Uganda's economy is dominated by the production of agricultural goods, which employs some 82 percent of the workforce. These goods range from crops grown mainly for subsistence purposes such as plantains, maize, beans, and potatoes, and exported cash crops such as coffee, tea, and tobacco. The reliance of the national economy on cash crops for foreign exchange is a legacy of Uganda's colonial period when it was made a British protectorate (1894-1962) during the "scramble for Africa" by the imperialist European powers. In other words, the country's productive structure remains dominated by what the British colonial administration had forcefully demanded Ugandans produce.
At independence in 1962 Uganda was one of Africa's most economically promising states and was widely cited as the "Pearl of Africa." It was self-sufficient in food, its manufacturing sector produced basic inputs and consumer goods , and its transportation infrastructure was one of the best in the continent. Its key exports—coffee and cotton—were in global demand as the world economy was registering substantial growth built on the import demands of the United States, Western Europe, and parts of Northeast Asia. Health services were among the best in Africa, and schools, although in limited supply, were of a generally high quality.
However, from the beginning of President Idi Amin's regime in 1971 to the National Resistance Movement's (NRM) adoption of free market reforms in 1987, the official economy fell deeper and deeper into crisis under the strain of spasmodic civil wars and shortsighted economic programs such as the nationalization of certain industries and the expulsion of the Asian population. In 1960 cotton provided 40 percent of Uganda's export revenue (because cotton is a less volatile crop than coffee, its production had acted as a good counterbalance to foreign exchange reserves earned through exports). However, the harvesting of goods such as cotton and sugar declined considerably during the period 1971-1987 so that even in 2000 they were a minimal part of Uganda's agricultural production. The instability of the economy and the Uganda shilling between 1971-1987 led to the rise of the informal sector . The NRM had inherited an economy that had had the worst growth rate of all African countries between 1962-1987. The country's reliance on coffee production has left the economy highly vulnerable to the continual flux of international coffee prices.
Under the influence of the International Monetary Fund (IMF) and the World Bank, the NRM embraced free market reforms in 1987; these included the privatization of industry and services, the devaluation of the Uganda shilling (USh), and the liberalization of the exchange rate system. Since then Uganda has become one of the most economically liberal countries in the world. Due to a combination of free market reform, the large amount of post-conflict national reconstruction required, and the relative degree of security maintained by the NRM, the economy has enjoyed consistently high rates of GDP growth since the late 1980s. By the late 1990s external donors such as the IMF and European Union (EU) promoted Uganda as one of the key success stories of free market reform in Africa. For instance, evidence suggests that the stabilization of the Uganda shilling has created an economic environment suitable for the growth of the country's manufacturing sector and, more broadly, the diversification of export production into "non-traditional goods" such as fish products and cut flowers.
The reduction of the drain on state revenue since the banking sector was partially denationalized has contributed to the successful balancing of the national current account. The privatization of parastatals and the reduction of state spending by means of downsizing social services and the public sector have, similarly, lessened government spending. Because of the social stability throughout most of Uganda in the 1990s the incidence of tourism is increasing very quickly after having been heavily reduced by the violence permeating the country from 1971 to 1986.
Yet Uganda still suffers from considerable economic difficulties. The economy is dependent on the continued flow of aid from external donors. Total external debt has risen from US$0.689 billion in 1980 to US$3.708 billion in 1997, and the country remains entirely dominated by the unpredictability of the production and international prices of coffee. During the Amin period and the economy's decline, corruption within the government and society as a whole became very common in order to satisfy greed amongst the rich and survival for the poor. In 2000 corruption still saturated the government and the private sector despite efforts to curtail its influence. Similarly, by 2000 the informal sector remained of considerable size. However, the liberalization of the exchange rate system and the subsequent evening out of informal and official prices have sent the informal sector into decline.