Uganda - African Economic Outlook...Uganda Real GDP growth slowed down in 2011 to an estimated 4.1%. Projections prepared for the 2012 African Economic Outlook, suggest it will improve

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Uganda

2012

UgandaReal GDP growth slowed down in 2011 to an estimated 4.1%. Projections prepared for the 2012 AfricanEconomic Outlook, suggest it will improve in 2012 to 4.5% and to 4.9% in 2013.

Presidential and parliamentary elections were held in February, 2011 and incumbent president, YoweriMuseveni, head of the ruling National Resistance Movement, was comfortably re-elected. However,numerous protests occurred throughout the year, mainly driven by the increasing cost of living.

Social indicators continued to improve and in 2011 Uganda’s Human Development Index increased to 0.446from 0.422 in 2010.

Overview

In 2011, the Ugandan economy declined from gross domestic product (GDP) growth of over 6% the previousyear to 4.1%. Over the course of the year, inflation averaged 18.8%, up from 4.1% in 2010, the exchange ratedepreciated by 6.2% against the US dollar (USD), and the trade deficit increased from 9.6% to 10.8% of GDP.

The 2012 African Economic Outlook projects real GDP growth to improve to 4.5% and 4.9% in 2012 and 2013,respectively, mainly premised on good prospects in the oil sector. However, attaining these rates will dependon the ability of the authorities to address major infrastructural constraints, particularly in the energy sector,and to mitigate risk factors, including those linked to climate change. Inflationary pressures are forecast tosubside in 2012 and to reach single digits in 2013, reflecting both global declines in food and fuel prices, as wellas the impact of monetary tightening by the Bank of Uganda (BoU). The government is expected to rein inexpenditure growth; yet slower revenue collections brought about by the slowdown of economic activity arelikely to offset any improvements on the fiscal balance. On the external front, the current-account deficit isprojected to deteriorate in 2012 and 2013 to 10.2% and 11.1% of GDP, respectively, as import growthaccelerates and exports are hit by the global economic slowdown.

Uganda has one of the youngest and fastest growing populations on the African continent and, thus, faces theassociated challenge of providing quality employment for these young people. In 2009/10, it was estimated that5.9 million, or 19.3% of the population were between the ages of 15 and 24. Youth unemployment wasestimated at 4.3%, higher than for the labour force as a whole, at 3.8%. Youth unemployment andunderemployment trends in Uganda are driven by a variety of factors, including the lack of employable skills,limited access to financial and technical resources, the insufficient emphasis on vocational training and amismatch between skills and requirements in the job market. To address the challenges posed by youthunemployment in Uganda, the government is pursuing a number of interventions aimed at improving theemployability of young people through initiatives such as the establishment of a Youth Venture Capital Fund tosupport entrepreneurial bankable ideas and initiatives, and the national Business, Technical and VocationalEducation and Training (BTVET) programme.

African Economic Outlook 2012 2 | © AfDB, OECD, UNDP, UNECA

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Figure 1: Real GDP growth (Eastern)

Figures for 2010 are estimates; for 2011 and later are projections.

Table 1: Macroeconomic Indicators

2010 2011 2012 2013

Real GDP growth 6.1 4.1 4.5 4.9

Real GDP per capita growth 2.9 0.9 1.3 1.7

CPI inflation 4.1 18.8 16 14.1

Budget balance % GDP -4.9 -7.4 -8 -8.9

Current account % GDP -8.4 -3.6 -10.2 -11.1


Real GDP growth (%) Eastern Africa - Real GDP growth (%) Africa - Real GDP growth (%)

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130%

10%

2.5%

5%

7.5%

12.5%

Real

GDP

Gro

wth

(%)


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Recent Developments & Prospects

Table 2: GDP by Sector (percentage of GDP)

2006 2010

Agriculture, forestry, fishing & hunting 24.5 22.9

Agriculture, livestock, forestry and fisheries - -

of which agriculture - -

Mining and quarrying 0.3 0.3

of which oil - -

Manufacturing 7.5 8.3

Electricity, gas and water 4.2 4.2

Electricity, water and sewerage - -

Construction 12.1 13

Wholesale and retail trade, hotels and restaurants 19.1 22

of which hotels and restaurants - -

Transport, storage and communication 6.5 9.6

Transport and storage, information and communication - -

Finance, real estate and business services 10.4 7.3

Financial intermediation, real estate services, business and other service activities - -

