Uganda
Poverty Reduction Strategy Paper

Uganda’s National Development Plan (NDP) stipulates medium-term strategic direction, development priorities, and implementation strategies. It also details Uganda’s current development status, challenges, and opportunities. The contribution of this NDP to the socioeconomic transformation will be demonstrated by improved employment levels, higher per capita income, improved labor force distribution in line with sectoral GDP shares, substantially improved human development and gender equality indicators, and the country’s competitiveness position, among others. The impressive GDP growth performance has contributed to a significant reduction in poverty levels.

Abstract

Uganda’s National Development Plan (NDP) stipulates medium-term strategic direction, development priorities, and implementation strategies. It also details Uganda’s current development status, challenges, and opportunities. The contribution of this NDP to the socioeconomic transformation will be demonstrated by improved employment levels, higher per capita income, improved labor force distribution in line with sectoral GDP shares, substantially improved human development and gender equality indicators, and the country’s competitiveness position, among others. The impressive GDP growth performance has contributed to a significant reduction in poverty levels.

PART 1: OVERVIEW

CHAPTER 1 INTRODUCTION

1.1 BACKGROUND

1. This National Development Plan (NDP) covers the fiscal period 2010/11 to 2014/15. It stipulates the Country’s medium term strategic direction, development priorities and implementation strategies. In addition, it details Uganda’s current development status, challenges and opportunities. In line with the National Vision Framework, six (6) five-year NDPs will be implemented of which this is the first. The theme of this NDP is “Growth, Employment and Socio-Economic Transformation for Prosperity.” The thrust is to accelerate socio-economic transformation to achieve the National Vision of a transformed Ugandan society from a peasant to a modern and prosperous country within 30 years. This will be supported by the environment necessary for sustainable development which will entail making continuous improvements to the political, social and economic conditions.

2. The contribution of this NDP to the socio-economic transformation will be demonstrated by improved employment levels, higher per capita income, improved labour force distribution in line with sectoral GDP shares, substantially improved human development and gender equality indicators, and the country’s competitiveness position, among others. These improvements will reflect the structural and socio-economic transformation that is the basis of this NDP.

3. Over the years, Uganda’s economy has experienced varying growth rates. From independence in 1962 up to 1971, Gross Domestic Product (GDP) grew by an average of 5.2 per cent per annum. However, between 1971 and 1979, GDP declined by 25 per cent due to the unstable political situation and economic mismanagement. From 1981 to 1983, Uganda experienced GDP growth rate of 5.5 per cent but recorded negative growth rates in 1984 and 1986. Between 1987 and 1996, GDP grew at an average of 6.5 per cent translating into 3.4 per cent growth in per capita terms. The decline in monetary growth, together with growth in agriculture, especially food crop production, contributed to a reduction in inflation, from 200 per cent in 1987 to about 7.1 per cent in 1996. There was impressive growth over the Poverty Eradication Action Plan (PEAP) period, with an average rate of growth in GDP of 7.2 per cent per annum between 1997/98 and 2000/01. The growth rate slowed to 6.8 per cent between 2000/01 and 2003/04, and increased to 8 per cent over the period 2004/05 to 2007/08.

4. The impressive GDP growth performance in recent years has contributed to a significant reduction in poverty levels. The percentage of the population living below the poverty line declined from 56 per cent in 1992/93 to 44 per cent in 1997/98, and further to 31 per cent in 2005/06.

5. However, in spite of this commendable economic performance, the country continues to face some challenges which have undermined achieving much faster economic growth and socio-economic transformation. The country has not achieved significant productivity growth in agriculture and thus not releasing the excess labour. There are structural features in the economy that Government will address in order to accelerate and sustain high growth. These include:

  • Dominance of primary commodities over industrial products implying that the rapidly growing new sectors are not contributing significantly to value added exports and are therefore, not outwardly oriented;

  • Slower than desirable growth in the agricultural and industrial sectors;

  • New sectors that are not absorbing the rapidly growing labour; and

  • Capital markets that are not effectively mediating capital.

6. The challenges in the next phase of our economic transformation are quite different from the challenges that have been overcome. To attain a relatively higher per-capita income level in the face of a rapidly rising population requires a massive increase in skilled labour and its redeployment in the production of value added export-oriented goods and services. Thus, the development strategies for the medium term will encourage growth in export-oriented industries which will require scaling up the role of government in key strategic areas to complement the private sector. In spite of the potential direct and indirect positive impact of the discovery of oil, including easing future fiscal constraints and other multiplier effects in the economy, there are still considerable barriers to growth that will be addressed in the Plan period and beyond, complemented by policies to reduce poverty and therefore, raise the quality of life.

7. A combination of a high dependency level in the population and a large share of the labour force being in subsistence agriculture or in the informal sector, presents considerable challenges to the achievement of development goals, such as, the reduction of poverty and improvements in health, education, housing, productive employment, gender equality and conservation of the environment. While there have been gains made in this respect, there are opportunities to further improve services and outcomes. Particular emphasis will be given in the promotion of gender equality, peace building, post-conflict rehabilitation and addressing gender based violence. The NDP, while focusing on removing physical barriers to sustain high rates of growth, does not lose sight of the necessary changes required to achieve gains in these areas of social development, as well as strategies to mitigate the consequences of emerging pressures on the environment. It also places strong emphasis on removing institutional barriers to economic growth through improving the performance of the Government in its policy, planning, monitoring, regulatory and service delivery functions.

1.2 CONTEXT OF THE PLAN

8. A review of the development progress of many economies in the world over the past few decades reveals that countries that have achieved growth did so through diverse policies and institutional arrangements. The routine application of “best practices” is being replaced with the recognition of the need to focus on reform paths suited to each country’s conditions and the removal of binding constraints to economic growth. A key observation of the Barcelona Development Agenda 2004 was that there is no single set of policies that can be guaranteed to ignite sustained growth. Nations that have succeeded at this tremendously important task have faced different sets of obstacles and have adopted varying policies regarding regulation, export and industrial promotion, technological innovation, and knowledge acquisition. Countries should be free to adopt policies suited to their specific circumstances. The priority is to identify the most binding constraints to growth and to address them through microeconomic and macroeconomic policies. Thus, the NDP will target those constraints that are most binding, as their removal would potentially have a significant positive socio-economic impact.

9. Countries have different mix of economic issues in relation to both government and market failure which need to be addressed through various interventions. The experience of East and South Asian countries points to the need to address market failures where private sector-led growth is supported by appropriate Government interventions targeted at removing barriers to growth.

10. The history of development planning in Uganda is characterised by different approaches. The mixed economy approach to development was a key feature of Uganda’s economic development from 1962 to 1971. This was interrupted in the 1970s by the almost adhoc economic war plan, which was followed by the Structural Adjustment Program (SAP) in the early 1980s and the Economic Recovery Programme (ERP) of 1987. Between 1997 and 2008, the Poverty Eradication Action Plans (PEAP) was the overarching planning framework for the country.

11. In order to prepare the current development plan, it was necessary to learn from the experiences of the PEAP, for which purpose an evaluation was undertaken. The results of the evaluation indicate that the PEAP had good features though there were aspects that could have been better implemented. Consequently, the NDP has incorporated the PEAP lessons with the following differences in approach:

  • i) While the PEAP stressed poverty eradication and prioritized social services, the NDP maintains the poverty eradication vision, but with an additional emphasis on economic transformation and wealth creation thereby intertwining sustainable economic growth with poverty eradication.

  • ii) As a key lesson from the PEAP, the NDP will first and foremost be an instrument of evidence- based political commitment used to capture the public imagination and commitment for the next phase of nation building. The NDP has been designed to be the key plan shaping all the processes that capture all political thinking as well as the existing and emerging Government initiatives such as the current Government development programs for poverty reduction, growth, prosperity for all, and reconstruction in post-conflict areas. However, it is also well grounded in terms of technical imperatives and their inter-linkages. Thus, coordination of the political aspirations and the implementation of key interventions will be a critical defining factor in the successful implementation of the NDP.

  • iii) Finally, the NDP is designed to be the primary Government national strategic plan, the anchor for Government fiscal strategy, and lower level or sectoral plans. It will provide a guide for the allocation of resources through the Medium Term Expenditure Framework. Over the next five years, the NDP will guide decision making and implementation of government programmes including the annual budget process, and the prioritization and direction of Government actions. It will therefore, be a tool for prioritizing government interventions and mobilizing external resources.

1.3 THE THRUST OF THE NDP

12. In line with its theme, this Plan seeks to significantly improve specific socioeconomic development indicators associated with transformation. These include raising average per capita income levels, improving the labour force distribution in line with sectoral GDP shares, raising the country’s human development indicators, and improving the country’s competitiveness to levels comparable to middle income countries.

13. After considering the extensive contributions and analysis emerging from the process of formulating this NDP, as well as identifying the most binding constraints on economic and social development, Government adopted specific principles and objectives to guide the implementation of this plan.

Figure 1.1
Figure 1.1

VISION, KEY BINDING CONSTRAINTS, THEME AND OBJECTIVES OF THE PLAN

Citation: IMF Staff Country Reports 2010, 141; 10.5089/9781455204373.002.A001

14. Realizing the objectives set in the NDP and implementing the strategies for unlocking the most binding constraints will require shifts in the spending mix of the national budget.

15. Taking into account past macroeconomic trends and available information, the nominal GDP growth rate over the NDP period is projected at an average of 7.2 per cent per annum. At this GDP growth rate, nominal per capita income is projected to increase from USD 506 in 2008/09 to around USD 900 by 2014/2015. During the same period, the proportion of people living below the poverty line is expected to decline from the level of 31 per cent in 2005/06 to around 24.5 per cent in 2014/15, an achievement surpassing the Millennium Development Goal (MDG) target of 28 per cent.

16. These improvements will rely on many changes to the economy and in the efficient use of public funds, including higher public and private investment levels, changes in public expenditure allocations in favour of growth enhancing activities, and a considerable improvement in the performance of the public sector. The projected growth is also based on the assumption that global and regional economies will recover and result in an increased demand for exports from Uganda.

17. To ensure ownership of the plan and to support the realization of its objectives, the preparation of this NDP took an iterative, consultative, and participatory process. It involved bottom-up and top-down approaches to ensure adequate participation at the Central and Local Government levels, civil society groups and the private sector. The process of implementing the NDP will entail monitoring progress to provide a comprehensive assessment of the country’s socio-economic performance. The NDP will be reviewed after two and half years of implementation.

1.4 STRUCTURE OF THE NDP

18. For conceptual purposes, this plan is organised around four sector clusters: primary growth sectors, complementary sectors, social sectors and enabling sectors. Primary growth sectors constitute sectors and sub-sectors that directly produce goods and services. Complementary sectors comprise sectors and sub-sectors that provide institutional and infrastructural support to primary growth and other sectors. Social sectors comprise those sectors and sub-sectors that provide services required to maintain a healthy and quality population, and human resources for effective engagement in rewarding economic activities. Enabling sectors encompass all sectors and sub-sectors that provide a conducive environment and framework for efficient performance of all sectors of the economy. This conceptual framework known as the “egg concept” is aimed at harnessing inter-sectoral linkages, functional relationships and synergies among economic sectors which have in the past received insufficient attention (annex 1).

19. The Plan is structured in four parts: Part I provides an overview of the Plan. It contains the background to the Plan, its context, thrust and structure. It also covers the situation analysis at macro-level, examining the overall performance of the economy, including an analysis of the binding constraints to economic growth and development. Part II presents the strategic direction of the plan, national development objectives and strategies for achieving them. As part of the strategies to unlock the binding constraints, flagship projects have been proposed in Part II. Part III presents sectoral situational analyses, objectives, strategies and interventions. Part IV deals with the implementation strategy and institutional arrangements, including the approach to monitoring and evaluation.

CHAPTER 2 SITUATION ANALYSIS

20. Post-independent Uganda has gone through periods of political stability and turmoil. It has also witnessed relatively satisfactory economic progress and economic decline. Regardless of economic trends, the post independence period has been hampered by common binding constraints. This chapter provides a review of Uganda’s economic performance since independence in 1962. It is structured into two subsections: macroeconomic performance and national binding constraints. The subsection on macroeconomic performance examines performance in seven specific areas namely; the overall macro economy, primary growth sectors, complementary sectors, social sectors, enabling sectors, private sector and civil society perspectives.

2.1 MACROECONOMIC PERFORMANCE

2.1.1 Overall Macro economy

21. As earlier noted in section 1.1, Uganda’s economy performed remarkably well from independence to 1970 when the country experienced relative political stability. Inflation was maintained at an average of 3 per cent per annum, real GDP grew by 5.21 per cent per annum and fiscal deficits rarely exceeded 2.5 per cent of GDP. Real interest rates were positive for most of the period, the current account balance was in surplus, and domestic savings averaged 15 per cent of GDP. In the same period, the growth in exports averaged 5 per cent per annum while that of imports was 6.2 per cent.

22. From 1971 to 1979, Uganda’s economy was seriously damaged by economic mismanagement and civil conflicts that negatively impacted on the gains made during the previous periods. The rate of inflation averaged 30 per cent per annum between 1970 and 1980, as the Government financed public expenditure through bank borrowing. During the same period, GDP declined at 1.6 per cent per annum, exports by 8.5 per cent and imports by 9.8 per cent. This led to a decline in export revenue which subsequently impacted negatively on the balance of payment and external debt positions.

23. Growth in GDP was temporarily restored between 1981 and 1983, when an average annual growth rate of 5.6 per cent was registered. Inflation declined from 111 per cent to 25 per cent. The overall budget deficit reduced from 2.8 per cent of GDP in 1981 to 0.6 per cent in 1983 but rose to 11.9 per cent of GDP in 1984. Thereafter, the civil strife and political instability that ensued especially in the central part of the country negated the achievements made. As a result, negative GDP growth rates were recorded during the period between 1984 and 1986.

24. In 1987, Government launched a minimum Economic Recovery Programme (ERP) followed by a series of other reforms aimed at restoring macroeconomic stability to provide a favourable environment for economic growth and private sector development. The key reforms included a currency reform, changes in tax and fiscal policy geared towards improving revenues and restraining expansion in Government expenditures, while maintaining a strong focus on economic recovery and growth. Between 1987 and 1996, GDP grew at an average annual rate of 6.5 per cent, translating into 3.4 per cent growth in per capita terms. The decline in monetary growth led to substantial reduction in inflation.

