Country Profiles

Uganda Transformation Profile

Managing oil revenues for transformation

After more than a decade of political instability and economic decline, Uganda began to turn the corner in the second half of the 1980s. An economic recovery program introduced in 1987 put the economy back on a growth path. Uganda has since had two decades of very strong economic growth, with GDP growth averaging 5.8% in the 1990s and 6.7% in the 2000s. Despite the impressive growth performance, the structure of the economy has merely shifted from low-productivity agriculture to services dominated by equally low–productivity small businesses. Production processes remain low in skill and technology application. Poverty rates declined from 64% in 1996 to 38% in 2009 (share of population living on less than $1.25 a day).

Transformation platform

Uganda has had two decades of structural adjustment reforms aimed at creating a market-based economy, but the greater majority of the labor force is still employed in low-productivity activities.

Uganda ranks in the bottom quarter of most of the 2011–12 Global Competitive Index indicators. Its overall rank was 121st of 142 countries. Its competitiveness ranking was weakest in business sophistication (115th), technological readiness (111th), health and primary education (122nd), higher education and training (125th), macroeconomic management (127th), and infrastructure (128th). Its best ranks were in innovation (90th) and institutions (98th).

Oil discoveries offer the opportunity for Uganda to transform significant revenues into productive investments that can drive economic transformation. But optimizing the benefits from oil requires good governance, prudent macroeconomic and exchange rate management, and investing the revenues in human and physical infrastructure.

Uganda’s National Development Plan of 2010 provides a blueprint of policies and measures needed to transform the economy. The five-year plan aims at accelerating socioeconomic transformation to achieve the national vision of transforming Uganda from a low- to a middle-income country by 2015. The plan is expected to act as a precursor to the development of longer term plans as envisaged by the Comprehensive National Development Planning Framework of 30 years.

The end of the insurgency in northern Uganda presents an opportunity for attracting investments to the north, thus contributing to the National Development Plan growth targets. Opportunities also exist through increased trade. In particular, the East African Community regional integration process, the tripartite East African Community– Common Market for Eastern and Southern Africa–Southern African Development Community free trade agreement, and the independence of South Sudan all present new opportunities for increased trade and growth.

On policies the government has since 1989 focused mainly on market reforms and macroeconomic stability as the anchor for investment, economic growth, and structural transformation. While these policies paid off in macroeconomic stability and impressive GDP growth, they have not delivered significantly on economic transformation. In most cases there is a realization that the state must play a role in addressing market failures and helping markets work better, where they may not be working well.

Uganda already has the National Development Plan, which provides a basis for economic transformation. The plan identifies key sectors that will drive Uganda’s economy forward. But liberal market policies should be accompanied with helpful regulation and support from the public sector to develop sectors in which Uganda enjoys a revealed comparative advantage. Uganda’s National Development Plan prioritizes developing infrastructure and enhancing production and productivity. Increases in the budgets for infrastructure have been significant, but what is lacking is a holistic development strategy.

Transformation prospects

The low-hanging fruit for improved international competitiveness are in food, live animals, and simple manufactures. Uganda also has comparative advantage in a few manufactured items, including beverages, tobacco, and chemicals and related products. Improving the quality and value of these manufactured products will be instrumental in promoting the industrial sector.

The discovery of commercially viable oil deposits in Uganda offers an opportunity for economic transformation if the oil revenues are well managed. Uganda has an estimated potential capacity of 2.5 billion barrels of oil reserves (as of June 2009). Oil revenues will reduce Uganda’s dependency on foreign financing, and the oil sector can be instrumental in job creation both upstream and downstream.

Going forward, Uganda’s economic transformation will require rethinking the country’s development approach in policies, institutions, incentives, and public investments. In particular, while we do not recommend reintroducing public enterprises in business, selective state support could be provided in the following ways:

  • Through public-private partnerships with selected export sectors at least in the initial stages until the sectors are self-sustaining. Promising sectors include food, live animals, footwear, garments, and textiles.
  • State support could also help the private sector add value to primary commodities such as cotton, coffee, and hides and skins.
Source: ACET research.

Source: ACET research.

Uganda’s growth with depth

  • Transformation—5th of 21. Uganda ranked 5th on the overall economic transformation index in 2010 (2009–11), a significant improvement from 10th in 2000 (1999–2001).
  • Growth. Uganda’s growth has been very impressive in the past two decades. GDP grew at an average rate of 5.8% a year from 1991 to 2000, and at 6.7% from 2001 to 2010, resulting in average GDP per capita growth of 3.0% and 3.8%. In contrast, average GDP growth from 1982 to 1990 was 2.9%, with per capita growth of –0.1%. Real GDP is projected to grow around 6% in 2013–14.
  • Diversification—8th. Now ranking 8th, Uganda saw an improvement from 11th in 2000. The improvement came from a significant expansion in the number of commodity exports that saw the share of the top five commodities in exports fall from 70% to 40%. Manufacturing forms only a small part of Uganda’s GDP, with a share that has stayed around 7% over the 2000s.
  • Export competitiveness—10th. Uganda also saw a significant improvement in its rank on export competitiveness— from 16th in 2000 to 10th in 2010. The share of exports of goods and services more than doubled from an average of 10% in 1999–2001 to almost 24% in 2009–10. Uganda’s competitiveness ratio, or the relative export intensity of production (the share of exports in GDP relative to the share for the world and excluding extractives), Uganda moved from 0.62 to 0.64 over the period. Uganda’s jump of six places in the competitiveness ranking also results from the falls many of the other countries experienced.
  • Productivity—1st. Uganda’s 1st rank here, which remained unchanged from 2000, is due to incredibly high reported values for manufacturing value added per worker ($102,338 for 2010 and $53,927 for 2000 in 2005 US$). We doubt that these figures are representative of Uganda’s manufacturing sector.
  • Technology—3rd. Uganda improved from 9th to 3rd on the strength of the share of medium and high technology in exports rising from 3.2% to 17.6%.
  • Human well-being—10th. Uganda improved from 13th to 10th primarily from GDP per capita rising from $778 to $1,152 (PPP 2005 US$).

One thought on “Uganda Transformation Profile

  1. Pingback: 2014 African Transformation Index | African Transformation Report

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s