General government services - -

Public administration & defence; social security, education, health & social work - -

Public administration, education, health 3.9 3.5

Public administration, education, health & other social & personal services - -

Other community, social & personal service activities - -

Other services 11.5 8.9

Gross domestic product at basic prices / factor cost 100 100

Wholesale and retail trade, hotels and restaurants - -


During 2011 the Ugandan economy continued to perform strongly by regional and international standards,albeit with an important deceleration of GDP growth as of the third quarter of the year. This slowdown ineconomic activity has been particularly felt in the mining, manufacturing, construction and energy sectors, andis likely to bring real GDP growth for 2011 down to 4.1%, the lowest in over a decade.

The slowdown in the Ugandan economy is partly due to difficulties in the European and US economies, bothimportant markets for Ugandan exports. The BoU considers that the sustained slowdown forecast for theadvanced economies in the near term, together with financial instability in global markets, will continue todampen demand for Uganda’s exports and reduce foreign direct investment (FDI), remittances, and aid flows inthe short to medium term. On a more optimistic note, the global economic downturn could cut Uganda’s import


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bill, thus improving its external position, which deteriorated significantly, with the current account deficit(including grants) increasing from 9.6% of GDP in FY2009/10 to 12.6% in FY2011/12.

Adding to the external pressures on the economy, the tightening of both fiscal and monetary policies by theUgandan authorities since mid-2011 has also contributed to a reduction of economic activity, leading to a sharpincrease in interest rates and the implementation of a programme of fiscal consolidation.

Fiscal tightening has been implemented in response to a widening budget deficit, which rose to 7.4% of GDP,including grants, in FY2010/11. This deficit was largely driven by an increase in security-related spendingequivalent to 2.5% of GDP, justified on the grounds of the growing security threats posed by internationalterrorism and the need to secure peaceful presidential and parliamentary elections in February 2011. Theoverall deficit (including grants) is projected to widen to 8% of GDP by the end of FY2011/12, mainly due to adecline in total revenues and grants of 1.5 percentage points of GDP.

On the monetary front, the BoU increased the rate at which it lends to commercial banks from 11.97% inDecember 2010 to 29% at the end of 2011, in an attempt to slow down money supply and credit growth, andthus cool aggregate demand. These efforts were aimed at bringing down inflation, which reached a peak of30.5% in October 2011, driven by a combination of both domestic and external factors. These include the sharpincrease in global commodity, fuel and food prices throughout 2010 and 2011, the impact of the 2011 EastAfrican drought on food production, as well as a sharp increase in credit growth since 2010. Inflation started todecline in November 2011 and is expected to continue falling to 16% by the end of December 2012 and to14.1% by 2013. Despite this improved inflationary outlook, the BoU intends to maintain high interest rates forthe foreseeable future until inflation is fully under control.

Productive-sector activities in 2011 have continued to be dominated by developments in the power and oilindustries, both of which are critical to Uganda’s development prospects.

With current national hydro generation levels at around 200-250 megawatts (MW) and electricity demand at440MW in peak hours, energy poses one of the most important challenges to sustained economic developmentin Uganda. In 2011 the main power distribution company, Umeme, implemented a load-shedding (rationing)programme that has led to nationwide power cuts of up to 12 hours per day, disrupting production activities andcausing considerable social unrest. The commissioning of the Bujagali hydropower dam, which is planned to startoperating in 2012 and which will increase generation capacity by 170-250MW, is expected to ease powershortages in the short term. However, given current trends in demand, power generation problems are unlikelyto be fully addressed until the 700MW Karuma hydro-electric power project comes into operation towards theend of the 2010s.

Uganda is planning to start large-scale oil production and expects to reach a peak of 200 000 barrels per day in2015/16. It could yield revenue of up to USD 2 billion annually to the government. Whilst this revenue windfallpresents a unique opportunity to address the various investment bottlenecks in areas such as infrastructure,agriculture and social development, the materialisation of these benefits will require important investments inoil production, refinery and distribution, and will ultimately rest on having a strong legal and regulatoryframework that ensures the transparent and prudent use of oil resources.