25. Over the period 1997/98 to 2000/01, GDP growth averaged 7.2 per cent per annum. Between 2000/01 and 2003/04 it averaged 6.8 per cent and between 2004/05 and 2007/08, it was 8 per cent. As a result of the global recession which reduced the demand for Uganda’s exports to Europe and America, GDP growth declined slightly in 2008/09 to 6.2 per cent at basic prices but is projected to increase to 6.4 per cent at basic prices in 2009/10. The fiscal deficit stood at 10.2 per cent and 7.9 per cent of GDP on average during 2000/01 to 2003/04 and 2004/05 to 2007/2008, respectively. Inflation rate was kept at single digit for most of these periods; foreign reserves covered at least five months of imports; and the exchange rates were competitive.

26. There has been a significant increase in both foreign and local investment flows into the economy. As a percentage of GDP, private investment rose from 12.2 per cent in 2000/01 to 20.6 per cent in 2006/07. Public investment averaged 5.1 per cent of GDP over the same period but was more or less stagnant over the last decade. Furthermore, the investment pattern of recent years shows rising private construction especially of residential buildings, modestly increasing machinery and equipment investment, and low public construction. This indicates issues with low capital investment in industries, services and labour productivity.

27. The global downturn is expected to negatively influence investments through reduced private remittances, foreign direct investment, and loans, although recent global economic trends coupled with the resilience of our economy have subdued the initially perceived risks. Foreigh Direct Investment (FDI) has dropped from 5.3 per cent of GDP in 2007/08 to 4.6 per cent GDP in 2008/09 and it is further projected to remain slow in 2009/10. However, the anticipated negative effects on aid have, at worst, been marginal as most development partners have continued to meet their obligations.

28. Uganda’s trade deficit has been widening despite improvements in the composition and value of exports. The trade deficit as a percentage of GDP declined from an annual average of 12.9 per cent for the period 2000/01 to 2003/04 to 13.5 per cent for the period 2004/05 to 2007/08. The balance of payments has also been unfavourable with a deteriorating trend in recent years. These results could partly be due to lower demand for Uganda’s exports in advanced economies, although this is partly being compensated for by increased regional exports. Table 2.1 indicates that regional trade is taking an increasing share of Uganda’s exports, while the Middle East is also emerging as a major export destination. The European Union which in the past was the leading destination for Uganda’s exports now accounts for about one quarter of total exports.

Table 2.1.

PERCENTAGE SHARE IN TOTAL EXPORTS BY REGION OF DESTINATION

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Source: UBOS Statistical Abstract (various)

29. Whereas imports are becoming more technically advanced, exports are still dominated by primary commodities, indicating that the country’s consumption patterns are changing faster than transformation of its techniques of production. This contrasts with some East Asian economies where exports were dominated by manufactured products. This means, therefore, that the future growth of the service and manufacturing sectors will have to undergo transformation to include new technologies in order to be more competitive in the export market.

30. Growth in GDP has been accompanied by changes in its broad sectoral composition. These changes reflect structural transformation in the economy. Figure 2.1 indicates the trend in the changing shares of GDP for agriculture, industry and services. Between 2000/01 and 2008/09, the share of agriculture to GDP fell rapidly while that of industry registered notable growth between 2004/05 and 2007/08 before converging with the share of agriculture in 2008/09 at about 23 per cent.

Figure 2.1
Figure 2.1

SECTORAL CONTRIBUTION TO GDP (PERCENT) 2000/01 - 2008/09, AT MARKET PRICES

Citation: IMF Staff Country Reports 2010, 141; 10.5089/9781455204373.002.A001

Source: Uganda Bureau of Statistics Database

31. While there have been changes in the sectoral composition of GDP, there has not been a commensurate change in the distribution pattern of the labour force. The GDP share of the emerging modern sectors is increasing but their share of the labour force is falling. The share of the labour force employed in manufacturing and services sectors decreased from 6.8 and 26.8 per cent to 4.2 and 20.7 per cent respectively despite the rise in the GDP shares of these sectors. However, the share of labour force engaged in the agriculture sector increased from 66.4 per cent in 2002/03 to 75.1 per cent in 2005/06 while the share of agriculture GDP declined over the same period. This may be attributed to a variety of factors including: a mismatch between skills acquired and the requirements of employers; the development of low skilled services and industries; the high rate of growth in the labour force and the inability to absorb it in the growing sectors. These trends contribute to low productivity in agriculture which undermines the growth potential of the economy and contributes to issues related to food insecurity.

32. As the GDP growth rate increased with the return to peace in most parts of the country in 1986, per capita GDP also increased. Figure 2.2 shows real per capita GDP between 1970 and 2008. It depicts a declining trend in per capita income until 1988 after which the real per capita GDP began rising, reaching its 1970 level in 2003.

Figure 2.2
Figure 2.2

GDP PER CAPITAL AND POPULATION

Citation: IMF Staff Country Reports 2010, 141; 10.5089/9781455204373.002.A001

Population figures (‘000s) are on the left axis while the real GDP per capita are on the right axis.Source: Uganda Bureau of Statistics Database

33. In spite of Uganda’s economic recovery from the downturn of the 1970s and 80s, its size and the country’s per capita income is still very low compared to other economies in Africa and Asia. While Uganda’s economic performance was at par with that of countries such as Kenya, Ghana and Malaysia in the early 1970s, these economies have since improved significantly over Uganda’s economy (Figures 2.3 and 2.4). For example, Malaysia is now only a role model to Uganda as opposed to being a peer as it was in the 1970s.

Figure 2.3
Figure 2.3

COMPARISON OF PER CAPITA INCOME (USD) OF UGANDA, MALAYSIA AND KOREA 1970-2008

Citation: IMF Staff Country Reports 2010, 141; 10.5089/9781455204373.002.A001

Source: World Development Indicators Database
Figure 2.4
Figure 2.4

COMPARISON OF UGANDA’S PER CAPITA INCOME WITH ITS REGIONAL PEERS

Citation: IMF Staff Country Reports 2010, 141; 10.5089/9781455204373.002.A001

Source: World Development Indicators Database

34. The relatively high economic growth which has been sustained since the early 1990 has contributed to a reduction in the levels of poverty. In 1992/93, 56 per cent of the population was below the national poverty line; this dropped to 44 per cent in 1997/98 and to 31 per cent in 2005/06. A greater proportion of the population living under the poverty line is located in the northern part of Uganda (see Figure 2.5). This is largely attributed to the insecurity experienced in the region for over the past 20 years.

Figure 2.5
Figure 2.5

POVERTY AT SUB-COUNTRY LEVEL

Citation: IMF Staff Country Reports 2010, 141; 10.5089/9781455204373.002.A001

Source: Uganda Bureau of Statistics 2008

35. Inequality in consumption is high in Uganda by African standards. In addition to regional disparities (Table 2.2), there is also a disparity between rural and urban income levels with the mean consumption of the richest area (Kampala) being 2.5 times that of the poorest area (northern region). The data from 1992 to 2006 indicates that whereas rural inequality is declining after a period of an increase, urban inequality is yet to revert to its level of 1992/93.

TABLE 2.2.

INEQUALITY GINI FOR UGANDA

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Source: Comprehensive UNHS 2005/06 and World Bank calculations. 1999/00 data exclude four districts
2.1.2 Primary Growth Sectors

36. The primary growth sectors consist of sectors and sub-sectors that directly produce goods and services. These include: agriculture, forestry, manufacturing, tourism, mining, oil and gas, ICT and housing development. The performance of these sectors has been varying (Table 2.3)2. Table 2.3 presents the share of primary growth sectors in GDP at current prices. Added value in agriculture and industry need to become engines of growth but the agriculture sector has been declining in its growth rate and share of GDP, and the industry sector has not been expanding at a notable rate. While there has been growth in hotels, restaurants (tourism), and communications, these are not yet significant sectors in terms of GDP.

TABLE 2.3.

SHARE OF SELECTED PRIMARY GROWTH SECTORS IN GDP AND GROWTH PERFORMANCE

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Source: UBOS Statistical Abstract (various years)

37. The share of agriculture3 in GDP was 51.1 per cent in 1988 and 33.1 per cent in 1997, declining further to 15.4 per cent in 2008 as shown in Table 2.3. The sharp decline in the share of agriculture in GDP represents significant structural transformation in the economy. Whereas this is a positive development, the challenge is to ensure that this shift is at the same time accompanied by productivity in the agricultural sector, and value addition in the industry and service sectors in order to absorb excess labour from agriculture. Also, there is a compelling need to ensure that productivity growth in agriculture supports the high population growth in addition to reversing the continued dominance of production and export of primary commodities.

38. Between 1988 and 1997, agriculture grew at an average rate of 3.9 per cent and 5.4 per cent between 1998 and 2002. However, from 2004 to 2008, the growth of the sector slowed markedly to average 1.1 per cent, with a growth of -1.8 per cent recorded in 2006. This performance raises issues of productivity in the agricultural sector and the need for radical strategies to improve the productivity levels and modernize the sector. The employment pattern has also been changing but not in a way that reflects transformation in the structure of the economy. The share of the labour force in agriculture increased from 66.4 per cent in 2002/03 to 75.1 per cent in 2005/06.

39. The share of the forestry sub sector in GDP was 2.2 per cent in 1988 and 1.7 per cent in 1997, rising to 3.4 per cent in 2008. The increasing share of forestry in GDP is a positive development. However, the improvement in the contribution of forestry has been characterized by recent declining performance. Between 1988 and 1997, forestry grew at an average rate of 4.7 per cent per year and between 1998 and 2002 at an average rate of 7 per cent. From 2004 to 2008, the sector grew by 3.9 per cent per annum, a trend that needs to be accelerated. This trend is partly due to declining forest cover which decreased from 4,933,746 hectares in 1990 to 3,604,176 hectares in 2005, representing a 27 per cent reduction.

40. The share of the manufacturing sector in GDP was 5.9 per cent in 1988 and 8.4 per cent in 1997, peaking in 2002 and declining to 7.2 per cent in 2008. Between 1988 and 1997, the manufacturing sector grew at 13.2 per cent per year, recording the highest growth of 18.3 per cent in 1995. The sector grew by 7.2 per cent, on average, between 1998 and 2002 and by 6.3 per cent between 2004 and 2008. The share of the labour force employed in manufacturing sector decreased from 0.29 per cent to 0.14 per cent between 2002/03 and 2005/06.

41. The share of tourism in GDP measured by the share of hotels and restaurants4 in GDP was 1.1 per cent in 1988 and 1.9 per cent in 1997, rising to about 4 per cent in 2008. This represents a shift in the economic structure of the economy in terms of its GDP. Between 1988 and 1997, tourism grew by 13.1 per cent per annum on average and 3.8 per cent between 1998 and 2002, increasing to 12.5 per cent between 2004 and 2008.

42. The share of mining in GDP was 0.1 per cent in 1988 and 0.6 per cent in 1997, declining to 0.3 per cent in 2008. Between 1988 and 1997, mining grew at 34.6 per cent per annum on average and 8 per cent between 1998 and 2002. From 2004 to 2008, the sector on average grew by 13 per cent per annum. The share of the labour force employed in the mining sub-sector remained almost constant over the period 2002/03 to 2005/06, increasing from 0.93 to 1.0 per cent respectively.

43. The share of ICT in GDP measured by the share of posts and telecommunications was 0.2 per cent in 1988 and 0.6 per cent in 1997, increasing to 3.8 per cent in 2008. Between 1988 and 1997, ICT grew at 10.1 per cent and 22.8 per cent between 1998 and 2002. From 2004 to 2008, the performance of the sector was 26.2 per cent. There has been a rapid rate of telephone penetration with the number of fixed and mobile lines per 100 people rising from 0.24 and 0.02, in 1996 to 0.56 and 27.68 in 2008 respectively. Internet usage has been slow to pick up partly because of very limited internet support infrastructure available in the country and the low computer literacy rates amongst Ugandans.

44. The share of construction in GDP, which is used as a proxy to measure housing performance, was 4.1 per cent in 1988 and 6.5 per cent in 1997, rising to 11.9 per cent in 2008. Between 1988 and 1997 the housing sub-sector grew at 6.5 per cent and 6.3 per cent between 1998 and 2002. From 2004 to 2008, the performance of the sector was 6.3 per cent. The share of the labour force employed in construction remained nearly the same between 2002/03 (0.08 per cent) and 2005/06 (0.07 per cent).

45. The oil and gas sector is relatively new but with huge potential. The oil and gas reserves in the country are estimated at 2 billion Barrels of Oil Equivalent (BOE)5. To exploit these resources, large investments will be required for further exploration, development and extraction. In addition, government will invest in the necessary physical infrastructure.

2.1.3 Complementary Sectors

46. Complementary sectors consist of sectors and sub-sectors that provide institutional and infrastructural support to primary growth and other sectors, namely: transport, energy, land management and administration, physical planning, urban development, trade development, cooperatives, science and technology and water for production. Table 2.4 shows the share of some of the complementary sectors in GDP and growth performance.

TABLE 2.4.

SHARE OF SELECTED COMPLEMENTARY SECTORS IN GDP AND GROWTH PERFORMANCE

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Source: UBOS Statistical Abstract (various years)

(Figures adjusted to 2002 prices)

47. The share of the transport sector in GDP has been without a clear growth pattern. While the performance of the sector improved between 2004 and 2008 compared to 1998 and 2002, its share in GDP has been about 3 per cent (Table 2.4). The share of the labour force employed in transport sector decreased from 2.84 per cent to 1.61 per cent between 2002/03 and 2005/06. The moderate performance in the transport sector is evident from the low share of the paved road network (4 per cent); limited flights, and limited functionality of the rail system (26 per cent).

48. The share of energy and water in GDP progressively increased between 1988 and 2007 before marginally declining in 2008 (Table 2.4). The growth performance of the sector between 2004 and 2008 was about 2 per cent, reflecting a significant decline. The share of the labour force employed in the energy and water sectors declined from 6.5 per cent to 4.2 per cent between 2002/03 and 2005/06. Uganda’s electricity consumption remains at 60kWh per capita which is low compared to South Africa at 4200kWh, Egypt at 1200kWh and Malaysia at 3200kWh.

49. The share of trade sector in GDP declined between 1988 and 1997 but has since progressively risen to nearly its 1988 levels. Growth performance of the sector averaged 10.3 per cent between 2004 and 2008. The share of the labour force employed in trade increased marginally from 1.35 per cent in 2002/03 to 1.39 per cent in 2005/06

50. Until 1997, the contribution of financial Services in GDP was not reflected in the national GDP series. However, with the growing role played by the sector in the economy’s development, its contribution has reached significant proportions accounting for 3.2 per cent of GDP in 2008. With exception of 2007, where growth performance in the sector declined by 3.9 per cent, overall growth performance of the sector has been impressive. However, the share of the labour force employed in the financial services sector decreased from 2.11 per cent to 1.98 per cent between 2002/03 and 2005/06.

