Uganda
Poverty Reduction Strategy Paper

This paper discusses Uganda’s Poverty Eradication Action Plan (PEAP) 2004/05–2007/08. The PEAP provides an overarching framework to guide public action to eradicate poverty. It has been prepared through a consultative process involving central and local government, parliament, donors, and civil society. The PEAP aims at contributing toward transforming Uganda into a middle-income country. The government's strategy in the short term is aimed at strengthening both agriculture and manufacturing. For agriculture, critical interventions include infrastructure, information and support to farmers’ marketing. For manufacturing, the government will strengthen infrastructure, improve governance, and boost the education of the workforce.

Abstract

This paper discusses Uganda’s Poverty Eradication Action Plan (PEAP) 2004/05–2007/08. The PEAP provides an overarching framework to guide public action to eradicate poverty. It has been prepared through a consultative process involving central and local government, parliament, donors, and civil society. The PEAP aims at contributing toward transforming Uganda into a middle-income country. The government's strategy in the short term is aimed at strengthening both agriculture and manufacturing. For agriculture, critical interventions include infrastructure, information and support to farmers’ marketing. For manufacturing, the government will strengthen infrastructure, improve governance, and boost the education of the workforce.

1 Introduction

1.1 The Poverty Eradication Action Plan

The Poverty Eradication Action Plan is Uganda’s national planning framework. The PEAP was first drafted in 1997 and was revised in 2000. This is the second revision of the PEAP. Revisions are intended to keep the PEAP current in the light of changing circumstances and emerging priorities.

The purpose of the PEAP is to provide an overarching framework to guide public action to eradicate poverty, defined as low incomes: limited human development: and powerlessness. The PEAP provides a framework within which sectors develop detailed plans.

Overall framework

The PEAP aims at contributing towards transforming Uganda into a middle-income country. Such a process of transformation will involve industrialisation based on private investment in competitive enterprises. Middle-income countries invariably have a higher share of industry in GDP, both because they have a higher capital stock and because they have higher domestic demand for manufactured output.

It is now recognised that the best way to industrialise is usually not to protect domestic industry, but to enhance competitiveness. Protection leads to the establishment of uncompetitive industries and also, in low-income countries, tends to increase inequality. Uganda is therefore aiming at a path of economic development that will expand the country’s ability to compete in international markets

Because of the country’s geographical position and strong (though vulnerable) natural resource base, one of the main forms of industrialisation will be value-addition by processing agricultural products. For this to happen, the country’s farmers need to understand the technical and quality requirements of commercial production. The incomes generated as a result will represent a crucial infusion into rural areas, where most poor people in Uganda live.

While manufactured exports will depend on agricultural inputs, manufacturing for the domestic market will depend on the demand for manufactured goods, and this in turn depends on rural incomes. For both these reasons, manufacturing growth will depend on agricultural development, even though the rate of manufacturing growth is likely to continue to be faster than that of agricultural growth, corresponding to patterns observed elsewhere.

Government’s strategy in the short run is therefore aimed at strengthening both agriculture and manufacturing. For agriculture, critical interventions include infrastructure (especially rural roads), information and support to farmers’ marketing. For manufacturing, Government will strengthen infrastructure (especially electric power), improve governance (since corruption has been identified as a constraint for manufacturing), boost the education of the workforce, improve the financial system, and establish a regulatory regime that ensures a level playing field.

As Chapter 2 notes, there has been a marked increase in inequality in the last few years. Government aims to tackle this by increasing the ability of the poorer households to participate in economic growth. There are three main channels. First, many of the poorest households depend heavily on their own agricultural production thus the need to improve quality and enable them to enter the market, while strengthening their property rights. Secondly, non-agricultural self-employment has been increasingly important as a route out of poverty as well as wage employment.

The process of economic development will both cause and depend on social and human development. As economic development occurs, the health, educational level and empowerment of the population will improve. Government recognises the importance of community empowerment at all stages of development, and is committed to involving communities more fully in the provision of services and the identification of new economic opportunities.

1.2 Government’s strategy for poverty eradication

During the implementation of the PEAP 2000 a number of core challenges have emerged that are the basis for the overall strategy for the PEAP 2004.

Core Challenges and Priority Action for the PEAP

Since 2000 there have been major developments in the delivery of social services and continued economic growth. However, this growth has been highly unequal and as a result, poverty has increased. The growth has also been accompanied by environmental degradation. Also, information now available shows that there was less improvement in human development indicators in the 1990s than had previously been thought (except for the achievement with AIDS). Insecurity has persisted, causing changes in the regional pattern of poverty.

This set of circumstances implies the following core priorities for action in this PEAP.

  • Restoring security, dealing with the consequences of conflict, and improving regional equity

Over the PEAP period, Government will endeavour to end armed conflict in all parts of the country, to enable Internally Displaced Persons (including formerly abducted children) to return home or to find new livelihoods (according to their preference), and to start to repair the damage done by the war to the economies of the North and North-East.

  • Restoring sustainable growth in the incomes of the poor

During the period 2000–2003, income poverty increased, and inequality has been increasing markedly since 1997. Government will aim to achieve increases in per capita consumption and halt or reverse the increasing trend in inequality, so that per capita incomes and consumption as well as savings of the poor rise. This growth must take a form that maintains and protects the environment and natural resource assets on which the poor depend.

  • Human development: addressing quality and drop-out in UPE and planning for post-primary education, cutting mortality and increasing people’s control over the size of their families

Uganda has achieved major increases in the volume of primary education, but quality and drop-out remain concerns. There will be an increased demand for post-primary education in the coming years. AIDS prevalence has fallen dramatically, but has recently levelled out. Progress in reducing child and infant mortality and promoting family planning has been disappointing.

Government will endeavour to improve the quality of primary education and reduce dropout, to expand post-primary education, and reduce infant and child mortality. Government will ensure that family planning services are accessible to all those who need them and that all households are aware of their responsibility of protecting themselves from HIV/ AIDS and to make sure that they can support their children.

  • Using public resources transparently and efficiently to eradicate poverty

Government enjoyed a major expansion of resources during the late 1990s and early 2000s, as a result of increased donor in flows. This expansion was not accompanied by an increase in domestic revenues, and hence increased the deficit. In order to control the deficit, Government resources will expand more slowly over the PEAP period, unless the expansion is funded by domestic revenues. Hence the focus has to be on improving the efficiency with which resources are used. Government will endeavour to reduce corruption and increase accountability in the use of resources: to improve the allocation of public resources by giving high priority to the actions identified in the PEAP and reducing the proliferation of uncoordinated initiatives. Streamlining the structures within the public sector itself will be a major challenge.

The Process of Revising the PEAP

The Government of Uganda embarked on the process of revising the PEAP in November 2002 with the development of the 2003 Poverty Status Report (PSR 2003). The PSR 2003 brought together all available evidence on the progress we have made in the implementation of the PEAP and the outstanding key challenges that we see in the revision process. During 2003 and 2004, three major stakeholder workshops were held, bringing together over 1000 stakeholders from central government, local government, the civil society and private sector in each workshop.

The first workshop was used to launch the revision process and explain the PEAP Revision Guide to all the stakeholders. After the first workshop, different groups held independent consultations. Government Sector Working Groups developed sector PEAP revision papers, which have been synthesised in the draft PEAP itself. Civil society and the private sector ran consultative processes led by the Uganda NGO forum and the Private Sector Foundation respectively. A working group on cross cutting issues integrated issues of gender, HIV/AIDS and environment into the whole PEAP revision process. The second workshop reviewed the draft sector papers, and the third workshop reviewed the first draft of the PEAP itself. Two workshops were held by Parliament during the preparation of the PEAP and their input is reflected in the document.

Several research initiatives and studies have been used in the revision process. The latest National Census data (2002) and the Uganda National Household Survey (2002/03) provided the quantitative research evidence that was used in the revision of the PEAP.

Qualitative data on poverty was provided by the findings of the 2nd participatory poverty assessment process, conducted in 12 districts in 60 sites in all regions of Uganda1. All these data sources gave statistical as well as qualitative research evidence that has been sharpening Government’s overall strategy for poverty eradication. This consultative process has therefore been one of learning and sharing information, which are key ingredients in any country’s poverty eradication strategy.

What is New in the PEAP

  • a) More focus on linking public expenditure to the PEAP priorities: PEAP 2004 provides a clear link between the PEAP priorities and public expenditure. A new chapter that focuses on issues of public expenditure and the PEAP implementation has been added.

  • b) Making the PEAP more functional: The new naming of the pillars in this PEAP is based on the functions that will be implemented under each pillar. In this way the PEAP 2004 is now a document that allows sectors to relate to various parts of the PEAP in the implementation process.

  • c) Developing a PEAP Results and Policy Matrix: A PEAP Results and Policy Matrix has also been developed making the monitoring and evaluation of the PEAP much more clearer.

  • d) Balance between Social and Productive Sector Spending: This PEAP has also created a balance between the productive and social sectors. The PEAP 2000 did emphasize investment in the social sector and we have been able to see significant improvements. However, we have also observed slow growth in the productive sector and therefore this PEAP emphasizes a strategy that is linked to both sectors.

  • e) Prioritizing Ending Insecurity: A new pillar on security and conflict resolution has been introduced as a direct recognition that security of all Ugandans needs to be treated as a national priority and in a holistic manner so that we can cater for interventions both in conflict areas and also post conflict areas.

  • f) Cross cutting Issues: The PEAP 2004 has also paid attention to several cross cutting issues that affect people’s livelihoods and have an impact on the PEAP. The environment sector working group, HIV/AIDS sector working group and gender sector working group organized their own consultations and contributed evidence that has been used in the PEAP revision process. It is now clear that removing constraints caused by HIV/AIDS, Environment and above all gender inequalities is key to achieving Uganda’s poverty eradication goals.

  • g) Process of Consultation: The process of consultation in the revision of the PEAP is probably the most detailed since the PEAP 1997 was developed. The PEAP 2004 is based on consultations with very many stakeholders. We have consulted local governments who conducted their own consultation in their respective local governments, sectors have prepared Sector PEAP Review Papers, the Civil Society Organizations sent in contributions, the private sector organized consultations among themselves and many of development partners sent in comments on the various drafts of the revised PEAP. The PEAP 2004 therefore represents the aspiration of very many Ugandan stakeholders at all the different levels.

1.3 Pillars and priorities

This PEAP is presented under five ‘Pillars’ or components. Each sector of Government is grouped as far as possible under one pillar. It is, of course, recognised that many sectors contribute to the objectives of other pillars as well.

The priorities identified here are derived from the core challenges listed above.

Economic management

Key priorities in economic management are:

  • The maintenance of macroeconomic stability

  • Fiscal consolidation

  • Boosting private investment

Production, competitiveness and incomes

Key priorities in this area are:

  • The modernisation of agriculture

  • Preservation of the natural resource base, particularly soil and forests

  • Infrastructure including roads, electricity and railways; better maintenance, cost-reduction and private sector participation will be key to achieving improvements in the context of fiscal consolidation.

  • Enhancing private sector skills and business development.

Security, conflict-resolution and disaster-management

The key priorities in this area are:

  • Ending rebel insurgency, by peaceful means if possible

  • Ending cattle-rustling

  • Dealing with internal displacement and abduction, which are major sources of distress in contemporary Uganda

Governance

The key priorities are:

  • Human rights and democratisation

  • The development of a better legal system

  • Transparency, accountability and the elimination of corruption

Human development

Key priorities are:

  • Primary and secondary education: with a clear focus on quality and the ultimate objective of learning, and with better targeting of public expenditure on secondary education at those who could not otherwise afford it.

  • Improving health outcomes: this will be the joint achievement of several sectors

  • Increasing people’s ability to plan the size of their families

  • Community empowerment including adult literacy

The identification of an area as a priority does not necessarily mean that spending on this area will increase. The chapter on public expenditure examines the relations between the existing and projected resource envelope and Government’s plans in various sectors, and uses this analysis to see which areas are currently underfunded.

1.4 Cross-cutting issues

As part of the PEAP process, a working group was formed: to focus on cross-cutting issues, in particular gender, environment and HIV/AIDS. Other cross-cutting issues include: employment, population, social protection, income distribution and regional equity.

Gender issues arise under all pillars. In particular, the importance of addressing intra-household relations for agricultural productivity is emphasised. Discriminatory legislation is to be reviewed and reformed. The pattern of usage of services by gender is examined in various sectors. The shortage of fuelwood and its effect on women’s time use is strongly emphasised, as is the need for coordination between forestry and energy policy in addressing it. Women’s land rights need to be strengthened. Domestic violence is recognised as a problem and actions are being taken to reduce it.

As part of the PEAP process, more analytical work has been done on the economic importance of environment and natural resources in Uganda. Problems of soil degradation, deforestation, depletion of wildlife resources and encroachment on wetlands give examples where public action is needed. In the case of soil degradation and forestry, both technical and participatory evidence show the problems have in the past been underestimated. Relevant actions are considered in chapter 4. The lack of a sectoral apporach to environment and natural resources has been a constraint and will be addressed.

With HIV/AIDS prevalence apparently plateauing at 6% of the adult population, more needs to be done to reduce it and to treat victims of the disease. Actions for prevention and treatment are mainly covered in Chapter 7. Implications for human resource management are covered in the various sectors, although not all sectors have human resources management systems of enough sophistication to take HIV/AIDS fully into account.

Employment: is an important concern throughout the new PEAP. New data from the Labour Force survey, discussed in Chapter 2, give good quantitative estimates of unemployment. While open unemployment is a relatively rare phenomenon, visible underemployment is highly prevalent. Wage employment has not been growing as fast as was hoped, so that the share of wage-earners in the population has been increasing slowly. Chapter 2 sets out the implications of structural transformation for the demand for labour in wage employment and self-employment, and Chapter 3 translates this into implications for economic management. All the actions in Chapter 4 are likely to influence employment, and the specific area of employment policy is also discussed, with a particular focus on working conditions and wages. There appears to be scope for more use of labour-intensive techniques in public investment, which is not being fully exploited at the moment. Pension reform and a more flexible approach to occupational health and safety can also help to reduce the costs of employing people.

It is sometimes suggested that economic demand should be increased in order to raise levels of employment. At the macroeconomic level, this would be likely to exacerbate shortages of skills. Over the last three years wages for the better-off have increased sharply, widening the gap with others. Visible underemployment is not a sign that there is a large pool of people looking for full-time work, but that there are many people who would like to augment their current incomes with some extra wage-earning opportunities in their locality. What is appropriate in this case is not a global increase in demand but an increase in locally targeted employment opportunities.

Population growth: is a major issue for poverty reduction. New analytical work has been conducted for this PEAP on the effects of population growth for incomes, motivated by the discovery in the 2002 Census that population growth was higher than had previously been observed. The results of this analysis strongly suggest that the very large families that have been observed over the years in Uganda are now becoming an impediment to the speed of economic growth and social and structural transformation. There is evidence that many people, particularly women, would like smaller families. Chapters 2, 3 and 7 examine the implications of large families and how family planning service can be made more accessible and attractive to the population.

Social protection: is receiving more attention. Chapter 2 discusses a number of the identified disadvantaged groups in Uganda. Social protection is further discussed in Chapter 7.

Income distribution: is an absolutely central concern of the PEAP, particularly because income inequality has been increasing since 1997. All sectors preparing PEAP papers were asked to discuss who their beneficiaries were, in order to generate more creative thinking about how the poor can be reached by public services. The prioritisation of public actions continues to focus on the poverty impact. In this PEAP, poverty impact is raised as a policy issue in a number of places where existing policy may need to be refocused.

Regional equity: One particularly dramatic source of inequality in Uganda is the poor economic performance of the North, caused largely by the insecurity suffered by its population. Chapter 2 discusses the phenomenon of regional inequality, and Chapter 5, on security, conflict-resolution, and disaster-management, is centrally concerned with the North and parts of the East. It is intended that the problems of the North should mainly be addressed by mainstreaming this concern throughout the sectors’ actions, but there are a number of outstanding policy issues in this area discussed particularly in Chapters 5, 6 and 8.

In the last three years, there has been a marked increase in poverty in Eastern Uganda. One reason for this is distress migration from the conflict-affected areas of the North. However, this does not appear to be adequate to explain all the change; Chapter 2 provides more discussion.

1.5 Roles of the state, the private sector and other partners

The Role of Government

The state is responsible for ensuring a basic framework of legality, rights and freedom and intervening in the economy to promote economic efficiency, equity and growth. Interventions are appropriate for three main reasons:

  • - Promoting the right incentives to encourage private production

  • - Ensuring that public goods are supplied

  • - Reducing inequality. (This is particularly relevant in a context where income inequality has been increasing sharply)

One of the objectives of the PEAP is to develop consensus on how to interpret these principles in Uganda. All sectors were asked to analyse the public sector’s role in their submissions for the PEAP revision. Likewise, the PMA and the MTCS provide frameworks for the public sector’s role in supporting economic production. This PEAP re-emphasises the importance of some public goods, such as agricultural extension, while exploring the option of public funding for private provision in a number of areas.

Government is committed to serving all citizens of Uganda irrespective of ethnic background, sex, or religious beliefs. This fundamental commitment will underlie all Government policies in the PEAP.

Legislature and executive

Most of the actions included in the PEAP are implemented by the executive arm of Government. The fundamental commitments, however, are guided by the vision of Government as reflected in the promises made to the electorate. Parliament has a fundamental role both in passing legislation that bears on poverty-eradication, and in scrutinising the executive. The Public Finance and Accountability Act sets up an improved framework for this scrutiny.

Autonomous and semi-autonomous agencies

There are a large number of autonomous and semi-autonomous agencies within the public sector. Some of these have essential public roles including policy formulation, independent monitoring, service delivery, and the procurement of services. These are expected to pursue the interests of the population as a whole in the same away as central Government. Others are expected to operate on an essentially commercial basis though subject to regulation.

The roles of these agencies are subject to review. There are concerns about the efficiency of some of these agencies, the very substantial gap between remuneration in them and in the public service, and the amount of revenue that is effectively hypothecated by being assigned to these agencies. There is also some concern that social and commercial missions have been blurred in some cases, leading to a reduction in the efficiency of investment.

The Private Sector (national and international)

It is the private sector, including the many small-scale farming households, that is responsible for the majority of productive investment. In general, the motivation for investment is expected to be commercial, and Government will therefore seek to ensure that the incentives in the economy encourage the kinds of investment that will generate pro-poor growth. In some cases, the commercial private sector supports public goods for altruistic, cultural or prestige reasons. For instance, commercial sponsorship of sport is an important international phenomenon. The private sector has contributed significantly to the priorities identified in this PEAP.

Over time, it is hoped that producer organisations will be strengthened. Services such as information about marketing opportunities, which benefit an industry as a whole, can be usefully provided by such organisations. Producers’ organisations in grain trading and horticulture already play an important role, and Government will collaborate with such organisations in promoting private sector development.

Civil Society

It is essential to the concept of civil society that its actions are not planned or dictated by Government. However, Government enjoys productive partnerships with civil society in a number of areas and there are four general roles that civil society organisations play:

  • Advocacy, particularly for the interests of groups who might otherwise be neglected;

  • Voluntarily financed service delivery in sectors not covered by Government programmes;

  • Publicly financed service delivery, subcontracted by Government;

  • Support to conflict resolution; and

  • Independent research on key policy issues

Civil society has made a substantial input into the policies proposed in this PEAP, and even to the structure of the document.

Donors

Donors continue to play a critical part in financing public expenditure in Uganda. In accordance with the partnership principles spelt out in Volume 3 of the previous PEAP, the donors are encouraged to support Government programmes through budget support rather than through projects. With the introduction of sectoral ceilings for the development budget including donor projects, both sectoral ministries and donors need to understand that each additional project will have an opportunity cost for the sector in terms of flexible resources for the sector’s priorities. This is being done to ensure that project funds are subject to the same process of prioritisation as more flexible resources.

Some donors provide support direct to NGOs and to some districts outside the central government budget. The amounts are not currently integrated into the national resource envelope, but information is collected on them. The amounts are not large enough currently to have substantial macroeconomic effects.

Government has developed partnership principles, discussed in chapter 8, to guide interactions with donors.

1.6 The PEAP and international initiatives

Since 2000, the World Bank and IMF have asked their developing-country clients to prepare Poverty Reduction Strategy Papers (PRSPs), partly inspired by the example of Uganda’s first PEAP. The PRSPs have become central documents for guiding recipient-donor relations. In Uganda’s case, the PEAP is the country’s PRSP and Comprehensive Development Framework.

Government also signs a wide range of agreements with donors. It has not always been easy to ensure that all the commitments in these agreements are mutually consistent, let alone consistent with the country’s own priorities. Increasingly, however, all donor agreements make reference to the PEAP. Ideally, all budget support agreements should be based on the actions specified in the PEAP without imposing additional conditions. In practice, some instruments such as IMF programmes and the World Bank’s Poverty Reduction Support Credit often involve commitments which go into more detail than the PEAP. Government will cooperate with donors in ensuring that any such commitments are compatible with the PEAP and that donor instruments progressively converge on the contents of the PEAP.

Government is also participating in a number of regional initiatives including the East African Community and the New Partnership for Africa’s Development (NEPAD). As the PEAP process evolves, the links between these processes will be fully articulated.

Government is a signatory to a number of international treaties specifying obligations such as the International Convention for the Rights of the Child. Since the United Nations Conference on Development and Environment (UNCED), 1992, Uganda has been an active participant in global environmental policy process including ratification of Major Multilateral Environment Agreements (MEAs).

The most high-profile of these international initiatives is the Millennium Development Goals (MDGs), under which a number of targets have been set that both developing countries and development partners are committed to achieving by 2015. The country remains committed to achieving these targets and the PEAP Results and Policy Matrix reflects the priority given to them. In general, the MDGs are fully consistent with Uganda’s national priorities. However, the relative speed at which any particular target is approached will reflect the particular constraints and trade-offs that the country faces.

1.7 Structure of the PEAP

Chapter 2 sets out the existing state of knowledge about poverty in Uganda, and the implications for poverty eradication strategy. Chapters 3 to 7 set out the actions planned under five pillars:

  • Economic management

  • Enhancing production, competitiveness and incomes

  • Security, conflict resolution and disaster management

  • Good governance

  • Human development

These are different from the 4 pillars of the previous PEAP. The restructuring of the pillars is intended to emphasise the importance of the conflict-related issues and to group actions in a way that mirrors the institutional structure of Government, as well as being more logical. For instance, the new grouping allows the road subsector and the education sector to be treated as a whole rather than divided across pillars.

Chapter 8 discusses the expenditure plans for implementing the PEAP. Finally, Chapter 9 sets out the monitoring framework for the PEAP and presents the policy matrix that will guide the implementation of the PEAP.

2 Poverty in Uganda: Trends and Patterns

This chapter provides an overview of recent developments in poverty in Uganda and patterns across different groups. It covers three main aspects of poverty: low incomes, limited human development, and limited empowerment. However, particular emphasis is placed on income poverty, because there is good recent evidence for changes in this dimension. Further discussion on the other dimensions of poverty can be found in the chapters on the relevant pillars.

2.1 Income, poverty and inequality

How is income poverty measured?

Using a national survey on household expenditure (which has been conducted in most years since 1992), statisticians calculate the real household expenditure per adult equivalent. This measure includes home-produced food as well as goods purchased from the market, and adjusts household size for the number of people of different ages, to give an accurate reflection of the relation between the household’s total expenditure and its members’ consumption needs. It also corrects for Inflation. Households whose real expenditure per adult equivalent falls below a given level (the poverty line) are considered poor. The poverty line used in Uganda is an absolute, not a relative one; it measures the level of expenditure needed to secure basic food consumption needs (taking into account regional variations in food prices) and a corresponding level of non-food consumption. Poverty can be measured by the headcount—the proportion of people below the poverty line—or by the poverty gap and depth of poverty, which also take into account the distance below the poverty line.

Trends in income poverty and inequality

During the 1990s, income poverty fell dramatically. The proportion of Ugandans whose expenditures fell below the poverty line (the poverty headcount) fell from 56% in 1992 to 44% in 1997/8 and even faster to 34% in 2000. These changes were driven mainly by increases in average income, rather than by redistribution. Inequality was basically steady from 1992 to 1997, but increased thereafter; the Gini coefficient2 was between 0.37 and 0.35 until 1997, but rose to 0.39 in 2000. Since 2000, the trends have been less encouraging. Income poverty increased from 34% to 38% between 2000 and 2003, and inequality as measured by the Gini coefficient rose markedly from 0.39 to 0.43.

There has been extensive discussion of the relation of these findings to participatory evidence5. While the participatory data show less perceived improvement, this arises partly because the period of comparison was different. While most Ugandan households in 2000 were economically better off than they had been in 1992, they were not necessarily better off than they or their parents had been in the 1960s or early 1970s, because of the decline in incomes during the 1970s and early 1980s.

The results in Table 2.1 have a number of implications for poverty in the period 2000–2003:

Table 2.1:

Proportion of people below the poverty line %3 and inequality coefficient

Table 2.2:

Proportion of people below the poverty line by occupational group, %4

  • Poverty rose in almost all regions of the country, with a particularly sharp rise in the East. However, the North (in which poverty fell slightly, although it must be noted that the sample excludes the insecure areas of Pader, Kitgum and Gulu) remains the poorest region in the country.

  • The regional shares of population changed markedly, with an increase in the share of the East and a reduction in the share of the North. This partly reflects the movement of some displaced persons to the East because of insecurity.

  • Inequality increased markedly, with the Gini coefficient rising from 0.39 to 0.43.

  • The sectoral shares of household heads changed dramatically, with a major shift out of crop agriculture. This may be partly due to a change in the sample, although the share of households owning land is constant across the two surveys. This is accompanied by a large drop in consumption of home-produced food, while consumption of purchased food increased.

  • The increase in poverty is particularly marked for households in crop agriculture, although other sectors such as trade and hotels also show large increases. By contrast, workers in government services experienced reductions in poverty.

The evolution of durable assets and welfare indicators shows a more encouraging pattern, with some improvements. The proportion of households with metal roofing and with radios rose over the period, as did the proportion of households eating meat or fish. Seven per cent of households now use a mobile phone, and as many as 35% of households in Kampala. Communications among urban households have thus been successfully transformed by the adoption of new technology in a liberalised environment.6 Recent research shows that more than 40% of the households who had livestock or a bicycle at the end of the 1990s reported that they had not had the corresponding asset in 19927.

Households’ access to land is likely to be squeezed by population growth and land scarcity. The rate of urbanisation has been gradual rather than dramatic, and the proportion of households with agricultural land appears to have changed little between 2000 and 20038. Hence an increased number of households are using the country’s limited resources of land. There are also some signs that land inequality is growing. The Village Census conducted for UPPAP found that the richer households had accumulated land and other assets over the 1990s much more than other households.9

While the role of depressed producer prices gives reason to think that the increase in poverty is likely to be a temporary phenomenon, a more disturbing fact is the increase in inequality that has been evident over the last six years. This is particularly disappointing in the context of increased public expenditure. Inequality has increased not only because of different growth in different sectors but also because of increased dispersion within particular sectors. In particular, wages became more unequal both in the public and the private sectors10. For this reason, while short-term shocks provide part of the explanation for what happened, there are more underlying structural concerns that need to be confronted.

Explaining the trends in poverty and inequality

Why poverty fell between 1992 and 2000

The poverty reduction of the 1990s was achieved by a very high rate of consumption growth (5.3% annually per capita both in the household surveys and in the national accounts). This reflected very fast rates of GDP growth in the early and mid-1990s (1992–7), which slowed somewhat from 1997 to 200011. This growth included all sectors of the economy.

Between 1992 and 1997, a critical factor in consumption growth was the increased prices that producers received for their crops. Because agricultural marketing was liberalised, farmers were able to benefit from the increase in the world price of coffee. The unit export price for Ugandan coffee tripled from 0.82 US$/kg in 1992/93 to a peak of 2.55 US$/kg in 1994/95. Hence the most dramatic poverty reductions were found among cash crop farmers.

After 1997, GDP growth slowed and the terms of trade deteriorated somewhat. The poverty reduction appears to accelerate, because consumption growth in the household surveys accelerated in this period12. In particular, food crop farmers benefited. However, inequality began to rise and poverty in the North increased. Two factors are particularly important in explaining these patterns. First, agricultural growth was healthy during these years. International evidence (discussed below) shows that rural income has a particularly close relation with poverty reduction, and this is particularly likely to be true in an economy as heavily rural as Uganda’s. Moreover, non-agricultural rural growth is dependent on agricultural income growth. Secondly, public expenditure was increasing sharply. The evidence is that the immediate effect of public expenditure is to increase incomes at the upper end of the distribution, because Government workers are generally better off than the average. While the services delivered will increase incomes in other parts of the distribution, this takes time to be seen. Hence the pattern that emerged was rapidly rising consumption, but increasing inequality at the same time.

Why poverty and inequality have risen since 2000

Recent research sheds some more light on the changes in poverty. First, per capita expenditures fell most dramatically in the second quintile. This corresponds with an increase in poverty in crop farming households and households with small non-agricultural enterprises, driven by falls in producer prices. Secondly, most inequality in Uganda is within, rather than between, regional or occupational groups. However, the changes in inequality in the 1990s and early 2000s are explained by changes in underlying factors such as education and community services.

