.

"In Uganda, it is more of the disruption in the availability of goods and services. The logistical supply chains globally have yet to recover. You cannot get all the items you want at the same time, and when they come in, they are coming in at a higher price," Muhumuza said, recalling that general elections scheduled in August also have an impact on Uganda, as the latter heavily relies on Kenyan seaports for trading.

The removal of some "COVID-19 restrictions has supported some improvement in consumer demand, but rising prices seem to also have restrained demand. Higher prices were largely a function of increasing input costs, with companies increasing their selling prices for the seventh consecutive month," said Ferishka Bharuth, another economist.

POSSIBLE REMEDIES

On Thursday, Trade Minister David Bahati told parliament that while most of the causes of the price increases are external, the government is implementing possible short-term remedies. Tax reductions, however, will not be possible due to their effects.

"The use of subsidies and tax reductions are not only unsustainable but also cause other problems for the economy. For example, they have the unintended consequence of creating market distortions such as smuggling, and they lead to revenue loss to the government which negatively impacts service delivery," Bahati said.

The government set up a committee to monitor price increases with power to arrest those taking advantage of the situation. Those found guilty of hoarding fuels risk losing their licenses. The Bank of Uganda will also implement policies to ensure macroeconomic stability. Last month, the year-on-year inflation was at 3.7 percent.

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