51. Achieving socio-economic transformation requires continuous improvement in the way goods and services are produced within an economy. Measured in terms of percentage exports with high technology content to the total manufacturing exports, the Science, Technology and Innovation sector is still underdeveloped. The expenditure share in R&D as a percentage of GDP is 0.1 per cent; Total Achievement Index (TAI)6 was 0.24 in 2005 compared to the minimum required of 0.35 per cent. The ratio of arts to science graduates is 5:1 and the country has one researcher to 1,000 employees.

52. While Land Management and Administration, Physical Planning and Urban Development are not directly reflected in GDP computations, they play an important role in GDP generation and growth as well as employment and prosperity for all. In the recent years, the level of urbanization in Uganda has been rising rapidly. In 1991, the population living in urban areas was 11.3 per cent, increasing to 12 per cent in 2002 and it’s estimated at 15 per cent in 20097. The urban population growth rate currently stands at 5.9 per cent per annum. The increasing levels of urbanization in Uganda and congestion in Kampala city creates considerable pressures on housing, transport, water, health, education, social welfare, and employment8 which need to be addressed through systematic physical and infrastructural planning.

2.1.4 Social Sectors

53. Social sectors consist of sectors and sub-sectors that provide services required for maintaining a healthy and quality population, and developing the required human resource for effective engagement in profitable economic activities. These sectors include: education, health, water and sanitation, social development and gender, and population.

54. The national population size and its growth have a powerful impact on the achievement of socio-economic goals. Uganda has a fast growing population which has expanded from 9.5 million in 1969 to 24.2 million in 2002 and estimated at 30.7 million in 2009. At 3.2 per cent growth rate per annum (1991-2002), Uganda’s population is projected to reach 38 million in 2015.

55. The high fertility rate coupled with the young population means that the population will continue rising even if fertility declined (Figure 2.6). Nearly half of the population is below the age of 15 years and the population structure is expected to remain youthful for the next fifteen years. The population trend described above represents several challenges to future growth and structural transformation unless serious measures are taken to convert it into a population dividend. Already, Uganda has one of the highest dependency ratios in the world (above 1.5) which is expected to rise under the current growth trends. The causes of high fertility include low levels of education, poor access to family planning services with unmet demand estimated at 41 per cent, a low contraceptive prevalence rate of 24 per cent and early child-bearing with 25 per cent of adolescents being pregnant before the age of 199. Other causes include the prevailing cultural and religious beliefs and preferences for large families as a source of social security at old age.

Figure 2.6
Figure 2.6

POPULATION DISTRIBUTION BY AGE

Citation: IMF Staff Country Reports 2010, 141; 10.5089/9781455204373.002.A001

Source: UBOS Statistical Abstract 2009

56. There is a high growth rate of 3.7 per cent per annum in the unskilled labour force but what the economy requires is skilled labour hence contributing to high levels of unemployment and under-employment. Public sector employment has not grown significantly and can only absorb a few people leaving agriculture to absorb the bulk of the labour force (which was estimated at 75.1 per cent of the labour force in 2005/06).

57. Table 2.5 gives the share of education and health services in GDP between 1988 and 2008 and their performance over the same period. The share of education services in GDP significantly increased between 1988 and 2004 where it peaked at 7 per cent but declined thereafter. Health services on the other hand have maintained an almost constant share for the most part of the period 1988 to 2008 with exception of 1997 where their share peaked at 1.9 per cent of GDP. The growth performance of both sectors has significantly declined with contractions in 2007 and 2008. The share of the labour force employed in the health sector moderately decreased from 2.79 to 2.66 per cent between 2002/03 and 2005/06 respectively while that in education decreased from 0.8 to 0.68 percent.

Table 2.5.

SHARE OF SELECTED SOCIAL SECTORS IN GDP AND GROWTH PERFORMANCE

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Source: UBOS Statistical Abstract (various years)

58. Uganda has made notable progress in increasing literacy and access to education at all levels. Access to Universal Primary Education (UPE) increased from 2.5 million students in 1997 to 7.5 million in 2008, reaching a level of 82 per cent of eligible pupils enrolled. The introduction of Universal Secondary Education (USE) and Universal Post Primary Education Training (UPPET) in 2007 increased secondary school enrolment by 25 per cent from 814,087 in 2006 to 1,088,744 in 2008, with girls constituting 46 per cent. In the same period, enrolment in BTVET increased by 46 per cent from 25,682 to 47,298. The adult literacy rate has improved from 69 per cent in 2005/06 (UBOS, UDHS 2005/06) to 73.6 per cent in 2009 (HDR 2009).

59. In spite of improved performance, Uganda’s progress towards reaching the Millennium Development Goals (MDGs) by 2015 in respect of educational and health status is not as fast as desired. Table 2.6 sets out the results from the UBOS Statistical Abstract 2008. The MDG target for net enrolment ratio in primary education is 100 per cent by 2015 while the outturn in 2005/06 was 84 per cent.

Table 2.6.

PROGRESS ON HEALTH AND EDUCATION RELATED MDGS BY 2005/06

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Source: UBOS Statistical Abstract, 2009

60. Technical, vocational and university education is not yet adequately supporting the development of a workforce with appropriate skills. In 2006, student enrolment in science and technology at both private and public universities was less than 27 per cent of total registered students. This is below the minimum requirement of 40 per cent recommended for rapid and accelerated economic growth and effective contribution in the global knowledge based economy.

61. The current state of Uganda’s health outcomes is mixed as measured by four core indicators set out in Table 2.6. While the trend in all the four outcome indicators was positive, the country fell short of all its defined national targets as articulated in the PEAP and risks missing the international targets. Generally, Ugandan health standards remain poor, even by Sub-Saharan Africa standards. Although there has been a decline in the maternal mortality ratio from 505/100,000 live births in 2001to 435/100,000 in 2006 (UDHS, 2006), it is unlikely that Uganda will meet the MDG target of 131/100,000 live births by 2015. Access to maternal and reproductive health services for girls and women is still low.

62. Uganda’s Human Development Index (HDI) score, which among others, considers life expectancy, literacy, and education enrolment rates, improved from 0.272 in 1995 to 0.58110 in 2006 before reducing to 0.514 in 2009. This is lower than the score of Kenya (0.541) and Tanzania (0.530) in 2009 but within the range of the medium human development category of countries. Uganda’s 2009 HDI score translates into a rank of 157th out of 182 countries with data.

63. Uganda’s development progress however, continues to be constrained by gender inequalities and social vulnerabilities. In the case of gender, Uganda’s constitution guarantees equality between women and men, and has a number of affirmative action measures. Uganda is a signatory to various international commitments11 and has a Gender Policy which provides for a framework for gender responsive development. Affirmative action has led to an increase in the percentage of female Members of Parliament from 18 per cent in 1995 to 29 per cent in 2009. Despite the presence of these measures, gender disparities still persist.

64. Gender based violence is estimated at 68 per cent for females against 20 per cent for males (UDHS 2009). Retention in primary education on the whole is low and exhibits gender disparity with 53 per cent of boys and 42 per cent of girls completing primary school in 2006. Enrolment figures for secondary level education also show gender disparities with only one third of girls who enrolled in primary education continuing in school to the age of 18 years, compared to half in the case of boys (UDHS 2006). HIV prevalence rate is also higher among women (7.5 per cent) than it is among men (5 per cent) (UHSBS 2004/05).

65. Furthermore, though it is estimated that women comprise 70 per cent of the work force in agriculture, they experience unequal access and control over important productive resources like land. This limits their ability to move beyond subsistence agriculture. In wage employment, women are concentrated in the lowest paying sectors, which is linked to their lower education levels; 50 per cent of employed women work in the three lowest paying sectors, compared to 33 per cent of men (2002/02 and 2005/06 UNHS). At the household level, women’s participation in decision making is also limited; only 51 per cent of women reported participating in making major household purchases, and overall men believed that a husband should play the major role in making most household decisions (UDHS 2006). The social vulnerabilities are generally associated with demographic characteristics such as age, disability, unemployment, ethnic minorities and other characteristics such as poverty and disasters. The UNHS 2005/06 report reveals that more than 2.1 million vulnerable children, representing 13.7 per cent of young people below 18 years were under the care of older persons, putting a lot of stress and further impoverishing them. About 1.9 million people (7 per cent of the population), live with disabilities and about 7.1 per cent of older persons have access to pension, of whom 60 per cent are male. Analysis of household survey data (2005/06) reveals that over 80 per cent of the poor, or about 7 million people are still trapped in chronic poverty.

2.1.5 Enabling Sectors

66. Enabling sectors encompass all sectors and sub-sectors that provide a conducive environment and framework for efficient performance of all sectors of the economy. They include defence and security, justice, law and order, legislature, environment management, climate change, water resource management, public sector management, public administration, disaster management, accountability, statistics, meteorology, and EAC integration.

67. For a long time, after independence, the defence and security sector was characterized by weak strategic leadership, unethical code of conduct, and ineffective organs and structures to regulate it. This created problems for the country resulting in animosity between the forces and the civilians, political instabilities and coups. Since 1986, efforts have been directed at addressing these issues. Statutes which guided the forces’ ethical and operational code of conduct were established and restructuring has been carried out. The security forces are subject to parliamentary oversight, making them accountable and properly regulated.

68. Uganda’s relations with her neighbours have greatly improved, which limits the possibility of the re-occurrence of inter-state conflicts, reduces the likelihood of further disagreements over border points as well as eliminating the chances of dissidents using the neighbouring areas to destabilize the country. Peace and stability has been restored throughout the country, including in Northern Uganda where armed conflict had persisted for over 20 years.

69. A number of democratic institutions have been put in place in line with the 1995 Constitution. The three arms of Government namely the Legislature, the Executive and the Judiciary are now in place and functioning, albeit with varying degrees of respect for each other’s constitutional mandate. Parliament continues to exercise its constitutional mandate and has strengthened a number of institutions for promoting democracy and good governance including the Electoral Commission (EC), Inspectorate of Government (IGG), the Auditor General (with enhanced powers), and the Uganda Human Rights Commission (UHRC), among others.

70. However, the country’s culture of constitutionalism is not improving fast enough. Many of the institutions established in the Legislative, Executive and Judicial branches of Government are still struggling to fully embrace the ideals, principles and practices of democracy. The media has been liberalized and is relatively free with both the print and electronic media providing citizens with ample opportunity to express their views on a wide range of issues that affect their lives. At the same time, Uganda has seen a dramatic emergence of non-governmental and civil society organisations able and willing to engage the arms of Government in policy debate and advocacy on democracy and good political governance issues, albeit with challenges in the policy and regulatory framework. However, the citizenry in general is not yet empowered to engage effectively in demanding their rights and insisting that institutions meet their obligations.

71. The country has established a number of institutions to enable effective public sector management. These institutions are responsible for policy formulation and implementation and public service delivery. However, there are opportunities to improve the structure of the public sector. There are issues with the allocation of roles and responsibilities which sometimes affects service delivery. Most of public institutions were formed in the early 1960s before the liberalization policies of the 1990s. The organization of some public institutions is not suitable and impedes the delivery of policy, regulation and public services. Other issues include: overlaps and duplication of mandates, weak oversight of institutions, poor corporate governance and weak regulatory frameworks. The civil servants are still poorly remunerated and this limits their productivity. Furthermore, the coordination of the public sector institutions is still a challenge.

72. The progress made both in public administration and public sector management is being hampered by corruption at various levels of Government. Government recognises the devastating socio-economic effects of corruption and is committed to taking corrective and deterrent measures in order to fully realize the potential for improving social and economic conditions. Uganda ranks 130th out of 180 countries on the Transparency International’s 2009 Corruption Perception Index, while many African countries rank better (Tanzania 126, Zambia 99, Swaziland 79, South Africa 56, and Botswana 37).

73. In order to enhance accountability in Government, the accountability sector was established in 2007 with the goal of promoting, supervising and implementing accountability systems. The sector comprises of the Ministry of Finance, Planning and Economic Development; the Inspectorate of Government; Office of the Auditor General; Directorate of Ethics and Integrity; Ministry of Public Service-Inspection; Ministry of Local Government; Public Procurement and Disposal of Public Assets Authority; Uganda Bureau of Statistics; Uganda Revenue Authority; and Development Partners. There is also a Stakeholders Forum in which civil society views are presented and addressed. Civil Society includes private business, media, anti-corruption NGOs, and community groups which play a vital role in representing views and experiences of public service beneficiaries and holding public officials accountable.

74. The legal, policy and regulatory framework that guides the accountability sector include the Budget Act, 2001, Public Finance and Accountability Act, 2003, the National Audit Act, 2008, the Leadership Code Act, 2002, the National Records & Archives Act, 2001, Public Procurement and Disposal of Public Assets Act, 2003, and the Access to Information Act, 2005. Other laws pending legislation include: the Anti-Money Laundering Bill, the Anti-Corruption Bill, 2008, and the Whistle Blowers’ Bill. A special court has also been established to try corruption cases.

75. There is a need to ensure that there is sustainable management of the environment and natural resources. The environment is characterized by a geographical variance in rainfall levels. The amount of rainfall ranges from 400mm in Karamoja to 2200mm on Ssese Islands in Lake Victoria. The total renewable water resources are estimated at 66Km3 per year corresponding to 2200m3 per capita per year. While this meets the current needs of the country, it is estimated that by 2017, Uganda will be a water stressed country.

76. There are serious challenges in reversing the reduction in the habitant cover which decreased from 95 per cent in 1980 to 85 per cent in 2000. Associated with this, the native species have been declining with the population index decreasing from about 60 per cent in 1980 to 40 per cent in 2005. There has been reduction in total fish production from 434,000 tonnes in 2004 to 374,000 tonnes in 2007. The biodiversity has also been decreasing as reflected in the change in the biodiversity index from 0.8 in 1980 to 0.7 in 2005 and the reduction in the species richness index from 95 per cent in 1980 to about 85 per cent in 2005. The ecological footprint has decreased from 2 in 1980 to 1.6 in 2005 and the bio-capacity has decreased from 2 in 1980 to 1.2 in 200512.

2.1.6 Private Sector Performance

77. The private sector in Uganda largely comprises of Micro, Small and Medium Enterprises (MSME) and these cut across sectors of the economy, contributing 20 per cent of the GDP.13 The number of registered businesses in Uganda was 25,000 in 2007 with the majority (11,003) located in the central region of the country. Of the firms across sectors, those in the industry constituted 17.7 per cent, and were mainly engaged in beverages, sugar, textiles, building materials, foot wear, packaging, and food processing.