The increase in poverty since 2000, and the marked increase in inequality since 1997, are of concern to policymakers. The pattern is a result of a number of factors:

  • Slower growth in agriculture

The exceptionally fast economic growth of the mid-1990s led to very fast poverty reduction. After strong growth in 1998–9, agricultural growth during 2000–2003 was disappointing except in the livestock sector. This has contributed significantly to the increase in poverty. The slowdown in agriculture relative to other sectors that was observed in 2000–2003 will have tended to increase inequality in this period, both because the poor are concentrated in agriculture, and because the share of labour in the incomes of other sectors may be quite small.

It is too early to say whether the slowdown in 2000–3 is a temporary fluctuation or reflects a more structural set of problems. However, there is no doubt that soil fertility is widely reported to be decreasing and technology does not seem to be responding fast enough. Moreover, between 1985 and 2020, Uganda will have lost 14 percent of its agricultural labour force because of AIDS. It follows that Uganda’s agricultural potential remains underexploited. Hence it is an urgent priority to accelerate agricultural development.

  • Declines in farmers’ prices

Uganda’s terms of trade have been declining since the coffee boom in 1994. During the last three years, there have been very dramatic falls in the price of several export crops. Overall, the terms of trade declined by about 10% between 2000 and 2003. While the devaluation partially shielded cash crop producers from this, it also produced an increase in the price of tradeable goods relative to the price of food. Hence those farmers who depend on selling food saw drop in the real price they were receiving. The ratio of food crop prices to other consumer good prices in the CPI fell by 19% between 2000 and 2003.13. Moreover, within the export sector, the prices of fish products and tourism did better than the prices of coffee and cotton, which are grown more widely in the rural economy.

The effect of terms of trade on poverty and inequality are likely to be temporary, as the terms of trade are expected to recover.

  • Income diversification and population movement in a context of agricultural slowdown and insecurity

Households throughout Uganda are diversifying into a wider range of activities. For the particular household, this is usually income-enhancing14. But as new people enter a sector, prices for the output of that sector will fall, and incomes per capita within that sector will fall if the outputs of the sector face inelastic demand. The evidence in Uganda is that people have moved into sectors of production that serve local markets. As a result, prices and incomes per capita in the non-agricultural rural sector appear to have fallen.

This finding has a very important policy implication. People with a non-agricultural enterprise are usually better off. But if everyone starts up such an enterprise, then there will be excess supply and prices will fall, unless agricultural incomes rise simultaneously. Hence raising agricultural incomes is crucial for poverty reduction.

  • Insecurity

Even if the level of insecurity is constant, this can generate increasing inequality because its effect is to restrict investment and hence growth, not merely to reduce the current level of income (see Annex Table A 2.1: and the discussion below). Some areas, such as the East, have experienced an increase in insecurity-related poverty, partly because there has been distress migration into the East from disturbed parts of the North, including the relocation of some camps for IDPs. However, the proportion of households in the sample in the East who report that they migrated to escape insecurity is low, so the observed deterioration in the East may mainly reflect other factors.

  • Fertility and mortality

Another structural factor tending to increase inequality and poverty is the high rate of fertility. Poor households tend to have more children and therefore their assets are subject to greater subdivision across generations. On average, a Ugandan woman who lives through the childbearing years has 6.9 children, and this is higher for the poorest families. A high fertility rate, even if constant, tends to cause increased inequality among households over time, as high fertility is associated with relative poverty and households with high fertility have top subdivide their assets at a higher rate than households with lower fertility.

Similar effects may come from AIDS related mortality and polygamy. Some studies have found AIDS susceptibility to be correlated with poverty. Moreover, the illness, or death of a productive adult is likely to lead to loss of income as well as often absorbing expenditures for health care and funerals, further impoverishing affected households. In the case of polygamy, this is thought to be associated with low educational levels and hence with poverty. Often polygamy has the effect that instead of investing in physical assets or children’s education, the household invests in extra married women and in due course more children. In the next generation, the increased size of the husband’s family means that there are less assets for each child to inherit.

  • The uses of public expenditure

A high proportion of the increased public expenditures over the period went into social services. These certainly improved access to health care over the period and enabled the continued implementation of UPE. They also reduced the costs of health care to the poor, an effect which may not be fully captured in the CPI used for the calculation of real expenditures. But it did not directly increase the incomes of the poor, and the income benefits to public servants mostly went to people above the poverty line. Some of the increases went into salaries, public administration and defence. None of these has a dramatic direct impact on poverty, except in the case where increased defence expenditure leads to improved security. Finally, there were increases in agricultural spending (especially under the Strategic Exports Programme); these may not yet have borne fruit, partly because of time lags for investments such as coffee trees to mature, and partly because of efficiency issues. Also, data on public services (table 2.6 below) suggest that the interventions in production, such as extension and demonstration gardens, did not yet successfully target the poorest.

The increase in education has had a significant impact. However, this impact has been mainly experienced by the better-off households. This may be because the impact of UPE on adults’ education comes with a lag. For this reason, it is hoped that the long-run impact of UPE will be to spread economic opportunities more widely and hence reduce inequality.

  • Asset distribution

There are signs that the distribution of assets as well as incomes became more unequal during the late 1990s and early 2000s. In general, this reflects the underlying causes of increased inequality. However, recent land reforms may lead to increases in the rents paid by kibanja holders on mailo land, which have previously been controlled at a very low level. There is some risk that this could lead to an increase in inequality, reflecting a transfer of income from kibanja holders to mailo owners. It will be important to monitor the effects of this change.

  • Social and cultural factors

Recent research indicates that high alcohol consumption is perceived by women as a serious and increasing problem15. The reasons for this problem include the availability of a wider range of drinks and the effects of past conflict and trauma on some of the population. A high share of alcoholic drinks in expenditure and in consumption is associated with poverty16 and domestic violence17.

2.2 Who are the poor?

The characteristics of the poor have been widely surveyed in past publications. For this PEAP, there are four particular concerns: regional inequalities; gender; occupational structure; and other disadvantaged groups.

Regional inequalities

While most parts of the country shared in the benefits of growth between 1992 and 2000, the North was left behind. The proportion of people in the North below the poverty line fell from 72% in 1992 to 60% in 1997/8, but rose again to 66% in 2000. This pattern is observed even though the most insecure areas were omitted from the sample. Between 2000 and 2003, the North remained relatively poor; also, the second-poorest region, the East, suffered a significant deterioration, partly because of distress migration. If real consumption had grown during the period 1992–2003 in the North at the same rate as the rest of the country, real consumption would now be 38% higher in the North and aggregate national consumption would be about 3.3% higher.

The major reason for the increasing regional gap is insecurity. Households that are physically insecure cannot make economic investments. While the dollar values of household assets increased sharply between 1992 and 1999 in the West and Central regions, this was not observed in the East and West. Households in the North, who started with smaller asset values, were unable to increase their investments in land or no land assets (see Annex Table A 2.1). This may be mainly because of the low prices of assets n the North, since livestock holdings are fairly similar, although holdings of land (often communally owned) and modern consumer goods are lower in the North18.

While other factors including poor prices for cash crops and the specific problems faced by pastoralist communities contributed to the relative poverty of the North, there is no doubt that security is the most important factor.

There is also a wide gap between urban and rural areas, even when the higher prices for some consumer goods in urban areas are taken into account19. Human development indicators are also mostly much better among urban households. Urban poverty also often reflects migration from rural areas and therefore can be addressed partly by making conditions in rural areas better. Nevertheless, there are some particular problems faced by the urban poor including the shortage of decent housing and sanitation.

Gender inequalities

It is too simple to say that women are poorer than men. However, there are specific groups of women who are particularly likely to be poor, and there are some dimensions of poverty in which women are generally at a disadvantage.

Table 2.3:

Poverty headcount for male and female-headed households20

Women-headed households were found to be poorer than MHH in 1999, but not 1992 or 2003. However, households headed by female widows are consistently poorer than others, and households headed by married women (probably mostly married to polygamous or absent husbands) are poorer than other households in both the later two surveys.

If the delayed age at first intercourse for both has certainly added to the decrease in HIV prevalence, women remain more affected by HIV/AIDS than men. In addition to biological susceptibility, there is the problem of unequal power relationships, when women cannot control their sexuality. The impact of the HIV/AIDS epidemics is also more heavy for women who often have to care for the sick and the dependant.

Women’s land rights are limited in Uganda both by the inequitable legal structure21 and by traditional practice. Data show that female-headed households have less land than male-headed households, even when corrected for household size, if the head is married, divorced or single. Widows have quite high land holdings per adult equivalent, but they tend to lose these assets over time as their male children grow up. However, the lack of a gap in income poverty suggests that women-headed households are able to compensate for their lack of land.

Women participate less in the labour market than men, and women’s wages have been found to be significantly lower than men’s. In 2003, 51% of currently employed women had wages of 40,000 per month or below, compared to 44% of currently employed men22. This may be at least partly due to the difference in average educational status, or it may reflect labour market institutions that discriminate against women.

It has often been found that women work longer hours than men, when domestic tasks are considered. Recent work on the household23 data finds men have slightly longer working hours than women on economic activities. However, women almost certainly work much longer hours on domestic activities than men. As a result, women are overburdened, as the second round of UPPAP24 found.

Male-headed households spend more on alcohol, especially on local brews other than beer; for instance, households headed by divorced men devote more than 6% of their expenditures to alcohol25. By comparison, female-headed households spend more on school fees26.

Poverty by occupational group

The largest group of poor households in Uganda have consistently been those in agriculture. The poorest occupational group in Uganda consists of households who specialise mainly or solely in crop production. Participatory evidence in the second UPPAP study has shed particular light on pastoralists, fishermen and their families, and estate workers.

Inequality within the group

Although inequalities between regions and between occupational groups and demographic groups are important, recent studies show that most inequality is explained by differentials within regions and within groups. For instance, the sex of the household head explains virtually none of the observed inequality; the rural-urban gap explains 20% of inequality; differences between regions explain 13%; and the economic activity of the head of households explains 15%. Even education, the most powerful determinant of inequality, explains only 25%.27 It is likely that inequalities in physical and financial assets are an important proximate determinant of inequality.

Other disadvantaged groups

There are a number of specifically disadvantaged groups who need attention.

Orphans and other vulnerable children

About 14% of children below 18 have lost at least one parent, and 3% have lost both. For children aged 6–17, as many as 20% have lost at least one parent mostly as a result of HIV and conflict. Most orphans are cared for by surviving parents or by other relatives. Data on the relative conditions of orphans is scarce. Household survey data suggest higher rats of poverty for male but not female orphans than the national average. Orphans are more likely to have to work than other children, though their schooling does not appear to suffer as a result28. However, the care of orphans continues to pose a major challenge to households, communities and Government in Uganda. In particular, orphans are likely to suffer emotional and psychological vulnerability in addition to any material deprivation.

Government’s strategy for orphans and other vulnerable children has identified other vulnerable groups of children as: those who are living on their own including the estimated 10,000 street children living in the municipalities of Uganda; those who are abused, neglected or abandoned; children in need of legal protection and alternative family care; children in hard to reach areas; children with disability related vulnerabilities and children inside households where they are facing significant physical, mental, social and emotional harm.

The elderly

In some cases, the elderly are relatively vulnerable. In particular, as noted above, female widows are relatively likely to be poor. Some studies find that the elderly (those over 60) are less likely to be poor than the average; others find the contrary. More analysis of this group is needed29.

The disabled

There are varying estimates of the number of disabled persons in Uganda. The National union of disabled persons estimates the proportion disabled at 10.4% of the population. The proportion of people unable to work for the last twelve months was estimated at 0.5% in the 1999/2000 Household Survey30.

Disabled people suffer relative income poverty in addition to the reduction in their quality of life caused by their disability, the social stigma sometimes experienced, and more limited access to services. In 2000, 46% of persons with disability were poor (using the narrow definition as those who were economically inactive during the last 12 months because of disability), compared to 34% of people in general.

More information is needed on the extent to which disabled people are able to meet their specific needs such as access to equipment, and the extent to which specific disabilities are currently preventing economic participation or reducing people’s productivity.

The chronically ill

Data on the relative poverty of those who are chronically ill is limited.

The displaced

One of the most serious forms of poverty in Uganda is the living conditions of people in camps. While rigorous data are scarce, some studies have shown alarmingly high rates of malnutrition in the camps. This group is not always easy to identify within the household surveys, although a pointer is that poverty was high in the 2003 survey among people now resident in the East who had recently moved from other districts. Improved monitoring of the living conditions of people in camps is a high priority research need.

Chronic poverty and vulnerability

Vulnerability in some societies takes the form of temporary income shocks due to climatic factors. These can be translated into chronic impoverishment if households are unable to insure themselves against the shocks without selling vital assets and do not receive outside assistance.

In Uganda’s case, much vulnerability takes the form of the disruption of the household membership, often due to the illness or death of a member. This makes a permanent change in the household’s ability to raise income. Households headed by female widows are particularly vulnerable to asset depletion and impoverishment.

2.3 Structural transformation and poverty reduction

Incomes and economic transformation

In order to become a middle-income country, the structure of Uganda’s economy must change. Currently, most households derive much of their income from subsistence agriculture, but many households are moving into production for the market and self-employment outside agriculture.

The structure of the labour force is changing (table 2.4). Between 2000 and 2003, the proportion of households whose head is mainly employed in agriculture fell from 71% to 58%, and there is a corresponding increase in the proportion of those who are self-employed outside agriculture from 12% to 25%. Farmers’ incomes fell during the period, so that the proportion of farming households in poverty rose from 39% to 49%. This was accompanied by an increase in poverty among those in non-agricultural self-employment (17% to 21%). Nevertheless, for the individual household non-agricultural self-employment is still a way out of poverty; poverty is much lower among those with non-agricultural self-employment (21%) than among those who depend on agriculture (49%).

Table 2.4:

Main activities of household head and poverty status31

Although data are highly sensitive to definitions, the pattern of incomes in urban and rural areas is shown in table 2.5

Table 2.5:

Income sources by quintile32

Self-employment inside and outside agriculture

Self-employment within agriculture remains the largest single income source, although its share has fallen over time. In 1997, its average share in incomes was over 50%; this remained the case for the poorest 40% of households in 1999–2000. Non-agricultural enterprises provide an average share of about 15% of incomes, but are more important for the richest households. Together, these two sources provide the bulk of incomes at all income levels.

To boost incomes from self-employment, it is essential to accelerate growth in smallholder agriculture. The maximum benefit to farmers will come from exported agriculture, because production for the domestic market tends to drive prices down and hence passes the gains on to urban consumers.

Wage employment

The data in table 2.5 show that the average share of wages in income remains quite small at about 12% and that it is more important for the better-off households. Wage employment has not been growing very fast and inequality among wages is increasing.33 A substantial proportion of this employment is in the public sector, and comparative studies have found that employment opportunities for secondary and tertiary graduates are more concentrated in the public sector in Uganda than in other African countries34. The proportion of households headed by a wage-earner actually fell between 2000 and 2003. Within the wage sector, wage inequality increased markedly. The acceleration of private investment during the period 2000–2003 does not yet appear to have led to major increases in the share of wage employment in household activities35.

Unemployment

Open unemployment is relatively rare, and is found mainly in urban areas, particularly among the most highly educated and amongst women (Annex Table 2.2).

Underemployment (working on economic activities less than 40 hours a week) is widespread, affecting 65% of adults, including 75% of women and 55% of men. This reflects the burden on women’s time from ‘non-economic’ activities such as childcare and fetching fuel wood and water. Women cannot devote 40 hours a week to ‘economic’36 activities because they are so heavily committed to these ‘non-economic’ activities.

Visible underemployment (working on economic activities less than 40 hours a week despite being available for work) is the best way of capturing the dimensions of underutilised labour. This is higher among men than women, and higher in rural areas than urban areas (table 2.6). The lower rate of underemployment among women reflects the ‘non-economic’ burdens on their time.

Table 2.6:

Visible underemployment, % of labour force37

Sectoral growth and household incomes

In the medium run, poverty reduction depends on expanding incomes from smallholder agriculture, for two reasons. First, the incomes of the poor depend directly on agriculture. Secondly, farmers spend part of the incomes generated from crop sales, on non-agricultural goods and services. Most self-employed non-agricultural producers sell their products locally38 and therefore depend on the demand generated by the incomes raised from agriculture. Therefore, when agricultural incomes fall – as they did between 2000 and 2003 – people in non-agricultural self-employment experience difficulties. There is international evidence39 that in low-income, agricultural economies, poverty responds much more to rural than to urban growth, and that agricultural growth is needed in order to generate broader rural growth. This concern is particularly important because of the increased inequality in incomes that has been evident since 1997. Expansion in incomes from smallholder agriculture is the best way of reversing this trend.

In the long run, an increasing proportion of incomes will be raised from wage employment. While wage employment provides only a small proportion of incomes for the poor at the moment, its importance will increase in the future. To boost wage employment, labour-intensive activities in the formal sector need to grow. This depends on profitable private investment.

Uganda’s strategy for poverty reduction therefore combines increased agricultural incomes from smallholder farming with increased opportunities for wage employment coming from the growth of formal enterprises in agriculture, industry and services.

Production and economic transformation

Corresponding to the shift in labour force is a shift in the structure of the economy. Over time, two major shifts are expected; towards industry, and towards exports. For nine comparator countries that reached an income level which would be achieved by Uganda in twenty years’ time with a good growth performance, the average proportion of manufacturing to GDP when they reached this level was 21.9% and the average proportion of exports to GDP was 24.5%. The equivalent ratios in Uganda in 2001/2 were 9.7% and 11.8%40. As noted in Chapter 3, the share of industry has increased significantly over the last twelve years in Uganda.

In Uganda’s case, the natural resource endowment and location of the country means that industry is most likely to be internationally competitive if it adds value to agricultural output (and other natural resource based activities such as forestry). Agro-processing is therefore an important sector within industry that is expected to expand over the next several years. This process has started in a number of areas; for instance, there has been a marked expansion in processing and exports of commodities such as coffee, fish and cut flowers.

Prospects for the reduction of income poverty

The LTEF allows a forward projection of poverty. If population grows at 3.6%over the next fifteen years, income distribution is constant41, and GDP grows at about 6% over the period, then the proportion of people below the poverty line is projected to fall to 28% by 2013/4. Clearly, faster poverty eradication is desirable and can be achieved in three ways:

  • Higher GDP growth. Given a population growth rate of 3.4%, an increase in economic growth from 5 to 7% represents more than a doubling of per capita growth and an even more dramatic impact on the rate of poverty reduction.

  • Reductions in inequality. If the Gini coefficient were to fall to 0.39 over the next ten years, reversing the increases in inequality observed over the last three years, then with 6% real growth the poverty headcount would fall to 23%.

  • If, in addition to the above assumptions, population growth falls to 2.4%, then poverty is projected to fall to 18%.

A 6% real rate of growth is considered realistic based on the macroeconomic projections; the reduction in inequality and in population growth, while ambitious, are possible if growth in the regions and sectors where the poor are located is promoted. Hence an ambitious, but reasonable target for the proportion in poverty by 2013/4 is 18%.

2.4 Human development outcomes

Improvement in education and functional adult literacy have borne fruit in literacy rates. While there was no observable change by the expiry of the 1st PEAP in 2000, the national average literacy level rose from 65% in 1999/00 to 70% in 2002/3, mainly because of improvement in rural areas. Women have benefited more from the improvement than men. These developments are the shared achievement of the education and social development sectors through the UPE and FAL programmes.

Table 2.7:

Trend in Literacy Rates for the Population Aged 10 Years and above

(%age)

Source: UNHS 2002/03

Health outcomes show a more mixed performance. As discussed in Chapter 2, evidence from the 2000 DHS indicates that there were no significant improvements in child and maternal health outcomes during the 1990s (Figures 2.1-2.3). Throughout the 1990s, almost one in ten Ugandan children died before their first birthday. Improvements in incomes, water supply and access to health services appear to have been counteracted by increasingly dangerous malaria, the knock-on effects of adult illness on future generation’s social capitals as a result of the AIDS epidemic, and deterioration in sanitary practices.

In the second PEAP, major improvements have been made in the delivery of health services (discussed under the health sector). There is as yet no evidence on trends in infant and child mortality in the early 2000s, but it is hoped that the improvements in services will have started to improve the outcomes. Similarly, much less progress has been made than was hoped in reducing maternal mortality. As a result, Government missed its targets for infant and maternal mortality (see Fig. 7.2 and 7.5).

Figure 2.1:
Figure 2.1:

Infant, Under-5, and Maternal Mortality

Citation: IMF Staff Country Reports 2005, 307; 10.5089/9781451838770.002.A001

Source: UDHS (1995, 2000/01)Note: infant and under-five mortality are per 1000, maternal mortality per 100,000.
Figure 2.2:
Figure 2.2:

Infant Mortality

Citation: IMF Staff Country Reports 2005, 307; 10.5089/9781451838770.002.A001

Source: UDHS (1995, 2000/01)
Figure 2.3:
Figure 2.3:

Maternal Mortality

Citation: IMF Staff Country Reports 2005, 307; 10.5089/9781451838770.002.A001

Source: UDHS (1995, 2000/01)

There are significant regional differentials in child and infant mortality, with much worse outcomes in the North.

In 2001, 39% of children under five years were stunted, compared to 38% in 1995. Poor nutrition is a result of low incomes, limited information about health and nutrition, unequal bargaining power within the household, the heavy burdens on women’s time, and the high incidence of disease.

In the case of HIV/AIDS, the last three years have seen some fall in the prevalence rate from 6.8% to 6.2%42, though the number of people getting sick as a result of infection over the last 5 years or more will remain high for some time to come and will need to be factored in to all strategies described in this PEAP. The continuing insecurity and consequent population movements in parts of the country expose some groups to higher risk, and make a continued vigorous prevention and impact mitigation efforts particularly important.

The 2002 Census showed that Uganda’s population was growing faster than had been thought. Between 1991 and 2002, the population grew at 3.4% per year, compared to rates between 2 and 3% in the 1970s and 1980s. The increase may partially reflect population movement and increased security, but the high rate of growth is mainly due to large family size. The total fertility rate (the number of women born on average to a woman who lives through the childbearing age) is very high, at 6.9, and has changed little in recent years.

Uganda’s high fertility rate presents a challenge to poverty reduction in its own right. Larger families are more likely to be poor, to fall into poverty, and children in them are at much greater risk of dying young.

Water supply improved significantly over the 1990s. However, the delivery of water to the rural population remains a major challenge. During the second PEAP, public spending on rural water supply increased, but costs also increased. Safe water coverage had mildly improved from a rural coverage of 49.8% in 2000 to 54.9% in 2002 while urban coverage rose from 54% in 2000 to an estimated 60%-65% in 2003. While this may not yet have led to improved health outcomes, it has reduced the time women and girls have to spend fetching water. Strengthening the complementary inputs to water supply, such as public information about sanitation, will enhance the health benefits of water supply.

2.5 Access to public services and infrastructure

The last three years have seen very significant improvements in the access to public services and infrastructure. But the poor have much less access to services and infrastructure than the better-off. Annex Table A 2.3 shows the pattern of access to service by income quintile.

It can be seen that access to almost all services have improved over the last three years. In particular, there are marked improvements in access to schools, public health facilities and telephones. All quintiles of the population benefited. However, there are also marked differentials in access by quintile; this is particularly striking for telephones, where only 11.2 % of the poorest quintile have access within 2 km. compared to 53% of the top quintile, for electricity, and for secondary schools.

Annex Table A 2.4 shows that most communities have seen projects implemented in most sectors. However, projects in a number of sectors are rated more highly by better-off households than by the poor. For instance, about 30% of communities had had new agricultural techniques introduced. In these communities, 77% of the people in the top quintile felt that this initiative met the community’s needs, compared to only 49% in the bottom quintile.

2.6 Empowerment

Empowerment in Uganda’s context is understood as all those processes where women and men take control and ownership of their lives. There are three core elements of empowennent:

The first one is agency or the ability to define one’s goals and act upon them. However, evidence from participatory studies shows that although the affirmative action policy that government is pursuing is showing some positive results, participation by women in local governance still needs to be strengthened.

The second core element of empowerment is gender awareness. In order to be able to act on ones goals, one must be aware of the forces and structures working to one’s disadvantage e.g. value systems, nonns, legal frameworks, discriminatory practices. Recent participatory research has concluded that lack of control over productive resources by women remains one of the root causes of poverty. Women explained that they lack control over land, the crops their labour produces from it, livestock and other productive resources. Yet they are responsible for meeting family needs. It is clear that although women are subordinated in a number of different power structures based on e.g. class, geographical location, ethnicity all of these are gendered and unless there is awareness of these structures women will not be able to change them. Ultimately, the empowennent processes should lead to protest against all structures that subordinate women.

The third component of empowerment is self-esteem and self-confidence. Living in societies where vulnerable groups are subordinated and subject to different kinds of oppression often leads to a naturalisation of the prevailing power relations to the extent that the powerless see their own powerlessness as natural or justified. Gaining strength from shared experiences and a common will to change is therefore important for all groups of people. In Uganda local community members have described vulnerability as powerlessness to mitigate negative household and individual shocks. Government recognizes that vulnerability varies with gender, age, ethnicity, occupation and social status.

The steps taken by Government through various social policies and programmes for disadvantaged groups like, women, widows, the youth, the elderly, neglected children and orphans, people with disabilities, the displaced and refugees are central to poverty reduction initiatives over the PEAP period.

It is difficult to monitor changes in empowerment. However, the political process of democratisation (discussed further in Chapter 6) has certainly led to a large increase in political participation, with particular attention given to representatives of women, youth and the disabled. Much anecdotal evidence and quantitative evidence shows that women have entered more than before into economic activities outside the household, and although this has imposed a burden on their time, it has also conferred greater economic independence and empowerment43. However, women remain disempowered by the unequal ownership of assets, by the widespread practice of bride price, and by the occurrence of domestic violence. Ending these forms of inequality represents a major challenge. Displaced people also represent an important, relatively disempowered group.

2.7 Policy implications

In light of the above analysis and the core challenges highlighted in Chapter 1, the following are the key policy implications:

  • A reduction in poverty will require reversing the recent reduction in incomes and moderating the increase in inequality

  • The sector where the poor are most heavily involved is self-employment in agriculture. Hence removing the constraints to this sector and increasing opportunities in the non-farm sectors is high priority. This will also create demand for non-agricultural goods and services.

  • Insecurity has been a major contributor to poverty and inequality over the last fifteen years and the most afflicted areas have not been able to share in the benefits of economic growth. Hence achieving an end to conflict and the rue of law and order is critical for poverty-reduction.

  • The disappointing performance in child health in recent years requires a range of actions, some of which are already being taken.

  • Enhance policy and institutional co-ordination for improved programme implementation.

3 Economic Management

3.1 Uganda’s growth performance

GDP Growth

Uganda has experienced strong economic growth over the past decade. Real GDP growth at market prices has averaged 6.5% per annum since 1990/1991. Recently, concerns have been raised that growth has slowed slightly over the past five years, as the average growth rate between 1998/99 and 2002/03 was 6.1% per annum, as compared to 6.8% between 1990/91 and 1997/98. In fact, the higher average growth rate between 1990/91 and 1997/98 was boosted by three years of exceptionally strong growth in the early 1990s, which was driven by the economic reforms implemented in the first half of the 1990s and the coffee price boom.

Chart 3.1:
Chart 3.1:

Real GDP Growth at Market Prices 1990/91 – 2002/03

Citation: IMF Staff Country Reports 2005, 307; 10.5089/9781451838770.002.A001

The determinants of growth in Uganda during the 1990s have been identified as improved security, the restoration of macroeconomic stability, the removal of economic distortions and an improvement in the terms of trade, as a result of the mid-nineties coffee price boom.1 Growth in total factor productivity, meaning the efficiency with capital and labour are used, made a significant contribution to GDP growth during the 1990s, reflecting the scale of rehabilitation of production processes after the restoration of peace to most of the country.

On a sectoral basis, industrial production saw the highest rate of growth, averaging 10.4% per annum between 1990/91 and 2002/03 as a whole, although it slowed slightly to an average of 7.7% per annum in the last five years. Services grew by an average of 7.5% per annum between 1990/91 and 2002/03, and by 6.9% per annum over the past five years. Agriculture had the slowest growth rate amongst the major sectors, averaging 3.8% per annum between 1990/91 and 2002/03, although growth was slightly higher in the last five years, at 4.4% per annum.

Chart 3.2:
Chart 3.2:

Sectoral GDP growth rates 1990/91-2002/03

Citation: IMF Staff Country Reports 2005, 307; 10.5089/9781451838770.002.A001

Source: MoFPED

Structural Transformation

Production has been shifting slowly towards services and industry, as growth in those sectors has outpaced agricultural growth. Agriculture accounted for 38.7% of GDP in 2002/03, as compared to 51.1% in 1991/92, as subsistence agriculture declined by 10 percentage points of GDP over the period. Services increased as a share of GDP from 36.6% in 1990/91 to 41.8% in 2002/03, and industrial production rose from 12.4% to 19.5% over the same period.