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Macroeconomic Policy

Fiscal PolicyDuring the first half of 2011 the government adopted an expansionary fiscal policy stance, driven by its plans toboost infrastructure investment as well as added security costs incurred during the February 2011 elections, anincrease in energy subsidisation and tax revenue collections that were below the set target set for FY 2010/11.This fiscal policy stance resulted in a budget deficit (excluding grants and oil capital gains tax revenue)estimated at 11.2% of GDP, compared to the target of 6.2%. Taking into account grants (3.1% of GDP) and oilcapital gains tax revenue (2.6% of GDP), the deficit is estimated at 7.4% of GDP, underlining the potentialsignificance of oil revenues in financing the deficit, as well as the importance of putting in place rules thatcontribute to offsetting the risks associated with natural-resource wealth and that ensure long-term fiscalsustainability with prudent macroeconomic management.

Against this background, the government has increasingly been resorting to supplementary budgets, withsupplementary expenditure increasing by 78% in FY 2009/10 and 32% in FY 2010/11. Thus, in January 2011,only 6 months after introducing the 2010/11 budget, the government requested supplementary financing of of605 billion Ugandan Shillings (UGX), equivalent to 8.1% of the approved budget. The recurring use ofsupplementary budgeting risks eroding the credibility of the budgeting process and of the government’s fiscalpolicy stance, while undermining the budget’s role of providing a detailed and comprehensive costing of allgovernment interventions, and a predictable outlook of its fiscal policy stance.

A study undertaken by the African Development Bank (AfDB) in 2010 found that, although progress has beenmade to expand the tax base, Uganda has the lowest tax-to-GDP ratio in the East African Community (EAC) at13%, a rate which is well below the sub-Saharan African average of 26%. Factors that contribute to this poorperformance include the existence of a large informal sector, ad-hoc tax exemptions, loopholes in tax legislationand corruption in the tax administration. This same study noted that, despite these problems, the UgandaRevenue Authority has made considerable progress in increasing the efficiency of tax administration andtaxpayer compliance, as well as in reducing the cost of collection. Nevertheless, it remains to be seen whetherthe programmed 0.5% annual growth in tax-to-GDP ratio, which is expected to lead to an increase in taxrevenues from 12.4% of GDP in FY 2010/11 to 15% in FY 2014/15, will be achieved.

Table 3: Public Finances (percentage of GDP)

2003 2006 2007 2008 2009 2010 2011 2012 2013

Total revenue and grants 17.9 17.7 18.5 16.4 15.1 14.8 16.2 14.7 14.2

Tax revenue 11.2 12.3 12.8 13.1 11.8 11.7 12.4 12 12

Oil revenue - - - - - - - - -

Grants 5.8 4.9 5.1 3 2.6 2.5 3.1 2.2 1.7

Total expenditure and net lending (a) 22.3 19.9 19.9 18.1 17.3 19.6 23.6 22.8 23.1

Current expenditure 13.2 12.8 12.2 12.9 11.9 13.1 15.9 13.9 12.8

Excluding interest 11.8 11.4 11.1 11.7 10.7 12 14.9 13 11.9

Wages and salaries 4.9 4.8 4.7 4.5 3.9 3.8 4.2 3.4 3.1

Interest 1.4 1.4 1.1 1.3 1.2 1.1 1.1 0.9 0.9

Primary balance -2.9 -0.8 -0.3 -0.4 -1 -3.8 -6.4 -7.1 -8

Overall balance -4.3 -2.2 -1.4 -1.7 -2.2 -4.9 -7.4 -8 -8.9


Monetary Policy


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After almost two years of pursuing a loose monetary policy stance, the conduct of monetary policy in 2011 sawa sharp reversal and tightening. This shift was driven by the BoU’s efforts to address high inflationary pressures.

Since 2010, both headline and core inflation have risen from single to double digits, reaching a peak of 30.5%and 30.8% in October 2011, respectively, well above the official target of 5%. Recent inflationary dynamicshave been driven by a combination of external and domestic factors, as well as by supply- and demand-sideconsiderations. These include the impact of the drought affecting the East African region during the first part of2011, the pressures exerted by high international fuel and commodity prices, the impact of exchange ratedepreciation on imported goods prices, as well as a rapid expansion in the money supply up to mid-2011, withyear-on-year growth of M2 increasing from 21.4% in 2007 to 31.9% in 2010.