78. Although the private sector has grown rapidly between 2001 and 2007, growth in the number of Arms has been concentrated in small firms with low value addition, whereas larger Arms with high value added per employee did not increase as fast. The service sector is the fastest growing in Uganda (13 per cent per annum), with 32 per cent of these investments owned by Ugandans. Predominant in the service sector are telecommunications, hospitality and trade sub-sectors.

79. MSMEs employ over 1.5 million people of the total non-farm workforce. These include; retail trade, education and restaurants accounting for the bulk of total employment in new firms. With the exception of education, it was found that the rapid growth in enterprises is focused on low-value services and is, therefore, unlikely to be a platform for significantly transforming the economy.

80. The economic conditions and the business climate have significant impediments, as indicated by various studies. The World Economic Forum’s Country Competitiveness Index 2009 ranks Uganda 108 out of 133 countries. Many other African countries rank better (Tanzania 100, Kenya 98, Namibia 74, Botswana 66, South Africa 45) indicating better investment and business environments in those countries. In this study, Uganda deviates negatively compared to a peer group of factor economies with regard to health, primary education, higher education and training, infrastructure, institutions and technological readiness.14 These are key sectors that need to perform well to support the primary growth sectors. As shown in Figure 2.7, there is a positive deviation from this group with regard to Uganda’s macroeconomic stability, financial market sophistication and labour market efficiency.15

Figure 2.7
Figure 2.7

COMPARISON OF UGANDA’S COMPETITIVE POSITION TO PEER GROUP

Citation: IMF Staff Country Reports 2010, 141; 10.5089/9781455204373.002.A001

Source: World Economic Forum: World Competitiveness Index 2009

81. The international “Doing Business Survey 2010” report ranks Uganda 112th out of 183 countries on a wide range of business indicators. Problems are identified in particular for registering property, trading across borders, protecting investors, starting a business, enforcing contracts, and getting credit. As Figure 2.8 shows, these impediments, among others, are affecting the competitiveness of the economy, with the main issues being access to finance, corruption, infrastructure, tax administration, work ethics, and Government bureaucracy.

Figure 2.8
Figure 2.8

SIGNIFICANT PROBLEMS IMPEDING COMPETITIVENESS 2009

Citation: IMF Staff Country Reports 2010, 141; 10.5089/9781455204373.002.A001

Source: World Economic Forum: World Competitiveness Index 2009

82. The Government has been implementing measures to address the barriers to investment through the Competitiveness and Investment Climate Strategy. However, actions have been slow and often uncoordinated. The Third National Competitiveness Forum noted similar issues to the ones identified in Figure 2.8, as well as a broader range of issues that included: high transport costs; lack of a policy framework for private-public partnerships; poor urban planning; and limited market size16. Other issues that were noted include: the potential effects of the financial crisis in many countries and the world economic downturn reducing FDI and remittances. Similar problems were identified in a survey of small and medium enterprises.17

2.1.7 Civil Society

83. As acknowledged in past Government policy frameworks, ‘it is essential for the concept of civil society that their actions are not planned or dictated by the Government’18. Civil Society in Uganda is as diverse as the concept itself, making it quite challenging to work with the sector. However, the emergence and growing importance of broadly inclusive non-governmental platforms presents an opportunity to engage with civil society in a more strategic and sustained manner. These platforms currently include non-governmental organisations (NGOs) and other non-profit entities including faith based organizations, trade unions, community based organizations, professional associations and interest groups.

84. When examining the structure of Uganda’s civil society, a mixed picture emerges. The participation of the citizens in CSOs appears to be very extensive. To a great extent, this is because rural life, in this largely agrarian country is often characterised by membership in various forms of community and other mutual help groups, which are socially inclusive, and to which faith-linked organizations can be added. Most of these CSOs are donor-dependent. The sector is fragmented across many facets of development and tends to favour accountability towards donors over accountability to the local population.

85. Following the Paris Declaration, CSOs are increasingly seeing advocacy work as a legitimate undertaking. It is also an area of work that donors support and where the Government is opening avenues, especially at the district level where some of the CSOs are being contracted for service delivery.

86. Despite the important role that civil society has and can play in the development process, a number of factors directly and indirectly work against their full effectiveness. The NDP has identified a weakness in the lack of a comprehensive and consistent framework to institutionalize the interface between NGOs and various Ministries, Departments and Agencies (MDAs) at national and district level. The current NGO law also constrains the engagement between NGOs and Government, thus fuelling mutual suspicion and sometimes hostility, rather than cooperation and partnership.

87. Several agencies of Government have little understanding of what conceptually NGOs are and or ought to be partly due to lack of comprehensive information on the nature, precise contribution and value of NGOs work to Uganda’s development. Several agencies thus view NGOs as appendages of the Government whose programmes and financing should be integrated in Government plans. Furthermore, there is little empirical information available or known about what NGOs do, where they do it and the impact of their activities. Thus, the outcome of their work is not meaningfully captured in development statistics.

2.2 MOST BINDING CONSTRAINTS

88. As observed in the Barcelona Agenda 2004, Government will adopt a range of policies and interventions in its development strategy in the NDP in order to address the most binding constraints to economic growth. This will entail implementing a mix of microeconomic and macroeconomic policies and interventions, with the Government playing a more significant role. These actions will stimulate growth and productivity in the private sector and will improve performance in the public sector. In this context, a systematic methodology for undertaking country diagnosis and identifying the most binding constraints to growth was used in the course of the NDP preparation process. These constraints are presented below:

2.2.1 Constraint 1: Weak Public Sector Management and Administration

89. Analysis of the binding constraints to growth in Uganda reveals that public sector management and administration is characterized by weak policy, legal and regulatory frameworks; weak institutional structures and systems; weak civil society and civic participation; inadequate data and information; inadequate standards and weak quality infrastructure; limited social protection and support systems; and weak management of environment and climate change. Over 70 per cent of the Government sectors have obsolete, absent or weak policy frameworks. The weak institutions, structures and systems take the form of inappropriate organizational structures, inadequate systems, understaffing, limited strategic oversight, overlapping and duplication of roles, protracted institutional infancy, weak client responsiveness and inefficient bureaucracy. This weak public sector management has led to low absorption of public funds and poor delivery of services.

90. Although considerable efforts have been made to reduce corruption, including putting in place an appropriate legal and institutional framework, it still significantly affects public service delivery in the country. Corruption is most rife in procurement, administration of public expenditure and management of revenue. The citizenry is not yet fully empowered to engage effectively in demanding better performance from Government institutions in meeting their obligations and providing services. Corruption has remained high at various levels of Government, with Uganda’s ranking moving down from 126 to 130 out of 180 countries on Transparency International’s Corruption Perception Indices for 2008 and 2009.

91. While Uganda has signed some international standards and codes, it has not yet ratified and domesticated many of them. These are relevant not only for benchmarking good practices for promoting good governance and sustainable development, but also enhancing the country’s competitiveness through participation in key economic organisations. There is also a limited range of formal international standards related to the quality of goods and services that have been implemented in Uganda. There are 1,204 Ugandan standards which is an extremely low number compared to Kenya which has up to 8,000 standards. Out of the registered 25,000 firms, only 86 are certified by ISO. Only 203 firms are certified by UNBS.

92. There are many areas where citizens are pressing Government for better performance given that the poverty level was at 31 per cent in 2005/06 and inequity is evident in the relatively high Gini-coefficient data. Progress towards the MDG goals is not as fast as desirable, with poor outcomes for health in particular. There are also gaps in social protection. As of March 2007, the pension scheme covered only 44,000 public servants while the NSSF protected 1,282,994 workers between 1967 and 2003. Orphans and vulnerable children are estimated at 7.5 million of whom, only 23 per cent are adequately cared for.

93. The management and administration of land in Uganda is still a major challenge and will require additional input to implement the Land Act as amended in 2009. The complex and multiple land tenure systems have severely limited land use planning and utilization. Presently approximately 10 per cent of the total land area is titled. In addition, there are problems of alteration of land titles to the extent that it has caused a number of land disputes.

94. The management of the environment is not effective and remains relegated to few institutions that face significant challenges in enforcement. Over 7 per cent of the original wetland area had been reclaimed as of 2005. The forest cover declined from 24 per cent in 1990 to 18 per cent in 2005. Similarly, the habitat cover had reduced from 95 per cent in 1980 to 85 per cent in 2000. Given this trend, the country will experience significant adverse environment and economic effects in the near future.

2.2.2 Constraint 2: Inadequate Financing and Financial Services

95. In the public sector, despite concern about inefficiencies in the use of public funds, the majority of Ministries, Departments and Agencies (MDAs) usually cited funding as a key constraint to delivery of public goods and services. The financing constraint in the public sector is manifested mainly in under-funding of priorities of public sector programmes and projects, thereby impeding the quantity and quality of service delivery. In 2008, the Government domestic revenue, as a ratio of GDP was about 13 percent, which is low compared to about 25 per cent and 17 per cent for Kenya and Tanzania respectively. While this ratio is projected to grow over the NDP period, the Government has to rely on external financing for much of the budget expenditures, especially in the category of capital development. In this situation, it will be constrained to some extent, in its ability to match expenditure to priorities in a timely way.

96. In the private sector, availability of and access to financial services is also one of the major constraints. Non-availability of financial services is manifested in form of a lack of sufficient financial services infrastructure required to deliver appropriate financial services across the country. For instance, only 23 districts in Uganda have commercial banks. The situation is worse in most of the rural areas as most banks are situated in urban centres. The number of bank accounts in the country is about five (5) million, representing a 16 per cent penetration. This low financial penetration limits access to safe and sound financial services and therefore, access to high quality and low-cost finance. The capital market for long term funds is still under developed. There are currently six local equities and five cross border listings with Government and corporate bonds traded on stock exchange in Uganda, which compares poorly with Nairobi stock exchange in Kenya with 46 listed firms.

97. The nominal lending interest rates of banks range from 17 per cent to 23 per cent which is high and, except for very few areas where the rates of return on investments are higher, such interest rates are bound to continue discouraging investments. In the formal micro finance sector, nominal lending interest rates are even higher, ranging from 24 per cent to 36 per cent per annum, and the situation is worse in the informal microfinance systems. Coupled with the low savings culture in the country, raising relatively cheap domestic capital for investment is expensive and will require boosting the mobilization of domestic resources for intermediation through promoting rural savings, and further development of pension and insurance systems.

2.2.3 Constraint 3: Inadequate Quantity and Quality of Human Resource

98. The quality of human resource is important to organizational success. Despite the large and fast growing youthful labour force and the Government’s efforts to provide education and training at various levels, the country continues to experience deficits in the supply of skilled human resources. This is evident in the limited availability of skilled labour as partly shown by wide wage differentials, and the high number of vacant posts in technical areas. The lack of skilled human resources is associated with quality issues in the education system, including low school completion rates, limited capacity in the vocational and technical training institutions, and the brain drain from the country. This is exacerbated by inadequate manpower planning in key areas of the economy.

99. The health sector, for example, continues to experience considerable workforce challenges arising from numbers, skills and motivational factors. The ratio of doctors to the patients in Uganda was 1:24,725 which is significantly lower compared to Kenya at 1:7,100, Cuba at 1:169 in 2002, and Malaysia at 1: 1,430 in 2000. The ratio of nurses to the population in Uganda is 1:1,634, compared with 1:877 in Kenya, 1:740 in Malaysia in 2000 and 1:134 in Cuba in 2002. The low number of health professionals in Uganda adversely affects the delivery of health services. The situation is similar with regard to the low levels of qualified people in other professions.

100. Human resource development is further encumbered by low service delivery standards in health and education sectors. For national referral hospitals the ratio is 1:30,000,000 whereas the standard should be 1:10,000,000. At the level of Health Centre IV (HC IV), the ratio is 1:187,500 whereas the desired ratio should be 1:100,000. For Health Centre III, the ratio is 1:84,507 whereas the optimum should be 1:20,000. For the education sector, at primary level, the class room pupil ratio is 1:68 compared to the target of 1:53. For secondary school level, the student classroom ratio is 1:60 whereas the target is 1:35. In addition, the curriculum and methods of training employed in the National education system do not adequately prepare graduates to standards that are globally competitive, thus rendering the country to continually depend on foreign experts in specialised fields.

2.2.4 Constraint 4: Inadequate Physical Infrastructure

101. Physical infrastructure plays a major role in the movement of final goods and services as well as factor inputs from places of supply to places of demand. Thus, inadequate physical infrastructure constrains production in many sectors of the economy. In the transport sector, the road sector, which carries 96.4 per cent of the total cargo freight, only 4 per cent of it is paved. The rail network carries only 3.5 per cent of the freight cargo and only 26 per cent of it is functional. This contrasts with China and India where over 90 per cent of the cargo is transported by rail. The cost of cargo freight by road is 3 times more than the cost of using rail. There are no functional wagon ferries and the country has only one entry-exit airport. Transport costs remain a significant trade barrier, equivalent to effective protection of over 20 per cent and imposes an implicit tax on exports of over 25 per cent (and up to 50 per cent on air freight). As a result, the cost of doing business in Uganda is high, undermining economic competitiveness.

102. In the power sector, only 11 per cent of the population has access to electricity in comparison to 15 percent in Kenya and 98 per cent in Malaysia. The power consumption stands at 60 kWh per capita compared to Kenya at 140 kWh per capita and Malaysia at 3,200 kWh per capita. The low level of consumption of electricity is mainly explained by a low generation capacity and inadequate distribution network, followed by the high power tariffs which are the second highest in the world after Sweden. The Tanzania electricity consumer pays USD 8cents per kWh; Kenyan consumer pays 13 cents per kWh, while Uganda consumer pays 22 cents per kWh. Moreover, the supply of electricity in Uganda experiences disruptions due to load shedding and power outages, although this has improved in recent years as a result of short term but expensive interventions to mitigate the impact on the economy.

103. Communication infrastructure has improved significantly following liberalization of the sector that has attracted substantial private sector investments. However, the limited coverage, cost of access and usage as well as limited diversity of communication mediums are still major constraints. For example, the internet infrastructure is still limited with most concentration in the capital, Kampala. The price of the Internet in Uganda is still very high for everyday users at USD 14 cents per minute compared to Malaysia at USD 0.155 cents per minute. The problem of high cost and hence limited use of the internet is related to inadequate bandwidth and other related infrastructure. The situation is expected to improve following the connection of East Africa to the undersea cable and installation of the National ICT backbone in Uganda.

104. The consumptive use of water stands at 21 cubic meters per capita which is far below the world average of 599 cubic meters per capita. This means that less water is used for irrigation and industry, estimated at 28 times less than the world average. Access to safe water stands at 63 per cent for the rural and 72 per cent for the urban population. This is low compared to Malaysia with 96 per cent and 100 per cent in the rural and urban areas respectively. The available data suggests that 30 per cent of the population has no access to safe water supply for domestic use.