Chart 3.3:
Chart 3.3:

Sectoral Shares of GDP 1990/91–2002/03

Citation: IMF Staff Country Reports 2005, 307; 10.5089/9781451838770.002.A001

Source: MoFPED

These shifts constitute the beginning of the process of structural transformation in the economy, whereby production slowly moves away from subsistence-based agricultural to a mix of commercial agriculture, services and industry as a result of shifts in demand and labour patterns in the economy. Agricultural commercialisation is expected to lead to increased demand for non-agricultural goods and services, and increased agricultural productivity is expected to free up labour for use in other sectors of the economy, leading to a slow shift in the pattern of production over time.

However, given Uganda’s natural competitive advantage of fertile land and a good climate, it is not expected that Uganda will move away from agricultural production altogether, but that it will orientate its agricultural output towards regional and international export markets. Increasing the share of exports within agricultural production is important because increased supplies of basic food crops to the domestic market will depress farm gate prices, transferring part of the benefits of production to urban consumers. Consequently, Government’s agricultural strategy is focusing on the production and processing of agricultural exports, both traditional exports such as coffee and cotton and non-traditional exports such as horticulture, vanilla and honey.

Increasing agricultural commercialisation and export production is particularly important for poverty reduction given the dependence of the majority of the poor on agriculture as their main source of income. This dependence of the workforce on agriculture is illustrated by the 2003 Labour Force Survey, which shows that in spite of the twelve percentage point decline in agricultural production as a percentage of GDP between 1990/91 and 2002/03, agriculture in Uganda remains very labour intensive. Sixty-nine percent of the labour force was employed in agriculture-related activities in 2003, as compared to 23% in services and 8% in industry2.

To achieve its objectives of agricultural commercialisation and export production, however, Government cannot rely on Uganda’s natural comparative advantage of fertile soils and a good climate alone. It has to safeguard the environment by ensuring long-term environmental sustainability. Research conducted for this PEAP suggests that farming practises which contribute to soil nutrient depletion pose a significant threat to land productivity in Uganda3. Population pressures also diminish land productivity. In a study sample, 95% of farmers were found to be taking out more nutrients from the soil than they were putting back. Actions to address environmental sustainability are discussed in detail in the following chapter.

Per Capita growth

Although Uganda’s overall GDP growth averaged 6.5% per annum between 1990/91 and 2002/03, the rate of per capita GDP growth was much slower on account of Uganda’s high rate of population growth. GDP per capita grew by 2.7% per annum over the period as the population grew by 3.4% a year. Uganda has the third highest population growth rate in the world, with the average Ugandan woman giving birth to almost seven children in her lifetime. A reduction in the rate of population growth would have a positive impact on the level of per capita GDP growth, and on per capita incomes, particularly in the ten to fifteen year phase when the labour force would be large relative to the total population as the birth rate slowed. This PEAP commits the Government of Uganda to extend the national coverage and effectiveness of family planning services, to allow women to meet their ‘unmet needs’ for family planning, as identified in the most recent Demographic Health Survey4. Further actions to reduce family size and to increase female participation in income-generating activities are discussed in Chapter 4 and 7.

Future Growth Prospects

Uganda’s objective remains strong, private sector-led growth which can contribute to economic development and poverty reduction. This PEAP, like the previous ones has set a real GDP growth target of 7% per annum as one of the conditions for achieving the required poverty reduction. The actions needed to boost growth from the average rate of 6.1% seen over the past five years to 7% are as follows:

  • Removal of administrative barriers to investment

  • Improvement in transport infrastructure and utility services

  • Modernisation/commercialisation of agriculture, with emphasis on value-addition

  • Actions to improve rural access to finance and to strengthen SME development.

  • Actions to enhance environmental sustainability

  • Security in Northern Uganda

  • Actions to enhance gender equality

Policies to achieve the above objectives are discussed in detail in subsequent chapters.

The East African Customs Union is also expected to boost production in the medium to long term, as domestic producers benefit from duty free imports from within the Union, and produce for a larger internal market.

In addition, agricultural commercialisation, environmental sustainability and measures to reduce family size will also be important factors in reducing income inequality. Poverty estimates based on existing levels of inequality, a population growth of 3.6% per annum and real GDP growth of 6% per annum, estimate that 26% of the population will be living in poverty in 2017. If this PEAP meets its objectives of reducing inequality and raising GDP growth to 7% per annum, poverty can be expected to fall below this level. For example, a fall in the rate of population growth to 2.8% per annum would reduce poverty to 21% by 2017, even if annual real GDP growth remained at 6%.

3.2 Macroeconomic Management

A sound economic framework which is conducive to private sector investment is vital to Uganda’s growth strategy. In the absence of a sound economic environment, other interventions to boost growth will hold little value. Uganda’s economic policy framework emphasises Inflation control, strong growth in private investment, fiscal consolidation and increased revenue generation as its main objectives.

Objectives of Macroeconomic Management

The central objectives of Uganda’s macroeconomic management are Inflation control and private sector-led growth. Government’s fiscal policies are subordinated to these objectives, meaning that Government expenditure should be restricted to a level that is compatible with them by controlling its fiscal deficit. Too high a fiscal deficit, even when funded by donor in flows, can generate Inflation or crowd out the private sector by appreciating the exchange rate, driving up interest rates or limiting the funds available to commercial banks for private sector lending.

Uganda’s macroeconomic performance

Uganda brought Inflation under control in 1992/93, mainly as a result of exercising tight control over Government expenditure.5 Annual average headline Inflation has averaged just 4.8% per annum over the past decade as a result of the Government’s sound macroeconomic policies.

Chart 3.4:
Chart 3.4:

Annual headline Inflation 1990/91–2002/03

Citation: IMF Staff Country Reports 2005, 307; 10.5089/9781451838770.002.A001

Once Inflation had been brought under control and key markets, such as the foreign exchange and financial markets, were liberalised in the first half of the 1990s, private investment began to expand rapidly. In real terms, private investment in 2002/03 was three times higher than it had been in 1991/02. As a percentage of GDP, private investment rose from 9.1% of GDP in 1990/91 to 15.6% of GDP in 2002/03.

Chart 3.5:
Chart 3.5:

Real private investment 1990/91–2002/03

(constant 1997/98 prices)

Citation: IMF Staff Country Reports 2005, 307; 10.5089/9781451838770.002.A001

However, since 1997/98, the Government’s fiscal deficit excluding grants6 has risen substantially, as a result of an increase in donor aid in flows to finance Government expenditure. Between 1997/98 and 2001/02 the fiscal deficit doubled as a percentage of GDP, from just over 6% in 1997/98 to 12.4% in 2001/02. It fell back slightly in 2002/03, but remained in double figures, at 11.2% of GDP.

Although the increase in the donor-funded fiscal deficit has enabled Government to increase expenditure more rapidly than the growth in domestic revenues alone would allow, it has led to an increase in the net issuance of Government securities and sales of foreign exchange by the Bank of Uganda, in order to control Inflation at 5%. Government’s net issuance of securities has risen by 500% over the past five years, whilst Bank of Uganda’s foreign exchange sales have risen by 1000%. The increased sale of Government securities has tended to drive up interest rates and to reduce Commercial Bank’s extension of private sector credit as they increase their TB holdings, whilst the increased sale of foreign exchange to the domestic market has appreciated the level of the real exchange rate.

Long-term macroeconomic policy objectives and indicators

The Government is committed to maintaining Inflation at 5%. It is also committed to reducing its fiscal deficit excluding grants, to enable further scope for private sector development. The Long Term Expenditure Framework (LTEF)7 prepared for this PEAP revision shows that reducing the fiscal deficit to 6.5% of GDP by 2009/10, and keeping it constant thereafter, is compatible with a rise in private sector investment to 22% of GDP by 2013/14, and a rise in exports from 12.6% of GDP to 15.4% of GDP.

Uganda’s macroeconomic indicators for the next ten years as projected in the LTEF are summarised below.

Table 3.1:

Key LTEF Indicators

Source: MoFPED

The objective of the LTEF, which was prepared for this PEAP, has been to produce 10 year projections of the budgetary resources available to the Central Government for expenditure which are consistent with a coherent, comprehensive and realistic set of projections for the main macroeconomic variables, and with Government’s macroeconomic targets, such as the target for Inflation. The expenditure levels derived from the LTEF are used as a basis for the sectoral costings given in Chapter 8.

Inflation control

High and unpredictable rates of Inflation discourage private investment and savings as their value is eroded by price increases. The erosion of the value of savings by higher prices particularly affects the poor, who have few savings in the first place. Low levels of savings and investment and high prices in turn reduce the real growth rate of the economy, and high Inflation acts as an incentive for subsistence production instead of commercial production.

Government has therefore established a policy target of keeping the annual underlying Inflation rate to a maximum of 5%.8 The main policy instrument for achieving this target is monetary policy, which aims to control the growth of broad money in line with estimated money demand. Monetary policy cannot be subordinated to fiscal policy. If the Government’s domestic borrowing requirement is too large, either the money supply must expand at a faster rate than that of money demand, which will fuel Inflation, or private sector credit will have to be squeezed through monetary policy actions to restrain the growth of the money supply.

Raising the Inflation target from the current level 5%, either in an attempt to generate economic growth or to accommodate a more expansionary fiscal policy, is not a viable policy option. Uganda’s consistent record of maintaining low rates of Inflation sends a powerful signal to private investors about the credibility of macroeconomic policy; the Inflation rate is the most visible signal available to the private sector to judge the quality of macroeconomic management. Allowing the Inflation rate to rise would undermine the credibility of Government’s macroeconomic policy which has been painstakingly built up over the last 10 years.

Inflation versus Growth

  • The Government is committed to keeping Inflation at 5% per annum or less.

  • Inflation in Uganda has averaged 4.8% per annum since 1993/94.

  • Low Inflation has contributed to high levels of GDP growth in Uganda, averaging 6.3% per annum since 1993/94.

  • International evidence does not imply higher growth if Inflation is above 5%, and once Inflation rises above 10%, growth declines.

  • Raising the Inflation target would undermine the credibility of Government’s macroeconomic policies.

  • Higher Inflation is associated with higher price volatility, which undermines investment opportunities.

  • A higher Inflation target is more likely to reduce growth in Uganda than increase it.

Adopting a higher Inflation target would also make Inflation control more difficult, because the Inflation rate becomes more volatile as Inflation rises. It would erode the private sector’s expectations of low Inflation, which in turn would affect how future prices are determined. For example, higher expected Inflation would lead workers to demand larger wage increases to compensate for the expected erosion of the real value of their wages.

Deficit Reduction

A central objective of Government’s macroeconomic strategy is to reduce the overall fiscal deficit, excluding grants.9 The fiscal deficit widened sharply, by six percentage points of GDP, between the mid 1990s and 2001/02, when it peaked at 12.4% of GDP. The increase in the fiscal deficit was mainly attributable to an expansion of Government expenditure, which was not matched by increased domestic revenues. Between 1995/96 and 2001/02, Government expenditure rose by seven percentage points of GDP, to 24.6% of GDP, whereas domestic revenue increased by less than two percentage points of GDP, to 12.2% of GDP.

Chart 3.6:
Chart 3.6:

Government expenditure, revenue and fiscal deficit, 1998/99–2002/3

Citation: IMF Staff Country Reports 2005, 307; 10.5089/9781451838770.002.A001

Source: Macro Department

The expansion in Government expenditure was mainly funded by an increase in donor aid flows. The primary purpose of the aid flows was to help fund key Government priorities in social services provision, such as Universal Primary Education and Primary Health Care. These programmes have undoubtedly benefited from increased resources, as will be outlined in Chapter 7, but the rapid increase in the Government budget at the same time diminished the need to scale back expenditure in non-priority areas such as public administration, leading to wastage, corruption and poor value for money in some areas of the budget. In addition, it is now becoming evident that even some of the money being channelled into key poverty-eradicating programmes is not being well spent, resulting, for example, in poorly constructed classrooms, and poorly built and maintained rural feeder roads.

These problems have signalled the need for Government to focus on the quality rather than the quantity of expenditure over the medium term. Key actions in this area include strengthened budget prioritisation, clearer focus on value for money, strengthened procurement, and actions to reduce corruption. They are discussed in greater detail in Chapters 6, 8 and 9.

These budget implementation problems arising from the scale of Government expenditure, poor accountability and absorptive capacity constraints have coincided with macroeconomic problems arising from the size of the fiscal deficit, which could potentially jeopardise future private sector development and fiscal sustainability, unless tackled immediately. Recognising these budgetary and economic problems, Government has begun to implement a strategy to scale back the fiscal deficit, and as a result the overall deficit excluding grants reduced to 11.2% of GDP in 2002/03. Government aims to reduce the fiscal deficit to around 6.5% of GDP by the end of the decade by restraining the growth of Government expenditures to less than the growth of domestic revenues. At the same time, Government will also endeavour to raise domestic revenues to around 16% of GDP by the end of the decade.

The Fiscal Deficit

  • The commonly used measure for the fiscal deficit in Uganda is the fiscal deficit excluding donor grants—i.e. domestic revenue minus total government expenditure

  • Uganda’s fiscal deficit rose from 6.5% of GDP in 1995/96 to 12.4% of GDP in 2001/02 as donor aid financed increases in Government expenditure.

  • The rapid increase in the fiscal deficit has generated concerns about its potential impact on the economy, particularly raising interest rates, crowding out private sector credit and appreciating the real exchange rate.

  • The increase in the fiscal deficit has had a direct impact on the Government budget, as it has caused domestic interest costs to increase by 1000% in six years, as Bank of Uganda has sold domestic securities to contain its Inflationary impact.

  • Government’s target is to reduce the fiscal deficit to 6.5% of GDP by 2009/10.

There are several sound macroeconomic reasons for Government’s fiscal deficit reduction strategy:

  • Cost of private sector borrowing

The increase in the fiscal deficit has led to an increase in the net issuance of Government securities to control Inflation. As a result, the stock of Government securities has increased by more than 500% in five years, and interest rates have become sharply higher and more volatile. The average interest rate on a 364 day Treasury Bill was 17% in 2002/03, as compared to 9% in 1998/99, and the rate reached a peak of 34% in January 2001. Because an increase in Treasury Bill rates drives up Commercial Bank lending rates to the private sector, the increase in the fiscal deficit has sharply increased the cost of borrowing for the private sector, placing a constraint on private sector investment.

  • Volume of private sector borrowing

The increase in the fiscal deficit has also been observed to have negative consequences for the volume of private sector credit extended by Commercial Banks. The rapid increase in the net issuance of Government securities to control Inflation, as noted above, has led to a rapid increase in net Government borrowing10 from the commercial banks, and this has inevitably squeezed the resources available for bank lending to the private sector.

Chart 3.7:
Chart 3.7:

Bank loans to Private Sector and Government as a % Deposits end June 1995- end June 2003

Citation: IMF Staff Country Reports 2005, 307; 10.5089/9781451838770.002.A001

Source: MoFPED
  • High domestic interest costs

The increase in both the stock of Treasury Bills and Treasury Bill interest rates has also led to a significant increase in Government’s interest costs. As of 2003/04, Government interest costs have increased by 1000% in six years, from shs 21bn in 1998/99 to shs 190bn this financial year. Government’s domestic interest costs now account for more than 8 % of Government of Uganda expenditure. A reduction in the fiscal deficit will lead to a gradual decline in the burden of interest payments on the GoU budget. The LTEF projects that interest payments should amount to just 3% of the Government budget by 2013/14 if the deficit is scaled back to 6.5% of GDP.

  • Exchange rate

Bank of Uganda’s sales of foreign exchange have risen ten fold as donor in flows and the fiscal deficit have increased, from $25m, equivalent to 2% of private sector foreign exchange sales, in 1998/99, to $247m, equivalent to 16% of private sector foreign exchange sales, in 2002/03. The increase in aid flows and Bank of Uganda’s foreign exchange sales coincided with the fall in Uganda’s terms of trade, as the price of coffee and other major export commodities fell in the late-1990s. Consequently, the impact of the fall in the terms of trade on the exchange rate was partially offset, adversely affecting the shilling incomes of exporters. More broadly, a recent study suggests that Uganda’s exchange rate has been overvalued since the late 1990s, and attributes considerable proportion of this overvaluation to the behaviour of aid flows11. Going forward, the Government believes that fiscal deficit reduction will help alleviate upward pressures on the exchange rate generated by aid flows, thus stimulating export-led growth.

  • Budget security

The Government’s dependency on donor aid has increased the vulnerability of the budget to a sudden cut-back in donor aid. In 1997/98 domestic revenues were sufficient to fund 79% of GOU expenditures plus external debt repayments, but this had fallen to only 60% in 2001/02, when the fiscal deficit peaked.12 The reduction in the fiscal deficit in 2002/ 03 brought about a small improvement in the share of GOU expenditures and external debt repayments which could be funded from domestic revenues, to 66%. Despite the improvement in 2002/03, the Government budget remains vulnerable to any substantial cutback in donor aid. While a temporary loss in donor aid could be absorbed through a limited rundown of the BOU’s foreign exchange reserves, a cutback in aid which lasted for much more than one year, given Uganda’s current level of dependence on donor aid, would force Government to make severe budget cuts.

  • External Debt Sustainability

Uganda’s current dependence on donor funds also has implications for the sustainability of its external debt burden, as external loans currently account for approximately 40% of donor in flows in any given year. Uganda was the first country to qualify for the Highly Indebted Poor Countries (HIPC) debt relief initiative in 1998, and on its exit from the Enhanced HIPC Completion Point in April 2000, it was pledged debt relief amounting to $1billion in Net Present Value (NPV) terms from multilateral and bilateral creditors. This debt relief was intended to ensure that Uganda’s future debt burden remained at a sustainable level, defined as the ratio of the debt stock in NPV terms not exceeding 150% of export earnings. Uganda has borrowed $1.5bn from multilateral donors since the HIPC Completion point, and although these loans have been on highly concessional terms, their impact on the debt stock, combined with lower export growth as a result of the fall in coffee prices and low prevailing world market interest rates, has been to raise Uganda’s NPV of debt to exports ratio to 305%, which is more than double the HIPC threshold. Uganda’s policy of gradual deficit reduction will enable it to bring its debt stock back down to manageable levels.

  • Domestic Debt Sustainability

Uganda’s stock of domestic debt has risen from less than 1% of GDP in the mid 1990s to 10% of GDP this financial year. The rapid increase in Uganda’s domestic debt burden is directly associated with the increase in the fiscal deficit, as Bank of Uganda has increased its net issuance of Government securities to mop up the domestic liquidity arising from donor-funded Government expenditure, so that annual Inflation remains on target, at 5% or less. Although Government has recently introduced long-term bonds to the domestic securities market to extend the yield curve, 95% of Government securities nonetheless have a maturity of one year or less. This means that if the budget were to be subject to an aid shock which reduced Government’s injection of liquidity into the domestic market, monetary and fiscal policy management would be placed under significant pressure, as a large number of Government securities would require redemption within a short time period.

  • Political Economy

Excessive aid dependency inevitably impinges on the sovereignty of the aid recipient and constrains its economic and budgetary choices, which is not consistent with the development of a healthy and equal relationship between aid recipients and the donors, based on mutual respect. Reducing dependence on aid is crucial for the development of democracy and the accountability of government.

Government’s fiscal deficit reduction strategy means that in future it will focus on the quality rather than the quantity of its donor support. Budget support grants are Government’s preferred modality of donor aid, since they directly fund GoU’s expenditure priorities, as guided by the PEAP, and do not contribute to Uganda’s external debt burden. By contrast, project support loans are Government’s least preferred form of donor support, since they do not directly fund the GoU budget, and they add to Uganda’s external debt burden. Government’s policy therefore is to encourage donors to shift to budget support, particularly budget support grants, and to be more selective about the projects it accepts as it gradually reduces its fiscal deficit. Plans to integrate donor projects within sector ceilings to improve budget prioritisation are discussed in Chapter 8. Furthermore, Government does not intend to accept any tied aid over the PEAP period, even if given as a grant, as aid which restricts Government’s procurement choices does not offer value for money.

3.3 Tax Policy

As outlined above, Uganda is faced with the challenge of achieving ambitious targets in poverty reduction over the PEAP period whilst scaling backing its fiscal deficit. While donor support has so far helped the government to fund half of its budget, the pressing need now is to enhance the country’s capacity to mobilize domestic resources to fund public services. This makes a well designed tax policy a crucial element of Uganda’s strategy to support economic growth and reduce poverty.

A sound tax policy framework comprises a tax system capable of financing the desired levels of government spending in the most efficient and equitable way possible. In particular, the tax system is expected to:

  • (a) Raise enough domestic revenue to finance expenditure without recourse to excessive public sector borrowings or excessive recourse to donor grants that might make the budget vulnerable to unexpected fiscal shocks;

  • (b) Raise revenue in ways that are efficient and equitable; it is important to note that the economic, rather than political, incidence of taxes should be the basis for assessing both equity and efficiency;

  • (c) Enable taxes to be collected cost-effectively in a manner which minimizes opportunities for corruption, and

  • (d) To do so in ways that do not deviate substantially from international best practice.

Uganda has one of the lowest revenue to GDP ratios in Sub-Saharan Africa (12.1% as of 2002/03), reflecting the dominance in the economy on a primary sector that provides a small tax base. Within the East Africa region, Kenya has a revenue-to-GDP ratio of 26 percent, while Tanzania’s is similar to that of Uganda. In the mid 1990s, the government adopted an ambitious growth target for the revenue ratio of one percentage point per year; which was considered achievable because the tax base was very low, and there were policy options available to generate revenue growth. Moreover, the very rapid growth in the economy’s formal sector (and, in particular, in the sales of highly taxed goods such as beer, cigarettes, sodas and fuels) provided a strong stimulus to revenue growth.

In 1997/98, government made a downward revision to the target for growth of the revenue-to GDP ratio from 1% to 0.5% per year, because the options for generating new revenues had become more limited, with the major tax reforms to income tax and VAT having already been implemented. The constraints to revenue growth remain as difficult now as they were for the past years, while demands for tax rate reductions are even more intense. The largest risk is the continued pressure to give investment incentives which would undermine revenue mobilization, combined with limited latitude in tax handles to boost revenue mobilization. The risk of frequent policy reversals is also damaging, because policy instability is of itself likely to impose high economic costs, as potential investors approach each change with growing scepticism.

Revenue Generation Constraints

The main elements that hamper domestically-generated revenue mobilisation are:

  1. The large size of the informal sector: The economy is characterized by a large share of agriculture in total output and employment; by large informal sector activities and occupations; by many small establishments; by a low share of wages in total national income, with many workers paid in cash, ‘off the books’; and by a small share of total consumer spending in large modern establishments that keep accurate records of sales and inventories. These characteristics of the economy reduce the possibility of efficiency gains from such taxes as personal income tax and Value Added Tax (VAT), and undermine the possibility of achieving high growth of domestic revenues

  2. Lack of reliable data: Revenue collection is also hampered by the absence of reliable data, which severely restricts the government’s ability to assess tax policy. The paucity of data has many sources, including the taxpayers’ limitations in keeping proper accounts; the large role played by informal activities; the limited reporting requirements; the low capacity in many private economic establishments, as well as financial constraints.

  3. Uneven income distribution: Income distribution in Uganda is highly uneven with a rising Gini coefficient which implies that for tax revenue collections to generate high revenue, the top deciles have to be taxed significantly more proportionally than the lower deciles

The existing challenges in tax administration are currently being tackled by the Uganda Revenue Authority, including significant weaknesses in customs administration, particularly in areas such as duty drawback and customs valuation, and problems in VAT administration, particularly compliance and the operation of VAT refunds. A recent report has highlighted the key challenges in this area13, and the Government is working with the URA to tackle them. Improving tax administration will deliver efficiency gains for Government in revenue collections, as well as improving the operating environment for the private sector.

However, improvements in tax administration alone are unlikely to deliver sufficient revenue growth to maintain Government expenditure at 22%-23% of GDP as the fiscal deficit reduces. The Government therefore faces hard choices as to how to raise additional revenue, particularly in the light of the need to retain a competitive tax system which stimulates private sector development. Over the past decade, Uganda has been pursuing an aggressive policy of reducing taxes to remove distortions, to reduce protection, to improve competitiveness, to improve incentives for export activity, to facilitate tax administration and to promote taxpayer compliance. Any significant reversal aimed at either mobilising further revenue or protecting domestic, or firm-specific, production would send negative signals to investors and raise serious doubts about the credibility and stability of government’s economic policies. They would also make tax administration and tax compliance more difficult.

In addition, as of 2004, Uganda with its other partners in East African Community (EAC) will finalize a Protocol establishing a Customs Union. This will have implications in terms of revenue and trading arrangements. The negative revenue effects of the Customs Union, which include trade liberalization within the EAC and the likely abolition of import commission, might impede revenue growth in the medium term.

Given the likely revenue shortfall arising from the East African Customs Union, and given the need to maintain an internationally competitive tax regime, Government will have to make upward adjustments to domestic consumption taxes over the PEAP period if it is to maintain expenditure at 22%-23% of GDP whilst reducing the fiscal deficit. Failure to do so will result in lower overall Government expenditure, which could compromise service delivery and the Government’s ability to meet PEAP targets.

3.4 Financial Sector

Financial Sector Development

As explained in previous sections, Uganda’s long term economic strategy is to promote private sector-led economic growth. If the private sector is to achieve rapid growth it requires finance for fixed investment and working capital. Uganda’s financial markets are both shallow – they are small in relation to GDP – and poorly developed, being dominated by commercial banks. Commercial bank lending to the private sector plays a key role in supporting the growth of the private sector in Uganda, because there are so few alternative sources of finance. The main alternative sources of domestic finance for the private sector are non bank financial institutions (NBFIs), such as leasing companies and a housing finance company, and the Stock Exchange, but the NBFIs are small relative to the commercial banks, and only well established companies with a track record of profits can raise funds by issuing securities on the Stock Exchange.

Why Government does not fix Commercial Bank lending rates

  • Commercial bank lending rates to the private sector are market-determined.

  • Private sector lending rates are always higher than interest rates on Treasury Bills, due to the higher risk associated with lending to the private sector compared to Government.

  • The more Treasury Bills the Government offers, the higher their interest rates will be, driving up private sector lending rates too.

  • If Government sells fewer Treasury Bills, TB interest rates will fall, Commercial Banks will have more credit available to offer to the private sector, placing downward pressure on lending rates.

  • Fixing lending rates at a rate other than the market rate will reduce Commercial Bank lending to the private sector, as either the rates will be too high for the private sector, or (more likely) too low to be commercially viable for the banks.

  • A reduction in Government’s issuance of Treasury Bills is a more effective way to reduce the cost of borrowing than fixing interest rates.

  • Government’s fiscal deficit reduction strategy will entail a reduction in TB issuances over the medium term.

Growth in bank lending to the private sector must be consistent with maintaining the maximum growth rate of the money supply which is needed to deliver low Inflation. Given the constraints imposed by the imperative to control monetary expansion, bank lending to the private sector can only grow quickly if the growth of other, competing, demands on commercial bank resources are restrained. The most important competitor of the private sector for commercial bank resources is Government, mainly through the Treasury Bills, which are issued by the BOU to sterilise base money created by fiscal operations. At end-June 2003, Government securities comprised 29% of commercial banks’ total assets and loans to the private sector comprised 26% of total assets. Therefore, the most effective strategy for promoting more rapid growth of bank lending to the private sector, without jeopardizing the control of money supply and Inflation, is for Government to reduce its demands for funds from the commercial banks, by reducing its fiscal deficit.

Financial Deepening

Financial deepening refers to the increase in the holding of financial assets by economic agents relative to GDP. It enhances financial intermediation, which is the process of channelling financial resources from surplus economic agents into the productive investment opportunities of agents with financial deficits, which in turn promotes economic growth. Financial depth as measured by M3 as a percentage of GDP has grown steadily over the past thirteen years, from 8% in 1990/91 to 20% in 2002/03. It is expected to continue to rise over the medium term, as the economy becomes increasingly monetised, and domestic savings rates increase. The LTEF projection is for financial depth to increase to 29% of GDP by 2013/14.

Gross domestic savings grew rapidly in the early 1990s, from 2% of GDP in 1990/91 to 8.8% of GDP in 1994/95, as macroeconomic stability was restored and Inflation was brought down to single digits. Since then, the level has fluctuated, and gross domestic savings in 2002/03 amounted to 6.6% of GDP. Savings are expected to grow substantially over the medium term, to 13.6% of GDP by 2013/14, as GDP growth is expected to outpace the average growth in consumption, and as the reduction in the fiscal deficit raises public savings.

The mobilization of savings into deposits in the banking system, thereby increasing financial depth, will be enhanced by financial product development. Currently, the main financial assets available in the financial sector apart from bank deposits are corporate bonds and equities, of which there are few, and government treasury bills. However, a government long-term bond has been introduced recently, and further areas of possible product development include mortgage and insurance products and mutual funds.

In addition, the Financial Institutions Act (FIA 2004) was assented to by the President in March 2004 and is now law. Among other provisions, the FIA 2004 provides for the setting up of a Credit Reference Bureau through which information about borrowers will be made available to financial institutions, in order to reduce the risk of creating non-performing loans. This is expected to boost credit extension to the private sector to support economic growth. However, besides the newly enacted Financial Institutions law, there is need to revise the laws that govern financial sector innovations and operations in order to address elements such as electronic financial products and services, and leasing operations.