In response to this situation, the BoU tightened its monetary policy stance throughout 2011 by raising interestrates. The BoU raised the Central Bank Rate (CBR) to 16% in September, from 13% in July, and then to 20%and 23% in October and November 2011. At the same time, it raised the rediscount and bank rates to 25% and26%, respectively, up from a low of 6.83% and 7.83% in March 2010. Following the adoption of these measures,inflation dropped to 27% in December 2011 and is expected to continue doing so during 2012, although theBoU admits that its 5% inflation target can only be reached in 2013. In this context, the BoU has said that itintends to maintain its current monetary policy stance until significant falls in annual inflation have beenachieved. While such tightening indicates the seriousness with which the BoU regards its price-stabilitymandate, the central bank recognises that reining in inflation will not be an easy task, as some of thedeterminants of price dynamics are out of its direct control.

The Ugandan Shilling (UGX) depreciated sharply against the US dollar during most of 2011, and lost 25% of itsvalue in the 12 months to October 2011, although it recovered somewhat towards the end of the year.Exchange-rate dynamics have been driven by adverse developments in the global economy that led to adeterioration of the balance of payments and slowdown in aid flows, as well as by an acceleration of moneysupply growth. The situation was exacerbated by a flight to safety as investors opted to hedge against possiblelosses by reducing their exposure in what is perceived as a risky frontier economy.

Economic Cooperation, Regional Integration & TradeUganda has embraced regional integration as a core element of its development strategy, incorporatinginternational and regional agreements into its legal and regulatory frameworks, whilst creating andstrengthening a variety of institutions charged with implementing these agreements. The country has ratifiedregional member country protocols for the Common Market for Eastern and Southern Africa (COMESA), the EastAfrican Community (EAC), Inter-Governmental Authority for Development (IGAD), African Union (AU) and is afounding member of the World Trade Organization (WTO). Under the EAC Customs Union Protocol – which hasbeen endorsed by Uganda, Kenya, Tanzania, Rwanda and Burundi – Uganda eliminated all import tariffs ongoods originating from the EAC in January 2010 and has adopted the Customs Union Common External Tariff.

Notwithstanding these developments, a number of reforms have yet to take place in Uganda and other EACmember states. A number of bureaucratic barriers continue to undermine the competitiveness of Ugandangoods exports and their access to regional markets in the EAC and elsewhere on the continent. Trade inservices is similarly not reaching its potential, due mainly to continuing restrictions on the free movement oflabour across the EAC. In addition, Uganda is yet to adopt important international standards in trade facilitation,such as the International Convention on the Simplification and Harmonization of Customs Procedures (theRevised Kyoto Convention), and has not yet implemented critical international transit procedures, whichundermines the free flow of goods from and to the EAC and the realisation of the full benefits of greater EACintegration.

To improve this situation, a “Doing Business Reform Unit” was established at the Ministry of Finance, Planningand Economic Development in early 2010 to spearhead the implementation of an action plan aimed atimproving Uganda’s business environment. However, it is too early to assess the impact that the unit will bringabout on the business environment.


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Table 4: Current Account (percentage of GDP)