2.2.5 Constraint 5: Gender Issues, Negative Attitudes, Mind-set, Cultural Practices, and Perceptions

105. Certain elements in Uganda’s traditions, culture and religious norms are not supportive to modern approaches in society and have, therefore, limited economic growth and structural transformation.

106. There is discrimination against women in Uganda through traditional rules and practices that explicitly exclude them or give preference to men, and this is a key constraint on women’s empowerment and economic progress. At the governance level, these rules and practices limit political and economic participation of women. This in turn, leads to formulation and passing of policies and laws which do not protect women’s rights. At the community and household level, women are restricted from participating in important decisions such as resource use, family planning, and access to services such as health and education. Women have been marginalised in access to ownership and control over land, education, business ownership, skills development, access to financial resources; employment and inheritance rights. The culture of early marriages amongst girls increases the rate of early pregnancies and is partly responsible for the country’s high maternal mortality rate and high fertility rate. At all levels, the culture of ignoring various forms of violence against women must also be reversed in order to unlock critical barriers towards women’s empowerment.

107. In terms of culture, Uganda has lagged behind in development partly as a result of backward cultural practices, beliefs, attitudes and a lack of national ethical values in political, social and economic spheres. These are manifested in the form of; poor time management, negative attitudes towards work reflected in low human productivity and low entrepreneurial spirit, high dependency levels which stood above 1.5, large family size and rapidly growing population, female genital mutilation, property inheritance which favours mainly the male gender, the lack of ethics integrity and patriotism; and a tolerance for corruption.

108. Negative attitudes and perceptions influence the use and appreciation of natural resources, adoption of science and technology, and use of ICT. There is low utilisation of contraceptives among the population and slow behaviour change resulting in increased HIV/AIDS prevalence rate. In addition, negative attitudes towards immunization still persist, contributing to lower coverage which stands at about 46 per cent.

109. The poor business and entrepreneurial attitudes of the indigenous private sector is partly reflected in the country’s high enterprise mortality rate, the highest in Global Entrepreneurship monitor reports of 2005, 2006 and 2007. The survey reports rated Uganda in the top countries, globally, in terms of enterprise creation. The high failure rate of not only fledging businesses, but also those that accessed capital, large export markets, combined with the low number of successful joint venture investments below local entrepreneurs and foreign investors underscore the poor business attitudes of Uganda’s SME’s.

2.2.6 Constraint 6: Low Application of Science, Technology and Innovation

110. Science, Technology and Innovation (STI) play a vital role in generating growth and socio-economic transformation. The low level of total factor productivity experienced in Uganda is partly due to limited application of STI in the production processes and service delivery mechanisms. The constraint is manifested in terms of poor quality of products and services; a low technology component of exports as evidenced in the percentage of manufactured exports to primary exports which was as low as at 4.2 per cent in 2008/09; and low numbers of R&D personnel with one R&D personnel per 1000 labour force compared to OECD countries that range from 5 to 18 R&D personnel per 1,000 labour force. Technology Achievement Index (TAIf is 0.24 compared to Malaysia at 0.34. The share of expenditure on R&D as a percentage GDP is 0.3 per cent compared to Malaysia at 0.63 (2005/06). In 2001, Uganda published only 91 articles in respected journals compared to about 10,000 by Israel. In the area of innovations, only 3 patent applications are submitted per year compared to Malaysia that has over 6000 patents per year. The ratio of science graduates to Arts graduates is 1:5 whereas in Malaysia it is 1:1.5.

2.2.7 Constraint 7: Inadequate Supply and Limited Access to Critical Production Inputs

111. Value is created through a production and exchange process. Inputs are at the centre of the value chain creation. Examples of these inputs include raw materials such as fertilizers and water, human and financial resources, and physical capital. Some of these inputs are in serious short supply or are very expensive, thereby curtailing their widespread use. For example, fertilizer use in Uganda is at 1kg/hectare having increased from 0.37kg hectares in 2000 compared to 6kg/ hectare in Tanzania, 16kg/ hectare in Malawi, and 31.3 Kg/ hectare in Kenya. This is partly attributed to high cost which has almost tripled from USD 252 per ton in January 2007 to USD 752 per ton in January 2008 (IFDC 2008). Use of fertilizers can boost the yields by 50 per cent. Currently irrigation is carried out on 14,418 hectares of land against an irrigation potential of 400,000 hectares. This represents 3.6 per cent of irrigation potential exploited, explaining the low consumptive use of water for production which stands at 21 cubic meters per capita, far below the world average of 599 cubic meters per capita.

112. The cost of 50kg of cement in Uganda is about USD 15 compared to USD 3 in Malaysia and about USD 10 in Kenya. Uganda currently has four steel mills, which use scrap as their basic raw material. National demand for steel products is estimated at 60,000 to 80,000 metric tons per annum while the current production level is estimated at only 7,000 metric tons per annum which represents 9 per cent of the demand. This is very low compared to Kenya that produced over 220,000 tonnes in 2003. Lack of access to these critical production inputs severely affects development.

PART 2: STRATEGIC DIRECTION AND THE NDP STRATEGY

CHAPTER 3 THE STRATEGIC DIRECTION

3.1 VISION

113. The Vision for Uganda is “A transformed Ugandan society from a peasant to a modern and prosperous country within 30 years”. This implies changing from a predominantly peasant low income to a middle income country within 30 years. It is envisaged that the country will graduate to the middle income segment by 2017. The Vision provided the direction of the theme for this NDP. The Vision attributes are:

  • a) Independence and sovereignty: Ugandans aspire for a country that is both independent and sovereign in every aspect, a country free to govern itself and having complete power with freedom from undue political control by other countries and with the citizens determining their political destiny.

  • b) Democracy and the rule of law: Democracy and observance of the rule of law is a major pillar of a modern society. In the next 30 years, Uganda needs to consolidate and enhance the democracy so far attained to provide a solid foundation for transformation into a modern and prosperous society.

  • c) Stability and peace: An important pre-requisite for the development of any country is peace, stability and social cohesion in an environment of democracy, political and social tolerance. Ugandans aspire to live peacefully with other countries and in harmony within their social cultural and ethnic diversity.

  • d) Knowledgeable and skilled: Knowledge, information and skills are a pre-requisite for a modern society. Uganda aspires to equip the population with the relevant knowledge, information and skills to enable them improve their quality of life, respond to development challenges and compete nationally, regionally and internationally.

  • e) Able to exploit and use its resources gainfully and sustainably: Ugandans should be able to exploit and use national resources gainfully and sustainably to promote competitiveness, independence, self-sustenance and a dynamic economy, which is resilient to any external shocks; an economy which supports stability and protection of biological and physical systems.

  • f) In a strong federated East Africa with an effective African Common Market and a strong African Defence Mechanism: To realize its 30-year vision of a modern and prosperous country, Uganda aspires to become a major player in East Africa, regional and other international markets. In addition, Uganda will embrace being a member of a strong African Defence Mechanism.

114. This Vision aims to transform the Ugandan society from a predominantly peasant-based economy to a just, peaceful and prosperous middle-income country. It will be realised through the implementation of three Ten-Year National Development Plans, sub divided into six Five-Year National Development Plans, Sector Master Plans, and Annual Plans and Budgets. These will be augmented by an effective implementation and monitoring mechanisms across political, economic, social and cultural targets. The NDP will guide the revision of the MTEF and the formulation of the annual budgets.

3.2 THE NDP THEME AND OBJECTIVES

115. The theme of this NDP is “Growth, Employment and Socio-Economic Transformation for Prosperity”. Each of the elements of this theme provides an overall thrust to what Ugandans want to be achieved during the NDP period.

116. Throughout the world, the magnitude of economies is measured by the size of their wealth, commonly referred to as Gross Domestic Product (GDP). It is the goal of every economy to increase its GDP in a rapid, efficient and sustainable manner. Broad-based economic growth increases revenues, stimulates employment, generates additional goods and services and advances the standard of living of the population. Embedded in the NDP theme is the desire to balance wealth creation with sustainable poverty reduction, which calls for growth with equity. That is, increasing the GDP while improving the socio-economic indicators such as the number of people living below the poverty line and infant mortality. Employment creation is equally critical for both wealth creation and poverty reduction. During the NDP period, the size of Uganda’s economy must not only increase significantly, but it should do so in such a way that creates adequate gainful jobs that are in tandem with the growing labour force. As already noted in the analytical sections, growth in employment will require stronger socio-economic transformation which should in turn feed into additional growth, gainful employment creation and eventually the prosperity of all citizens. Additional policies for transformation and social protection need to be targeted at the welfare of people who are unable to work or lack basic resources.

117. In line with this theme, the plan seeks to significantly improve specific development indicators associated with transformation. These include raising average per capita income levels, improving the labour force distribution in line with sectoral GDP shares, raising the country’s human development indicators and improving the country’s competitiveness to levels associated with middle income countries.

118. To achieve the NDP theme, the following eight objectives were identified as being strategic:

  • a) Increasing household incomes and promoting equity. The attainment of this objective is critical for sustainable economic development. This will be assessed by measuring changes in; income per capita, income distribution, employment, skills development and agricultural production and productivity.

  • b) Enhancing the availability and quality of gainful employment. The attainment of this objective will be assessed based on; availability of employment, diversity of professional employment, the level of incomes, and increased industrial investments, production and productivity.

  • c) Improving stock and quality of economic infrastructure. This objective has two aspects: quantity and quality. Its attainment will be assessed by; increased generation, distribution, access to and consumption of electricity; quantity and quality of the road network; increased functionality of the railway network; increased access to telecommunication services; access to mass public transport; and access to affordable banking services.

  • d) Increasing access to quality social services. Ultimately, the fruits of development are; manifested in the social status of the population. Common measures of this objective include: literacy levels, life expectancy at birth, infant mortality rate, maternal mortality rate, safe water coverage, sanitation levels and incidence of communicable diseases and HIV/AIDS.

  • e) Promoting science, technology, innovation and ICT to enhance competitiveness. Assessment of this objective will be based on the share of exports with high technology content in total exports; strengthened institutional capacity and the status of science and technology; increased capacity for R&D and innovation; increased capacity, access and use of ICT; and increased number of S&T and ICT professionals.

  • f) Enhancing human capital development: This objective is a cornerstone of sustainable development and its achievement will be assessed by increased skilled manpower among nationals, increased institutional capacity for relevant skills development, and increased proportion of regional and international students trained.

  • g) Strengthening good governance, defence and security: This objective will be assessed based on the quality of socio-economic and political governance; economic and corporate governance; the quality of democracy and the level of security.

  • h) Promoting sustainable population and use of the environment and natural resources. To assess the attainment of this objective, the following will be measured: health status of the population, the quality of human settlement and urbanization, progress in restoration of degraded ecosystems, and the quality of management of environmental resources.

3.3 PRINCIPLES OF THE PLAN

3.3.1 Ownership

119. The realisation of a national vision requires the wholehearted support of all stakeholders. The same applies to a national plan derived from the vision and intended to achieve its goals and objectives. The ownership is not only for the formulation process but also for a smooth and successful implementation of programmes, projects and other initiatives that should lead to the realization of the objectives of the NDP.

3.3.2 Political Will

120. This National Development Plan requires strong backing from the political leadership at all levels just like the vision from which it is derived.

3.3.3 Good Governance

121. Good governance is the positive exercise of authority. It is characterized by citizen transformation and participation in governance, control of corruption, political stability, respect for the rule of law, Government effectiveness, regulatory quality and effective knowledge management. It is a prerequisite for achieving growth and poverty eradication. Therefore, to successfully implement the NDP, good governance is of paramount importance.

3.3.4 Resource Availability

122. It will be extremely important to ensure the availability of resources for implementing the planned programmes. This will require taking measures to eliminate wasteful spending, fighting corruption, intensifying accountability, improving the allocation of resources, increasing efficiency in the use of resources and giving more attention to effectiveness through monitoring and reviews.

3.3.5 Balanced Development

123. While recognising that the economy will reflect Uganda’s comparative advantage, implementation of the NDP will encourage the development of sectors with potential competitive advantage rather than relying only on the current sectors. In this way the country’s targeted growth will not hinge on a few sectors, as many others will have the potential to contribute to growth. With the discovery of oil and gas, the country will need to guard against getting trapped into the “Dutch disease syndrome” which could have adverse effects on the exchange rate and distort production incentives for other non-oil sectors thus undermining the country’s export potential and diversification.

124. The second dimension of balanced development is linked to ensuring that all regions of the country benefit from growth of the national economy by equitably using national resources, better infrastructure and other development projects to realise higher investments levels required to fight poverty, promote social equity and harmony.

125. The other dimension of equity is promotion of gender and human rights. The NDP follows various international conventions and resolutions that promote equal opportunities and enjoyment of human rights for both men and women. Gender, disability and human rights mainstreaming are a core part of the planning process.

3.3.6 Behaviour Change

126. Behaviour change is needed in many public and private sector groups as well as in many citizens, and is crucial for rapid economic growth and transformation. The people will need to adopt a new attitude to public property, assets, amenities and the environment and be patriotic to their country. They should demonstrate and exercise concern for other citizens, especially the elderly, the disabled, and children. This includes being committed to promoting gender equality so that men, women, boys and girls have equal opportunities and access to resources. Ugandans should start appreciating hard work, discipline and patriotism.

3.3.7 Linkage with the National Planning Processes

127. The road to transformation will require careful planning and commitment of resources. The NDP is expected to be an all encompassing plan for the next five years, which will also act as a guide to any future planning. In essence, all ministries, departments and autonomous and semi-autonomous entities will realign their development priorities with the NDP.

3.3.8 Sustainable and Equitable Development

128. Sustainable development is about using resources to meet human needs while preserving the environment. For several decades, development has concentrated on improvement and advancement of economic, social cultural and political conditions and less on preserving the environment. This has resulted into global warming and other adverse environmental conditions associated with climate change. Less focus on gender inequalities has also often promoted discrimination against the female sex. The implementation of the NDP should ensure sustainable and equitable development.

129. While balancing wealth creation with poverty reduction, the design and implementation of the NDP emphasizes sustainable development through preservation of natural resources such as forests and wetlands. Access to basic needs such as education, health services, food, housing and the equitable distribution of incomes among all citizens shall be promoted. As part of implementing sustainable development, every person shall be assured of a life of dignity, including a life in a society that respects and helps realize human rights.