Micro Finance & the Formal Financial Sector

As mentioned earlier, financial deepening enhances financial intermediation. However, while financial institutions’ coverage of the urban areas is relatively sufficient, outreach to the rural areas specifically by formal institutions is still limited. As much as efforts are underway to encourage rural outreach by the formal banks, the socio-economic and cultural setups in the rural areas do not favour the formal banking system. To this extent, the Micro Finance Institutions law was enacted by Parliament in April 2003 to allow soundly managed and well-capitalized Micro Finance Institutions (MFIs) to intermediate resources in the rural areas. The defined legal status of these MFIs now puts them into a position that should forge links with the formal banking system.

With the legal status of the micro finance deposit taking institutions now clearly defined, it is expected that the formal banking sector will increase their transactions with these institutions. These are expected to act as retail institutions for both deposit taking and credit extension to rural agents, since they have a relatively better information base on agents in the rural areas than the formal banks. The role of the banks will be to wholesale both deposit taking and credit extension to the MFIs. Such a linkage should further increase the provision of financial services to the rural areas.

Pension Sector Reform

Government’s plan to reform the pension sector will liberate a major source of long-term capital for the domestic financial market. Social Security, pension and provident funds represent the most important sources of long-term capital in most economies. Defined contribution schemes such as the National Social Security Fund (NSSF) should, therefore, play an important role in the financial sector because they hold a large amount of fixed liabilities (individuals’ pension contributions) and have a huge potential in creating long-term assets (as they invest the contributions to ensure real returns for future pensioners). Unfortunately, the NSSF has not been successful in fulfilling these roles, and has to a large extent undermined the potential for capital accumulation and financial sector deepening. Although it has an asset base of approximately shs 250bn, which is equivalent to 10% of the total assets of commercial banks, the NSSF has to date invested almost all its liabilities in short-term Government securities and property, thus depriving the private sector of vital source of long-term investment funds.

The Government is committed to reforming the pension sub-sector in order to introduce competition in pension provision. This should in turn increase the efficiency with which pension funds are invested, bringing greater long-term capital to the financial market, and raising the level of private sector investment. The Government will also ensure appropriate regulation of the sub-sector.

3.5 Investment & Trade Policy

Private sector investment more than tripled in real terms between 1990/91 and 2002/03, as a result of the stable and conducive policy environment created by the Government of Uganda during the 1990s. This growth resulted in private investment almost doubling as a percentage of GDP, from 9.1% of GDP in 1990/91 to 15.6% in 2002/03. Total investment amounted in 2002/03 to 20.3% of GDP, as compared to 15.3% in 1990/91.

Chart 3.8:
Chart 3.8:

Investment as a % of GDP 1990/91–2002/03

Citation: IMF Staff Country Reports 2005, 307; 10.5089/9781451838770.002.A001

Source: MoFPED

However, private investment needs to continue to grow in real terms if Uganda is to meet its objective of rapid and sustained GDP growth over the medium term. As explained earlier in this section, Uganda has already reaped most of the growth gains arising from the economic reforms implemented during the 1990s, and recent research14 has suggested that sustained higher growth over the next five years can only be achieved with much higher investment rates, with investment having to jump to 27% of GDP. The LTEF projects that total investment will rise to 28% of GDP by 2013/14, while private sector investment will rise to 22% of GDP, an increase of seven percentage points as compared to the current level. Achieving this will require private investment to grow by an average of 7.7% per annum in real terms.

What policies are required for investment to grow to 28% of GDP by 2013/14? First, Government will maintain its existing policies of macroeconomic stability and deficit reduction to minimise economic risks to investment, and to ensure that Government does not crowd out the private sector, either by driving up prices of non-tradable investment goods relative to output prices, or by crowding out private sector credit. Second, it will maintain its current trade policy, which is broadly liberal. Economic growth in Uganda is particularly dependent on the expansion of profitable exports because exports are not constrained by domestic demand, and in most cases Uganda has a small share of the world market and can therefore expand exports fast without driving prices down much.

Comparative Advantage of the Economy

Exports are only profitable if they reflect the comparative or competitive15 advantage of the economy. In Uganda’s case, these advantages are largely in agriculture and agro processing. Labour in Uganda is not cheap as in India or China16, and high transport costs (partially reflecting the geographical positions of the country) make it unlikely that Uganda can quickly become competitive in the assembly of goods from imported components. Manufacturing in Uganda is likely to focus mainly on production for the domestic market, and to some degree the regional market, except where it is processing products based on natural resources in Uganda – agriculture, forestry and fisheries. Uganda may also be able to develop a comparative advantage in some services, but will face stiff international competition in this area.

The Government trade policy supports the export sector by minimising domestic and international barriers to trade. Government does not levy taxes on exports17, and export procedures in the country have been simplified. The exchange rate is market determined, thus ensuring it reflects supply and demand for foreign exchange and does not distort price incentives. However, it is important to understand that having a market determined exchange rate will not of itself deliver an exchange rate that is competitive for exports. Even when market determined, the exchange rate may be overvalued relative to trade fundamentals if the economy experiences strong in flows of foreign exchange from sources other than exports, as has been discussed above.

In addition to having a market-determined exchange rate, there are no restrictions on capital account transactions, and it is not government’s policy to protect domestic industry. Domestic protection stifles export-led growth because it induces producers to focus on the local market, and the firms/farms make little or no efforts to develop capacity to compete in export markets. This in turn causes a welfare loss for the domestic consumer, who inevitably faces higher prices for the goods he/she is buying, and for the economy as a whole, as demand in the domestic market is limited, therefore limiting production.

The Cost of Domestic Protection

  • It is sometimes argued that Government should boost domestic production by placing high taxes on imports or banning them altogether

  • ‘Protecting’ domestic industries from imports may create jobs in the industries involved, but the benefit of these jobs to the economy will be offset by the welfare loss to all other consumers

  • Protected domestic industries produce high costs goods (there is no competition with imports to drive prices down) which domestic consumers are forced to buy as a result of the lack of alternatives

  • The cost of protection is often borne disproportionately by the poor - e.g. higher prices for clothes if mivumba imports are taxed/banned, higher prices for sugar if sugar imports are taxed/banned

  • Domestic protection undermines export growth & economic growth, because protected industries have no incentive to be competitive in terms of world markets (they are producing for a captive domestic market), and domestic demand is limited, limiting production

In addition, Government does not intend to pursue a policy of firm-specific interventions. Firm specific interventions are undesirable because they are widely perceived to be inequitable (thus eroding the certainty of the investment climate and increasing its risks), inefficient (Government is less well equipped than the private sector to ‘pick winners’) and create a climate for lobbying rather than entrepreneurship18. Government’s policy is to create a level playing field for all investors, whereby private incentives are not distorted by public policy, to minimise economic cost and risk, to reduce barriers to production and to address market failures through sector-wide interventions. These latter policies will be covered in greater detail in the section on Production, Competitiveness and Incomes.

Export Diversification

Uganda’s exports are vulnerable to fluctuations and/or downward trends in international commodity prices, and still face both tariff and non tariff barriers abroad which inhibit their growth, particularly in the value-added end of the market. For example, the country’s exports face tariff escalation from its trading partners (increase in the level of tariffs with the level of processing), which discourages value-addition to our products. The non-tariff barriers it faces are mainly sanitary and phytosanitary (SPS) measures imposed by developed countries such as the European Retailers Good Agricultural Practices (EUREPGAP). Under these measures, Uganda is required to establish a residue monitoring system and monitor the chemical content of its products, which increases transaction costs.

As will be discussed in the section on production, competitiveness and incomes, Uganda’s strategy on export diversification and value addition is primarily intended to boost agricultural output and productivity, thus boosting economic growth and poverty reduction, but it is also in part designed to mitigate the effects of fluctuations in global commodity prices on export performance. Uganda lost $700m in coffee earnings between 1998/99 and 2002/03 as a result of a decline in coffee export prices, which fell by more than 60% over the period. Reducing the economy’s dependency on any single commodity, and shifting production to the value-added end of the market is designed to reduce this vulnerability, and will be complemented by market-based insurance schemes for farmers to hedge against short-term price volatilities during a production season, which are currently being piloted in Uganda.

However, the country will not be able to benefit in full from its strategy of value-addition unless Government works to reduce the tariff and non-tariff barriers placed on Ugandan exports by its trading partners. Government is to strengthen its capacity to engage in multilateral, regional and bilateral trade negotiations to help reduce market access problems to both trade in goods and services through negotiations. Formalization and facilitation of the Inter-Institutional Trade Committee are the major activities planned in order to strengthen the country’s trade negotiation capacity. Government also intends to strengthen its institutional ability to respond to export challenges, through the institutionalisation of quality management in industry, enforcement of standards, quality assurance and procurement of market information. These initiatives will be covered in greater detail in the section on production, competitiveness and incomes.

4 Enhancing production, competitiveness and incomes

4.1 Government’s strategy for increasing production, competitiveness and incomes

This chapter discusses Government’s strategy for fighting poverty through increasing production, competitiveness of Uganda’s products and household incomes. Production is used here in a broad sense, including agriculture, industry and services. As discussed in Chapter 3, agriculture grew more slowly than the other sectors at 3.8% per annum between 1990/91 and 2002/03, while industry grew at 10.5% per annum and services grew at 7.5% per annum. These sectoral performances have implications for poverty reduction, depending on the share of population employed in each sector. Agriculture employs 69% of the population, and services employ 23%, whereas industry employs 8%. Thus, although the share of services in GDP is now higher than that of agriculture, services employ only a third as many people as agriculture. About 86% of the population lives in rural areas and 77% of the active labour force in rural areas is employed in agriculture. Agriculture is by far the largest employer of Ugandans in rural areas, despite a declining share in GDP. Moreover, 96% of those below the poverty line live in rural areas. Hence agricultural growth is critical for poverty reduction and rural development.

In addition to its role as employer, there are two other reasons why agriculture is a critical focus of the PEAP. First, the non-agricultural goods and services produced in rural areas are mostly sold locally. Their production cannot expand sustainably unless the demand generated by agricultural incomes also expands. The recent tendency of returns in the non-agricultural sector to decline while people moved into the sector illustrates that demand may be becoming saturated in some areas. Secondly, agriculture is particularly dependent on public goods including research, extension and support to marketing. The slow technological progress in smallholder agriculture in Uganda illustrates this point.

Growth of agriculture thus generates spill-over benefits to the non-agricultural sector in rural areas and beyond, through the consumption of non-farm products. Linkages with manufacturing and service sectors then spread the benefits of growth in agricultural incomes to the rest of the economy. An important aspect of this process is the increase in value-addition through the processing of agricultural products.

In order to reduce poverty as fast as possible, not only the level of incomes but their distribution across income groups matters. As discussed in Chapter 2, income inequality in Uganda has increased sharply between 1997 and 2003, with the Gini coefficient rising from 0.37 to 0.43. While various aspects of all the PEAP pillars are intended to address this, there are three areas that particularly need attention.

  • First, an intensified focus on agricultural production should reduce inequality. While it is inevitable that agricultural growth will be flower than that of the other sectors, Government will aim to accelerate agricultural growth by better provision of public goods including research, extension and support to marketing.

  • Government strategy will therefore focus on increasing agricultural production and incomes, especially for poor rural households. In order for households to escape poverty, they must produce and sell. Studies in Uganda3 show that constraints on smallholder agriculture include: information, organisation of marketing, infrastructure, access to assets, physical depletion of assets, and finance.

  • Secondly, poverty in Uganda has a regional pattern. Historical factors and the civil war that has continued for more than fifteen years have kept northern Uganda as the poorest region in the country. The East has recently experienced a significant increase in income poverty, as discussed in Chapter 2. The situation in northern Uganda requires special attention. Ending the war, resettling IDPs and enabling them to become productive citizens and rebuild their livelihoods is critical.

  • Thirdly, women do not always share in the benefits of production, even though they may have done most of the work. For example, women in Arua district, in the early 1990s were much less enthusiastic than men about tobacco growing because of the men’s control of income.4 Similarly a woman in Mbale said ‘I cannot put in more effort in cultivation because the harvest can as well be used to marry a third wife’5. In one study in West Africa6 the disincentive effect was found to reduce output by 10-15%. If the size of these effects in Uganda is similar, the benefit of changing these incentives could amount to a one-off increase of about 5% of GDP.

  • Among the actions that will contribute to reducing gender inequality are: community actions to organise women’s groups and empower women: support to ensuring female participation in all public service, especially extension services (most of NAADS group members are women) and education: and improving women’s land rights. If women had full ownership of the land they farmed, they would be in a better position to retain control of the incomes. An amendment to the Land Act introducing the requirement that spouses consent to disposal of land on which they subsist has recently been passed.

Government will undertake measures to provide an environment within which Ugandan enterprises can be more competitive. This means improving the provision of infrastructure (roads, rail, electricity etc) and reducing the unnecessary regulatory burdens faced by entrepreneurs. Government will also provide a stable macroeconomic environment, improve commercial justice and increase access to financial services.

Competitiveness will be achieved by increasing the ability of Ugandan enterprises to be profitable and increase their share of the market, both domestic and external, and by satisfying the needs of the consumers. Key to this, will be the firms levels of productivity and their ability to both innovate and adapt to new technologies. Thus by improving the competitiveness of Uganda’s private sector we improve the ability of firms to respond to the demands of the marketplace. Indicators of increased private sector competitiveness would be reflected by increased export earnings and investment levels and an improvement in the international image of Uganda’s business environment.

In order to boost production, incomes and competitiveness, supply and demand constraints must be addressed. Government will address these constraints through three main policy frameworks, the Plan for the Modernisation of Agriculture (PMA), the Medium-Term Competitiveness Strategy (MTCS) and the Strategic Export Programme (SEP).

4.2 Boosting production, incomes and competitiveness

The expansion of production and incomes in rural areas is addressed by a large number of interventions, which are grouped under the Plan for the Modernisation of Agriculture. This Plan focuses on agricultural modernisation and commercialisation by a multi-sectoral approach to addressing the constraints facing agriculture-based livelihoods. The PMA was developed to focus public intervention on those areas where a clear public sector role was identified, to avoid duplication, and to ensure that the needs of poor small-scale farmers were fully addressed.

Supply-side interventions in the PMA include research and technology development, advisory services, rural financial services, rural infrastructure and sustainable natural resource use and management. The implementation of the PMA is reviewed by an annual joint review process; the third joint review, held in August 2003, found that progress in implementing institutional reforms was good, but that the most of the PMA pillars are not yet visible on the ground. Responsibility for the direct implementation of the PMA components lies within the mandates of relevant ministries and other public agencies, while co-ordination is undertaken by the PMA Steering Committee, the PMA technical committee and the PMA Secretariat.

Agricultural research and technology development

Research7 on returns to public expenditure (discussed in more detail in Chapter 8) has shown that the impact of spending on agricultural research and extension on income poverty is higher in Uganda than that of spending on roads, education or health. Government is developing a national agricultural research system (NARS) that will be more decentralised, efficient, effective and responsive to the needs of the poor than the existing set-up. A National Agricultural Research Policy has been produced that seeks to promote the delivery of high quality and efficient agricultural research services by enhancing the participation and co-ordination of both public and private sector service providers. Farmers, particularly poor women and men, are to be empowered to demand and control agricultural research processes and services.

It is expected that a new National Agricultural Research Act will be enacted during the 2004/05 financial year and implementation of a revised programme of agricultural research will then begin in earnest. The components of the new NARS are: (i) establishment and operation of a National Agricultural Research Council; (ii) core funding for NARO and a rationalised network of public agricultural research institutes; (iii) support to demand-articulation structures; and (iv) national & zonal competitive agricultural technology research funds.

Priority actions for agricultural research

Government will enact the NARS bill and implement the provisions in the bill including:

  • Completing a functional analysis of NARO

  • Implementing the agricultural research competitive grants system

  • Establishing the NARS apex institutions

  • Increasing the involvement of the private sector and other stakeholders in the provision of research services, incorporating socio-economic and poverty concerns.

Agricultural advisory services

Information is an important constraint in smallholder agricultural production and it can be effectively addressed by public action. The National Agricultural Advisory Services programme began implementation in 2001. It seeks to increase the proportion of market-oriented production by empowering farmers to demand and control agricultural advisory and information services. Implementation of the programme will be consolidated and reviewed in depth during 2004/05. Assuming that the assessment is favourable its implementation will be stepped-up to cover the remaining Districts over the subsequent four-year period. As NAADS expands into the sub-Counties of each District, the existing District agricultural extension staff will be replaced by contracted services. Extension staff are being assisted to become service providers in the private sector if they wish to do so.

Under the NAADS approach, extension services are delivered by private providers who are awarded short-term contracts to promote specific enterprises. There is a coordinator at sub-country level who works with the LC3 and the local community to identify priorities and manage the allocation of contracts. By the end of 2003/04, the Programme will cover a total of 21 Districts (up from 6 in 2001/02 and 16 in 2002/03) located in all regions of the country.

The Programme is working principally with the economically-active poor – those with limited physical and financial assets, skills and knowledge – rather than with the destitute or large-scale farmers. The districts covered include both better-off and worse-off districts. A poverty and gender strategy has recently been completed, providing clear guidelines to be used from now on by staff working under the Programme, in both its design and implementation.

One important challenge is how to ensure that the selection of enterprises is based on good social and economic analysis. It is essential for the success of NAADS that products can be marketed at prices that make them profitable for farmers. This requires realistic technical assessments of productive potential as well as a sound assessment of future market conditions for the product. Some useful work has been done by organisations including EPRC8 and IFPRI9 NAADS, FEWSNET, IITA and NRI in this area.

Another challenge for NAADS is to balance support for crops grown for subsistence and those for the market. Women may have a better chance of sharing in the benefits of subsistence production than marketed production. However, significant increases in productivity in most ‘subsistence’ crops are likely to lead either to production of a surplus for the market, or a shift in labour to other activities. NAADS will therefore focus mainly on crops that can be developed into marketable ventures. There is a risk, because NAADS alone cannot guarantee a market for any product. Recently, for instance, the price of vanilla, which is one of the enterprises supported by NAADS, fell sharply. Close links between NAADS and the Marketing and Agro-Processing Strategy are needed to minimise these risks. Likewise, links with NARS are important to ensure that where new inputs are recommended they are approved for release and multiplication by NARS.

Priority actions for agricultural extension

Government will:

  • Review the NAADS roll-out roadmap, and harmonise and realign with the existing resources and on-going extension projects/programmes

  • Deepen the targeting of the poor

  • Integrate advice on the needs of commercial producers

  • Integrate environmental concerns, especially soil fertility, into the advice given by NAADS

  • Finalise the strategy for linkages between NAADS and NARS.

Livestock

Recent work has shown the importance of livestock in household incomes, indicating that the poor tend to lack livestock. Better-off households had four times as much livestock as the poorest households. Livestock ownership is more widespread than commonly believed – involving the majority of farmers in most parts of the country, beyond areas normally associated with livestock (the “Cattle Corridor”). At the same time, the majority of livestock-keepers do not hold animals in order to provide direct income but, rather, for other reasons, including investment of savings, social and cultural reasons. The importance of small stock species – poultry and goats, in particular – to poorer households in rural areas is only now being recognised. The share of noncrop agriculture in households incomes rose from 1.3% to 4% between 1997 and 2000.

Government will therefore develop an over-arching policy and strategy for the livestock sub-sector that explicitly recognises the main national policy objective of poverty reduction. The current focus on maximising livestock production alone needs to be replaced by one that recognises the multiple contributions that livestock make to livelihoods. This will require a greater understanding of who are the clients of livestock development efforts/services and what their priorities are. Lack of such understanding is the reason why there has been only limited uptake of ‘improved’ livestock technologies, which have been largely inappropriate to meeting the needs of livestock keepers in general and pastoralists, in particular. Hence pastoralists and their farming systems will be a key component in the new policy.

This policy will need to include disease control. Fast response to disease outbreaks including the control of animal movement is critical to minimising their costs, particularly for those producers who are aiming at the export market. Likewise, the affordability of veterinary services for the poorest livestock keepers is a concern. If preventive veterinary measures are unaffordable, this causes problems for them and other producers.

Priority actions for livestock

  • Government will develop a strategy for the livestock sector, covering disease control, and addressing the needs of pastoralists.

  • In the meantime, Government will undertake necessary actions to control the spread of livestock diseases.

Strategic Exports Programme

In September 2001 Government launched the Strategic Exports Programme (SEP) aimed at increasing competitiveness through stimulating value addition investments in selected sectors of the economy and removing bottlenecks that impede the private sector’s ability to take advantage of emerging trade opportunities under various initiatives including AGOA and EBA. The selected sectors include coffee, cotton, tea, fish, livestock, horticulture, Irish potatoes, and information and communication technology (ICT). So far, interventions under the programme have included the distribution of coffee and tea seedlings and cotton seeds to farmers; the importation of improved breeds of livestock (Boer goats and boran bulls); the supply of fish fry to farmers with fish ponds; the importation of processing equipment for the cotton and coffee sectors; and training for farmers involved in the production of tea, livestock and horticultural products.

A review of the programme has recommended the need to rationalise some of the activities under the programme with those already under the PMA (including NAADS and MAPS); supporting identification of interventions with analytical work along the entire market chain and minimising the production bias in the current activities; greater private sector involvement in the selection, funding and implementation of the interventions. Commodity sector associations such as the Uganda Fish Processors and Exporters Association (UFPEA) and the Uganda Flower Exporters Association (UFEA) can play an important role in the achievement of SEP objectives. Future emphasis will be put on supporting such associations so that they can play a leading role in identifying constraints and implementing the agreed interventions.

In order to enhance the integration of production, value addition and market access, a countrywide Zonal Initiative has been developed. The Agricultural Zoning Initiative will contribute to the realisation of the objectives of SEP and the NAADS enterprise development component by ensuring the selection of zonal commodity enterprises based on factors that go beyond agro-ecological conditions. Critical to the selection of enterprises will be additional factors such as profitability, value addition, export potential, availability of service providers and infrastructure. Commodity/sector clusters will be created to ensure that selected sectors will be supported on a sustainable basis. This will ensure that farmers will produce products that can be marketed, in quantities and standards that meet the requirements of the market. The development of the National Export Strategy will provide the framework within which SEP and the Zonal Production Initiative will be implemented.

Priority actions for strategic exports

Government will:

  • Harmonise some of the current SEP activities within the PMA and MTCS programmes and activities, coordinated by the MTCS Secretariat.

  • Implement SEP and the Agricultural Zoning Initiative in a manner that focuses activities along the commodity value chain.

  • Encourage private sector leadership (through commodity associations and clusters) in the identification and implementation of interventions.

Agricultural policy framework

It is often assumed that large-scale commercial farming is more productive than smallholder farming. This is not always true; in Uganda, as in other countries, farm size is negatively associated with output per hectare and total factor productivity. However, there are a number of areas where estate production can play an important role in agricultural development: For instance, in crops such as horticulture, the formal commercial sector uses land very intensively, such as horticulture, where it is reported that 120 workers are employed per hectare. For some crops, profitable smallholder production depends on the availability of processing facilities, but the private sector will not invest in these facilities without a nucleus estate. Tea is a good example.

The decision whether a particular area of land should be used for large-scale production or small-scale farming is a matter of private initiative, and Government’s role is mainly regulatory. Government will seek to ensure that large-scale investors in farming face a conducive business environment; for instance, improved functioning of the land market should make it possible for people to buy large areas of land for commercial production, conditional on land use policy at the district level, while also ensuring that existing property rights are not disturbed.

Two other areas that require policy attention are urban agriculture and biotechnology. Policy and legislation relating to farming in the country’s rapidly-growing urban centres need to be drawn up if the livelihoods of those practising them – often amongst the poorest strata of society – are to be made more secure. National bio-technology and bio-safety policies are needed to provide guidance both to producers and to consumers.

Transport infrastructure

Improving transport infrastructure (roads, railway, air, waterways) is important in boosting production, incomes and competitiveness because it links producers to consumers. Poor or inadequate road infrastructure is partly responsible for low production and productivity of some parts of the country. Producers should have reliable road networks to quickly transport their produce to markets, many of which are perishable in nature (milk and vegetables are examples). A good road network also facilitates market integration by linking surplus to deficit areas, as well as linking producers to input markets. Government is committed to expanding and maintaining a good road network. The railway network has virtually collapsed, save for the Kampala-Malaba route, yet it is a cheaper way of moving bulky agricultural products. Air transport is vital for perishable, high-value products such as fresh cut flowers and fish exports.

Recent research on the Ugandan experience shows that Government spending on rural roads has had a substantial effect on rural poverty reduction. The impact of low grade feeder roads was shown to be larger than that of higher grade murram and tarmac roads. The large impact of lower grade roads was mainly through improved agricultural productivity, whereas the impact of higher grade roads was mainly through improved non-farm employment opportunities. Government will also seek opportunities for other methods of reducing transport costs including the provision of an oil pipeline to Kenya and measures to encourage competition in the haulage industry.

Roads

Road transport is the dominant mode of transport in the country, accounting for over 92% of the volume of freight and human movement. The country’s road infrastructure comprises 10,500km of national roads, 27,500km of district roads, 2,800km of urban roads and about 30,000km of community access roads. The national roads are developed and maintained by the Ministry of Works, Housing and Communications (MWHC); district roads are maintained by District Governments; urban local governments are responsible for urban roads, while community access roads are the responsibility of the Sub-county (LCIII).

Over the last 15 years, Government with the assistance of development partners has invested heavily in developing and rehabilitating road infrastructure, particularly national and district roads. Considerable improvements have been registered, with the proportion of national roads in a fair condition improving from 6 percent to 75 percent and district roads from 15 percent to 67 percent between 1988 and 2003 respectively. However, most community access roads and urban roads are still in a poor condition. Rural areas are poorly served with roads, with only 10 percent of community access roads reported to be in good/fair condition in 2003. This means that the road network serving the poor cannot bring the poverty reducing effects that infrastructure is expected to bring.

Investments in roads are guided by the 10-year road sector development plan (RSDP), which was started in 1996 for national roads and updated in 2002 to include district and urban roads. The road-sector development plan essentially includes only projects with at least 12% rate of return. A Road Agency Formation Unit has been established as a transitional arrangement and has taken charge of the implementation of the RSDP. MWHC retains the mandate for planning, while the Coordination unit within MFPED translates the RSDP into an expenditure programme and oversees the performance of the works carried out.

Government’s objective is to achieve a level of expenditure sufficient to keep the whole network in good condition once it has been rehabilitated. In accordance with Road Sector Development Plan, Government committed itself in 2001 to achieving this equilibrium level by 2009. However, since 2002 maintenance expenditure has been rising at a lower rate than is needed. The achievement of the proposed equilibrium expenditure level at US$ 54 million (excluding VAT) per year will be postponed about 10 years, unless maintenance spending is increased. By then, there could be a backlog of 20-25% of the total planned expenditure. Government will therefore prioritise maintenance expenditure within the roads sector.

Government will create a National Road Authority during FY 2004/5 to take responsibility for construction maintenance of the national road network. During 2005/6, MWHC will be restructured to focus on policy, standards and regulation, and strategic planning.

Within the investment projects included in the RSDP, it is necessary to prioritise. Government will continue to rely on the poverty benefits of particular projects in selecting projects to be prioritised within the RSDP. Government will also explore the potential for private sector involvement especially in the form of area-wide long-term maintenance contracts on a performance basis and in the form of Public-Private Partnerships (PPPs) especially for ring roads or bypasses in greater urban areas and especially in Kampala, at an alternative bridge crossing on the River Nile at Jinja and at adjacent road sections to/from certain large factories and farms.

District, urban and community access roads are a protected area on the state budget, financed via PAF funds. The investments are guided by the Ten Year District Roads Investment Programme (TYDRIP) whose implementation will start in 2004/05.

Using existing technologies, for district roads in urban and rural areas, the present level of funding is only sufficient to maintain approximately 70% of the district road network in a fair/good condition. However, MWHC is examining technological options for low-cost construction and maintenance of low-traffic roads.

Another deficiency has been a historical neglect of community roads and footpaths. Rehabilitation of such infrastructure is a possible use of LGDP funds and the PMA non-sectoral conditional grant. Maintenance is the responsibility of the local authorities, and will need higher priority to ensure that all households can continue to benefit from the improvements in the transport network as a whole.

Priority actions for roads

Government will:

  • Continue to invest in road rehabilitation and maintenance in accordance with the RSDP

  • Ensure that adequate funds are available for maintenance. The sector will have responsibility for allocating funds between rehabilitation and maintenance within its overall ceiling.

  • Enforce the axle load restrictions

  • Develop a price index for construction to enable the unit cost of construction to be monitored more accurately.

  • Establish the National Road Authority in 2004/05 financial year.

For district, urban and community access roads (ducar-roads) Government will:

  • Continue to provide financial resources for ducar-roads including urban infrastructure improvement.

  • Give priority to those rural roads which could unlock areas with potentially high agricultural surplus and also enable the rural populace to access basic social services as well as product and input markets.

  • Strengthen local capacity for road management with a focus on labour intensive work methods to provide employment and income.

  • Examine the scope for enhancing support to community roads; this may be an appropriate area for spending under the Local Government Development Programme (LGDP) and the Non-Sectoral Conditional Grant (NSCG)

  • Through the White Paper specify a long-term strategy for the sub-sector and how it is to be implemented

Regarding private sector participation, Government will:

  • Support pilot activities to be launched in FY 2005/06 for area wide long-term maintenance contracts on a performance basis.