2003 2006 2007 2008 2009 2010 2011 2012 2013

Trade balance -8.8 -9.3 -7.3 -11.2 -11.2 -9.6 -10.8 -12.6 -13.6

Exports of goods (f.o.b.) 7.2 10.8 11.1 13.5 13.4 13.1 13.3 11.1 9.3

Imports of goods (f.o.b.) 16 20.1 18.4 24.7 24.5 22.7 24.1 23.7 22.9

Services -3.9 -2.7 -2 -2.9 -2.7 -3.2 -3.5 -2.5 -1.5

Factor income -1.9 -2.2 -1.7 -1.6 -1.7 -1.6 -1.2 -1.2 -1.1

Current transfers 10.9 10.7 8.7 7.8 8.1 6 11.8 6.1 5

Current account balance -3.8 -3.5 -2.3 -7.9 -7.5 -8.4 -3.6 -10.2 -11.1


Debt PolicyThe government has continued to adopt a cautious borrowing policy, following the substantial debt reliefreceived under the Heavily Indebted Poor Countries (HIPC) Initiative in 1999/2000 and under the MultilateralDebt Relief Initiative (MDRI) in 2005/06 and 2006/07. The Debt Sustainability Analysis by the InternationalMonetary Fund (IMF) in March 2011 shows that Uganda’s debt is still sustainable and should remain so in themedium and long term. The sustainability of Uganda’s debt is attributed to the overall prudent management offiscal and monetary policies by the government and the Bank of Uganda over the past decade. As a result, alldebt indicators have declined to levels well below their policy-dependent thresholds. Moreover, new externalborrowing has been limited to financing for energy, roads and agricultural development, and has beencontracted on highly concessional terms, mostly from the World Bank’s International Development Association(IDA) and the AfDB. Consequently, the public and publicly guaranteed external debt has remained low as apercentage of GDP (13.3% in 2009/10), and is mostly owed to multilateral partners on highly concessionalterms. Domestic debt continues to be issued exclusively for the conduct of monetary policy, and amounts to lessthan 10% of GDP. In the medium term, the government plans to undertake substantial infrastructureinvestments over the National Development Plan (NDP) period (2010/11-2014/15). However, these areexpected to be financed mainly from concessionary sources, so that Uganda’s debt position will not benegatively impacted.


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Figure 2: Stock of total external debt (percentage of GDP) and debt service (percentage of exports ofgoods and services)


Debt/GDP Debt service/Exports

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130%

25%

50%

75%

100%

125%

150%

Perc

enta

ge


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Economic & Political Governance

Private SectorThe World Bank’s 2012 Doing Business report, which assesses and ranks the business environment in 183economies around the world, downgraded Uganda’s score by 4 positions in its ‘Ease of Doing Business’ rankingbetween 2010 and 2011, from 119th to 123rd. Slow progress in improving the investment climate in Ugandareflects problems in a variety of areas.

In the ‘access to credit’ ranking, the country’s position declined from 45th to 48th, in spite of the establishmentof a private credit reference bureau which presently covers about 500 000 individuals. A notable decline wasalso registered in paying taxes, reflecting the fact that no new reforms have been undertaken in recent years,and implying that gains from previous reforms in tax administration could have levelled out. Furthermore, noimprovements were registered in the enforcement of contracts, with the number of days required to enforce acontract remaining unchanged at 490. In addition, entrepreneurs in Uganda continued to face significant barriersin establishing and closing businesses. The number of days to start a business increased to 34, up from 25 in2010, with this process requiring up to 16 steps (although these are two fewer from the 18 steps reported theprevious year). The increase in the number of days reflected the introduction of changes that increased the timerequired for obtaining a business licence while the number of steps declined due to the adoption of an online taxregistration system. The most time-consuming procedures include obtaining a trade licence (10 days) andobtaining a corporate tax identification number from the Uganda Revenue Authority (5 days). Finally, thecountry’s rank in resolving insolvency declined to 63 in 2011, from 58 in 2010. On the positive side, the reportrecognises that Uganda has a good legal framework to address anti-competitive conduct by firms, and that thislegislation is generally enforced through the Commercial Court.

On the other hand, according to the 2011 Index of Economic Freedom prepared by the Heritage Foundation,Uganda’s labour regulations are flexible, with a score of 87.8 out of a possible maximum value of 100, althoughthis represented a decline of 0.3 from 2010. According to this study, the non-salary cost of employing a workerin Uganda is low, whilst dismissal costs and associated procedures are reasonable. Moreover, regulations onworking hours remain relatively flexible. However, this same study finds that the enforcement of labourstandards and regulations In Uganda is often compromised by a chronic lack of supervisory resources.

Financial SectorThe Ugandan financial sector is relatively well developed, consisting of a range of formal, semiformal andinformal institutions. However, access to financial services remains problematic, especially in rural areas. Thus,formal institutions, including commercial banks, microfinance deposit-taking institutions, credit institutions,insurance companies, development banks, pension funds and capital markets serve only 14% of the ruralpopulation, while informal institutions, such as village savings and loans associations serve approximatelyanother 12%. In this sense, the financial system is still quite shallow, with up to 62% of the population having noaccess to financial services and only 4 million people holding bank accounts, representing as little as 33% of the12 million people who are potentially bank clients.