3.3.9 Effective Implementation, Monitoring and Evaluation Mechanism

130. In the course of the implementation of the various NDP initiatives, it will be important to determine whether or not the country is on course towards achieving its goals and objectives, whether or not progress is being made and success being registered. An effective implementation mechanism should lead to the achievement of the goals and objectives. To this end, effective monitoring and evaluation will be undertaken to provide relevant information which will be used to fine-tune, re-orient, or otherwise alter the proposed initiatives. Effective M&E is important for measuring and reporting progress towards the planned objectives and related targets.

131. This chapter sets out the strategic approach for the achievement of the objectives of the Plan. The strategies in this Plan are presented in three categories. The first category (section 4.1) deals with elements of the broad development approach the country will pursue in the course of the Plan period. The second category (section 4.2) focuses on the specific ways for unlocking the most binding constraints identified in Chapter 2. The third category entails approaches that the Sectors will pursue to realise their respective objectives over and above the specific ways for unlocking binding constraints. These strategies are detailed in Part 3 of the Plan. The investment priorities are presented in section 4.3.

CHAPTER 4 THE NDP STRATEGY

4.1 STRATEGY CONTEXT

132. Uganda’s Vision of a transformed society from a peasant to a modern and prosperous country within 30 years provides the overall strategic planning framework for the NDP. The NDP objectives have been designed to incrementally attain this Vision.

133. The overarching policy of the NDP will intertwine economic growth and poverty eradication. Policies and strategies will be focused towards achieving accelerated and sustainable growth in the priority areas, creation of gainful employment and socio-economic transformation for prosperity. Increasing incomes beyond the subsistence level and stimulating growth requires sustained orientation of Government expenditure and interventions towards the effective resolution of the most binding constraints highlighted in Part 1. Attention to these areas will have impact on the efficiency and effectiveness of service delivery, productivity, household incomes and overall economic development.

134. A quasi-market approach, which includes a mix of government investments in strategic areas and private sector market driven actions, will be pursued. The private sector will remain the engine of growth and development, while Government, in addition to undertaking the facilitating role through the provision of a conducive policy, regulatory and institutional framework, will also actively promote and encourage public-private partnerships in a rational manner. Furthermore, the Government will continue to pursue outward-oriented policies by encouraging foreign investments and exports with high value addition, as well as pursuing sound macroeconomic policy and management.

135. In order to bring together all national development stakeholders to achieve common goals and objectives, a “business approach” will be adopted in the implementation of the NDP. The fundamental basis of this new approach is that successful national development requires the public and private sectors to adhere to the perception of the nation as a ‘corporate’ or a ‘business entity’, jointly owned by both sectors and working in tandem in pursuit of a common vision. The main postulate of this policy is the imperative to evolve a meaningful working relationship between the public and private sectors as a means to forge ahead in an increasingly competitive global marketplace.

136. To operationalise this concept, several reforms will be implemented including: deregulation of cumbersome bureaucratic rules and procedures; improving the public delivery system; deepening and strengthening the consultative machinery between the private and public sectors; and deepening the smart partnership programmes in nation building efforts.

4.2 STRATEGIES FOR UNLOCKING THE BINDING CONSTRAINTS

4.2.1 Improving Public Sector Management and Administration

137. Institutional efficiency and effectiveness is important in service delivery. For successful implementation of this plan, these strategies have to be expeditiously worked on preferably using administrative measures. Specific actions proposed to address inefficiencies and delivery issues in public sector management and administration are outlined in Table 4.1.

Table 4.1.

STRATEGIC ACTIONS FOR IMPROVING PUBLIC SECTOR MANAGEMENT AND ADMINISTRATION

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4.2.2 Improving Public Sector Financing and Improving Financial Services

138. The constraint related to financing has two dimensions a public sector dimension; and a private sector dimension.

Public Sector Financing

139. To raise the required public resources for funding of the NDP, proposed strategies for mobilising the resources are outlined in Table 4.2A:

Table 4.2A.

STRATEGIC ACTIONS FOR INCREASING PUBLIC SECTOR FUNDING

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Private Sector finance

140. An efficient and effective financial sector plays a key role in providing capital to finance activities that contribute to growth. During the NDP period, emphasis will be placed on the consolidation and strategic positioning of the financial sector in a globalised and liberalised environment while also ensuring the expanded outreach of the financial sector within the economy. Strategic actions will be undertaken to enable the financial sector assume a dynamic role in supporting the economy while preserving its stability and contributing to the health of the economy. To this end, the strategic actions that will be pursued include the following (Table 4.2B)

Table 4.2B.

STRATEGIC ACTIONS FOR IMPROVING FINANCIAL SERVICES

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4.2.3 Increasing the Quantity and Strengthening the Quality of the Human Resource

141. Investment in human capital is one of the key ingredients of sustainable economic growth and development. During the NDP period, the principal thrust of human resource development will be the creation of a strong and responsive human resource base equipped with positive values and attitudes to generate and support accelerated growth, employment creation and prosperity for socioeconomic transformation. The human resource must be competitive globally. Critical in this process will be the focus on productivity enhancement in all sectors of the economy. In this regard, the strategies presented in Table 4.3 will be pursued:

Table 4.3.

STRATEGIC ACTIONS FOR INCREASING THE QUANTITY AND STRENGTHENING THE QUALITY OF HUMAN RESOURCE

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4.2.4 Increasing stock and improving quality of public physical infrastructure

142. With regard to public physical infrastructure, the strategies to increase the stock and improve the quality of public physical infrastructure will include the following (Table 4.4):

Table 4.4.

STRATEGIC ACTIONS FOR INCREASING STOCK AND IMPROVING QUALITY OF PUBLIC PHYSICAL INFRASTRUCTURE

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4.2.5 Promoting Gender Equality and Transforming Mind-Set, Attitudes, Cultural Practices and Perceptions.

143. The broad strategy will be the development of an action plan for promoting gender equality in all spheres and transforming mind-set, negative attitudes, and negative cultural practices that slow socio-economic growth and structural transformation. This will be done through the following (Table 4.5):

Table 4.5.

STRATEGIC ACTIONS FOR PROMOTING GENDER EQUALITY AND TRANSFORMING MIND-SET, ATTITUDES, CULTURAL PRACTICES, AND PERCEPTIONS

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4.2.6 Promoting Science, Technology and Innovation (STI)

144. It is widely recognized that STI is the life blood of sustainable economic progress and prosperity. STI has a strategic role in accelerating economic growth process by increasing the efficiency and productivity of all sectors in the economy. Steps will be taken to design and accelerate the implementation of STI-related programmes and projects. More specifically, the strategies to increase application of STI will encompass the following (Table 4.6):

Table 4.6.

STRATEGIC ACTIONS FOR PROMOTING SCIENCE, TECHNOLOGY AND INNOVATION (STI)

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4.2.7 Facilitating Availability and Access to Critical Production Inputs

145. The liberalization process and advancement in STI and Information, Communication and Technology (ICT), together with dynamic consumer market, has increased competition in the global market. For firms to survive and for countries to effectively compete on a sustainable basis, businesses have to be competitive through the entire value chain. To address the constraint of the inadequate supply of inputs, the strategies will include the following (Table 4.7):

Table 4.7.

STRATEGIC ACTIONS FOR FACILITATING AVAILABILITY AND ACCESS TO CRITICAL PRODUCTION INPUTS

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4.3 INVESTMENT PRIORITIES AND FLAGSHIP PROJECTS

146. The NDP priority areas are: strengthening human resource development; infrastructure development; promotion of science, technology and innovation; facilitating availability and access to critical production inputs. The respective intervention areas are presented in table 4.1. In addition, specific national flagship projects that are critical for catalysing transformation of the economy have been identified within these priority areas.

4.3.1 Investment Priorities
4.3.1.1 Increasing the Stock and Improving the Quality of Public Physical Infrastructure

147. During the implementation of this plan, infrastructure for the oil and gas sector will be prioritized. The priority interventions will include developing an oil refinery to commence production of processed oil products in the Albertine Graben area and constructing a pipeline for transporting oil products from the Albertine Graben area to Mombasa. The pipeline from Eldoret to Kampala will also be completed in this period. Furthermore the exploration will continue with a view to increasing the potential extractive capacity from the reserves to about 2 billion barrels of oil equivalent. The policy, legal and regulatory framework will be strengthened and sufficient regulations put in place to guide private sector operations.

148. Energy infrastructure: For industrialization and value-addition to take effect, access to power is critical and the power tariff must be affordable. During the period of this plan, the power generation potential and access to electricity will increase. In addition to completion of Bujagali (250MW), Construction of two (2) hydro-electric power dams; Karuma (550-700MW) and Isimba (100MW) will be undertaken. Feasibility studies for Ayago (550-650MW) will be completed. The rural electrification coverage is expected to increase up to 20 per cent and power losses will reduce from 40 per cent to 16 per cent.

149. Improving the transportation network: In line with the transport Master Plan and other Government commitments, the existing rail network will be rehabilitated and the construction of a standard gauge rail line will commence from Malaba to Kampala including the branch to Port-Bell. This is approximately 260 Km. Construction, reconstruction, upgrading and rehabilitation of national roads will continue. A total of 1100km will be upgraded to class I and Class II bitumen standards. A total 1200km will be reconstructed and dualling will be done for 150Km. A total of 11,067 km of district roads will be rehabilitated including 10,095 km with low cost sealing (LCS); Periodic maintenance on 4,500 km will be undertaken annually and 21,513 km placed under routine maintenance. In addition 1,000 km of Community access roads each year will be maintained at access level 2. Dual carriage ways, single carriage ways and railway crossing will be constructed to improve transport infrastructure in Greater Kampala Metropolitan Area. Kampala Rapid Bus Transport System (RBTS) will be implemented. The air transport infrastructure will be improved by increasing the entry-exit ports and the infrastructure at Entebbe Airport. Water transport on Lake Victoria will be improved by constructing the piers and landing bays.

150. ICT infrastructure: ICT infrastructure will also be improved through extension of the national fibre optic cable to cover most of the districts. Emphasis will be placed on Business Process Outsourcing (BPO) services where information technology business parks will be constructed and promoted. E-government services will be promoted and e-procurement introduced and operationalised.

151. Tourism, Trade and Agriculture Infrastructure: Specific tourism infrastructure will be promoted. This includes hotels and restaurants in tourism areas. In addition tourism roads will be prioritised in the implementation of this plan. For agriculture and trade, silos, abattoirs and warehouses will be constructed to enhance value addition.

4.3.1.2 Improving the Quantity and Strengthening the Quality of Human Resource

152. Investing in human resource development with a focus on health, education and skills development will be a key priority for the NDP. This will entail thorough diagnosis of the available skills and competencies against what is required for national, regional and international markets and changing the education curriculum to suit the demands. The human resource produced by the National education system must be globally competitive. Increased emphasis will be placed on supporting practical science education in schools and colleges, including enabling science teachers to refresh and extend their skills so that young people gain skills for work. Furthermore, a national skills programme has been planned to equip the youth who are out of school with skills. The quality of education and the moral aspect of education are emphasized in the Plan. Other specialized Human resource training will be carried out for personnel in key sectors including the Oil and Gas.

153. For soft skills aspects, national values will be agreed and promoted in all schools and in the Public Service. A soft skills school will be established to inculcate morals and values to all public and private sector employees. In addition, the education curriculum will include moral and value aspects. For the private sector, a Centre of Enterprise Excellence shall be established to provide practical business management skills in the areas of marketing, finance, operations, HR and strategy for staff of private enterprises.

154. For the health sector, emphasis will be placed on both preventive and curative health care. Synergies and linkages with other sectors like education, social development, water and sanitation and agriculture will be emphasized with the aim of cooperating to reduce preventable diseases. Efforts will also be placed on rehabilitating referral hospitals as well as extending services nearer to the people. The motivation of health staff is a priority in the Plan.

155. The NDP also envisages an improvement in the efficiency of use of resources in the Education and Health sectors. This will include addressing regional disparities and dealing with the significant management and other issues impeding the delivery of cost-effective health and education services.

4.3.1.3 Promoting Science, Technology and Innovation

156. Promoting Science and Technology: Achieving socio-economic transformation requires continuous improvement in the way we produce and deliver goods and services within the economy. This can be realized through accelerated use of applied technology, research and innovation. In this plan, regional Science Parks and Technology Incubation Centres (SPTIC) will be constructed and operationalised. The acquisition and adaptation of technology will be enhanced greatly. Research and development will be promoted in the public and private sector institutions. The target is to improve from one researcher per 1000 labour force to at least 10 researchers per 1000 labour force. Emphasis will be on affirmative action to reduce the ratio of science to arts graduates from 1:5 to 1:3 by 2015. Practical skills in the formal education area are a pre-requisite for supporting business development. Incentives will be given to the private sector to encourage research and development, and innovation. Research and development will be promoted in key areas of production including agriculture, oil and gas, minerals, industry and physical infrastructures with the aim of improving the range, cost and quality of the services and products.

4.3.1.4 Facilitating Availability and Access to Critical Production Inputs

157. Inputs to agricultural production. The NDP identifies agriculture as a key sector contributing to exports, employment, and food security. The Plan focuses on facilitating the availability of key production inputs. In this plan, the Tororo Phosphates Plant will be constructed and operationalised as a flagship project to provide fertilizers to farmers at an affordable price. Increasing the availability of high yielding seed varieties and promoting mechanization of agriculture will be priorities. Extension services will also be strengthened to support the farmers.

158. Increasing Access to Water for Production. With the effects of the climate change becoming a reality and the impact this has had on the weather patterns, the NDP focuses on allocating more resources to increase the accessibility to water for production. Some of the specific interventions include: (i) Increasing the acreage under irrigation from the current level of 14, 418 ha to 22,000 ha, (ii) Increasing the supply of water for livestock watering in the cattle corridor from the current 36 per cent to 50 per cent and those outside the cattle corridor from 21 per cent to 30 per cent19, and (iii) Increasing water supply systems for rural industries to facilitate agro-processing and other industrial activities.

159. Improved Meteorological services: In this plan, a total overhaul and automation of the meteorological instrumentation will be done. This is to enhance the predictability of the weather and climate parameters and to increase the reliability of the forecasts. This is a major input to agricultural production, air transport, the defence sector and other sectors of the economy.

160. Inputs to the Manufacturing Sector: The contribution of the manufacturing sector to the economy, although improved over the last two decades, is still below the desired level partly due to the high cost of inputs. Government efforts will, therefore, focus on the reduction of the cost of inputs mainly through investment in infrastructure, like energy and transport. Efforts will also be directed to development of the iron ore industry to provide ingots for the steel industry through a Public Private Partnership.

4.3.2 National Flagship Projects

161. Specific interventions through flagship projects will be to augment other interventions and provide impulse to unlocking the binding constraints. These flagship projects are given in Table 4.9.