  • Develop a strategy to increase private sector participation in management, investment and maintenance of projects within the transport sector as well as strengthening the national construction industry.

Railways

The Uganda Railways Corporation was formed in 1977 after the collapse of the East African Community. It inherited the assets of the former East African Railways Corporation, which were old and largely dilapidated. Railways provide bulk haulage capacity for Uganda’s export and imports. Railways currently handle between 30 and 40 percent of Uganda’s bulk cargo to and from the ports of Mombasa and Dar-es Salaam, handling exports of coffee and imports of general goods. There are only two operational lines, Kampala-Malaba and the Tororo-Soroti line commissioned in July 2004, out of five lines. The Northern line and Busoga loop were closed due to uneconomic operations while the western line was closed due to dilapidation and very high operational costs.

The major problems with railways include dilapidated infrastructure and rolling stock, poor quality of services, and a rather limited national market for bulk transport. It has been estimated that if the Kampala-Malaba line and the marine wagon services on Lake Victoria were in a good condition, and being managed efficiently, the cost of transportation by rail would be at least twenty per cent lower than by road. Further, to provide a larger market for Uganda Railways Corporation and more cost effective transit transports the Ugandan railway network may be connected to DRC, Rwanda and Southern Sudan. Government negotiations for a joint concession for Kenya and Uganda Railways are in progress. Joint concession may make it more attractive to private investors.

Priority actions for railways

Governement will:

  • Finalise negotiations for the concessioning of the railway system in Uganda in a joint operation with Kenya.

  • Consider how to improve private sector incentives to invest in the rehabilitation of operational lines, in the re-opening of closed lines and in connecting the Ugandan Railways network including the marine wagon service on Lake Victoria with that of the neighbouring countries.

Air transport

Air transport infrastructure in the country is managed by the Civil Aviation Authority, funded out of airport landing fees. The infrastructure consists of an international airport at Entebbe, which is a key outlet for high-value agricultural exports and an inlet for tourism, and 16 other main upcountry aerodromes and airstrips, five of which are near national game parks and are therefore important for tourism. Over the period 1991 –2002 international passenger traffic grew at an average annual rate of 12%, while cargo exports have grown by 32% on average. If this trend continues, the export cargo passing through Entebbe International Airport will have doubled in three years.

Despite the removal of the monopoly of Entebbe Handling Services, airport handling remains inefficient. The navigational and security equipment at the airport needs upgrading, and the basic infrastructure needs upgrading including a new runway, taxi way, lighting systems and apron. Upcountry airstrips need funding for infrastructure development. The East African Civil Aviation School in Soroti, under the CAA, provides training courses for airport support staff needs rehabilitation. The public sector role in this training needs review; private financing may be appropriate, since the training has a well-defined private return and private airlines can sponsor potential pilots.

Priority actions for air transport

Government will:

  • Consider the best way of funding necessary infrastructure at Entebbe including a new runway, taxi way, lighting system and apron

  • Upgrade the navigational system at Entebbe Airport

  • Consider whether East African Civil Aviation School in Soroti should be supported with public funds.

Water transport

The principal water transport is on Lake Victoria, Lake Kyoga and Lake Albert and the river Nile. Water transport was formerly widespread in Uganda up to the early 1960’s when steamers operated passenger services on the larger lakes and the navigable sections of the River Nile. Since then, water transport has declined and most of the infrastructure is now dilapidated. The Ministry operates six ferry services as a continuation of the national roads across rivers and lakes where it would be uneconomical to build bridges. These ferry services are important for linking parts of the country to the capital, regional centres and communities, but the ferries are in poor condition and most of them need replacement. There is an increasing demand for more ferries to serve several important towns across Lake Kyoga.

Major challenges include insufficient or absent navigational aids, poor water landing site infrastructure and poor enforcement of water transport regulations. Also, poor adjacent infrastructure (feeder roads and/or ferry connections) may in some cases act as a barrier to the continued development of lake fisheries. There are possibilities of enhanced private sector participation; for instance, the provision of ferries need not be a uniquely public sector role.

Priority actions for water transport

The Government will:

  • Continue to provide ferries on existing ferry connections, landing sites and navigation aids as needed and economically feasible.

  • Strengthen the regulation of all regular water transport services.

  • Promote private sector participation in regular water transport services.

Communications

Communications are important in generating marketing opportunities and productive linkages. Since the reform of 1996, Uganda Communications Commission (UCC) has acted as an independent regulator of the sub-sector and the Uganda Post and Telecommunication Corporation has been split into Uganda Post Ltd (UPL), Uganda Telecom Ltd (UTL) and Post Bank (U) Ltd. The major development in the sector has been the huge growth of mobile phones, led by the private sector. 35% of households in Kampala, and 7% nationally have mobile phones, though the proportion in the North is just 2%. There are now far more mobile connections than land lines. Total tele-density has improved from 0.28 to 2.5 with over 600,000 and 59,000 subscribers in the mobile and fixed networks respectively.

While the private sector is doing a very good job of satisfying the demand for mobile phone services for those who can afford them, there is a need for some intervention to support rural communications. This is being handled by imposing requirements on private providers to support some extension of their coverage to underserved areas, and in addition by spending managed by UCC, which raises a levy of 1% on the gross revenues of telecommunications and postal service providers. This is used to support communications in rural areas. 55 of 56 districts now have network coverage or a point of telecommunications presence. UCC plans to competitively tender the provision of ICT infrastructure in un-served areas to private sector operators on the basis of minimum subsidy bids. Public phones are being provided in sub-counties that are not currently served.

With the liberalisation of postal services, there are now 13 private courier service operators, and a number of postal services have been introduced. The national operator is obliged to provide a post office in all the districts by 2004, to establish at least an agency in every town of 2500 people, and to service academic institutions.

Priority actions for communications

  • The restructuring and privatisation of Uganda Postal Services will be achieved by the end of FY 2004/05. This will include some subsidy for socially needed but unprofitable services.

  • The UCC will continue to support communications in rural areas.

  • All ministries and government agencies’ ICT requirements will be mainstreamed in their budgets.

Water for production

Water for production covers water for crops, livestock, wildlife, aquaculture and rural industry. Government has developed a strategy on water for production for the period 2004-15 which clarifies roles for public and private sector. The major public sector roles in most sub sectors are information and capacity-building. However, there is some role for investment in irrigation and a considerable role in water for livestock.

Water for livestock and wildlife

There are about 765 tanks and 316 valley dams. Of these sources, over 80% are publicly owned. However, 65% are not functional. The volume of water that can be provided by the functional systems is about 6 million cubic metres, which would sustain the population of livestock for just 21 days. By 2005, the amount of water needed to sustain the expected livestock population for 3 months (which is the period needed to secure the population against the effect of drought) will be as high as 36 million cubic metres. However, the economic returns to this investment may not be adequate to justify it.

Improved water sources for livestock are needed. However, experience with public investment in valley dams shows that both project implementation and use of the dams can be problematic if communities are not actively involved in designing, as well as managing, the projects. As noted in Box 4.2, inappropriately sited valley dams can cause social problems and may not meet the needs of pastoralists who need to migrate seasonally to find grazing lands. Hence the approach taken will involve local consultation.

The most appropriate way to prioritise the actions within this sub sector appears to be allowing communities to allocate investment funds to valley dams where the community is convinced this is a priority. The framework under the Fiscal Decentralisation Strategy providing increased flexibility to local governments in allocating funds, combined with funds under LGDP, would provide an appropriate mechanism for this. This will honour Government’s commitment to make valley dams available while allowing communities to allocate the funds to more profitable investments if they prefer.

As noted below, resources within the water sector are already highly stretched and in the absence of evidence of economic returns there is an inadequate case for reallocating funds from other sectors to cover valley dams.

Water for aquaculture

Most of the potential for aquaculture will be met by large-scale private investment. There is a role for small-scale fishponds at the village level. Where economically profitable, this may be promoted as an enterprise by NAADS.

Water for crops

The extent of public sector involvement in irrigation will depend on the returns to this investment relative to other uses of public funds. Whereas irrigation forms a very large proportion of the total development budget in some parts of South Asia, this is less appropriate in the context of higher rainfall, more diverse agricultural systems, and lower population densities found in Uganda. The economically viable irrigation potential of Uganda is estimated at about 90,000 ha. The area currently irrigated formally is about 7,600 ha., and about 6,800 ha. is partially irrigated on a commercial sugar estate. About 53,000 ha. is irrigated informally, mainly by farmers growing rice in swamps. There is considerable interest in irrigation, but limited information both on the part of farmers and extension staff.

Public actions in this sector will focus mainly on rehabilitating existing Government schemes and transferring them to farmers’ management, and promoting small-scale irrigation technologies.

Water for rural industries

Government will aim to simplify access to permits, and to integrate the needs of industry in water supply plans in small urban settlements.

Priority actions for water for production

Government will:

  • Implement the water for production strategy

  • Make investments based on likely returns, taking into account local livelihoods and preferences

Energy

Overview

Energy supply is critical to enhancing production, competitiveness and incomes. Electric power is essential to the development of modern manufacturing and services. It also plays an important role in rural development, supporting activities such as wet coffee processing, fish landing sites for preservation, mining areas, and lime production. The availability of power also has benefits in reducing drudgery, especially for women and girls (for instance by reducing the need to collect fuel wood) and in enabling clinics to function and educational study to progress.

Only 3% of Ugandan households in rural areas and 8% in urban areas have access to grid electricity; the rest rely on biomass for energy sources. Uganda’s per capita electricity consumption is one of the lowest in the world at 62 kWh/year, compared to 300 in India, 580 in China, and 11,000 in USA (1996 data). Those who have access to electricity experience regular shedding and/or outages that necessitate the installation of generators, with implications for the pricing of their products and the level of investment. The 2002 National Energy Policy focuses on improving the effectiveness of energy sector management, attraction of capital to increase energy access, and making energy affordable.

Electricity

Uganda has large energy resources; the hydroelectric power potential of Uganda is estimated at over 2,000 MW, mainly along the River Nile, whereas current exploitation is about 317 MW, of which 300 MW is on the River Nile (Nalubale and Kira power stations) and generated by UEGCL. Kilembe Mines Ltd., Kasese Cobalt Company Ltd and others generate a total of 17 MW. However, power outages remain a serious constraint for economic growth.

Producers of energy are large enterprises, which may have considerable market power. Hence regulation is essential and in some cases public subsidy may be appropriate, but this need not imply public ownership. The Electricity Act, 1999 set reforms in motion by enabling private participation in the sector including rural electrification; establishing the Electricity Regulation Authority; and permitting the privatisation of the state owned Uganda Electricity Board (UEB). UEB was unbundled into three independent enterprises namely: the Uganda Electricity Generation Company Ltd (UEGCL), which owns the Kiira and Nalubale power stations (operated by Eskom under a concession agreement), Uganda Electricity Transmission Company Ltd (UETCL), which owns and operates the transmission infrastructure operating above 33kv and Uganda Electricity Distribution Company Ltd (UEDCL), which owns and operates the grid -connected electricity supply infrastructure at 33kv and below.

It is estimated that Uganda will have a peak demand of between 411 and 649 MW by 2010. The current level of about 317 MW is inadequate. In the short run, finance has been secured for two extra turbines of 40MW at Kiira power station. In the longer term, two sites with big electricity generation potential have been identified at Bujagali falls (250 MW) and Karuma falls (200 MW). Investment will be led by the private sector.

The viability of a private-sector led strategy will depend on the charging of commercially viable tariffs. Given the existing pattern of electricity use in Uganda, providing a subsidy to domestic consumers is unjustifiably inequitable. The Rural Electrification Fund will ‘buy down’ tariffs by availing cheaper money for investment. While it is important for business rates to come down, this can best be done by improvements in managerial efficiency and negotiation of favourable terms for the export of electricity to other countries. In addition, an awareness campaign for electricity saving will be implemented, as will energy audits which seek to reduce inefficient use of electricity. About 18% of the biggest 50 electricity consumers have participated in the audit. By 2006 it is hoped to get to 40%. The estimated impact of these measures is a reduction in load shedding from an average of 38 hours per customer each month to 25 hours by 2006.

Rural electrification

Recent survey evidence shows that there are significant returns to rural electrification in reducing poverty. The presence of electricity in a village increases households’ consumption by about 10%. Government’s strategy limits the costs by subsidising the investment rather than financing it outright. The benefits come mainly in the form of increased employment and agricultural marketing opportunities in rural areas, though the extended hours of work and the increased access to social services also offer benefits.

The Energy for Rural Transformation (ERT) program has been developed to widen the access of rural areas to energy supplies to 10% by 2012, through grid extension, independent power producers and solar or renewable energy. A rural electrification fund, supported by Government as well as a 5% levy from transmission bulk purchases from generation companies, provides subsidies to private suppliers, based on the criteria of:

  • Financial and economic soundness of project

  • Sound environmental impact statement

  • Positive social return

  • Equitable electricity distribution

The proportion of rural household using electricity for lighting rose from 1% in 1999/2000 to 3% in 2002/3. After an initial delay, the revised target is to increase the proportion of rural households with electricity to 10% by 2012.

Other energy sources

As noted above, the majority of households’ everyday energy needs are met by fuel wood and charcoal. Although electricity is crucial for economic transformation, the lives of most poor people are currently affected by their access to more traditional energy sources and the evidence suggests that this is deteriorating, as distances walked to collect fuel wood are increasing. It is likely that this is increasing the burden on women’s time, with negative effects on their economic and domestic activities as well as the quality of their lives. Cooperation is therefore needed between the forestry sub sector in the Environment and Natural Resources sector and the energy sub sector in the Economic Services sector to develop effective strategies to meet domestic energy needs.

Priority actions and prospects in energy

  • Generating capacity will be increased by attracting private investors

  • The rural electrification strategy will be implemented.

  • Government will monitor unit costs and socio-economic returns to rural electrification

  • MEMD will cooperate with other sectors in promoting technologies that allow the use of fuel wood to be reduced.

Mining

Uganda’s mineral endowment includes gold, tin, wolfram, cobalt, copper, iron and petroleum. It represents an important, though so far unquantified, national asset. The challenge is to exploit this asset in the way that will provide the best returns for Uganda. These returns include taxes and royalties on the resource and the earnings of artisanal miners from the sale of the resource, as well as employment opportunities and infrastructure. To this end, a framework is needed that encourages private exploration while ensuring that the country gets a good return.

In the 1950s, mining accounted for one-third of the country’s export earnings, and provided formal employment for over 15,000 people. The sector later declined until the 1990s. The value of declared mineral production rose from virtually nothing in 1990 to US $40.8 million in 2000 of which US $13.2 million consisted of industrial minerals and construction materials, and US $27.6 million of metallic minerals.

Currently, most mining is carried out by artisanal and small-scale miners whose activities represent an important source of direct and indirect income for a relatively large rural population. It is estimated that 50,000 to 100,000 people are involved in mining activities depending on the agricultural season. A sustainable management of minerals Project has been put in place with initial support from development partners. It aims at supporting geodata collection, dissemination of information and provision of extension services to key artisan miners.

The establishment of an enabling environment that is internationally competitive for attracting investment is a prerequisite for developing the mineral resources of any country. The interventions include the provision of adequate and modern geological information, modernizing the legal and regulatory framework for the mining sector, increasing capacity of government sectoral institutions, and adequate infrastructure.

To address these challenges, Government has formulated the Mineral Policy in 2001 and enacted the new Mining Law in May 2003. This allows benefits of mining to be share with local communities. A countrywide Mineral Sector Development Programme has bee developed, which will address technical and social issues of the sector including the improvement of conditions for small-scale mining, the development of Geological Infrastructure, capacity building and mining related environment management systems.

Mining royalties are set in the Mining Act, and can be waived in a particular case. Petroleum royalties are negotiated on a case-by-case basis at the time when prospecting licenses are issued. Also, mining companies pay a distinct rate of corporate income tax, which is levied on a sliding scale. The principle is to maximise benefits to Uganda—including both the income stream and the employment and spin-off benefits – while providing an attractive investment opportunity for the private sector.

Priority actions and future prospects in mining

Government will:

  • Put in place Mining Regulations to operationalize the new mining law.

  • Improve the information it provides to investors and artisanal miners, and establish an environmental and social impact management framework for mining activities.

Tourism

Tourism has been an area of high growth for the economy in recent years. The number of tourists visiting the country increased from 189,348 in 1999 to 254,000 in 2002 (this included a sharp increase in tourists from Africa, while tourists from Europe and America have grown more slowly). Foreign exchange earnings from the tourism industry rose from US$ 102 million in 1999 to $185million in 2002.. Standards have been agreed among the EAC countries. The tourism industry has used a number of cheap and simple methods to market Uganda as a high quality tourist destination, such as the use of the http://www.visituganda.com website and participation in trade fairs and public relations campaigns.

Direct poverty-reduction benefits of tourism come from employment generated (60% of employees are female), and the creation of markets for handicrafts and agricultural products. Partnerships between public and private sectors are critical to the development of the tourism sub-sector. The development of the sub-sector will also depend on improved infrastructure and security. Training (which maybe privately provided) is needed especially for tourism planning and development, business skills and marketing.

Priority actions for tourism

Government will:

  • Continue to support increased promotion of Uganda as a tourist destination abroad

  • Promote diversification of tourism products including agro-tourism, cultural routes, community tourism, etc

  • Support training of staff in the industry.

  • Support the provision of business development services for tourism, in cooperation with the private sector.

Science, Technology and Industrialisation

One of the key factors hindering Uganda’s competitiveness is the export of low value and unprocessed products. Efforts to add value to Uganda’s leading exports such as coffee, cotton, fish and livestock products through processing and other innovative marketing approaches such as branding, export of organic products and others hold the key to increased export earnings. Unfortunately, available processing technologies tend to be not most suited for Uganda’s production systems. Coffee roasting plants, milk powder processing factories and textile mills are beyond the reach of the average entrepreneur. Uganda’s production systems are based on small holdings. This demands that value addition facilities are based on cooperatives or farmer associations or based on a lead firm that provide appropriate scale of value addition facilities and applies economies of scale in product marketing.

Government will intensify efforts in promoting innovations from scientists so that they can transform science in appropriate technologies that can be applied in the production of products and services that compete in the global market. This demands putting in place a system of incentives that reward hard-working scientists that produce innovations that have practical relevance to Uganda’s situation. There is also need for institutional reforms and strengthening in the area of assessment and importation of technologies and their modification to suit the Uganda situation. This may involve providing facilities for the incubation of industries, piloting and prototyping technologies. Uganda’s Industrial Research Institute (UIRI) recently became a statutory body. However, it needs to be restructured and resourced to be able to play the new mandate. This applies to other institutions that support science and technology development and export promotion including the Uganda Council of Science and Technology (UNCST), Uganda Export Promotion Board (UEPB) and the Uganda National Bureau of Standards (UNBS).

Priorities for Action

Government will prioritise the following over the medium term:

  • Establish a system of incentives including Innovation Awards to scientists that generate innovations of promise in addressing Uganda’s development needs,

  • Strengthen the institutional capacities for incubation centres, technology prototypes and piloting for commercialisation building on the mandate of UIRI.

  • Implementing the industrialisation policy.

  • Provide a set of interventions, within the framework of the MTCS and the PMA, that promote enterprises based on scientific innovations and add value to Uganda’s exports. These will be transparent and, as discussed in Chapter 3, will not involve firm-specific incentives.

Access to Microfinance

Credit services for the poor have been found to make positive impact on household income. Some borrow for investment, leading to increase in income, and others for consumption smoothing in periods of hardship, thus maintaining their consumption levels without running down productive assets. To promote economic development, there is a need for both short-tem and long-term financing for both the formal and informal sectors. For the informal sector, the fast-expanding microfinance industry is very effective at financing investments with quick and high returns. Micro, Small and Medium Scale Enterprises (MSMEs) tend to be more attractive to MFIs because most of them have quick returns and owners can begin to pay back the loans in a relatively short time. The micro finance industry has hitherto been less effective at financing agricultural activities, whether for marketing or seasonal credit or loans for small agricultural investments. Government is therefore exploring an initiative with the International Fund for Agricultural Development (IFAD) and other development partners to promote better access to agricultural credit for smallholders, as well as promoting the expansion to rural areas of microfinance services through the Microfinance Outreach Plan.

As noted in Chapter 3, Government has undertaken legislative reform to enable advanced microfinance institutions to accept deposits within a prudential environment, and has also legislated for the establishment of a Credit Reference Bureau. Commercial law reform, should make it easier and quicker to resolve disputes between creditors and debtors. The development of Business Development Services should also improve the functioning of financial markets.

Microfinance has grown considerably in recent years in Uganda. A survey, by the Ministry of Finance, Planning and Economic Development (MFPED) in 2002, of over 1,000 Microfinance Institutions (MFIs) revealed that MFIs had just under 1 million members, and a total loan portfolio of Shs 86.5billion; the average loan size was Shs 262,533.The majority of loans are to non-agricultural enterprises in urban or peri-urban areas. Micro-finance institutions have been supported by a variety of donors and NGOs. Mapping of micro-finance institutions has revealed informal institutions even in areas not reached by formally constituted MFIs.

Microfinance institutions fill an important gap in the financial market. International experience shows that many good institutions need support for a sustained period of time before becoming self-sustaining, and that public resources devoted to microfinance have in some countries had higher returns in terms of poverty reduction than those devoted to other public interventions.

Government is seeking to encourage the microfinance institutions to move into less served areas and activities, in particular agriculture. Under the Microfinance Outreach Plan, Government will provide capacity building and matching grants that will provide incentives for service delivery in rural areas. The grants are designed to favour delivery of innovative products in relatively remote areas. The plan is intended to promote an average growth of 25% over the entire period on the client base, so that there should be 1.3 million clients and 9 million indirect beneficiaries by 2006, of which 60% should be in rural areas. It will be important to monitor the extent to which microfinance institutions are able to meet the needs of agriculture so that, where necessary, changes in strategies can be made to better serve borrowers in the sector.

As discussed in Chapter 3, Government will promote the development and application of innovative financial products for the private sector including leasing. The pension sector will be reformed to provide a basis for availing medium- and long-term financing to the private sector. In addition, the Development Finance Department (DFD) and Uganda Development Bank will be restructured to make them appropriate institutions for providing term finance to the private sector.

Priority actions for credit services

Government will:

  • Continue to implement the Microfinance Outreach Plan to ensure increased coverage – reaching out to more poor people in rural areas.

  • Develop and monitor mechanisms through which MFIs can meet the needs of small-scale agriculture.

  • Continue to review how the financial needs of medium-scale enterprises can be met, with the preferred approach being increased use of commercial banks to access development financing.

  • Support capacity building and business skills development, especially for MSMEs.

Micro, Small and Medium Scale Enterprises

Skills enhancement and business services

As discussed in Chapter 2, recent studies10 have shown that rural households whose main source of income was non-farm activities are better-off than households whose main source of income was agricultural production. For rural areas, where poverty is most prevalent, the main non-farm activities are MSMEs (micro-, small- and medium-scale enterprises) covering a variety of activities or sectors including general retail trade, agro-processing and other services including the food and drink industry (restaurants and bars), transportation and construction. These account for about 12 percent of employment in rural areas, but over 40 percent in urban areas. Therefore, growth of MSMEs is an important way of fighting poverty, both in rural and urban areas.

MSMEs are an important part of Uganda’s economy. They include about 800,000 formal and informal enterprises comprised of retailers, processors, repair shops, hoteliers and transporters. The latter are mainly informal, employing about 90 percent of the total non-farm economically active population estimated at about 1.5 million people.

Studies have shown that MSMEs are constrained by a number of factors including lack of entrepreneurial skills, lack of access to and cost of business development services, poor access to market information on product standards, and a poor regulatory environment. In order to improve the performance of MSMEs, they have to be coordinated to be able to access public services in a cost effective manner. Coordination and cooperation may take the form of farmer associations, cooperatives or clusters. In addition regional and national entities could be formed to enhance coordination for specific sectors or the entire SME sub-sector.

In marketing, the MSMEs constitute an important part of the supply chain as input suppliers to the medium and large firms which in turn serve final markets both domestically and internationally. A cluster strategy has been developed to enhance the growth of this supply chain. This industry cluster approach visualizes the growth of MSMEs through increased research and development facilities, provided by government, allowing them to be more independent of government support and in a better position to attract funding from the financial sector. The growth of clusters will also allow Uganda to develop a workforce with diverse areas of expertise directly enhancing international competitiveness and income levels.

The various efforts of government, development partners and private sector need to be coordinated and monitored to reduce duplication and ensure value for money. Most of the existing programmes are concentrated around Kampala. Thus many upcountry MSMEs lack the services that are most critical to their ability to grow, make profits and compete. Under the MTCS framework, the MTCS Secretariat will play this coordination and monitoring role.

Government is also considering the establishment of a funding mechanism whereby the provision of business services by the private sector would be subsidised. This reflects the conviction that inadequate entrepreneurial and managerial skills represent an important constraint on the private sector.

Taxation, registration and licensing of MSMEs

Growth and expansion of the MSMEs will depend on the economic environment created by the Government, both at central and local level. It is the role of Government to ensure that businesses operate in an environment conducive for growth, with subsequent benefits of increased employment. A recent study on rural taxation11 showed that the current taxation system is not conducive for small rural and urban business to prosper. Local governments’ concern with revenue generation leads to negative effects on the growth of MSMEs. Local taxes on small businesses are highly regressive, cutting into profit margins by as much as 50% for the smallest businesses. The study further found that revenue collected from these businesses is not used to provide services relevant to their growth. Therefore, local governments need to streamline local taxation in a manner that encourages rather than curtail growth of MSMEs. Such measures could include reviewing the rates and levels of taxes levied on existing SMEs or even offering tax holidays, of say a year, for start-up businesses. Other measures could include taxing only businesses above a certain threshold of annual income.

Similarly, the regulatory environment including business registration and licensing requirements are critical to the growth of MSMEs. A pilot project in Entebbe Municipality reduced the time spent by businesses in obtaining licenses by 90%, reduced compliance costs by 75% and increased revenue collection by 40%.

Such costs are not always taken into account when creating new regulations. In order to ensure that firms are not excessively burdened, Government is committed to ensuring that principles of regulatory best practice are adopted. Regulatory best practice essentially means having in place:

  • Sensible, practical laws and policies that support enterprise growth and competitiveness while at the same time protecting essential public interests:

  • A systematic process for analysing and consulting on new policies and regulatory proposals that have significant economic, social or environmental consequences, before they are introduced..

  • A system to monitor the legal framework to ensure that it is delivering increasingly positive returns to business, and that laws once passed are continuing to work well.

Priority actions for MSMEs

To boost growth of MSMEs, Government will:

  • Continue to enhance linkages and information flow between the government and MSMES, particularly with regards to new trading regulations and any changes to international standard requirements.

  • Develop a systematic approach to this sub-sector, to avoid an excessive proliferation of uncoordinated initiatives.

  • Work with local governments to streamline taxation systems of MSMEs in both rural and urban areas.

  • Strengthen the monitoring and coordination mechanism for the MSMEs through the MTCS Secretariat.

  • Improve the investment climate by creating a conducive regulatory framework, enhancing the efficiency of the registration and trade related services.

  • Provide entrepreneurial skills and business development services in partnership with the private sector.

  • Create an enabling environment for MSMES to develope.

Environment and Natural Resource Use and Management

Uganda’s economic growth and its sustainability will depend on how well the environment and natural resources are managed and used. However, Uganda’s recent rapid economic growth has put significant stress on its ENR base resulting in environmental degradation. Consequently the quality and quantity of resources on which sustainable economic growth and poverty reduction depends, is declining.

Recent estimates of the cost of natural resource degradation in Uganda suggest that the cost of natural resource degradation is as high as 17% of gross national income per year, of which 6% consists of forest degradation and 11% soil degradation12. Although the estimate is highly approximate13, it is confirmed by However, the finding receives dramatic confirmation from households’ own experience. In UPPAP 2 communities in all 12 districts reported that the distance travelled to collect fuel wood was increasing. Declining soil fertility was reported in 11 out of 12 districts14. The average age of the tree stock and the distance travelled to fetch water is rising, suggesting that the existing use of forests is unsustainable and that the negative consequences are being felt by poor people, especially women. Water resources need to be well managed and protected from degradation for obvious reasons, including water for direct animal and human use, as well as being a habitat for capture fisheries and aquaculture. The land rights of the poor need strengthening and protecting.

Many of the resources managed by the ENR Sector, such as wildlife, forest reserves, natural water bodies, and wetlands, are held by Government in trust for the people of Uganda under article 237 of the Constitution. It is of particular importance that Government honours this trust and resists any interference by vested interests. Examples of actions in this area include: improved wetlands management, control of illegal timber harvesting and trade, control on the use of illegal fishing gear and enforcement of environmental impact assessment regulations. A more harmonised approach to managing this responsibility is also required.

The overall guiding framework for environmental management is the National Environment Management Policy of 1994 and the National Environment Statute of 1995. The NES (1995) established the National Environment Management Authority to monitor, supervise and enforce regulations, standards and guidelines and to coordinate all matters on the environment in Uganda. The main role of NEMA is to ensure that all government plans, policies and programs address relevant environmental concerns and promote sustainable development and prudent use of natural resources. Capacity-building in local governments and sectors levels is needed, because the implementation of environmental management rests with them. Also, the National Environment Statute (1995) and the subsequent laws developed to safeguard the environment are only framework laws which need regulations, standards and guidelines to operationalise them.