The government is implementing a two-faceted approach to financial-sector reform, aimed at consolidatingbanking stability and facilitating financial deepening. The major policies include deregulation of financialservices, strengthening of regulatory and supervisory frameworks, and the development of money and capitalmarkets. The sector remained buoyant and healthy in FY 2010/11 with commercial banks’ continuing to bedominant. Due to enhanced prudential regulation, the system-wide risk-weighted capital ratio remained highand has stabilised at more than 20% since 2008, providing a large buffer to absorb unexpected losses. At thesame time, the ratio of non-performing loans to gross loans improved from 3.3% in 2009/10 to 1.6% in 2010/11,underscoring commercial banks’ asset quality. Nevertheless, the Ugandan authorities recognise that the tightermonetary policy stance adopted by the BoU together with a slowdown in economic activity could lead to thedeterioration in the quality of bank assets in the medium term.

Private-sector credit growth has remained strong in 2011, with net domestic credit growing by 38.7%, up from26.3% in 2010, while the loan-to-deposit ratio increased by about 11 percentage points in 2010/11 to stand at72%. However, in terms of financial deepening, the ratio of private-sector credit to GDP stands at an average of12.0%, while the level of financial intermediation, measured by the ratio of credit to deposits stood at anaverage of 62.1% during the period 2007-2011, both much lower than in neighbouring Kenya and Tanzania.

The Uganda Securities Exchange (USE) saw a sharp decline during the second half of 2011. After reaching ahistorical high of 1290 points in mid-January 2011, the USE All Share Index had dropped to 781 points by theend of October, a 39.5% decline. There was a slight recovery towards the end of the year to 864.45 points.Reflecting the weak performance, the USE’s market capitalisation declined from UGX 17.0 billion in January2011 to UGX 9.97 billion in January 2012.


Public Sector Management, Institutions & ReformThe responsibility for co-ordinating the implementation of government policies and programmes is vested in theOffice of the Prime Minister (OPM), which is required by law to provide the cabinet with a semi-annual reporton government performance. This institutional framework has contributed to enhanced decision making, betterutilisation of public resources and improvements in service delivery. Nonetheless, the extensive and hierarchicalnature of the framework has tended to complicate co-ordination processes across government, and has also ledto the duplication of efforts and wastage of resources. In recognition of these shortcomings, the government isin the process of strengthening monitoring and evaluation functions at all levels of the public sector to enhancethe effectiveness of government interventions, efforts which are seen as complementing the government’soverall results-oriented management approach.

There have been important successes and improvements in Public Finance Management (PFM). However, recentstudies such as the 2008 Public Expenditure and Financial Accountability (PEFA) report and the 2010 FinancialAccountability and Management Programme (FINMAP) mid-term review indicate that the improvements do notappear to be translating into improved service delivery. In particular, the mid-term review of FINMAP observedthat resources are not reaching end users on time, and that users are not being sufficiently empowered to usethese resources effectively to improve service delivery.

In the context of civil service reform, the government put in place a Code of Ethics in 2005 for public officers.Under this code, the conduct of a public officer is expected to be beyond reproach. Public officers are regardedas custodians of the public trust and as such, they are required to adhere to the highest standard of morality.Ethical rules require a public officer to be impartial, objective and to manifest the highest degree of integrity inthe conduct of public affairs. Public officers are also expected to refrain from using their positions for personal,private pecuniary or partisan gains.

Natural Resource Management & EnvironmentThe institutional framework for environmental management and protection is embodied in the 1995 NationalEnvironment Act (NEA) that established the National Environmental Management Authority (NEMA) as theinstitution charged with the management of environmental issues.

The 2011 Water and Environment Sector Performance Report concludes that the environment in Ugandaremains under threat from natural and man-made factors, including poverty, unsustainable resource use, lack ofenforcement of laws, rapid population growth, urbanisation, agricultural expansion and the impact of climatechange. There has also been a general decline in wetland coverage, with the Lake Victoria and Kyoga drainagebasins the most affected.