Table 4.8.

SUMMARY OF PRIORITY AREAS AND INTERVENTIONS

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Table 4.9.

NATIONAL FLAGSHIP PROJECTS

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162. Most of the flagship projects will be done through Public Private Partnership with varying levels of Government involvement. Overall, the Government share of funding to flagships will be 55 per cent while that of the private sector will be 45 per cent. The construction of a standard rail gauge is expected to extend beyond the NDP period. For the rehabilitation of the existing railway system, the private sector will be contracted to carry out the works. For the Energy sector, the energy fund is operational and will be used to meet start up costs and to expedite implementation. The studies for all the three dams have already commenced. To quicken the process of implementation, most of the infrastructure projects will be turn-key projects, Build, Operate, Own and Transfer (BOOT) or Build, Operate and Transfer (BOT) where appropriate. This will significantly reduce the time of implementation. For energy projects, the more the private sector investment the higher the tariff, subsequently limiting use of the generated power. Therefore, a balance will be struck on what level of public investment is favourable and efficient to avoid heavy subsidies on power tariffs in future.

4.4 MACRO-ECONOMIC STRATEGY

4.4.1 Introduction

163. The NDP is framed in the context of an economy whose potential to grow is still strong and could be raised to higher levels. Going forward, the over-riding economic priority is to consolidate the gains already made, and to put in place the necessary conditions to ensure further economic progress. This would require a change of emphasis by allocating resources to priority interventions.

164. The strategy of the NDP is to maintain a balance between macroeconomic stability, sustenance/acceleration of economic growth and continued progress towards the achievement of set social development goals. Without abandoning the poverty eradication vision, the NDP re-orients the development strategy to ensure faster economic transformation and sustainable poverty eradication. To achieve this overall goal, the Government will continue to pursue sound economic policy and management while making additional public investments in strategic sectors.

165. Avoiding unsustainable public sector indebtedness and increased dependency on donor aid, while at the same time making more public investments, will require increased mobilization of domestic resources. As will be elaborated on under the financing strategy, Government will continue to depend on external resources in the short to medium term, but the plan is to maximize future revenues from the oil industry and utilize them for high return public investments in the longer term.

4.4.2 Fiscal Strategy and Macroeconomic Targets for the NDP by 2014/15

166. To achieve the NDP objectives, the Government’s fiscal strategy aims at ensuring that there is continued progress towards achieving the NDP targets by balancing wealth creation and poverty reduction for socio-economic transformation (Table 4.10). This approach will take the following steps:

  • Creation of the necessary fiscal space for investments. This will involve curtailing growth in recurrent spending in non-productive activities such as duplicated roles of monitoring and evaluation with the savings used for more investments in the NDP priority sectors; and

  • Prudent fiscal management. This entails formulation and implementation of fiscal policies that balance maintaining macroeconomic stability and growth without necessarily sacrificing goals relating to poverty reduction or income distribution.

Table 4.10.

EXPENDITURE FRAMEWORK UNDER THE NDP 2010/11-2014

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167. Government’s macroeconomic strategy will also be guided by the objective of participating in the East African Monetary Union (EAMU). Economic and financial integration, of which EAMU is a vital component, is essential for the long term prosperity and development of all the countries in East Africa in a global economy increasingly dominated by large countries and trading blocks. It will spur competition and boost productivity, allowing East African firms to reap the benefits of economies of scale and thereby becoming more competitive in global markets. To create the conditions for a successful monetary union, the individual countries of the East African Community are required to align their economies through a set of convergence criteria.

168. To generate increased budget resources, in real terms, to allocate to priority social sectors and to public infrastructure investment, it is imperative to strengthen domestic revenue mobilisation. This has been the hindrance to fiscal policy, with the revenue to GDP ratio being largely stagnant over the last decade. Government will aim to raise the revenue to GDP ratio from the current level of about 13 percent to 15 percent over the course of the plan, through a combination of broadening the tax base and improving tax administration.

169. The development strategy mainly focuses on new spending on sectors that have the greatest potential to contribute to economic growth particularly agriculture, manufacturing, energy, oil and mineral development, tourism, infrastructure, education, health, water and sanitation; and curtailing the growth in spending in non priority sectors. The required financing of the plan is projected to be UGX. 54.221 trillions. Table 4.9 provides the expenditure composition over the planning period. This will involve increasing spending to a higher level, prioritization of spending and using the available resources more efficiently. The success of this strategy will depend on the quality of public spending and service delivery, prudent macroeconomic management, as well as the rapid reduction in constraints to growth including the considerable barriers to business.

170. All sector expenditures are increasing in nominal numbers but the shares vary as they depend on the total resource envelope. The resource envelope is expected to increase every year. Significant increases are expected in the energy and transport sector. Since energy and transport have some one-off projects, the percentages will stabilise after the NDP period.

171. Public expenditure is projected to increase from 18 percent of GDP in 2009/10 to an average of 19.6 percent of GDP per year during the plan period. The NDP is targeting a fiscal deficit of 5.5 per cent of GDP on average per year over the plan period. However, this may widen within prudent macroeconomic parameters if more donor resources than currently envisaged become available to finance necessary Government expenditures. Conversely, if oil revenues come on stream within the NDP period, the fiscal deficit could turn out to be much lower than what is being projected in this Plan.

4.4.3 Economic Growth Prospects

172. The increase in public investments targeted to the core areas of intervention will have a large impact on growth of all sectors. The overall growth rate would be raised to an average of 7.2 percent during the planning period (Table 4.11). It is projected that there will be recovery in agricultural growth with the sector growing at an average of 5.6 per year over the NDP period. This will have a significant impact on raising incomes of the 70 percent of the population engaged in the sector. The recent positive growth rates in the industrial and services sector will be sustained.

Table 4.11.

SELECTED MACROECONOMIC AND FINANCIAL INDICATORS, 2009/10-2014/15

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Source: Musisi (2009), ‘Macroeconomic Framework, Investments and Financing Options, 2010/11—2014/15’, Background Paper for the National Development Plan, Kampala, National Planning Authority (NPA).

173. The growth in the agricultural sector will also have secondary effects on agro-processing. With the emphasis on improving the value chains, agro-processing will grow by 6.8 percent during the Plan period. By creating a better enabling environment for manufacturing, reducing the cost of energy and transport, this will have a large impact on manufacturing. As shown in Table 4.11, the manufacturing sector will be able to grow by 6 percent during the period 2010/11-2014/15. Growth in services will partly be driven by the public investments targeted at the energy, transport and tourism sectors.

174. Increasing the growth rate of sectors to a higher level would have an impact on the Balance of Payments (BOP) as well. The switch in Government expenditure toward investment which is more import-intensive is expected to maintain a high trade balance deficit due to increasing imports, to support faster growth in infrastructure investments.

4.4.4 Monetary Policy

175. The Bank of Uganda will continue to implement monetary policy with the primary goal of controlling inflation. Quantitative monetary targets will play a prominent role in the monetary policy framework. Monetary policy will also aim to support continued robust growth in financial intermediation, with private sector bank credit projected to expand as a share of GDP from 12 percent in 2009/10 to about 17 per cent by the end of the plan period. This is essential to promote the growth of private investment and business activity. As noted above, controlling inflation while at the same time creating room for continued strong growth in private sector credit is only possible if Government curbs its domestic borrowing requirement.

176. Regarding other macroeconomic implications, the assumptions made are reflected in the macroeconomic variables shown in the Table 4.10. These include policy targets of inflation of an average of 6.8 percent and 5.7 months cover of import reserves by 2014/15.

4.4.5 Exchange rate policy and the external sector

177. A flexible exchange rate policy will be maintained over the medium term, allowing the economy to adjust to real shocks emanating from the external sector, such as terms of trade shocks. The Bank of Uganda will restrict its intervention in the foreign exchange market mainly to curbing volatility in the exchange rate and building up international reserves. To deal effectively with unexpected external shocks, the Bank of Uganda will raise the level of gross international reserves towards the target of 6 months of import cover over the course of the plan period.

178. During the plan period, the trade deficit will remain at approximately 11 percent of GDP, funded by a combination of remittances from Ugandans working abroad, net donor inflows and private sector capital inflows.

179. In terms of external debt, measurement of debt sustainability during the NDP period took into account the cost of borrowing and performance of the economy particularly exports. Using the conventional debt sustainability indicators, i.e. debt stock in relation to nominal GDP, Net Present Value (NPV) of debt relative to the projected export performance, and NPV of debt to domestic revenue collections, the debt sustainability ratios show that the country’s external public debt will remain within sustainable levels throughout the NDP period. This is assessed by comparing the projected ratios with the Threshold level beyond which debt becomes unsustainable (see Table 4.12).

Table 4.12.

SECTORAL GROWTH RATES UNDER THE NDP (2010/11-2014/2015)

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180. Despite these debt sustainability indicators, it is important that the Government does not become complacent as the country could easily slide back to unsustainable debt levels. It is therefore important that strict adherence to prudent borrowing20 is maintained by ensuring that external borrowing is only for strategic productive investments which increase the country’s productive capacity and stimulates GDP growth and exports as planned in the NDP.

4.4.6 Social Development and Employment Prospects

181. Regarding the MDGs, continued progress is expected towards the achievement of key social development goals. However, compared to the existing 2015 targets (Table 4.13), only MDG 1 (poverty) and MDG 7 (access to safe water) are likely to be achieved. The head count poverty rate is projected to be 24.5 per cent by the end of the NDP period in 2014/15 compared to the MDG target of 28 per cent by 2015 while the rate of access to safe water is projected at 89.3 percent in 2014/15 compared to the MDG target of 72 percent by 2015. Other MDG indicators will marginally improve, including the net primary school completion rate and the under-five mortality rate, reflecting the fact that the growth rates for the necessary outcome determinants, which include relevant Government services, per capita consumption and necessary public infrastructure, would still be inadequate. The MDG target on HIV/AIDS has been achieved and the projections indicate that environment sustainability MDG will be achieved.

Table 4.13.

SUSTAINABILITY BENCHMARKS (THRESHOLDS) COMPARED TO PROJECTED DEBT SUSTAINABILITY RATIOS

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Source: External Debt Unit, Macroeconomic Policy Department, Ministry of Finance, Planning and Economic Development

182. Unemployment has stayed high, as the number of jobs generated has not been adequate to absorb the rising labour force. Unemployment (including underemployment) rate stood at 29.1 percent in 2005/06. With the domestic economy growing by about 7.2 percent on average during 2010/11-2014/15, total jobs created will reach 2.7 million, averaging 550,000 new jobs each year.

4.5 FINANCING STRATEGY

4.5.1 Tax and Non-Tax Revenue

183. Over the NDP period, expenditure is projected to increase to 19.6 per cent of GDP, an increase of 2 per cent of GDP from the 2009/10 level. Financing this level of expenditure will require concerted efforts to improve domestic revenue collection by focusing on the three factors that usually lead to increases in tax revenues: expansion in the bases of taxation, reform of the structure of taxation; and extensive re-organization of the institutions that administer the taxes in the country for improved tax collection efficiency and compliance. Government efforts will be focused on increasing domestic revenue collections by 0.5 per cent of GDP per year over the NDP period

184. More specifically, the main focus in raising tax revenues will be to ensure continued stability of the tax system and improvement in collections from other revenue sources, especially Non-Tax Revenue (NTR) which presently contributes about 1 per cent of total domestic revenues. To raise additional revenue from NTR, all its rates will be reviewed. Government will also streamline existing exemptions and tax incentive policies. In addition, improvements will be made in tax administration to enhance the compliance rate and focus on the retail sales end of Value Added Tax (VAT).

185. Steps will also be taken to include the large subsistence and informal sector of the economy into the taxable bracket. This will require gazetting specific places for informal sector traders in urban areas and providing support to them as an incentive to encourage paying tax.

186. Furthermore, the expected revenues from Uganda’s oil deposits that are expected to materialize sometime during the NDP implementation should significantly improve Uganda’s domestic revenue base compared to the levels projected in this NDP, and this should result in a lower fiscal deficit in the medium term.

4.5.2 Efficiency gains

187. In order to achieve the twin objectives of increasing expenditures on priority areas and achieving macroeconomic stability, Government will implement both allocative and technical efficiency improvement measures. This will create the necessary fiscal space to allow increased resource allocation especially in priority areas through: strengthening the link between public spending and outputs/results; strengthening regulations and compliance; ensuring increased human resource productivity; reducing bureaucratic red tape; eradicating corruption; and reducing duplication of functions (“unproductive” activities) through institutional restructuring and coordination, among others.

188. Value for money measures will include ensuring that Government expenditures are based on credible work plans; establishment of effective monitoring systems within Government to track and evaluate expenditures vis a vis intended results; improving coordination with other monitoring and evaluation agencies and overall Government system and accountability; and strengthening empirical research to form the basis for public spending. While these measures are expected to improve efficiency and effectiveness in resource utilization, they are also expected to improve the absorptive capacity of the Government in the medium to long term.

4.5.3 Public-Private Sector Partnerships

189. International experience suggests that co-operation between the public and private sectors in form of public-private sector partnerships (PPP) can be a powerful incentive for improving the quality and efficiency of public services, and a means of public infrastructure financing. PPP describes a Government service or private business venture which is funded and operated through a partnership of Government and one or more private sector entities. It involves a contract between a Government authority and a private sector party. A policy framework to guide Public-Private Sector Partnerships will be formulated.

190. To ensure macroeconomic stability and integrate the best practices of the private sector into the public sector system, Government will promote and encourage PPP in various forms in the implementation of this NDP. The forms that PPPs usually take include joint ventures between the Government and private sector entity/ies where both may contribute financial resources, Build, Operate and Transfer (BOT), Build, Own, Operate and Transfer (BOOT), Build, Own and Operate (BOO) and Concessions. Each of these forms of PPPs has advantages and disadvantages that are unique. Careful analysis will be made in deciding the form of PPP that has the highest economic benefit to the country and most suitable for both the public and private sector before any form of PPP is recommended for implementation. In general, however, PPPs will be encouraged and promoted in the provision of infrastructure and energy, as well as huge undertakings which require substantial financial resource outlay.

4.5.4 Grants and Loans

191. Given the level of financing that the NDP needs, the Government appreciates the fact that domestic revenue is not able to finance the necessary level of desired investment required to accelerate and sustain economic growth and prosperity for socio-economic transformation in the country. In the long term, Government will seek to fund its budget from domestic revenues. In the short to medium term, however, Government will continue to seek foreign assistance to fund its budget while progressively reducing this reliance. Therefore, during the NDP period, the Government will continue attracting foreign direct investment and official development assistance in form of grants and loans.