The benefits of a sector-wide approach to planning have now become evident throughout Government. However, this approach is yet to take root in the ENR sector.

Priority actions for Environmental Natural Resource Use and Management

Government will:

  • Develop a strategy for the ENR sector.

  • Ensure adequate funding for the recurrent costs of NEMA as project support is phased out. The costing will be based on the needs of NEMA in the context of the environmental sector rather than on previous expenditure levels.

  • Build capacity for environmental management at sectoral and district level.

  • Develop regulations to implement the National Environment Statute of 1995.

  • Define boundaries of the ENR sector and work towards closer collaboration, a single investment plan, and a single budget vote planned and allocated by the ENR SWG. In the medium term the administrative set-up of ENR, now divided over several Ministries, will be brought in line with the sector make-up.

Water Resources Management

Water as a resource is Uganda’s backbone for socio-economic development. At first site Uganda seem to be endowed with freshwater resources but this vary in time and space. A number of strategies including legal and policy framework have been developed to address various water resources demands, development, conservation and management without jeopardizing the needs of the future generation. The legal and institutional framework provide enabling environment upon which support upgraded planning and prioritization capacities of decision makers at all levels. As the vast majority of the Ugandan population is dependent on land and water resources for their livelihoods through rudimentary land use practices that are detrimental to the general environment, the water quantity, quality and their sources stand threatened (MWLE, 2003d). In flood and drought prone areas it can impact directly on household income of some of the poorest and most vulnerable people. It also enables more rational management of key natural resources, thus positively impacting on the quality of life and economic prospects of future generations.

Through water Resource protection and effective water shed management, water resources management ensures availability in quantity of the resource and minimization of source pollution so that the rural community gets water for domestic use at low cost. Decentralization of Water Resources Management (WRM) activities aims to improve efficiency and effectiveness, and foster integration of WRM with other activities at all levels of service provision. The expected outputs of the WRM decentralization programme include the sensitized local governments and all stakeholders on WRM issues with increased involvement of local government structures in WRM (MWLE, 2003f). Through regular and consistent monitoring of the nation’s water resources, data generated has been used in the planning and design of water related projects.

Priority ActionsWater Resource Management

Government will:

  • Finalise the WRM reform study and develop an action plan for the short, medium and long term strategy for the Water Resources Management.

Land

In 1998, Uganda passed a Land Act and since then has been implementing a Land Sector Reform programme. The overall guiding framework of this sub-sector is contained in the Land Sector Strategic Plan (2001-2010). The focus of the plan is the protection of land rights of the poor, improved access to land and tenure security. Central government land institutions are comprised of Physical Planning, Lands and Surveys, Land Registration and Valuation and Uganda Land Commission.

Findings from the Village Census (2001) reveal that the size of land held by the poor is diminishing, land is increasingly concentrated in the hands of the few and that the middle and poorest categories have seen landownership decrease significantly since 1993. Recent evidence shows that a more equal distribution of land would be likely to increase productivity, because small farms are more productive per unit of land than larger farms. The land reform process has the following potential benefits:

  • Improved security for existing tenants.

  • Greater freedom of action for existing occupants. People who ‘borrow’ land often have limited use rights15

  • Reduction of disputes. Land disputes are a serious drain on the resources of poor households. So far, the evidence suggests that disputes have increased in recent years16, but where systematic titling has been applied disputes are generally reduced (see Annex Table A 4.5).

  • Increased ability to use land as collateral

  • Greater transparency of titling process.17

  • Improved availability of land to purchase. Investors report some difficulty acquiring land; this relates to difficulties in the functioning of the land registry18.

  • Improved balance of rights within the household (strengthened rights for women in particular), with potentially powerful impacts on incentives and productivity19. Orphans would be able to inherit land formally from their deceased parents.

  • Enhanced opportunities for orphans to inherit land formally from their deceased parents.

  • More equal distribution, with equity and efficiency benefits. In UPPAP2 (2001/02), shortage of land was the second most frequently cited cause of poverty after health.

The distribution of benefits perceived by households from one particular aspect of land reform, pilot projects in systematic titling, are shown in Table 4.6.

Priority actions for the land subsector

  • Policy and legal reform. In addition to the legal reforms already achieved, there is a strong case for strengthening women’s land rights and for enhancing districts’ ability to raise land taxes.

  • A Land use policy is being finalised, which will link land reform to poverty reduction strategies, covering the strengthening of women’s rights, improved access to land for the poor, and the framework for urban and peri-urban land rights and management.

  • Land information: Currently the state of information about land is unsatisfactory. Important improvements include:

    • A cadastral update (important for revenue raising),

    • Improved facilitation of the land registry

    • A geodetic network, and the systematic production of certified general and thematic maps.

    • Systematic demarcation. Under this approach, titling is undertaken for a given area of land at a community level, rather than by a land office on receipts of individual applications. This ensures that different local stakeholders are able to participate in the process and reduces the risks of rural households being effectively expropriated.

    • Government land inventory

    • Public information campaigns

    • Operation of the Land Fund. Immediate priorities are the rehabilitation of the environment through resettlement of persons, the purchase and redistribution of land to the inhabitants of Kibaale district, facilitating land readjustment in mailo areas to enhance productivity, and piloting loans on small scale to identify sustainable approaches20. Potentially, a Land Fund can assist with resettlement and could provide a powerful means of reducing the poverty of the landless. However, costs and transparency are issues.

A Poverty and Social Impact Assessment is to be undertaken to establish more clearly the magnitude of the benefits, so that expenditure needs can be assessed and prioritised.

Housing

The national housing stock is estimated at 4.2 million units of which less than 20% are of permanent construction materials. About 50% are semi permanent and the remaining 30% are grass-thatched huts. In urban areas, over 60% of residents in urban areas stay in slums, characterised by poor sanitation, high disease incidence and frequent epidemics. The increase in the number of IDPs further aggravates the housing problem.

The overwhelming majority of housing in Uganda is provided by the private sector (including individual households) and it would be unaffordable to change this. National Housing and Construction Corporation, which was a Government parastatal charged with the function of provision of housing, is now in the advanced stages of privatisation. Nor can Government afford to extend its commitments further by extensive subsidy of private housing.

Hence the main task of public policy will be to make the housing market work better. Regulation is justified to ensure minimum standards and prevent the negative externalities associated with extreme overcrowding and lack of sanitation. However, if standards were made excessively high the poor would not be able to afford legally acceptable housing and would therefore be forced back into illegal slums.

The malfunctioning of the urban land market impedes the functioning of the housing markets. People who do not have well-defined legal title to their properties are discouraged from investing in them. The improvement of living conditions for the urban poor is therefore one of the potential benefits of an effective land sector reform.

Priority actions for Housing

Government will:

  • Complete divestiture of National Housing and Construction Corporation

  • Enact the building control bill during 2004

  • Establish the need for local public infrastructure in low-income urban areas in order to improve the lives of slum dwellers

  • Capitalise and privatise Housing Finance Company of Uganda

Forestry

Forests provide an annual economic value $360m (6% GDP) of which only $112m is captured in the official statistics. The sub-sector employs 100,000 people directly and 750,000 subsistence workers. Forests cover 24% of the total land area, of which 70% is on private and customary land. Forests on private land are mainly in the form of scattered trees, forest patches and agro-forestry crops. Trees (through fuel wood and charcoal) provide 90% of energy demands (18m tonnes per annum) and are expected still to be contributing 75% in 2015. Forests also provide a number of ecological services: biodiversity, climate regulation, soil and water conservation, and nutrient recycling. These are important for agricultural performance and people’s livelihoods.

Recent work21 has shed light on the role that forests play in the lives of the poor. Evidence from Masindi shows that the people living near forests raise as much as 18% of their incomes from the forest. Richer households raise about as much in absolute terms as poorer households, so that in proportional terms poorer households are much more dependent on the forests than richer households.

It is becoming increasingly clear that Uganda’s forests are being seriously degraded. Encroachment due to open access and unclear land ownership, conversion for other uses, unsustainable harvesting, urbanisation, industrialisation and institutional failure are to blame. For example, the average distance travelled to collect firewood has risen markedly from 0.06km in 1992 to 0.73km in 200022. Also, the average age of the tree stock is increasing, with signs of an acute shortage in five years’ time, when prices are expected to rise and movement into natural forests is feared.

There is great potential for increases in wage employment and production for export. Forest products like firewood, timber and poles form important inputs into other economic industries such as construction, tobacco, and lime and brick making. Non-timber and other forest products also reduce livelihood vulnerabilities. Hence Government is encouraging the private sector to invest in forests with a view to increasing the resource base and increasing access.

While increasing wage employment, it is also desirable to reduce the subsistence burden of fetching firewood, which falls heavily on adult women in rural areas. This requires a strengthening of the management of community forest institutions.

Under the National Forest Plan (2002), which states the “need to capitalise on economic, social and environmental opportunities without undermining the resource base”, Government has created a semi-autonomous National Forestry Authority (NFA), to be funded by revenues from royalties and sales of forest produce from the Central Forest Reserves (CFR), which comprise 30% of all forests in Uganda, for which NFA will be responsible.

The NFP also provides for a decentralisation of responsibilities to Districts for the remaining 70% of Uganda’s forests and woodlands (comprising of Local Forest Reserves (LFR) and private and customary forests). This will be carried out through the District Forestry Service (DFS).

The DFS will play a fundamental role in the promotion, registration and advisory of formal Community Forests. Communal Land Associated, which are provided for in the Land Act of 1998, will be able to register ownership of a forest. Certificate of Customary Ownership, as its members can better demonstrate customary ownership of the land than other associations.

Through FID, MWLE will be responsible for additional policy formulation, development of national guidelines and training manuals, publicity and advocacy, and for monitoring the implementation of the activities carried out by the DFS. During the next three years, there is a need to allocate and transfer resources to the district level to support the DFS to fulfil its mandate.

Priority actions for Forestry

Government will:

  • Enhance implementation of the National Forest Plan

  • Promote private sector investment in privately owned forests, through provision of information and technical advice on the management of forests; providing permits to grow trees in central forests reserves with secure land and tree tenure; reviewing tax and other disincentives; through the continued operation of the Saw log Grant Scheme and establishing a Tree Fund in accordance with the National Forestry and Tree Planting Act.

  • Promote the establishment of community woodlots through the launch of the DFS for extension and advisory services to private and community members interested in tree planting, and for promotion of tree planting.

  • Further develop the National Tree Seed Centre; establish a framework for decentralised seed production. The establishment of a National Tree Fund, may help communities access necessary resources.

  • Investigate the possibility of benefiting from commercial markets for ecological services such as carbon trading in global markets, in line with the Kyoto Protocol.

Fisheries

Over the last decade, fish have become one of Uganda’s major export commodities. Recent estimates indicate that in the FY2001/2002 capture fisheries, including marketing, had an annual economic value of $301m (whereas currently $130m is attributed to fish in the national accounts), equivalent to around 6% of GDP. Of these earnings, about 70% come from sales of fish at the shore whereas the remaining 30% constitute value addition by traders, transporters and processors.

Fish exports have grown from US $1.4 million in 1990 to US$87.5 million in 2002.23 Current projections suggest that fish export earnings will reach US $90 million during 2003/4.24. The sub-sector is estimated to employ 300,000 people, with 1.2m people dependent on fisheries as their main source of household income. Fish also contributes to the nation’s food security through providing 17 million people annually with a high quality sources of dietary protein.

Whilst the contribution of fisheries to the economy is significant, illegal and harmful fishing and trading practices threaten the sustainability of the resource base. These illegalities have largely resulted from poor management. Past management was centrally driven and did not adequately include local people in decision-making; the services provided by extension officers were not positively appreciated by fishing communities. Fish landing sites remain poorly served by infrastructure (including electricity) and public services.

The fisheries sub sector also faces some social problems; for instance, the circumstances of fishermen often expose them to a high risk of HIV infection, with devastating consequences for some fishing communities, and the theft of fish nets represents a constraint on investment25.

Government, through the Department of Fisheries Resources (DFR), is addressing these concerns through the National Fisheries Policy, (2003), which promotes a participatory approach involving fisheries stakeholders working with government to manage fisheries resources. The Policy will be implemented through the 2003 draft Fisheries Sector Strategic Plan (FSSP).

A key feature of the new fisheries co-management approach is the formation of legally empowered community Beach Management Units (BMUs) at fish landing sites for fisheries planning and management. BMUs explicitly involve women, young people and the poor in decision-making structures and processes to ensure their interests are included in the management and sustainable use of the resources, thereby reducing the vulnerability of poorer stakeholders within fisheries communities. BMUs will work closely with government in enforcing regulations to reduce harmful and illegal fisheries activities on water and land. In addition, BMUs form the foundation of lake management organisations, which have a broader remit than fisheries alone, taking a more integrated approach to managing lakes.

The Policy requires the establishment of controlled access to lake fisheries. The new participatory approach to enabling access will ensure that poverty-focused licensing promotes access for women and controls the number of boat vessel licenses for sustainable management.

The FSSP details a major Monitoring Control and Surveillance (MCS) programme on water and land to reduce illegal fishing and fish trading practices. The fisheries sector is also striving to improve the quality of fish for domestic consumption and export, reducing losses and increasing value and incomes. This is being done through the improvement of handling, processing and marketing facilities at fish landing sites and throughout the marketing chain.

Another major component of the FSSP is the collection of information, vital for improved planning and management within the sector. This is beginning to be implemented through BMUs, transferring information to districts, lake wide organizations and central government.

Cabinet has approved the formation of the Uganda Fisheries Authority (UFA). The rationale is that it will provide a more autonomous and cost-effective institution capable of delivering rapid responses to the changing needs in accordance with its core functions to promote, support, guide and monitor the sector. The UFA provides not only the “competent authority” needed to improve and expand fish exports, but also the umbrella framework linked to international fisheries organisations, domestic lake wide management organisations and community BMUs. This is modelled on other parastatals serving specific production sectors such as UCDA.

Priority actions for fisheries

Government will focus on the following priorities:

  • Implementation of the FSSP

  • Establishment and capacity-building of community institutions to manage beaches and lakes

  • Monitoring and control of illegal practices

  • Development of quality guarantees for fish exports

  • Development of a central information system

  • Stock enhancement for dams and small lakes

  • Evaluation of options for fish technologies.

  • Protection of children by BMUs against exploitation and abuse

  • Management and control of HIV/AIDS among fishing communities

Wetlands

Wetlands account for 13% of Uganda’s total land surface area and play an important role in the socio-economic development of the country. Wetlands provide a range of benefits including crops (yams, rice, papyrus), fish, inputs into domestic production (including roofing materials, livestock fodder and raw materials for crafts) and services (e.g, water storage, purification, flood control). Wetlands are thought to employ about 320,000 workers directly and provide a subsistence employment for over 2.4m people.

Various widely divergent estimates have been made of the economic value of wetlands, depending on the methods used and the benefits and costs included. However, many figures tend towards an annual direct production value of $ 300-600 per hectare, whereas high estimates, including services like purification and carbon sequestering, may go as high as $ 10,000 per ha However, there is a shortage of work comparing the economic value of different uses of the wetlands.

Two aspects typical for wetlands require special management measures: firstly, wetlands are often a common property resource, ‘owned’ by a community rather than by individuals; secondly, the impacts of wetland degradation are carried upstream and downstream over hundreds of kilometres, well beyond the view and understanding of those who are causing the degradation.

A significant amount of encroachment on wetlands has occurred. NEMA estimates that 64% of the total seasonal wetlands in Iganga and 68% in Pallisa have been reclaimed for rice cultivation.26 In Kampala, many sections of wetlands have been converted to industrial use or have gradually been taken over by semi-slum residential housing and associated uses such as cultivation, waste disposal, etc.27 Nationally, it is estimated that 2,376 sq. km of Uganda’s wetland areas have been drained28

Government has acted to ensure that wetlands are protected, as reflected by the endorsement of a Wetland Policy in 1995, the inclusion of extensive wetland legislation and regulations under the National Environment Statute, and the adoption of a Wetland Sector Strategic Plan and part of its funding under PAF.

The Wetlands Sector Strategic Plan (2001-2010) aims to encourage a sustainable use of the resource, focusing on benefits to the poor with collaborative community level participation. Incomes derived from wetlands have the potential to be increased. Focus should be on improving wetlands product quality and pricing and efforts to reach export markets. Alternatives to wetlands resources and better management practices also need to be promoted to reduce on the costs of degradation. There is a need to provide incentives for districts to discharge their wetland management responsibilities as stipulated in the Local Government Act 1997. In this regard, the sub-sector will strengthen linkages with PMA and NAADS. There is need to develop, strengthen and operationalise comprehensive wetlands legislation and enforcement structures to ensure sustainability and resolve ownership issues. The sub-sector will also promote increased community participation through the development and implementation of community wetland management plans as a means to empower communities. to manage their wetland resources and identify opportunities for improving livelihoods. The communities adjacent to the wetlands will implement this with technical support from the local governments and the Wetland Inspection Division.

It has been suggested that water users should pay for some of the benefits of water purification that accrue from the wetlands. It might be possible to allocate some of the proceeds to communities to provide an incentive for them to manage the wetlands.

Priority actions for wetlands

Government will:

  • Assess financial, economic and environmental relative profitability of different wetland uses

  • Further development and dissemination of guidelines for wise use of wetland resources

  • Improve community skills and diversification of wetland products in order to add value to wetland products

  • Enforce appropriate policies, laws, procedures and regulations to curtail degradation of wetland resources

  • Assess wetland resources to determine resource availability and trends

  • Support community initiates that promote wise use of wetlands

Climate

Weather forecasts

Meteorology provides services to a wide range of government and non-government stakeholders. Participatory data showed that unexpected weather developments impact negatively on livelihoods of the poor and so an effective service that benefits small-scale farmers could help reduce agricultural and other losses. However, the infrastructure of the Department of Meteorology has deteriorated over time. The sub-sector needs to improve the accuracy and spatial coverage of forecasts and advisories. This requires investigation of the cost and feasibility of transmitting such data to poor farmers at the village level. Meeting this challenge will entail strengthening links with PMA and extension services, increasing the coverage of the observation and dissemination network to all districts, and replacing obsolete equipment. For example, the number of rain-gauges now stands at 300, down from 1,040 in the 1960s. There is a need to prepare Uganda to meet the International Standards Organisation (ISO 9000) Certification by 2006 in accordance with International Civil Aviation Organisation requirements.

International environmental goods

Uganda is a signatory to the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol. Uganda has already benefited from the sale of carbon credits at the Nyagak mini-hydro project ($4.0 million) under the Clean Development Mechanism (CDM) of the Kyoto protocol, which compensates countries which take actions tending to reduce carbon emissions. While opportunities exist under the CDM, Uganda must move quickly to establish a framework (institutional and legal) to attract CDM investments especially where it has a comparative advantage in the region. Potential areas for CDM include renewable energy sources (hydro, solar, thermal, biomass, and waste management).

Research issues in meteorology

Climate change imposes a number of challenges for Ugandan agriculture. Erratic, unpredictable and poor rains have been observed in the last few years. Current temperatures and rainfall permit growing of coffee in most parts of Uganda. However, an increase of 2 degrees centigrade could have a significant impact on coffee-growing areas and therefore on the whole economy (see Annex Chart A 4.1). Other crops are also likely to be sensitive to temperature increases. Warm temperatures will also lead to an increase in pests and the emergence of new ones.

The Meteorology Department will collaborate with other parts of Government to ensure that these factors are considered in planning. There are two main implications. First, the identification of economic activities needs to take account of predicted climate change. Secondly, and even more important, there may be actions that can be taken to influence local climatic conditions, such as reafforestation and the preservation of wetlands. These effects need to be considered in the use of natural resources.

Priority actions for climate

Government will:

  • Strengthen data collection capacity to ensure adequacy and timeliness of data to generate weather and climate information, with particular focus on reaching the rural poor.

  • Carry out an in-depth assessment of user needs including the rural poor and develop, generate and disseminate user-specific products. The analysis should establish effective dissemination, utilisation and monitoring and evaluation mechanisms,

  • Strengthen human capacity, including providers and users of the service.

  • Investigate and establish the appropriate institutions to take advantage of opportunities under the CDM.

Wildlife

Wildlife based tourism has an annual economic value of $163 million, employing around 70,000 people directly. The parks also provide local climatic and water resource benefits, which have not been quantified. Uganda has 10 national parks, 12 wildlife reserves and 5 community wildlife areas with unique wildlife species such as the mountain gorilla. Government has allocated management of these facilities to semi-autonomous organisations such as Uganda Wildlife Authority (UWA) and Uganda Wildlife Education Centre (UWEC). UWA is funded out of park fees as well as project funds. Local Governments are also empowered by the Uganda Wildlife Act to pass user rights and bylaws to manage wildlife resources.

Government’s policy objectives in this sub sector include the preservation of wildlife, in particular for species where Uganda has a large share of the world’s remaining population, generating income, and ensuring that the communities near the parks share the benefits and are made aware about wildlife conservation. Illegal small-scale trade in wildlife and its products also requires investigation.

The Uganda Wildlife Act provides for 20% of all entry fee collections to flow directly to the relevant community. A total of US $ 516,288 has been disbursed to the communities neighbouring protected areas in the last four years. Funds are allocated by the communities, and have been used to rehabilitate roads, clinics, schools and water sources. Examples such as Buhoma camp site, Magombe swamp and Lake Mburo sport hunting show the potential for wildlife to contribute towards poverty eradication.

Government is committed to local consultation before taking decisions on the use of land for conserving wildlife. In particular, pastoralists’ needs for grazing lands will be taken into account in decisions to create and manage protected areas. Greater community awareness about the value of wildlife to the community will make it easier for livestock and wildlife to coexist.

Priority actions for wildlife

  • The Wildlife Division will revise the Wildlife policy and legislation

  • Inspection and coordination will continue under the Wildlife Division for quality assurance and compliance in management of wildlife resources.

  • UWEC will continue to carry out conservation awareness programmes (with healthy wild animal exhibits) and provide quarantine services under the CITES trade arrangement.

  • With community and district-level cooperation, all Protected Area (PA) boundaries will be marked and trees will be planted along forested ones. Dialogue with communities will be strengthened to minimise encroachment.

  • Offices, accommodation and outposts will be constructed in selected PAs.

  • Revenue will be shared with local communities in those PAs where the practice has not yet taken off. A regular (at least annual) disbursement will be institutionalised to ensure that communities benefit from the 20% of entry fees to which they are entitled. The funds will be used to implement community designed and approved projects to benefit the communities immediately neighbouring the PAs.

  • MOUs will be developed with enterprises, communities and local governments to manage wildlife and benefit from wildlife related enterprises, including community tourism.

  • UWA will work with districts in the management of problem animals and vermin to reduce crop losses for the community.

  • Management plans will be developed, and bylaws introduced where appropriate, to protect critical wildlife habitats outside PAs.

Improving the functioning of the labour market and the productivity of workers

Enhancing the supply of high-quality labour

In view of the high growth in Uganda’s labour force (discussed in Chapter 2), characterised by a low educational profile, there is a need to intensify efforts to increase the supply of a more educated workforce into the labour market. Such a workforce will have higher productivity and hence earn higher wages. In this respect, the supply of skilled and semiskilled manpower by both public and private education and training institutions will be accorded a high priority for increasing the country’s competitiveness.

Public technical and vocational training institutions will be adequately financed and equipped to deliver the required manpower for enhancing production and competitiveness. While public institutions will most likely be the major providers of education and skills training, it is envisaged that private institutions will complement Government efforts in creating new skills and developing training schemes in emerging technological areas. The National Council for Higher Education will advise both public and private universities and tertiary institutions on the type of skills needed to enhance production, competitiveness and subsequently incomes. At the same time, the private sector will need to be encouraged to establish collective agreements that are performance- related to enable employers in the private sector link wages to productivity.

To improve the functioning of the labour market, the Labour Market Information System and Network to be established will not only serve the traditional role of providing labour related information to employers and workers and school leavers but will focus mainly on strengthening the data base on labour statistics within the Uganda Bureau of Statistics. This system will collect and provide information about the supply of skilled manpower, employment occupation, the demand for selected professional and technical categories such as engineering, health and teaching, training agencies and training programs available. Government also plans to strengthen the provision of information by MGLSD about labour market opportunities available abroad.

Priority actions for enhancing the supply of labour

  • Priorities for the educational system are presented in Chapter 7.

  • Government will strengthen labour market information.

Wages and working conditions

In most cases, people earn more in wage employment than they would earn in self-employment. Poverty is far less prevalent among wage-earners (whether in private or public sectors) than among people in other sectors. Graduates from tertiary and upper secondary education earn much more if they are in wage-employment than if they are in self-employment. However, open competition among employers can only work well if workers are well informed and adequately mobile. PPA2 found that some estate workers were very immobile, being afraid to move because they did not have G-Tax tickets and having very limited horizons. In other cases, workers are recruited in distant regions by recruitment agents and sometimes find the experience of work on the estates less rewarding than they expect.

Government will continue to review the labour legislation, where necessary, to ensure that provisions in the laws are consistent with international legal instruments, other economic policies and changes in the labour market.

International evidence shows that blanket minimum wages tend to reduce employment opportunities. However, there is a case for some regulation of wages in sectors where employers have great market power, in which case the effects of a minimum wage on employment may not be harmful. Government, in consultation with the private sector will consider whether some regulation of wages or working conditions may be appropriate in certain sectors. It must be emphasised, however, that the most urgent task is to promote employment growth.

The protection of workers’ safety is important. Under the Workers’ Compensation Act, 2000, businesses are required to purchase compulsory no-fault insurance, covering any accident suffered by workers at the workplace or on the way to the workplace (an unusually generous provision by international standards. Partly because traffic accidents are included, the burden on employers appears to be heavy; estimates vary from 3 to 5.5% of the wage bill on average. Given that formal sector employment is growing more slowly than is desirable, this burden is a serious concern. Moreover, it dos not create any incentive for firms to make their operations safer. A system of voluntary insurance, combined with a system of easily accessible tribunals for adjudication of responsibility for accidents, has been proposed, based on recent successful experience in South Africa.

Another compulsory burden on employment is imposed by the imposition of a 15% pension contribution on formal sector employees (with a much lower threshold than income tax). This burden is not translated into commensurate benefits for employees, because the pensions sector is not efficient. The pension reforms discussed in Chapter 3 should enable the benefits to employees to increase while reducing employers’ costs.

Priority actions for wages and working conditions

Government will:

  • Consult with the private sector on the revision of minimum wages for estate workers

  • Consider revision of the Workers Compensation Act, to provide a more effective system with lower burdens on employers.

  • Consider the role of labour inspections in the protection of workers’ welfare.

Public sector employment

In the long run, Government should cease to be the main provider of formal employment, which should be mainly generated by the private sector. Hence Government will not undertake activities mainly to generate employment. However, where an activity is being undertaken because it provides valuable public goods, Government will explore the possibilities of using labour-intensive methods in areas of high visible underemployment. This has been done successfully for some road projects.

Priority actions for Public Sector Employment

  • Government will use labour-intensive techniques where technically feasible and economically cost-effective. Knowledge of such techniques will be disseminated by the Labour Department in MGLSD.

  • Government will promote community participation in infrastructure development and maintenance.

Increasing Competitiveness

The fact that Uganda is landlocked and has a small domestic market demands that she develops an export oriented economic development strategy based on high value low volume commodities and services. This can only be achieved if the country is able to exploit Uganda’s comparative advantage and promote enterprise competitiveness.

Uganda’s geographical position, the huge water masses she posses and big market potential of border countries provide her with the potential to be a regional hub in the Great Lakes region. Improvements in infrastructure and utilities such as railway, water transport and inland port facilities could help exploit this position putting Uganda ahead of her neighbours (DRC and Sudan). In addition, Uganda’s electricity generation potential (2,000 MW possible on river Nile alone), plus potential in education, health and tourism services could be exploited by a good mix of technological application and entrepreneurship. For these reasons, Uganda has excellent competitive potential, but much remains to be done to realise this potential.

For Uganda’s products to be competitive in regional and international markets, they must be produced in the most efficient and effective manner. For most of its exports, Uganda is a price taker, meaning that the volume of its exports is not large enough to influence the price in the international market. For Uganda to be competitive, it needs to work on the factors that influence the cost of production and transportation. Some of these factors have to do with the businesses themselves and others have to do with the public sector. Companies have to work hard to cut costs of production linked to the structural nature of their businesses; these vary from one company to another. However, in most surveys on business operations in Uganda, the major constraints are largely public in nature, including infrastructural (roads, rail, air), utilities (electricity, water), legislative, and administrative (corruption, taxation) constraints. (See annex tables A 4.1 and A 4.2).

