Traders’ association chairperson Isa Sekitto says Uganda needs to lower business costs, revive regional trade and boost exports to increase foreign currency inflows, warning that higher interest rates could constrain business investment.
The Kampala City Traders Association (KACITA) has blamed high taxes, declining regional trade and weak export earnings for pressure on the Ugandan shilling, warning that raising the Central Bank Rate (CBR) alone could discourage borrowing and hurt businesses.
Isa Sekitto, KACITA chairperson, said Uganda’s heavy dependence on imports had made the economy vulnerable to fluctuations in the dollar, calling for a broader response that includes export promotion, tax reductions and tourism development.
Sekitto was commenting on the factors behind pressure on the local currency and the Bank of Uganda’s monetary policy interventions. He argued that Uganda’s import-led economy requires more foreign currency than its exports generate, leaving the shilling exposed when dollar inflows weaken.
He also faulted the loss of Kampala’s position as a regional trading hub, saying high taxes had made it more expensive for traders from neighbouring countries to source goods from Uganda.
Sekitto said Kampala previously attracted buyers from the Democratic Republic of Congo, Kenya and Rwanda, who purchased imported merchandise alongside locally produced goods and used services such as transport, accommodation and hospitality.
According to Sekitto, this regional trade generated foreign exchange and supported businesses beyond the import sector.
“When the price is shot higher than any other partner in the East African Community, Uganda lost the Dubai facility,” he said, referring to Kampala’s former role as a regional distribution centre.
He argued that restoring the city’s competitiveness would attract regional buyers, increase foreign currency inflows and support local producers and service providers.
Sekitto also attributed weaker export earnings to seasonal factors affecting agricultural production and international market conditions, including increased competition from Brazil in commodity markets such as coffee.
He acknowledged that external developments, including the Russia-Ukraine war and tensions involving the United States, Israel and Iran, could affect international trade and currency movements. However, he said the government should prioritise domestic factors that can be addressed through policy changes.
The KACITA chairperson questioned the effectiveness of relying heavily on an increase in the CBR, the benchmark interest rate the Bank of Uganda uses to influence borrowing costs and inflation.
He said higher interest rates could prompt commercial banks to raise lending rates, making it more expensive for traders and other businesses to borrow for investment and expansion.
“If you don’t borrow, if you need the cash, what will you use to boost the economy?” Sekitto asked.
He warned that businesses already struggling with high operating costs could find it harder to finance stock purchases and other productive activities if borrowing became more expensive.
Sekitto acknowledged that monetary tightening could help address inflationary pressures but said it should be accompanied by measures to expand exports, attract tourists, encourage investment and restore regional trade.
He also raised concerns about a law recently passed by Parliament, arguing that it could discourage foreign direct investment by making prospective investors hesitant to commit capital to Uganda. He did not identify the law in his remarks.
The KACITA chairperson further argued that the government should consider how foreign currency held outside the formal financial system affects the availability of dollars for productive economic activity.
He said measures aimed at reducing excess liquidity should take account of the needs of traders, manufacturers and other businesses that depend on commercial bank financing.
His remarks come amid concerns about exchange-rate volatility and the cost of importing goods, which can affect traders’ operating expenses and the prices paid by consumers.
Sekitto called for a coordinated response combining monetary policy, tax measures, export development and efforts to attract regional buyers back to Kampala.
The Bank of Uganda’s interest-rate decisions are intended to help maintain price stability, while their broader economic effects depend on factors including credit demand, production, trade flows and investor confidence.
Sekitto said restoring Uganda’s competitiveness as a regional trading centre would help generate foreign exchange while supporting employment and domestic economic activity.
However, he did not quantify the contribution of high taxes, declining regional trade or weaker export earnings to the shilling’s recent movements.