192. The overall Government strategy in seeking foreign assistance will be guided by the Government Aid Policy presented in Section 4.7 below. To attract foreign direct investment in the private sector, Government will continue to pursue market-led policies while strategically intervening in identified areas to provide public goods and address market failures.

4.5.5 Borrowing from the Capital Markets

193. One of the proposed sources of funding for the NDP is capital markets. During the NDP period, in addition to taking steps to ensure promotion and development of the capital markets in the country as well as its effective regulation, steps will be taken to develop the appropriate framework to facilitate issuance of sovereign bonds, to raise the necessary funds for investment in the priority sectors and more specifically in the construction of physical infrastructure and energy facilities. Steps will be taken to ensure regulation and liberalization of the pension sector to protect workers’ old age savings, and improve the efficiency and soundness of the sector, but also to leverage domestic private savings in the form of pension and related funds to provide long term finance for investments in the domestic economy.

4.6 ROLES OF THE STATE, THE PRIVATE SECTOR, CIVIL SOCIETY AND DEVELOPMENT PARTNERS

4.6.1 The Role of Government General

194. The state is responsible for ensuring a basic framework of legality, rights and freedom and intervening in the economy to promote economic efficiency, effectiveness, equity and growth. Interventions may be necessary for the following main reasons:

  • Promoting the right incentives to encourage efficient private production;

  • Ensuring that public goods are supplied;

  • Correcting market failures; and

  • Reducing inequality.

195. This NDP re-emphasises the importance of public goods, such as transport and energy infrastructure while exploring the option of public funding for private sector provision of these goods in a number of areas.

196. 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 NDP.

Legislative and Executive

197. Most of the actions included in the NDP 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 the theme of the NDP, and in scrutinizing the executive for efficient and effective service delivery. This will be based on re-viewed policy, legal and regulatory frameworks.

Autonomous and Semi-autonomous Agencies

198. There are several autonomous and semi-autonomous agencies within the public sector. Some of these have essential public sector 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 way as central and local Governments. Others are expected to operate on an essentially commercial basis though subject to regulation.

199. There is consensus about the efficiency of some of them, existing substantial gap between their remuneration and that of the civil servants, and the amount of revenue that is effectively hypothecated by being assigned to these agencies. There is also concern that social and commercial missions have been blurred in some cases, leading to a reduction in the efficiency of investment. Thus the roles of these agencies will be subject to review to correct these contradictions and enhancing efficiency.

4.6.2 The Private Sector

200. The private sector, including the many small-scale farming households, is responsible for the majority of the productive investment. It is Government policy that the private sector will remain the engine of growth, employment creation and prosperity for socio-economic transformation in the country during the NDP period. 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 balanced development, and minimise any possible crowding out of private sector investment. In some cases, the commercial private sector will support the provision of public goods for altruistic, cultural or prestige reasons. For instance, commercial sponsorship of sport is an important international phenomenon. During the preparation of this NDP, the private sector contributed significantly to the priorities identified.

4.6.3 Civil Society

201. It is essential for the development of civil society that its actions are not planned or dictated by Government. However, Government enjoys productive partnerships with civil society organizations and supports the role they play in the process of economic growth and development that include:

  • 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 resolutions; and

  • Independent research on key policy issues.

202. In order to enhance the contribution of civil society to national transformation, the NDP commits to support the following priority undertakings that will create a more enabling operating environment for NGOs in the next 5 years:

203. Work with NGOs to realize a comprehensive cooperation framework that will lay out the partnership principles, including mutual accountability between NGOs and Government.

204. Support the ongoing effort by the Uganda Bureau of Statistics and the Uganda National NGO Forum to undertake a comprehensive NGO sector survey to establish the value of NGO work to Uganda’s economy and their contribution to national health and wellbeing.

205. Together with other stakeholders find more sustainable sources of financing the work of the NGOs in ways that will guarantee their autonomy but ensure public accountability for local and foreign resources that will be available to NGOs.

206. Ensure better coordination of NGO work to avoid unnecessary duplication and wastage of resources.

4.6.4 Development Partners

207. Development partners continue to play a major part in financing public expenditure in Uganda. In accordance with the aid policy spelt out in section 4.7 of this plan, the development partners are encouraged to support Government programmes through budget support as opposed to programmes and projects. With the introduction of sectoral ceiling for the development budget including donor projects, both sectoral ministries and development partners will appreciate that each additional project will have an opportunity cost for the sector in terms of transaction costs and flexible resources for the sector’s priorities. This is being done to ensure that project funds are subject to the same process of prioritization as more flexible resources.

208. Some development partners provide support direct to NGOs and to some districts outside the Government budget. Whereas this arrangement is not being discouraged, it will be appropriate to share information on the level of support and the activities being funded in order to have a fairly accurate assessment of the micro and macroeconomic effects.

4.7 MULTI-LATERAL AND BILATERAL PARTNERSHIPS

4.7.1 Situation Analysis21

209. The Government’s position on Official Development Assistance (ODA) has been set out in the “Partnership Principles between the Government of Uganda and its Development Partners” of 2003. Further, Uganda and its main Development Partners are signatories to the Paris Declaration on Aid Effectiveness (2005)22 and the Accra Agenda for Action (2008).

210. ODA provided by partner governments and international organizations to Uganda has played an important role in supporting the country’s recovery, growth, and poverty eradication efforts. Over the 2003 to 2007 period, 43 different DPs disbursed aid to Uganda. This included 29 bilateral DPs and 14 multilateral DPs, of which eight were UN agencies and two were Global Program Fund targeting specific themes such as prevention of HIV/AIDS (vertical funds). The relative monetary importance of DPs in Uganda is rather uneven. Of the USD6.7 billion ODA disbursed to Uganda over the 2003-07 period, half was disbursed by just three DPs (the World Bank, U.S., U.K.), while more than 90 percent was disbursed by 12 DPs. Thus, 30 DPs disbursed less than 10 percent of ODA to Uganda over the 2003 to 2007 period.

211. This National Development Plan, and the mechanisms in place to implement it, must provide a strong basis for determining what type and quantity of aid is required, and in which areas. Government mechanisms must provide assurance of the implementation of the strategies put in place, and likewise DPs must be accountable to deliver on their commitments in responding to the specific requirements of Government.

212. The nature of partnership also reflects relationships beyond ODA, to include commitments made in the Millennium Development Goals (Goal 8) on equitable trade and financial system, market access, debt sustainability and other issues.

213. To address these issues, Government has initiated the formulation of a Partnership Policy, of which some elements are contained in the National Development Plan. The remainder of this section outlines the principal areas that the Policy will cover.

4.7.2 Scope of Partnership Policy

214. The Partnership Policy will update the “Partnership Principles between the Government of Uganda and its Development Partners” of 2003 to reflect the changes in the policy environment in the country (including the initiation of the National Development Plan as a successor to the Poverty Eradication Action Plan), the subsequent international agreements, and the policies of the increased number of partner countries and agencies.

215. The Partnership Policy will be supplemented by a Memorandum of Understanding (MOU) that will be signed by Government of Uganda and all Development Partners, binding all signatories to the commitments therein. This MOU will make clear reference to existing agreements between the Government and each Development Partner, to ensure alignment.

216. The Partnership Policy will seek to address, inter alia, the following issues:

  • Alignment of aid with country priorities and systems

  • Transaction costs / burden of inefficiency

  • Coordination with development partners and other stakeholders

  • Predictability of and information on aid flows

  • Mutual accountability for development results

  • Partnerships beyond aid

217. The following objectives outline the Government’s intended actions and expectations of development partner actions that will be encapsulated in the Partnership Policy to ensure aid effectiveness in support of Uganda’s overall development goals and for the benefits of the Ugandan population.

4.7.3 Strategies to Improve the Effectiveness of Partnerships and Assistance

Ensure that all development assistance is aligned with the objectives and priorities of the National Development Plan

218. Significant assistance remains off-plan (meaning that it is not linked with the Governments’ priorities) and off-budget (meaning that it is not reflected in the Government’s budget nor disbursed through Government systems).

219. The existence of large vertical funds, whilst beneficial to development in some areas, may have distortionary effects on the Government’s effort to attain an optimal allocation of resources across sectors and sub sectors. Furthermore, technical assistance is not always effective, and in some instances is perceived to undermine local capacities rather than improving them. Therefore, development partners must ensure that technical cooperation is well-coordinated with Government (that is, demand driven and responding to Government priorities), while the Government will ensure that capacity to effectively and efficiently coordinate technical cooperation is in place.

220. Lack of alignment is sometimes a reflection of weak or non-existent strategies in some sectors. On its part, the Government, therefore, undertakes to elaborate clear sector strategies. In addition, the Government will ensure that national systems, institutions and procedures for managing aid and other development resources are effective, accountable and transparent, and where necessary will undertake or continue reforms in this respect. In turn, the Government expects, as a minimum, that all development partners will align their assistance with the National Development Plan and relevant sector strategies.

All Development Partners will follow guidelines aimed at reducing transaction costs

221. Transaction costs related to receiving development assistance are often high, and whilst it is difficult to quantify these in a meaningful manner, it is clear that high transaction costs or inefficiencies lower the real value of the assistance received. Development Partners continue to place significant demands on the Government in terms of time, reporting needs, and use of other resources through numerous missions and meetings. To reduce this burden, the following measures and guidelines will be implemented.

222. Aid modalities: The Government prefers general budget support, as this aid modality is fully aligned with the Government’s priorities and minimises transaction costs. Therefore, the Government encourages Development Partners to join the recently established Joint Budget Support Framework. The Government recognises that the provision of budget support is associated with requirements to improve accountability structures on the side of Government. The Government also recognises that some Development Partners are legally constrained to providing budget support. However, there are certain circumstances where project support brings with it particular benefits, for example, external expertise in some areas. Whichever modality is used, the Government must be satisfied that the assistance provided is delivered in an effective and efficient manner, in line with Government priorities and with the objective of reducing transaction costs.

223. Parallel implementation structures: Only in exceptional cases and only with explicit Government approval should Development Partners establish parallel implementation structures for projects or programmes. To the extent possible, Development Partners should make use of the Government’s Public Financial Management (PFM) and procurement systems. On its part, Government will continue to strengthen PFM and procurement systems in line with international best practice.

224. Aid fragmentation and division of labour: As described previously, more than forty development partners provide development assistance to Uganda. In order to ensure aid effectiveness and to avoid spreading donor assistance too thinly, Government will encourage co-financing and division of labour among donor agencies. The Government expects Development Partners to provide their assistance in line with Government priorities as outlined in the NDP and to exercise the principle of mutual accountability and respect in aid relationships.

225. Closed season: In order to facilitate the formulation of the budget process, the Government will operate a “closed season”, in which it will not engage with aid-related missions. The dates of the “closed season” will be outlined in the Partnership Policy.

Establishment of structures to strengthen dialogue with development partners and other stakeholders

226. The Government recognizes the need for a single channel of official communication between the Government and Development Partners. The Government will therefore communicate on matters relating to official development assistance primarily through the Local Development Partners’ Group (LDPG). For this reason, the Government requests that external providers of development assistance to Uganda, including non-traditional development partners, join and actively participate in the Local Development Partners’ Group or act under its umbrella.

227. The Government will utilize the national coordination mechanism, established by Cabinet in 2003, under the leadership of the Office of the Prime Minister, to consult with the LDPG on the implementation of the NDP, review development partner assistance, and review efforts to improve aid effectiveness. In particular, the Government will work with the LDPG to review the current aid architecture to ensure that the sector/technical working groups are aligned with implementation of the NDP.

228. Parliament, CSOs, the Media, the private sector and other actors, have an important role to play in generating the social, political and economic changes necessary for the development cooperation to work. Government is committed to working with these stakeholders to provide an enabling environment that maximizes their contributions to development.

Improve the predictability of and information on aid flows

229. Being able to predict aid disbursements with respect to volume and timing is essential for the management of public finances and for planning and implementation of Government programmes. Therefore, the Government commits to the implementation of a single platform for the reporting of data on planned and actual disbursements of aid. In turn, the Government will expect all Development Partners to provide reliable indicative commitments of aid disbursements (both on-and off-budget) over a multi-year framework as well as timely and accurate data on actual disbursements.

Formulate and institutionalize measures and mechanisms for assessing mutual accountability

230. The Government of Uganda accepts that official development assistance involves a contractual relationship in which the flow of funds is subject to the achievement of development results. It welcomes the agreement in the Accra Agenda for Action that the donor community will work to change the nature of conditionality to support national ownership. Therefore, conditions linked to disbursements should be results-based and made public to ensure transparency.

231. Measures of mutual accountability will be developed to assess progress on commitments. This will involve joint assessment by Government, its Development Partners, civil society and Parliament to determine the status of the Partnership and to identify actions all stakeholders need to undertake to enhance achievement of results. Consideration will be given to operating mechanisms for mutual accountability that have proved successful in other countries, such as development partner performance assessment frameworks and independent monitoring by a locally based panel of experts.

Incorporate partner commitments beyond aid within Partnership Policy

232. The 8th Millennium Development Goal commits Government and its Development Partners (as signatories to the Millennium Declaration) to specific actions and targets in establishing a global partnership for development. Many of these commitments are not captured in the Paris Declaration and Accra Agenda for Action, and go beyond the provision and management of official development assistance, yet they have profound implications for the development of Uganda. These include measures on improving access to markets through reducing tariff barriers, tackling debt sustainability, improving access to affordable essential drugs, and improving access to new technologies.

233. The Partnership Policy will seek to incorporate these commitments, where relevant and appropriate, and ensure that progress towards MDG 8 is measured.

4.7.5 Formulation of Partnership Policy

234. While this section has outlined the main challenges and associated objectives to improve the partnership between the Government and supportive countries and institutions, the Partnership Policy will guide these relationships to achieve the objectives of the National Development Plan.

235. The formulation of the Partnership Policy will be coordinated by the Office of the Prime Minister in liaison with the Ministry of Finance, Planning and Economic Development, the National Planning Authority and the representatives of the Development Partner community in Uganda.

4.8 DEVELOPMENT INDICATORS AND TARGETS

236. Key development indicators have been identified for the theme of the NDP. These are per capita income, human development index, employment levels, labour force distribution in line with sectoral GDP, life expectancy, skilled manpower level, proportion of manufactured exports to total exports, share of industry in GDP, level of urbanisation, and the country’s competitive index. In addition, indicators have been selected to monitor the progress of NDP objectives. Both the indicators for the theme and objectives and the corresponding annual targets are given in Table 4.15.

Table 4.14.

POVERTY AND SOCIAL SECTOR INDICATORS AND TARGETS

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Source: UBOS & NPA