Supply constraints for businesses have to be addressed in a holistic manner and for the entire private sector rather than for selected enterprises, which would undermine competition and discourage foreign direct investment. Smart subsidies can be offered to businesses in a way that is accessible to all firms on an equitable basis, such as establishment of industrial parks with common utility supplies (water, electricity and telecommunications) and infrastructure (roads, sewerage line, waste disposal facilities), thus reducing the costs that individual businesses would incur in accessing them. International cooperation to strengthen transport networks, such as better links to Mombasa and Dar es Salaam, ould also improve competitiveness. Some of these investments can be handled under public-private partnership involving a group of countries. The NEPAD initiative provides a good framework for this cooperation. Regional integration under the EAC is a step in the right direction and will be used as a framework for investment, while ensuring that the expenditures remain within Government’s overall expenditure programme.

On the demand side, while Uganda’s export volume may not influence prices received by exporters, the public sector still has a role to play including negotiating the different trading arrangements to reduce trade barriers, both tariff (such as tariff escalation on finished goods) and non-tariff (such as the stringent sanitary and phytosanitary measures). This calls for capacity building in trade negotiations within the relevant institutions such as the Ministry of Tourism, Trade and Industry (MTTI). Such capacity is currently limited and needs developing. However, the approach to trade negotiation may sometimes bring faster results when done as a trading block rather than as individual small countries. Therefore, government will, where possible negotiate for better trade arrangements under the East African Customs Union (EACU) or the Common Market for Eastern and Southern Africa (COMESA).

Based on the above discussions government will focus on the following actions:

  • Strengthen institutions that fight corruption

  • Finalise commercial contract legislation

  • Establish industrial parks to minimise fixed costs, especially for start-up enterprises

  • Invest in capacity building in trade negotiations and market intelligence in MTTI

  • Negotiate better trade terms as a part of a trading block rather than on a bilateral basis

Government Efforts to Increase Competitiveness

In 2000 the government formulated the MTCS which aims to create a favourable environment for the private sector to grow, become profitable and compete both locally and abroad. The seven priority areas of the MTCS are: Trade, Investment and Export Promotion; Financial Sector Reform; Infrastructure and Utilities; Enabling Environment for Micro, Small and Medium Enterprises (MSMEs); Commercial Justice; Sector Specific issues; and Creating an Enabling Environment The MTCS incorporates initiatives included under the Strategic Export Programme, most of which are being implemented by the agricultural sector.

Supply-side interventions in the MTCS include infrastructure and utilities, legal and regulatory services, market information and access, standards, financial services and business registration and licensing. Annex A 4.1 shows constraints to doing business in Uganda. Since 2000, there have been significant improvement in the communications sub-sector, but the business community still perceive access and cost of financing, tax rates and tax administration, electricity and corruption as key constraints. Annex Table A 4.2 shows that businesses suffer delays often caused by bureaucracy. In some cases, such as fish exports, delays can be disastrous for the quality of produce. Delays in tax refunds are of course particularly serious in the context of high interest rates. These constraints are particularly critical for micro, small and medium enterprises (MSMEs) and actions to address them are discussed in detail in Section 4.3

Recent studies have shown that since 2000, when the MTCS was launched, a number of constraints have been addressed but others remain. Under the MTCS framework, priority areas for action will be elaborated and implemented under a coordinated approach led by a high level MTCS Steering Committee supported by a Secretariat.

Some of the constraints that the MTCS intends to address have been discussed above. One common area shared by the MTCS with the PMA is marketing and agro-processing. Studies of agricultural marketing in Uganda suggest that most segments of the marketing chain work quite efficiently, but that the weak social organisation and limited information of farmers reduce the prices they receive.

Marketing cannot be an afterthought but needs to be factored into the production decision. In order for this to happen, the advice given to farmers needs to be based on a sound knowledge of the market as well as the technology proposed. Farmers need to understand the importance of quality and reliability to their buyers. Government is reviewing the MTCS to address the remaining challenges for competitiveness in domestic, regional and international markets.

The Marketing and Agro-processing strategy

A marketing strategy is expected to link producers to consumers, both domestic and foreign, combines with strategies for processing to add value, reduce bulk and increase shelf life. Government’s approach to marketing and agro-processing is set out in the Marketing and Agro-Processing Strategy (MAPS), which was developed by MTTI for implementation under the PMA. Priority actions for public intervention under MAPS that address some of the constraints discussed under NAADS and MTCS include:

(a) Trade Policy/Negotiations and finance

  • Improved capacity to undertake trade negotiations in regional and international fora;

  • Establishment of expert teams to provide trade/market analysis and intelligence;

  • Improved access to financing for marketing/value-added interventions/agri-business;

  • Improved rural contract law to govern producers and buyers in rural areas.

(b) Producer support

  • Provision of market information to farmers and traders

  • Improved farmer organisation at production and marketing levels

  • Educational programmes to engage farmers more effectively in the liberalised market environment.

(c) Infrastructure

  • Increased rural road investments to link farmers with input and product markets;

  • Reduced rates for air and rail freight

  • Strengthening the Uganda commodity exchange

  • Establishing and operationalizing the warehouse receipt system

(d) Export Competitiveness

  • Strategic Exports development

  • Value addition/new product development

  • Promotion of products in domestic, regional and international markets

Cooperatives and Area Marketing Cooperative Enterprises

Co-operative activities in Uganda can be traced as far back as 1913 when indigenous Ugandans started organising themselves into cooperatives to enable themselves participate in trade especially of coffee and cotton. In 1946, the first law was passed to govern cooperative activities. During 1946-1970 co-operatives grew in all sectors of the economy, with the majority in agricultural marketing. However, political turmoil and poor leadership during the 1970s and 1980s adversely affected their performance and many cooperatives became insolvent. The Ugandan Cooperative Alliance is leading the revival of the cooperative movement, and Government will provide extension services to assist their formation, organisation and development.

Area Marketing Cooperative Enterprises are formed by bringing together primary cooperative societies, farmer associations, and large-scale farmers at the sub-county level. The purpose is to match quantity and quality to the needs of the market. As noted in the Agricultural sector, the relationship between cooperatives and farmers’ groups under NAADS will need further clarification, since in future both institutions will often exist in the same areas.

Priority actions for cooperatives

  • Government will promote the roll-out of Area Marketing Cooperative Enterprises, working alongside NAADS.

Access to international markets

Sustainable economic growth and poverty reduction will depend on access to sustainable markets, both regional and international. Uganda’s domestic market is small and can easily be saturated as has been demonstrated from time to time with a glut of maize in just one crop season. Agricultural commodity producers need to be sure that there is a sure market for their products. In order for the market to guide resource allocation efficiently, producers need accurate information on current prices and -even more important - realistic forecasts of future prices. Such information is particularly difficult for the poorest small scale producers to access. Government therefore needs to provide market intelligence to producers.

Negotiations regarding the formalization of a customs union with by the three East African partners (Uganda, Kenya and Tanzania) will see Ugandan goods enjoy free movement within a market of approximately 85 million people. Uganda has also gained from the US market access initiative, African Growth and Opportunity Act (AGOA), which has allowed it to export textiles and apparels to the American market. Furthermore participation in the EU’s Everything But Arms (EBA) initiative a well as other Generalized System of Preferences (GSPs) such as those of Canada and Japan has been beneficial to Uganda. At the WTO level, Uganda has continued to comply with its commitments, allowing Uganda to maintain its position in an important forum through which its voice can be heard on trade issues. Challenges include strengthening the capacity of negotiators and ensuring a common position, and continued efforts to reduce tariff and non-tariff barriers. As a lead institution, MTTI has the responsibility for conducting negotiations under the WTO, EPA, EAC and COMESA.

Trade negotiations and regional integration also involve the Ministry of Foreign Affairs (MOFA). Uganda’s missions abroad need more support to promote trade, investment and tourism opportunities. For example, commercial attaches can usefully contribute by meeting potential foreign investors. Effectiveness of these roles depends on well articulated responsibilities between MTTI and MOFA.

Priority actions for international trade

Some of the priorities have already been outlined under MAPS above. Additionally, government will:

  • Increase the complementarity of MTTI and MOFA in trade negotiations

  • Support Uganda’s trade negotiators and trade or commercial attaches at Uganda’s foreign missions to promote trade, tourism and investment

  • Institutionalise a trade negotiation team to participate actively in trade negotiations

Services to promote exports and investment

Services to promote exports and investment are provided by Uganda Export Promotion Board (UEPB) and Uganda Investment Authority (UIA). Consideration is being given to merging these two institutions or otherwise clarifying their respective mandates.

UEPB’s major activities are market intelligence, market entry strategy support and export skill training. UEPB has facilitated the development of some infrastructure and is promoting export villages. It is assisting producers to meet the standards under the European Union’s Good Agricultural Practices initiatives. UEPB is also pursuing access to ‘soft markets’ in middle-income countries, which often present less severe barriers than those in Europe and America, and has plans to develop an export training school to inform entrepreneurs about marketing products for export.

UIA aims to offer a ‘one-stop shop’ for investors in Uganda. Registration with UIA is mandatory for foreign but not domestic investors. A major innovation is the purchase of land for business parks, which will offer a more convenient site for investors.

Priority actions for export competitiveness

Government will:

  • Develop a national export strategy

  • Continue to review the relative roles of UIA and UEPB in the provision of services for exports and investment.

  • Set up industrial parks; the appropriate balance between public and private investment in establishing them will be considered.

Product Standards

Recent experience has demonstrated that a further barrier to market entry for the Ugandan private sector has been a failure to comply with international quality standards. Examples include the substandard methods of operation that led to the European Union fish ban and the difficulties faced in complying with the Sanitary and Phytosanitary and European Union Retailer Good Agricultural Practices (EUREPGAP) measures implemented by the developed countries. These examples show that insufficient public monitoring of quality can prove costly.

The Uganda National Bureau of Standards (UNBS) has the mandate to develop and promote standardisation, quality assurance, laboratory testing and metrology. The Bureau provides information and issues certificates on export standards; inspects imports to prevent the import of substandard goods and provides information for importers to send on to suppliers abroad; calibrates measuring equipment and surveys markets to eliminate shoddy products; and, assists industries to meet standards. Currently, the Bureau has no permanent home and has no space for laboratories. It is much smaller than its counterparts in neighbouring countries. The bureau also certifies some private agencies to monitor standards. For agricultural products which form the bulk of Uganda’s exports, UNBS must work with the Ministry of Agriculture, Animal Industry and Fisheries (MAAIF) to ensure that standards are developed and maintained to increase competitiveness of the products.

Priority actions for standards

In order to improve and maintain standards, Government will:

  • Explore the appropriate division of labour between the private sector, sectoral ministries and UNBS in the promotion of standards.

  • Ensure that UNBS works closely with MAAIF to ensure that standards are maintained for agricultural products

4.3 Public expenditure priorities for production, competitiveness and incomes

Sector-wide approaches

As mentioned above, there is no overriding strategic framework for the Environment and Natural Resources (ENR) sector. This is holding the sector back from adopting common implementation approaches, exploiting synergies and collaborating to improve efficiency of service delivery. Steps to move towards a Sector Wide Approach are being taken, and should be further supported and accelerated. First steps should be to define the sector against a common vision and a set of shared goals. Then that sector should begin to draw up a sector investment plan.

However, there has been, during the last 5 years, an impressive process of sub-sector level strategic planning. Activities are guided by the National Forest Plan (2002), the Wetlands Sector Strategic Plan (2001), the Land Sector Strategic Plan, the Fisheries Plan (2003) and the National Environmental Action Plan.. The challenge will be to develop a sector-wide plan that recognises the existence of functional sub-sector plans but that contains sector-wide programmes and initiatives for collaborative implementation. Priority ‘SWAp’ areas might be data collection and analysis, land inventories and mapping, district level coordination and capacity building and landscape restoration.

There is also a lack of a sector-wide approach in the Economic Services sector, which includes MTTI, MEMD and various agencies. Some of the activities in this sector have strong linkages with some activities undertaken in the accountability sector, such as microfinance and support to MFIs. Expenditure in the economic services sector is currently scatted among a number of agencies and projects. Hence a sector-wide approach is badly needed.

The agriculture sector is developing a sectoral investment plan, and the roads sub sector has a long-term plan.

Priorities for expenditure in the agriculture sector

Agricultural research and extension

Within the sector, there is good reason to expect returns to agricultural research and extension to be high in Uganda, for three reasons at least. First, international studies within the region suggest high returns. Secondly, research within Uganda has found very high returns to research and extension for poverty reduction29. Even with the existing relatively weak systems, the successful introduction of mosaic-resistant cassava had very high returns. Lastly, a small continuous increase in agricultural output would more than pay for agricultural research and extension. In practice, extension and research should do well enough to producer returns that are far larger than their costs.

The fact that knowledge generated by a single researcher can benefit many farmers justifies it as a public good. In some sectors and countries, the private sector plays an important role in research, but very little is done by the private sector in Uganda30. In the case of extension, the private sector does conduct effective extension on out grower crops such as tobacco, and NAADS is exploring the best way to cooperate with the private sector on out grower schemes.

For research, Government has defined a target of 2% of agricultural GDP as compared to the current level of 0.6%, which would imply a cost of about 75 billion shillings a year. However, it would take some time for domestic capacity to reach the level where this amount could be spent. The estimated needs of research and extension alone would fully absorb the sectoral resource envelope in 2003/4.

Agricultural marketing

The main interventions proposed for agricultural marketing in the agricultural sector concern market information. They will be bolstered by other interventions in the economic services sector.

Other priorities

There are also other needs, notably in regulation of livestock and disease control. The fisheries sector requires public expenditure both to invest in relevant infrastructure and to regulate the bad fishing practices that have proven very damaging in recent years. These expenditures, however, may be funded out of the levy on fish products received by the new Fisheries Agency.

In addition to the public sector resource envelope, there are other resources available from producers’ levies in this sector. These are spent by the various producers’ agencies, and are not fully integrated into the sector’s programme. In some cases this spending has involved joint ventures with private sector agro processing and marketing ventures. These expenditures have not in the past been fully integrated with the PMA and the rest of the agricultural sector.

The development of a sectoral strategy reflecting these priorities is in progress.

Public expenditure implications for the ENR sector

All the sector’s areas of intervention are potentially important, but unit costs have not been received for most of them. Existing activities have a very high share of project funding, which may be associated with costly modalities of implementation. Moreover, the establishment of agencies with powers to raise their own funds in the forestry and fisheries sub sectors make it harder for expenditure to be monitored or managed in the sector as a whole.

Three sub sectors that have indicated a need for extra funding are meteorology, fisheries and forestry. Amounts involved have been quantified for meteorology; to start the revamping of this service is estimated to cost about 6 billion shillings. However, a decision will be needed whether to have meteorological staff at district level; the service might be delivered more cheaply by focusing resources at the centre. The cost of district forest services is currently about 2.4 billion shillings. The cost of supporting beach management units is estimated at about 2 billion shillings per annum, but this may be funded out of the producers’ levy to be raised by the newly established Fisheries Agency.

An important area for public action in the medium term is land reform. The implementation of systematic demarcation offers an opportunity significantly to strengthen the property rights of the poor. Current estimates suggest it may be possible to perform phased systematic demarcation of all rural areas for a total cost of the order of $50-$60 million. A Poverty and Social Impact Assessment is planned to assess the effectiveness of systematic demarcation in enhancing the property rights of the poor; if favourable, this programme will be treated as a priority for funding in the medium term. In the short term, a priority is improvement of the Land Registry.

The development of a sectoral plan should be undertaken within MTEF ceilings. However, the needs of the sector will be reviewed as the strategy is developed. In the meantime, the piloting of systematic demarcation, the improvement of the Land Registry and the management of the district forest services will be treated as priorities.

Expenditure priorities in the economic services sector

This sector has no sectoral strategy and a high proportion of the expenditures have hitherto been on projects and often disbursed through agencies. This has led to excessive costs and duplication. The objective must therefore be to develop a sectoral strategy in which all the priorities are dealt with jointly.

MTTI and associated agencies

The majority of MTTI’s expenditure is on projects, particularly the Protected Areas Management project, which may in due course move into the ENR sector. Other than PAMSU, the total for MTTI is about 20 billion shillings, which is shared between several important agencies including UNBS, UEPB, UIA, and UWA. In some cases the agencies have their own source of funds, for example, UNBS generates funds by selling services to the private sector.

Expenditure priorities within the sub sector are:

  • Business services and extension for SMEs

  • Investment in infrastructure for firms in industrial parks;

  • Support to export promotion, for instance the EUREPGAP initiative and collection and dissemination of information about external markets.

  • Warehouse receipt system and commodity exchange

  • Support to marketing: The main constraint on farmers’ marketing appears to be social organisation. Data provided by MTTI shows that pilot project for AMCEs have generated very dramatic increases in farmers’ prices, between 30% and 100%. If nationally replicated, the impact on farmers’ incomes would be dramatic (although there would also be some negative impact on the incomes of traders). This deserves to be highly prioritised for public funding, but there remains some discussion of the role of different institutions including cooperatives (which are directly the concern of MTTI) and other farmers’ groups (which are directly dealing with NAADS). More consensus is needed on the division of labour here to guide funding.

  • Other actions in this area include the provision of extension services to villages to promote better quality production to meet export production, and the promotion of Ugandan entry into international markets (especially ‘soft’ international markets). UEPB is performing both of these functions. Expenditure needs cannot be assessed outside the context of a sectoral strategy and involving re-examination of the links between UIA and UEPB.

  • Support to tourism: Tourism can generate Government revenue and an increase in exports as well as marketing benefits for farmers and handicrafts. However, the immediate poverty impact may not be very large, because the share of labour in costs is generally rather small.

  • Tourism can be supported by marketing and training. The public goods aspect of promoting Ugandan’s image internationally is strong; in principle this activity could be carried out by a strong producers’ association, but in the short run some public support would be justifiable The public goods aspect of training is not so clear, as this activity should usually be undertaken by the private sector.

  • protected areas management; while this is important, it appears to be amply funded under the Protected Areas Management for Sustainable Use (PAMSU) project as well as by entry fees from the parks, and there my be scope for reducing costs over time.

  • Microfinance: Funds for microfinance are provided as matching grants to encourage extension into more remote areas under a basket funding arrangement. In some cases this may represent a substitution of funding within the MTEF for support that was previously offered off- budget by donors direct to NGOs. The costs are not yet known. In addition, IF AD support is being used to encourage the development of financial services for small-scale farmers. International evidence indicates that, if well managed, the spending may have high returns for poverty reduction and that the provision of financial services to agricultural producers can play an important role in transforming agriculture.

Ministry of Energy and Mineral Development (MEMD)

The major expenditures in this sub sector is rural electrification and large power projects. Rural electrification is funded through a rural electrification fund to which Government and donors contribute; in addition a 5% levy on bulk purchases of electricity transmission is paid into the fund. Recent evidence from the household surveys indicates significant returns to electricity. Household incomes are increased by about 8–11% by the presence of electricity in a village31. This would imply very high socio-economic returns to the infrastructure32.

International evidence is that the returns are sensitive to the way in which electrification is implemented. Mechanisms whereby electrification may influence economic activities include lengthening of the working day and allowing more agro-processing and other off-farm activities. One study in China found that rural electrification had a significant impact on the importance of non-farm activities. However: electricity is not always the cheapest option for energy for production.

The Uganda Rural Electrification Strategy is designed to increase returns by subsiding only a proportion of the costs of expenditure and thus ensuring that the services are only provided where there is potential demand. The strategy estimates costs at $400-800 per household for Photo Voltaic; $2,000-3,000 for mini-grids and $1,000-2,000 for grid extension. In order to achieve the revised coverage of 10% by 2012, public investment of about 12.5 million dollars annually in 2001 prices would be needed (it is assumed that the public sector will bear a third of the cost on average). This is equivalent in today’s prices to 27 billion shillings, of which perhaps 2-3 billion shillings could come from the transmission levy. Projects committed for 2004/5 come to 40 billion shillings. Hence the existing project commitments appear sufficient to cover the needs of the strategy even if not all expenditures are implemented.

Another priority is the development of a pipeline from Kenya. This appears to be justified in terms of the reduction in road maintenance costs alone. The projects will be jointly financed by the two governments.

Other priorities in the energy and mining sector include:

  • Promotion of improved stoves and energy efficiency

  • Monitoring of mining

  • Standards for mining products

Foreign affairs

While there are potential benefits to having a well-organised network of overseas missions, the current structure appears to be overstretched. In order for MOFA to play an effective role in promoting economic development, it will be necessary to avoid the establishment of any more missions in advance of the availability of the needed funds, and possibly to review the existing number of missions.

The expenditure priority action for Government is to streamline the network of missions and ensure that some of these missions are equipped to play an effective role in promoting investment, tourism and other economic linkages.

Transport, housing and communications

Roads

Road infrastructure is mainly a public good, but should be built only where returns clearly outweigh the costs. The road sector plan uses a cut-off rate of return of 12% to appraise road projects (less than the rate of return on concessional borrowing though not than the costs of borrowing domestically). This suggests that road projects at the margin have acceptably high rates of return, though not necessarily higher than investments in other sectors. It is known that maintenance is high return. The strategy should be to avoid future increasing costs by targeting rehabilitation and maintenance to limit deterioration.

Rates of returns are typically estimated based on reduced transport costs and the consumer’s surplus associated with increased traffic. There may also be positive externalities that drive the returns up further than these calculations show; also, new roads involve new traffic whose benefits are hard to quantify.33 Returns are certainly very high for maintenance. The International Food Policy Research Institute (IFPRI) study on public expenditure and poverty reduction also suggests that the return to infrastructural spending in terms of income poverty is higher than that of health and education, though lower than that for agricultural extension and research.

There are, however, specific reasons for slowing down capital spending during the temporary fiscal shortage. First, there is some indirect evidence that costs have been rising in this sub sector (although direct data available from MOWHC do not show cost increases above the general Inflationary level). Secondly, it is usually less damaging to delay capital spending than to cut back on recurrent spending, although there is a risk that delaying rehabilitation projects will increase future rehabilitation costs if the roads deteriorate further in the meantime. (See Chapter 8 for more discussion).

Another challenge is the need to increase the share of maintenance within the envelope. The sector has the responsibility to ensure that maintenance expenditure is adequate within the given envelope. This may imply delaying investment projects if they would come at the expense of maintenance.

Community access roads have been neglected, but the rehabilitation of such roads can be addressed through local funds; this is likely to work better than a top-down approach. In some cases, the nonsectoral PMA grants have been spent in this way.

Railways

Government’s strategy of concessioning the sector privately should induce some private investment in rehabilitating the existing lines. There may be a need for some public funding to support the establishment of this concession. Internationally, many railways are subsidised since railway infrastructure is a semi-public good. Government will therefore aim at private financing of the service in the medium run.

Transport costs for Ugandan exports and imports are significantly increased by the poor state of the railway including the wagon maritime service on Lake Victoria. It is thought that a well-run railway should have a 20% cost advantage over the road network (depending on distance and on the treatment of fixed costs), and a high proportion of the exports and imports in Uganda move along the East-West corridor and could easily be served by the railway, so that improving the state of the network would potentially have a very large overall benefit. In the long run, Government policy is for the railway to cover its operational costs. Major public investment in the railway will be undertaken in physical infrastructure under the concessioning arrangement.

Air transport

Airport infrastructure is likely to need public support, depending on the financial position of Civil Aviation Authority (CAA). CAA is not allowed to borrow commercially as a parastatal, and has had problems servicing its loans in the past from Government. It may therefore be necessary to write off some debt and/or put some direct public support into cargo infrastructure. The fast growth in high-value exports make this important. However, it is important to establish a clear expectation about the proportion of costs that CAA will be expected to cover.

Water Transport

Government will continue to provide ferries. However, private sector entry into this sector is strongly to be encouraged. Local Government investment funding may also be appropriate.

Expenditure issues for water for production

Water for production is currently divided between the agricultural and water sectors. MWLE has now prepared a subsectoral strategy. This implies annual expenditures of about 18 billion shillings of which 12 billion would be for water for livestock. Under the water for production strategy, the investments proposed during 2003–6 total $ 37 million of which $24 million are water for livestock, including $ 11 million already budgeted by DWD.

Irrigation has an important role to play in increasing production. However, there is need to further establish the cost implications. Efficiency could be improved by accommodating the cost within the agricultural sector.

Water infrastructure for livestock (valley dams) is directly relevant for the livelihoods of some relatively poor people and can also contribute positively to enhancing production, security and stability.

5 Security, Conflict Resolution and Disaster Management

5.1 Overview

Uganda continues to be severely affected by natural and man-made disasters and conflicts. The prevalence of security in the country has long been recognised as a precondition for improved human welfare and one of the key factors necessary for achieving all the other goals of the PEAP and aspirations of Government. As noted in Chapter 2, the widening inequality since 1997 and the increase in poverty since 2000 are partly the result of persistent insecurity in parts of the North and East. Nationally, over 5% of the population has been displaced and the effects on poverty spread beyond the distress suffered by the displaced.

Disaster preparedness and management is an area that requires strengthened interventions to reduce poverty among the most disadvantaged and vulnerable populations. The persistent phenomenon of displacement in Uganda implies that Uganda’s disaster-management policy must be closely linked to issues of security and conflict resolution. For this reason, these issues are handled together in this part of the PEAP.

Current circumstances present four major challenges in this part of the PEAP:

  • First, the country needs to end the rebel insurgency.

  • Secondly, the destructive pattern of cattle-rustling needs to cease.

  • Thirdly, the conditions of life of internally displaced people need to be addressed both in the short run (while they are still displaced) and in the long run (by successful reintegration into normal life, including psychological recovery).

  • Fourthly, the country needs to develop capacity to anticipate crises including conflicts.

It should be appreciated that not all security concerns may be resolved through the PEAP process alone. Other processes, particularly in the political arena need to complement all efforts geared towards conflict resolution in the affected areas. Communities should not only be seen as passive recipients of agreed policy actions but rather should be facilitated to become active participants in peace and disaster preparedness.

5.2 Security and Defence

Rebel insurgency

Northern Uganda has since the mid-1990s experienced conflicts and insurgency due to rebel activity particularly in the sub-regions of Acholi (Kitgum, Gulu, Pader), Madi (Moyo and Adjumani) and West Nile (Arua, Yumbe and Nebbi). Concerted efforts by Government to end insurgency have restored peace in most districts.

The reasons why conflict persists are complex and cannot be attributed to a single cause or failure of any particular dialogue process. Several studies1 suggest that conflict has been fuelled by a combination of factors, including external support to rebel groups, the proliferation of guns in the region, poverty and imbalances in access to economic opportunities. The impact of conflict has been to generate regional disparities that may themselves fuel future conflicts.

Since 2002, insecurity and violence against civilians and humanitarian organisations has heightened, especially after the termination of the ceasefire in April 2003. This has made humanitarian access to the Internally Displaced Persons (IDPs) very difficult, leading to a further worsening of the humanitarian situation in Northern Uganda. Some relief agencies have been forced to suspend their activities as a result of repeated attacks on their convoys resulting in loss of lives and tonnes of relief aid. Civilians also suffer; about 20,000 children have to walk long distances every evening in search of safety from abduction, and women and girls suffer from sexual abuse. This explains in part why Northern Uganda has the highest infection rates of HIV in the country.

Civilians often get caught in the crossfire. The humanitarian agency AVSI has recently reported that 75 percent of the amputations in the Acholi area are due to war traumas, such as landmines and other weaponry. Table 5.1 gives a snapshot of the total casualties and losses arising from the insurgency during 2001 and 2002. The marked rise in the number of victims poses a great challenge to the development of the north and the country as a whole.

Table 5.1:

Impact of rebel activities on northern populations during 2001 and 2002

Source: UHRC, 2002: 2001–2001 Annual Report

Service delivery in the war-affected zones has been disrupted sometimes resulting in closure of schools and health facilities. Other facilities have been completely destroyed. The cost of delivery is continuously rising, as districts require additional resources and security personnel to offer protection to the service providers.

As a result, Northern Uganda has become the poorest region in the country. Poor people in the sampled Northern districts ranked insecurity as the most important cause of poverty (UPPAP, 2002). Insecurity is not only reducing the quality of life of these communities but also repeated child abuse and traumatisation are sowing seeds of hatred and revenge, which makes the potential for further conflict considerable.

A combination of strategies will be pursued by Government in collaboration with civil society to restore peace in the conflict afflicted areas. Military actions will gradually be replaced by dialogue with the insurgent groups. The country will also need to better position itself to deal with future security threats.

Military actions to end rebel insurgency

While Government recognises that dialogue offers one of the most desirable options to ending insurgency, it has the obligation to protect its citizens, their property and resist external aggression. Government therefore mounted a military campaign to complement other efforts to end this insurgency. This has involved counter insurgency operations that have made it possible for the army to clean up civilian areas of rebel infestations. Unfortunately, casualties among the rebels include young abducted children and civilians.

Additional efforts to end the insurgency have been spearheaded by the local population through the formation of vigilante groups to fight the rebels and protect themselves. These groups have been facilitated by Government. One critical question is the relative role of police and military forces in dealing with problems such as conflict and organised terrorism. Over time, as security is restored in the North, the role of the police will expand.

Future security threats and defence transformation

Security in Uganda is threatened by conflict in the Great Lakes region. Over the next 10-15 years, this threat may manifest itself in a number of ways depending on the circumstances. The Defence Review has analysed threats including those that are social, economic, environmental, political and military in origin. They also include new security challenges such as organized crime and international terrorism2. Developing effective responses to these threats requires substantial human, financial and other resources. The Defence Review has focused on the long-term objective of building modern, professional and effective defence forces and strengthening the necessary structures to achieve this objective.

