The Ugandan economy has been based on small, African-owned farms since precolonial days. Uganda’s economy collapsed during the Idi Amin regime in the 1970s. In 1972 Amin expelled the country’s Asian population, which controlled most of the commerce, and distributed their businesses and property to corrupt and incompetent managers. From 1972 to 1988 the economy declined about 33 percent. The economy rebounded under President Yoweri Museveni, growing an average of 7 percent annually between 1990 and 1998. But it took until the late 1990s for the country to recover the production levels achieved before Amin seized power. In 1987 Museveni adopted reforms designed to reduce the size of the state and privatize many economic activities.

As has been the case with most African countries, economic development and modernization have been enormous tasks that have been impeded by the country's political instability. In order to repair the damage done to the economy by the governments of Idi Amin and Milton Obote, foreign investment in agriculture and core industries, mainly from Western countries and former Asian residents, was encouraged. The 1991 Investment Code offered tax and other incentives to local and foreign investors and created the Uganda Investment Authority, which made it easier for potential investors to procure licenses and investment approval.

Uganda has substantial natural resources, including fertile soils, regular rainfall, and sizable mineral deposits of copper and cobalt. Agriculture is the most important sector of the economy, employing over 80% of the work force. Coffee is the major export crop and accounts for the bulk of export revenues. Since 1986, the government - with the support of foreign countries and international agencies - has acted to rehabilitate and stabilize the economy by undertaking currency reform, raising producer prices on export crops, increasing prices of petroleum products, and improving civil service wages. The policy changes are especially aimed at dampening inflation and boosting production and export earnings. In 1990-2000, the economy turned in a solid performance based on continued investment in the rehabilitation of infrastructure, improved incentives for production and exports, reduced inflation, gradually improved domestic security, and the return of exiled Indian-Ugandan entrepreneurs. Ongoing Ugandan involvement in the war in the Democratic Republic of the Congo, corruption within the government, and slippage in the government's determination to press reforms raise doubts about the continuation of strong growth. In 2000, Uganda qualified for enhanced HIPC debt relief worth $1.3 billion and Paris Club debt relief worth $145 million. These amounts combined with the original Highly Indebted Poor Countries HIPC debt relief add up to about $2 billion. Growth for 2001 should be somewhat lower than in 2000, because of a decline in the price of coffee, Uganda's principal export.