By Prof. Augustus Nuwagaba (PhD), Deputy Governor Bank of Uganda
When a Ugandan farmer sells a bag of coffee, the real question is not only: How much have I earned? The bigger question is: What can I purchase with the money I have earned? That is the real meaning of Terms of Trade (ToT).
In its simplest meaning, Terms of Trade compare the Monetary value we derive from what we sell to the world with the monetary value of what we buy from that very income earned from selling that very product. For example, if coffee prices fall, while the cost of machinery, petroleum products and technology rise, Uganda must sell more coffee to buy the same imported goods.
Just look at this: Uganda exported about 7.9 million 60-kg bags of coffee, worth US$2.25 billion in the 12 months to July 2025; that is impressive, but wait a minute, the bigger economic question is: How much value are we earning from every kilogram of coffee we produce?
Consider the full journey of coffee: A farmer produces it; someone processes it; another company roasts and packages it; then another builds the brand and sells it in London, Dubai or New York. The question is simple: Where is most of the value captured? This is why value addition becomes paramount.
Agricultural exports accounted for about 36% of Uganda’s export earnings in FY2024/25, according to our official data. This is both a strength and an opportunity. However, we must shift from exporting more raw materials to exporting more processed, branded and higher-value products.
Now look at imports; in 2024, Uganda exported about US$8.65 billion in goods but imported goods valued at about US$13.94 billion, implying a trade deficit of US$5.29 billion. What do we learn? The lesson is clear: we must produce more in value, and this is what business competitiveness is about.
But let us be careful; do we stop the importation of goods and services? The answer is a big no! No country can ever be self- sufficient in all goods and services. The critical question then is; what drives our import invoices and what impact do they create on our productive capacity? A machine imported to process coffee, milk, fruits or cotton will help Uganda produce more and export more.
Economic transformation is not about closing our doors so that you lock out imported goods; rather, it is about using trade to build production, productivity and economic competitiveness. Uganda’s economy grew by 6.3% in FY2024/25, with agriculture growing by 6.8% and industry by 6.9%.
The next challenge is to make that growth more meaningful through higher-value exports, stronger industries, more skilled jobs, and higher incomes. Terms of Trade (ToT) are therefore not just an academic economics concept; they affect the farmer, the entrepreneur, the manufacturer, the exporter, the importer, and the household.
Uganda must therefore move from just producing more to producing better goods and services, processing more, and earning a bigger share of the product value chains. That is how trade becomes a driver of economic transformation.
The author is the Deputy Governor Bank of Uganda
