Uganda Launches Country Economic Memorandum

KAMPALA, UGANDA, September 18, 2007 —Uganda does not need a fundamental change in policies, but must focus the next stage of its development agenda on bridging the infrastructure gap if it is to accelerate economic growth. This was the conclusion of the dissemination workshop for Uganda’s Country Economic Memorandum (CEM) launched in Kampala, on September 11, 2007 by the Prime Minister, Rt. Hon. Prof. Apolo Nsibambi.

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In the 1990s, Uganda's economy grew at an average of about 6.9 per cent per annum, which was close to growth rates experienced in the East Asian and Pacific regions. During this same period, Uganda's per capita income growth was recorded at an average of about 3.2 percent and was ranked 15th among 152 countries. More recently, while the economy faced major shocks, including a terms of trade deterioration of over 40 percent, a biting energy crisis, and a prolonged drought, growth over the 6 years to 2005/06 remained robust at an average of 5.5 percent.

The CEM concludes, however, that Uganda’s high population growth rate of 3.3 percent per annum cannot sustain high per capita income growth rates, andwith Uganda’s workforce set to double in the coming 15 years, the major challenge facing policy makers is to facilitate job-creating private investments beyond agriculture. The report suggests that major public infrastructure investments are required in transport and energy.

Delivering the keynote address at the launch of the CEM, Prime Minister Nsibambi said the country had reached “a turning point, where all have to think harder on how to move it to the next level of growth, where broader segments of the population are able to participate in and benefit from sustained growth and expansion of the economy.”

Rt. Hon. Nsibambi noted that the three major challenges Uganda faces before getting on a path to prosperity for all are: persistent inequality despite poverty reduction -- partly fuelled by the conflict in Northern Uganda; realization and sustenance of a seven per cent growth rate; and provision of employment for all able-bodied persons that are willing to work.

Finance Minister Dr. Ezra Suruma makes a speech

“The future of Uganda is bright and exciting, and the peace that we have attained in the North, after a long struggle, is already yielding results as is evidenced by the vibrant trade in the region,” Dr. Suruma said. “I am very optimistic that things are on track[.]

Presenting a paper on Africa’s growth experience with some lessons for Uganda, longtime scholar of Uganda’s economy and adviser to Government, Prof. Paul Collier, said focusing on poverty reduction is no longer a sufficiently ambitious goal for Uganda, if it is to get its population out of the bottom billion poorest people in the world.

As a land-locked country, according to Collier, Uganda must attain higher and faster growth if it is to converge with middle-income countries. He mentioned that a renewed focus on infrastructure, regional markets, agriculture, and fast job-creating e-services, such as call centers could help attain that desired growth.

“Any landlocked country needs effective transport to the coast, but should also focus on regional and sub-regional markets, and less on the global markets,” Collier said. “An alliance between donors and governments is required so that aid finances regional public goods, which provide access to regional markets and the coast, as is the case of landlocked countries like Uganda.”

Prof Collier makes presentation

“The asset underground has to be turned into an asset on the ground,” he said adding that it would be “double difficult” for Uganda to attain faster growth with the discovery of oil. “Most resource rich countries mess up, please don’t mess up!” Collier counseled.

Speaking on behalf of the World Bank, the Country Director for Tanzania and Uganda, John McIntire said Uganda’s CEM represented one of the first waves of country studies to undertake a holistic analysis of the country’s growth prospects and challenges.

“Growth in Uganda has been strong for two decades, and continues to be healthy,” McIntire said. “But global experience shows that growth spurts inevitably slow down because the economy runs up against a key constraint. Uganda should, therefore, anticipate these constraints, and prioritize policies and investments in order to relax them before they bind growth.”

McIntire said it will be crucial for Uganda to maintain the past gains from stable macro management and trade-friendly policy reform but also to support private sector development and maintain an investment climate that fosters market development and maintains prudent regulation to correct for market failures.

To avoid reversing the gains made in the 1990s, he said careful thought was needed on the appropriate role for Government in removing the constraints to growth.

“Government should avoid picking winners, and must certainly not back losers. There should be uniform application of any investment incentives, avoiding selective support to specific investors,” he said.

While presenting the CEM, World Bank Senior Economist and Task Team Leader for the CEM Dino Merotto said: “Our research suggests a fundamental change in policy is not required, but Uganda can no longer expect rebound growth. Most growth episodes hit binding constraints.”

For Uganda to avoid this, Merotto said, an infrastructure investment phase is needed to move beyond recovery and to ensure Uganda's impressive growth surge does not taper down

“Priorities are to lower transport costs through better infrastructure (including Port access in Kenya) and to expand access to cheaper electricity,” he said. “This investment agenda will falter unless corruption and cronyism in procurement is avoided.”

Mr. Merotto added that “ Uganda's demography presents a future challenge, which could be turned into an opportunity if Uganda's dependency ratio (the highest in the world) can be quickly reversed by bringing down the fertility rate”.

Uganda’s population is growing at 3.4% per annum, with the resultant dependency ratio of 116 percent, the highest in the world. For every 100 working-age people in the economy, there are 116 mostly young people who need to be looked after. With half the population presently under working age, the labor force will double in 15 years. This combined with the fact that agriculture will continue to release workers as productivity improves, means the economy will need to create jobs in agro-processing and service sectors.

Contributed by Steven Shalita, World Bank Africa Region