Government has developed a Defence Policy and a Security Policy framework, which analyse the security challenges and identify the roles of different Government agencies in addressing them. The Security Policy Framework gives a major role to the National Security Council, created by the National Security Act in 2000, in coordinating security-related actions.

While Government is planning for the long-term, the transformation programme must also take into account Uganda’s immediate security needs such as ending the conflict in the north. This makes it important to achieve an appropriate balance between activities designed to achieve short term gains in defence capability and those designed to lay ground for long-term gains in efficiency and effectiveness. Human and financial constraints make it necessary for government to prioritise and adopt an incremental approach that ensures cost-effectiveness without compromising either long-term defence transformation objectives or government’s ability to address immediate security threats.

Concerns have been raised about inefficiencies in defence procurement and ‘ghost soldiers’. Efforts are under way to increase the efficiency in resource use and addressing leakages through removal of ghost soldiers from the pay role, streamlining of procurement procedures, better management of logistics and supplies, robust financial management, audit and inspection and ensuring the right mix of Regular and Reserve Forces.

Priority actions in security and defence

Government will:

  • Ensure that the defence forces are adequately equipped to protect people throughout Uganda against attack and defeat rebel forces.

  • Regularise the status of vigilante forces and ensure that they do not recruit underage children.

  • Clarify the roles of the army and other institutions.

  • Implement the recommendations of the Defence Review, according to resource availability

  • Act urgently to eliminate ‘ghost soldiers’ and improve procurement.

  • Promote good relations between all the security forces and the local population.

5.3 Conflict-resolution

Political processes to end rebel insurgency

Government remains open to dialogue, although the process is hampered by the extreme violence that rebel forces continue to show towards the civilian population and the lack of a well-defined structure to engage through. It is hoped that the national political dialogue now under way, including discussions of the role of political parties, will generate greater national consensus. The strengthened diplomatic ties between Uganda and neighbouring countries in the recent past are a positive move towards finding mutual solutions to ending rebel insurgency.

Government is also committed to equitable resource allocation across the country. In some sectors such as roads, returns to public investment in troubled areas are reduced either by the destruction of infrastructure or by limited economic activity. Government then faces a trade-off between efficiency and equity in its allocation of public expenditure. The geographical allocation of public expenditure is discussed further in Chapter 6.

Priority actions

Government will:

  • Work with CSOs, faith based groups and traditional leaders in conflict resolution and the peace building process.

  • Assign responsibility within Government to respond to peace initiatives.

  • Strengthen diplomatic ties with neighbouring countries, including participation in regional initiatives for conflict resolution.

  • Consider the development of a regular forum for national discussion on conflict-resolution.

Amnesty

The Amnesty Act 2000 provides amnesty to all Ugandans who have been engaged in acts of rebellion. An Amnesty Commission was therefore set up to demobilize, reintegrate and resettle former rebels as well as sensitize the public on the law. A Demobilization and Resettlement Team is now operational in five regional offices expediting the work of the Commission.

By 31st August 2003, about 9,718 reporters had responded positively to the Amnesty, the largest group being from the LRA (39.60%), UNRFII fighting group (29.86 percent), followed by the West Nile Bank front (20.48%), ADF (6.78%) and other groups3. 89% of the total reporters are male. Ex-rebels are now receiving amnesty packages to facilitate their return to the community. Reception centers have been established in a number of districts by CSOs and the Commission to promote improved psychosocial support and health care for reporters.

Resources, however, constrain the Commission’s ability to settle returnees. By mid-2003 the Commission had been able to resettle only 41% of the reporters. Delayed issuance of the packages makes amnesty unattractive, particularly to senior members of the rebel ranks. Despite concerns that the recent Anti-Terrorism Act may reduce responsiveness to the Amnesty, amnesty will be upheld for returning rebels.

Priority actions

Government will:

  • Make adequate facilitation for the Amnesty Commission a priority.

  • Continue to resettle and reintegrate former rebels by providing amnesty packages, through the Amnesty Commission.

  • Take special measures to reintegrate children into supportive home communities.

  • Review the duration of the Commission’s mandate.

  • Resolve perceived disparities between amnesty and anti-terrorist legislation.

  • Disseminate information about the Amnesty Act to all parts of the country including the rebels.

Cattle rustling and disarmament

Cattle-rustling in Uganda is practised by pastoralist communities in Karamoja. This has contributed to insecurity in the neighbouring regions. Since the 1970s, cattle rustling has become increasingly violent, with the use of firearms much more frequent. There was a particularly serious outbreak in 1999-2000. It has been suggested that raids are increasingly carried out by individuals without community support, and often have a mainly economic motive4.

The easy availability and use of small arms and light weapons is a major contributory factor in the escalating conflicts in northern Uganda and particularly in Karamoja. In 2001, Government launched a disarmament programme in Karamoja. The first phase of this programme was based on voluntary disarmament. Incentives were provided in the form of an ox-plough. Under this phase, 6,593 weapons were handed in. Subsequently, disarmament has been enforced, and a total of 107 warrior suspects possessing illegal guns had successfully been prosecuted5 by mid-2003.

Government’s approach to this problem will combine an ongoing effort to encourage the surrender of weapons in the context of regional small arms control with actions to support the development of Karamoja. As discussed below, economic transformation in Karamoja will involve building on and understanding, rather than simply replacing, the existing way of life of pastoralism. In promoting an end to this form of violence Government will work in partnership with civil society and traditional leaderships, recognising that intra-and inter-clan violence is an important part of the problem.

Ending cattle-rustling

Disarmament and small-arms control

The implementation of the disarmament programme was assisted by sensitisation activities carried out by Uganda Human Rights Commission. This has helped to make the process less confrontational than it would otherwise have been. Despite the recovery of over 10,000 guns from the Karamojong under the disarmament process, it is believed that the majority of weapons in Karamoja have not yet been handed in and many others continue to flow in from neighbouring countries. The Karamojong pastoralists still fear, with good reason, that they will be attacked by tribes based in Kenya if they disarm themselves. Hence Government is committed to participating in regional initiatives to promote small arms control.

Government has established a National Focal Point (NFP), bringing together government departments and civil society to help coordinate remedial actions on this problem and also facilitate interaction with international and regional agencies. Government has developed a National Action Plan which will be implemented as a priority, in close cooperation with neighbouring countries, particularly Kenya and Sudan. Research and information sharing will play a key role in all these efforts.

Peace building initiatives in Karamoja

A number of civil society initiatives have focused on restoring better relations between different groups in Karamoja and between the Karamojong and neighbouring groups. Actors have included the Acholi Religious Leaders, World Vision, the Centre for Conflict Resolution and the OAU, among many others. In addition to launching operations to recover stolen cattle, Government will also support peace building initiatives and seek to use insights from civil society in promoting peace building in Karamoja. This will be complementary to the actions taken to promote development in pastoralist regions, which are discussed below in the other chapters.

Priority actions

Government will:

  • Proceed with the disarmament programme in Karamoja, while ensuring that it does not lead to abuses of the rights of the Karamojong or expose them to attack from neighbouring tribes.

  • Ensure that the disarmament programme forms part of a regional initiative on small-arm control.

  • Continue to support the peace building initiatives involving the Karamojong, including recovery of stolen cattle.

  • Strengthen the capacity and coordination role of the National Focal Point for small arms control.

  • Support livelihood development in pastoral areas as discussed in Chapter 4.

International initiatives for enhanced regional security

Both cattle rustling and rebel insurgency have an international dimension, since the weapons used in cattle rustling are also used to resist incursions from tribes in neighbouring countries, and rebels have used bases in neighbouring countries to invade Uganda. Also, the civil war in DR Congo represented a serious security issue. Government will cooperate with neighbouring countries to resolve outstanding differences, and in particular seek mutual agreements that will stop rebels from continuing disruptive activity across the borders.

5.4 Disaster Preparedness and Management

Disaster risk management

Disaster is defined as an event or series of events that give rise to casualties or damage/ loss of property, infrastructure, essential services or means of livelihood on a scale that is beyond the normal capacity of the affected communities to cope unaided. In the short run, the main challenge is the living conditions of people in the IDP camps. Several other disasters relate to the presence of refugees in the country and environmental challenges.

Internal Displacement

As a result of insecurity, Uganda was estimated in October 2003 to be hosting slightly over 1.4 million internally displaced persons (IDPs) living in camps and other places such as school and church premises (see Table 5.2). About 80% of the IDPs are women and children. The majority of the IDPs reside in camps in Northern Uganda. By virtue of the large IDP numbers, the camps where they live generally lack the basic amenities such as proper shelter, safe water, clothing and sanitation. Many of the children have dropped out of school due to lack of educational necessities and school facilities.

IDPs’ access to farmland and work opportunities is severely hampered by the prevailing insecurity. The IDPs in Northern Uganda are able to access between 35 percent and 50 percent of their own minimum basic food needs through own production, market purchase and casual labour for food. Hence many households are dependent on food aid and some studies have found a high incidence of malnutrition. Together with a relatively high risk of prostitution and low level of awareness, HIV infection is also a major concern for IDPs.

Table 5.2:

Total number of IDPs by district by 10th October 2003

Source: OPM

There are also displaced people on the streets of Gulu, Kitgum and Pader, and in towns in neighbouring districts like Soroti, Masindi and Lira. In general these people are not registered as IDPs and therefore are unable to benefit from relief distribution or other assistance. They may therefore be highly insecure. The population of the northern towns grew sharply over the 1990s, reflecting displacement.

‘Night Commuters’

A unique form of displacement is known to exist in the town centres and municipalities of war-affected districts; the phenomenon of night commuters. When evening falls scores of children are seen making their way into town centres to seek shelter and security from rebel attacks. These children have come to be known as night commuters. Prior to the establishment of reception centres that now accommodate most night commuters, these children were found sleeping on verandas and under street lamps. Fears of sickness, sexual abuse and spread of HIV/AIDS spreading amongst these children were and continue to be rife.

Refugees

Uganda has hosted refugees since the 1940s. Most of these refugees flee from neighbouring countries, particularly Sudan, the Democratic Republic of Congo and Rwanda, due to armed conflicts and abuse of human rights in their respective countries. Based on records from the Department of Disaster Management and Refugees, as of August 2003, Uganda hosts over 200,000 refugees, 75 percent of whom originate from Sudan. About 80 percent of all the refugees in Uganda live in Northern Uganda, particularly in the districts of Adjumani, Moyo, Arua and more recently Yumbe. The rest of the refugees are settled in the West and South Western parts of Uganda.

The majority of refugees hosted in Uganda were poor in their countries of origin and come when they have lost all their property. They are usually hosted in remote rural areas where the host communities are also impoverished. The majority of refugees are women, children, physically and mentally handicapped and the aged, which increases their vulnerability to poverty.

Other disasters

Between 1980 and 2003, one in thirty people in Uganda were affected by a natural or man-made disaster. The death toll resulting from disasters in the country is estimated to exceed 50,000 persons annually (Security, Conflict Resolution and Disaster Management SPRP, 2003). The major disasters that have occurred in Uganda since the 1960s are shown in Annex Table 5.1. Section 5.4 discusses Government’s responses to these challenges.

Government has implemented a number of programmes since 1986 to address disaster related problems. These have included:

  • Emergency Relief and Rehabilitation Programme (ERRP) that began in 1986 resettling the displaced populations from past civil wars by availing essential communities and provision of essential infrastructure and social services;

  • Programme for the Alleviation of Poverty and Social Costs of Adjustment (PAPSCA) implemented during 1989-1995

  • Current programmes under the Office of the Prime Minister – Disaster Preparedness and Refugees; Luwero Triangle Rehabilitation; and Pacification and Development of Northern Uganda and Karamoja.

The main challenge with all these programmes is that responses to disaster have been mainly reactive rather than anticipatory and they have tended to focus on only two stages of the disaster cycle – response and rehabilitation. Hence the framework set out here starts with prevention and preparedness.

All the actions discussed below aim to ensure that when people are affected by disasters, they can continue to meet their minimum needs through their own efforts, supported where necessary through assistance that is appropriate in terms of type, timing, location, duration and method of provision. Addressing these challenges will require a multisectoral approach involving various government ministries, local governments, NGOs, humanitarian agencies, private sector and the communities with the Office of the Prime Minister taking the lead.

Disaster prevention and preparedness

Improving preparedness is the key to reducing disasters. Disaster preparedness aims to minimize the adverse effects of a hazard through effective precautionary measures as well as ensuring timely, appropriate and efficient organisation and delivery. This goes hand in hand with disaster management, which deals with the consequences of the disaster when it occurs.

An example is given by the El Nino rains in 1997-8 and 2000. The heavy El Nino rains of 1997-98 saw 35 buried by landslides in valleys of Manjiya County Mbale. The rains in 1999 heavy rains left 18 dead and over 2000 in need of relocation. Roads, bridges and homes valued at over Sh. 30 billion were destroyed. However, this destruction could have been minimised using simple preventive measures. During the 2002 El Nino, with a very small financial support from GTZ the population was prepared three months in advance and no person died when the El Nino and landslides began later.

Many disaster preparedness actions need to be mainstreamed into sectoral programmes. For example, classrooms in earthquake prone areas can be designed to withstand earthquakes, while classrooms in windstorm prone areas such as Bubulo County should be designed to withstand windstorms. More generally, local investments that are needed to avoid disaster, such as strengthening river embankments, can be considered under the district’s capital budget under a scheme such as LGDP. Central Government’s role will be mainly to promote awareness about the risks and recommend actions to local Governments and to build up a Contingencies Fund, as mandated by the Public Finance and accountability Act. Access to this Fund will be conditional on strict criteria in terns of emergency needs responding to a disaster. Geographical Information Systems will be used to identify the areas of greatest risk.

The national Disaster Preparedness and Management Act and Policy is due for consideration by Parliament and implementation during 2004-5.

Priority actions

Government will:

  • Mainstream disaster preparation considerations into sectoral programmes

  • Consider funding disaster preparation measures under the LGDP programme.

  • Promote awareness of the need for disaster preparedness measures through provision of public information at all levels.

  • Establish an Emergency Contingencies Fund in accordance with the Public Finance and Accountability Act.

Disaster response

The form of disaster response that is most needed in the immediate future is that of addressing the problems confronted by internally displaced people as well as refugees. The special needs of conflicts affected districts and areas in delivering public services need to be recognized.

Internal Displacement

Government is finalizing the IDP policy. The policy commits Government to ensure freedom of movement for internally displaced persons, as well as the delivery of basic services, and specifies entitlements to such items as food, shelter and clothing. Government aims at ensuring that people return to their previous places of residence or migrate permanently, and that they are secure whichever they choose to do.

Humanitarian assistance to IDPs is mainly provided by international agencies such as World Food Programme, UNICEF and Red Cross Society to meet the needs of IDPs. For example, the WFP in 2003 distributed over 75,000 metric tones of relief food commodities valued at US$ 40.7 million to 1,397,899 IDPs in Gulu, Kitgum, Pader, Lira, Soroti, Kaberamaido, Katakwi and Kumi. However, poor road conditions and insecurity have caused irregularities in food distributions. WFP also supports 95,000 school children in displaced camps and over 17,000 persons affected by HIV/AIDS.

Government treats humanitarian aid as off-budget because of its unpredictable nature and little macroeconomic impact. However, its delivery needs to be better coordinated with security operations and the delivery of other services. This essential coordination role of Government is undertaken at the local level by district authorities and at national level by the Prime Minister’s Office. Government appreciates the cooperation of local authorities with donors in promoting block farming in the immediate neighbourhood of some IDP camps.

Consultations with local authorities in some insecure districts have pointed to the need for more flexibility in allocating conditional grants to take into consideration the local specific needs. For instance, it may be more appropriate to build learning centres than conventional classrooms in the context of an IDP camp.

Concern has been raised by Civil Society on inadequacy of sanitation facilities. Government will address this and seek the active involvement of IDPs in planning and monitoring the sanitation conditions in the camps regularly. A post-conflict plan that respects IDP rights to security, livelihood, services and participation in decision making will be put in place, including measures to facilitate resettlement and rehabilitation of the IDPs.

While many IDPs will leave the camps, it is possible that some camps will evolve into permanent urban centres. In such cases, the normal structures of local government will be established and services provided as with other urban centres.

Priority actions

  • Government will develop concrete plans to implement the IDP policy, in cooperation with key stakeholders including donors and civil society.

  • Where appropriate, increased flexibility may be given to distressed districts to divert money from activities that are currently impractical to meeting the immediate needs of the IDPs.

  • Better monitoring and improvement of conditions in the IDP camps is a key priority, with a particular focus on health and sanitation.

  • Through stakeholder consultations, Government will implement appropriate long term measures to deal with the challenge of IDPs in the country.

Service delivery in conflict-affected areas

In addition to emergency-related activities, local authorities have to support normal service delivery in the context of insecurity. Even where the population served is not displaced, insecurity imposes extra costs. For instance, officials travelling in the area need protection, or because it is difficult to recruit staff. Hence there may be a need for extra funding in some cases and tailoring the implementation mechanisms to the conflict situations.

Psycho-social support

One service that is clearly needed in the context of conflict is psycho-social support for the traumatised, particularly the abducted children. A number of CSOs have played an important role in this area, which Government will support.

Refugee Management

The national policy on refugees has the twin objectives of protecting refugees in such a way as to protect national interests while meeting international standards. By promoting self-reliance, refugees hosted by Uganda are enabled to become an asset to the country. To this end, arable land has been allocated to enable the refugees become self-sufficient. In total, Government has allocated well over 3300km5 of arable land for refugees.

The settlement of refugees in rural areas has social and economic implications on the host community which have to be given due consideration. Key challenges include:

  • Large numbers of refugees in the allocated areas have put pressure on the environment through deforestation and poor sanitation.

  • There is strain on social amenities including health and education services, and land in the districts hosting refugees.

  • HIV/AIDS prevalence is relatively high in refugee-affected regions. Displacement and migrations from other countries increases the host communities’ exposure to STDs. Redundancy, trauma, poverty and ignorance also contribute to the spread of diseases.

  • Refugees also continue to suffer from insecurity like all the other nationals.

  • There is need to improve the living conditions in the refugee-hosting communities

Generally, funding for refugee programmes from Government is limited. Refugees are mainly assisted under the UNHCR country programme. However, the annual budget for the country programme has fallen from US$14 million in 2000 to US$10 million in 2003. This funding is used to deliver multisectoral activities for refugees in health, education, community services, environment, agriculture and the running costs of UNHCR and NGOs involved in the refugee programme.

Being an emergency issue, expenditure on refugees is not treated as part of the MTEF. However, costs can be saved if the planning of refugees’ needs can be integrated into the districts’ normal planning. This would imply that the districts received resources adequate to cope with the flow of refugees and included refugees in the services they deliver. Districts and development partners are encouraged to cooperate in merging activities as far as possible6 to avoid duplication. Successful implementation of this approach can minimise damage to host communities, create infrastructure and promote amicable relations.

A policy on self-reliance of refugees has been implemented since 1999. Its focus is on enhancement of household incomes and well-being of refugees and host communities and development of an appropriate legal and institutional framework to foster productive activities and the relevant civil, social and economic rights.

Priority Actions

Government will:

  • Aim for better integration of humanitarian needs and existing resources into the national plans.

  • Implement the policy of self-reliance in cooperation with other partners.

  • Encourage donors supporting refugees to cooperate with local authorities in avoiding duplication and cooperating in service delivery.

5.5 Planning for the aftermath of disaster and insecurity

Existing and proposed programmes

During and after the conflicts are resolved, there is a clear need to plan for the recovery and development of the affected areas in the northern and eastern parts of the country. There has been a plethora of initiatives designed to address post-conflict needs. The majority of these programmes are currently implemented within the second phase of the Northern Uganda Reconstruction Programme (NURPII). Under NURPII, selective investments are being made in public infrastructure and services and the participation of community based organizations, NGOs, private sector and other stakeholders in development is being promoted through a bottom-up approach.

The challenge is to integrate these various initiatives into a coherent programme that addresses the needs of conflict-afflicted areas. Since these expenditures are for development rather than emergency, they form part of the MTEF, and in the long run the actions proposed in them cannot be funded unless they are integrated into the strategies of the various sectors. While some support is provided direct to districts by development partners outside the MTEF, any major increase in this support would raise the same macroeconomic concerns as other forms of increased public expenditure.

A major issue will be the role of transitional support as communities recover. For instance, packages of productive assets might be provided to IDPs who wish to return home and take up productive activities. Given the exceptional circumstances, such ‘start-up’ help would not necessarily contravene Government’s general focus on the provision of public goods rather than productive assets to households.

Northern Uganda Social Action Fund (NUSAF)

The Northern Uganda Social Action Fund is a Government project for empowering communities in 18 districts in Northern and Eastern Uganda, by enhancing their capacity to systematically identify, prioritize, and plan for their needs within their own value systems. In common with other social funds internationally, funds are provided for projects identified by communities themselves. Given the exceptional circumstances in the North, NUSAF works directly with communities rather than through the normal structures of local government.

The total financing is sub-divided across the four programme areas as follows:

  • Community Development Initiatives (72.8% of total financing)

  • Vulnerable Groups Support (16.7%)

  • Community Reconciliation and Conflict Management (2.1%)

  • Institutional Development (8.4%)

The Northern Uganda Management Unit (NUMU) has been formed and fully staffed based in Gulu. All the 18 NUSAF districts have signed the MoU and operational and financial manuals have been put in place. The project is yet to deliver tangible benefits given the time lag in bringing it into operation.

Restocking Programme

This is a long term measure to enable people in the northern districts and other parts of the country to restore their economic base, reinstate the cattle culture and reduce poverty by owning livestock and related infrastructure. The Restocking Project was launched in April 1999 to cover 35 districts with an initial funding budget of Shs 18 billion. Districts covered in the North and North East include Apac, Lira, Kitgum, Gulu, Nebbi, Arua, Yumbe, Moyo, Adjumani, Soroti, Kumi, Katakwi, Pallisa, Moroto, Nakapiripirit, Pader, Kaberamaido and Kotido. Recently, the districts in eastern Uganda have also been included.

The Restocking Programme aims at contributing to poverty reduction through increased agricultural productivity, incomes and improvement in food security in the project areas. A total of over Shs. 12.9 billion has been disbursed to the districts of Northern Uganda since April 2000 for the procurement of project animals (cows/heifers, bulls, goats and pigs) and animal inputs like drugs, acaricides and ox-ploughs. In areas not highly affected by insecurity, household incomes are expected to improve.

The programme faces resource constraints and the continued procurement of underage/ undersized animals by districts which have resulted in low calving rates. The guidelines on restocking, procurement of inputs and recovery of funds have been reviewed and issued to the districts and monitoring systems are being strengthened so as to correct these anomalies. Another constraint has been cattle rusting. Government will attempt to ensure that the implementation of restocking is well coordinated with action against cattle rustling.

5.6 Public expenditure implications for security, conflict-resolution and defence

It is important to note that Government’s criteria for public expenditure include both rates of return and distributional impact. There is therefore a case for accepting somewhat lower economic rates of return on expenditures in areas that are disproportionately poor and disadvantaged. There is also some international evidence that expenditures in post-conflict countries have unusually high rates of return, and this may also apply to expenditures in post-conflict regions within a country. Sectors are urged to bear these considerations in mind while prioritising expenditures.

Security and defence

The public sector role in defence is clear. The returns are also high in the event that defence expenditure is effective in ending conflicts or preventing new ones. For instance, the approximate cost of the conflict in the North has been estimated at 3% of GDP, and simulations confirm that the loss of consumption in the North could be of the same order. The returns in terms of human suffering are enormous. It is essential that any increases in expenditure are associated with greater efficiency and effectiveness.

Under the Defence Review, costed options have been prepared for the transformation of the defence forces. The implementation of the Defence Review recommendations will depend on the available resources. The preferred option allows a defensive posture that will be adequate to handle two major security threats simultaneously. The strategy also includes resources needed to address immediate operational needs. Two issues arising are the appropriate pace of the modernisation programme, given the need to achieve other priorities, and the long-run need for military expenditure once security has been achieved nationally.

Cost-savings include:

  • Tackling the problem of ghost soldiers

  • Streamlining procurement

  • More effective procedures for logistics and supplies

  • Robust budgeting, financial management, and auditing

  • An appropriate mix of regular and reserve forces

The achievement of peace would allow reductions in current defence expenditures. However, the extent of the reduction will depend on the long-run view taken of the necessary size of the army. In particular, it is to be hoped that a reduction in conflict in the region as a whole will reduce the likelihood of external invasion or armed insurgency; this would allow a more modest view to be taken of the country’s long-run military needs.

Government will:

  • Ensure adequate funding for meeting immediate security needs

  • Phase the re-equipping of the security forces over time to match fiscal constraints

  • Review the long-run needs for military expenditure in light of the regional security situation.

Conflict-resolution and disaster management

Government will continue to treat humanitarian assistance off-budget, but improve its integration into planning. The current insecurity has a number of implications for public expenditure, namely:

  • Increased cost of service delivery during conflict

  • The cost of implementing the amnesty process and small arms control.

  • The cost of the long run recovery of Northern Uganda

  • Dealing with the immediate consequences of conflict. While humanitarian relief is critical, Government has an obligation to act if humanitarian contributions are not available to meet the needs. Moreover, some responses such as water supply and sanitation have long-run implications and require integrated planning (in some cases water sources in camps have become polluted because of the lack of sanitation).

The amounts needed in this sub sector are hard to quantify. Some insecure districts have had difficulty spending their mainstream service delivery conditional grants. The priority is therefore to allow adequate flexibility to these districts to spend money on immediate needs, subject to reasonable accounting requirements. Government will therefore make provision for insecure districts to spend their resources in a more flexible manner to meet immediate humanitarian needs, with a particular focus on environmental health and sanitation in camps. Incentives are also needed to attract staff to these areas; this is discussed in Chapter 6.

Disaster prevention

Disaster prevention should mainly be addressed under the local Government investment budget.

Post-conflict reconstruction

Costs of post-conflict reconstruction are being addressed through NUS AF at a community level. The merits of funding capital investment through the social fund modality (NUSAF), through decentralisation of decisions to local governments (LGDP), or by central conditional grants (e.g. SFG) need to be compared in order to guide future actions in this area. NURP proposes major large-scale investments which, if analysis shows they are high-priority, should be mainstreamed into the relevant sector (mainly transport).

As stability is restored, the implications of damage to infrastructure will need to be factored into the equalisation and conditional grants. There are also specific human development needs after conflict, such as support for abducted children and other traumatised people. The strengthened CDW function should have responsibility for coordinating efforts in this area, and some extra expenditure may be needed (though important work of this kind is already done by NGOs and donors).

In common with other areas of support, planning for post-conflict areas needs to be integrated into sectoral strategies rather than treated in isolation. As discussed in the chapter on public expenditure, the best way of reprioritising public expenditure is to integrate projects into the MTEF and progressively reduce the share of the project modality in public expenditure. Government will therefore ensure that the actions identified in regional plans are discussed with the various sectors, so that the needs of post-conflict areas can be effectively addressed within sectoral strategies.

6 Good Governance

Good governance is a multi-dimensional concept and covers all aspects of the exercise of authority by formal and informal institutions. The National Programme and Action Plan on Democratic Governance defines good governance as the efficient, effective and accountable exercise of political, administrative and managerial authority to achieve society’s objectives including the welfare of the whole population, sustainable development and personal freedom.

It is generally agreed that good governance implies democracy; respect for human rights; non-sectarian government; a legal system that is accessible, just and not too slow or costly; transparent, efficient, accessible and affordable Government; a competent and adequately remunerated public service; a strong sense of partnership between Government and other agents; and a positive contribution to international peace and security.

Despite the serious and persistent problem of insecurity in some parts of Uganda and the slow progress in reducing corruption and making Government structures affordable, significant progress has been made with regard to democratisation, decentralisation, and restoration of the structures of Government. The successes have over time bred new challenges as popular demands for enhanced political representation have become stronger, and international standards of good governance have become more explicit. Uganda therefore, now needs to nurture a national political consensus in which people trust and feel allegiance to the basic institutions even though they may disagree about particular political issues. Core priorities are:

  • Ensuring respect for human rights

  • Pursuing democratisation

  • Making government structures affordable, transparent and efficient

  • Providing a good judicial system

This pillar is organised around this approach. Section 6.1 covers democracy, human rights and political governance. Section 6.2 covers the justice, law and order sector. Section 6.3 examines the management of the public sector as a whole. Finally, Section 6.4 examines the expenditure implications for areas within the pillar.

6.1 Democracy, Human Rights and Political governance

Democratisation

In 1986, the National Resistance Movement (NRM) developed a Ten Point Programme, which, among other things, called for the restoration of democracy, security and the consolidation of national unity. The National Resistance Council (NRC) was formed as a legislative body. The Executive endeavoured to work with persons of different political persuasions through a broad-based Government. The 1989 Constitutional Commission recommended that party activities continue to be restricted for another 5 years and that the country be governed under the Movement Political System. Under this system, free and fair elections have been conducted both at the central and local government levels. Women’s participation in public politics is high, the freedom of the press is upheld, and Parliament is independent. The Judiciary also operates with independence and human rights organisations are able to point out human rights abuses1.

Table 6.1:

Selected key democratisation events in Uganda