An agenda for the Federal Reserve’s review of its monetary policy framework


An agenda for the Federal Reserve’s review of its monetary policy framework


Spotlight issues for the Ugandan election

Uganda goes to the polls this Thursday, February 18, 2016. Although the candidates face a myriad of issues in the election, on the top of their list should be the unique economic opportunities and challenges facing Uganda in the next five years. Below is a quick primer on the top issues facing whoever wins the election.

Poverty reduction, especially in rural areas: Uganda has sustained an average growth rate of 5 percent per annum in the past decade and reduced the poverty head count ratio (percentage of the population falling below the national poverty line) to 19 percent  since 2013, making the country to be among the few countries that were able to achieve the Millennium Development Goal 1 target of halving extreme poverty by 2015. Despite this success, close to 22 million—67 percent—of Ugandans are vulnerable to poverty (both those currently poor and in serious danger of falling into poverty). Chronic poverty is evident in rural areas and worst among crop farming households. Relatedly, youth have an unusually high rate of unemployment. At least 64 percent of the total unemployed persons in Uganda are youth aged between 18 and 30. Uganda’s incoming president, therefore, faces the onerous task of reducing the various forms of poverty and vulnerability through job creation by enhancing productivity and value addition in the agricultural sector, which employs 65 percent of the population. Hence, scaling up adoption of technologies through use of improved seeds, irrigation and fertilizer would be a good place to start.

Education and health services: In regard to service delivery, Uganda has made tremendous achievement in providing access to primary school through the Universal Primary Education (UPE) program. The UPE program is credited for enrolling more than 86 percent school age children—more than 8 million pupils—in primary schools and achievement of gender parity. However, the UPE program has been characterized by a lack of books, overcrowded classes, and a high rate of teacher absenteeism since its inception in 1997 to date. On the health front, between 2010 and 2015, infant and maternal mortality dropped significantly to 44 per 1000 live births and 390 per 100,000 live births, respectively. The prevalence of HIV/AIDS dropped significantly to 6 percent in the same period. The health sector, on the other hand, is significantly understaffed, which has led to many problems—among them a reversal in the prevalence to HIV/AIDs infections in the last 5 years. Clearly, the next president must improve the quality of service delivery, especially in the education and health sectors in order to strengthen the productive capacity of Ugandans.

Business environment: Beyond service delivery, there is a scope for improving the business environment.  Businesses in Uganda are constrained by the high costs of doing business, characterized by exorbitant tariffs and taxes, corruption, persistent power outages, and high cost of credit. According to the Doing Business 2015 survey,  Uganda is performing worse than a selection of its East African neighbours, particularly Rwanda and Kenya. It takes 18 procedures over an average of 36 days and costs 77 percent of average income per capita to start a company in Uganda. This situation is a call to action for the incoming  president to improve the business environment by reducing the level of corruption, improving the existing infrastructure, enhancing access to affordable loan financing, developing the level of human capacity, removing inefficient government services, and ensuring regulatory consistency toward investment, which has been impeding business predictability and efficiency. It is important to note that the high cost of doing business does not only impede firm survival rates, but also has  economy-wide spill overs in terms of low job creation and lower than expected tax outturn. Low tax effort affects service delivery and exacerbates the widening budget deficit and debt exposure. Currently, Uganda’s budget deficit and debt stands at 5 percent and 35 percent of output, respectively.

Commodity prices: Given the rising deficits and debt, the incoming president may want to rethink the decision to front-load public investments on infrastructure projects benchmarked by the expected future oil revenues. The discovery of oil, gas, and other extractives has partially led to an increased level of debt contracted. However, the sudden drop in oil prices has led to uncertainty on both the actual date when the oil will begin to flow as oil companies cut back from potential loss of investments. This raises doubt about the use of future oil revenues in regard to debt management. International oil prices have fallen by 60 percent since 2014. A persistent fall in international oil prices may greatly undermine oil-related debt sustainability.

Trade challenges:  The overflow of conflict in the region has strained the country’s resources and diminished Uganda’s competitiveness and external position. For example, the conflict in South Sudan is a major obstacle to free movement of close to 20 percent of Uganda’s exports. Furthermore, the dismal performance of Uganda’s external sector indicators can be partially attributed to regional political unrest. In February 2016, the country’s trade deficit was approaching the $500 million mark; the shilling depreciated further to 3450 per unit of U.S. dollar—a 30 percent depreciation since November 2014—and core inflation rose by 2 percentage points off the target to 7.1 percent. The incoming president is expected to strive through mediation and consultations to contribute to a peaceful resolution of the conflict in the region, especially in Burundi and South Sudan.

In conclusion, the Ugandan economy faces enormous challenges, especially in the ability to proactively respond to regional dynamics, external factors such falling commodity prices, and the infrastructure deficit and current functionality. Therefore, the incoming president has the immense task of providing leadership that will lead to structural transformation and create decent jobs for all.  However, sustaining growth will depend on the extent the poor are included in the growth process and the fair distribution of economic opportunities. This calls for exemplary leadership that creates opportunities for ordinary Ugandans to access markets, own productive assets, and influence policies that affect their lives. Therefore, the development of Uganda’s capacity will entail, among other things, policies that improve the quality of education at all levels; reduce inequalities in all its forms; enhance the business environment; and narrow regional and gender disparities in access to services such as education and health.

Corti Paul Lakuma is a research analyst in the Macroeconomics department at the Economic Policy Research Centre, Makerere University, Kampala.

Note: This blog reflects the views of the author only and does not reflect the views of the Africa Growth Initiative.