Following the discovery of oil reserves in the western part of the country in the mid-2000s, Uganda is planningto start oil production in 2015/16 with a maximum of around 200 000 barrels per day. Proven oil reserves,estimated at 1 billion barrels, are expected to last for 25 years and could generate up to USD 2 billion worth ofrevenue annually over few years of production. The discovery of oil has generated high expectations in Ugandaon the development benefits that oil wealth can yield, and the government is already counting on theseresources to finance large infrastructure projects. However, reaching full extraction capacity will requireimportant investments in oil production, refinery and distribution that still remain to be undertaken. Moreover,despite efforts by the government to develop a policy and legal framework for the oil and gas industry thatensures transparent and prudent resource management, developments in this sector have been surrounded bycontroversy, with allegations of large-scale corruption in the award of oil exploration contracts, and the transferof contract awards between oil companies. These matters are subject to international arbitration in London inorder to establish asset-transfer tax liabilities.

Political ContextThe political situation in 2011 was dominated by the presidential, parliamentary and local elections that tookplace in February, as well as by increasing social unrest motivated by the rising cost of living brought about byhigh fuel and food prices, and the recurrent power shortages which affected most parts of the country.

The February 2011 elections were won by the ruling National Resistance Movement party of President YoweriMuseveni, which took the presidency with 68% of the vote and a majority of seats in Parliament (264 out of386). Despite the poor performance of the opposition, the leader of the main opposition party, Dr. KizzaBesigye of the Forum for Democratic Change, was able to capitalise on the growing discontent over rising foodand fuel prices and led the Walk to Work protest movement, which saw protests across the country, especially


in urban areas. Although relatively small in number and following, these protests were met by a heavy policeresponse, leading to several protesters being shot, as well as to the repeated arrests of Dr. Besigye, who onseveral occasions required medical treatment as a result of these arrests.

Alongside these developments, the political situation continued to be plagued by reports of large-scalecorruption surrounding government contract awards and involving high-level government officials. Corruptionallegations led to the imprisonment of former Vice President Gilbert Bukenya (who was later acquitted), and topolice investigations being launched against the current prime minister and other prominent cabinet members.


Social Context & Human Development

Building Human ResourcesThe UNDP’s 2011 Human Development Report gives Uganda a Human Development Index (HDI) value for 2011of 0.446 up from 0.422 in 2010, placing it in position 161 out of 187 countries and within the low humandevelopment category. From 1985 the HDI value has increased from 0.294, which reflects improvements acrossall three HDI dimensions: health, education and living standards. Thus, between 1980 and 2011, life expectancyat birth increased by 4 years, mean years of schooling by 2.8 years, while expected years of schooling increasedby 6.9 years; Uganda’s GNI per capita increased by 132% between 1985 and 2011.

Uganda has already achieved the Millennium Development Goal (MDG) target of halving the incidence ofextreme poverty from its 1990s levels and the most recent official figures put it at 24.5% in 2009/10, comparedto 56% in 1992/93. The country is also on track to eliminate gender disparities in education, to reduce theprevalence of underweight children under the age of five (from 26% in 1995 to 16% in 2005/06), to ensureuniversal access to anti-retroviral drugs for people with advanced human immune-deficiency syndrome (HIV)infection (likely to reach 80% by 2012) and to provide access to safe drinking water to its population, up from57% in 1999/2000 to 74% in 2009/10. However, progress has been slow in some education indicators and in thearea of health.

Primary school enrolments have increased sharply in the past two decades, from around 2.7 million pupils in1997 to 8.2 million in 2009, partly due to the introduction by government of its Universal Primary Educationpolicy in 1997. As a result, net enrolment rates were 93% in 2009, close to the MDG target of 100%. However,completion rates continue to lag behind, with only 52% of pupils that start grade 1 reaching grade 7; in otherwords, 48% do not complete basic education.

Considerable progress has been made in improving the general health of the population. Yet, the Ugandanhealth-care system continues to have important deficiencies, particularly in areas such as child and maternalhealth. Maternal mortality stood at 435 per 100 000 live births in 2005/06, and the MDG target of 131 per 100000 live births is unlikely to be met. Infant and under five mortality rates also remain at high levels, 76 and 137deaths per 1 000 live births in 2005/06, respectively.

With regard to HIV/AIDS Uganda has already achieved the MDG target of reversing its spread, with the rate ofadult prevalence standing at 6.4%. However, recent research shows an upward trend in new infections sincethe 1990s, with up to 130 000 newly HIV-infected people in 2010. This situation is partly motivated by theprevalence of persistently high levels of risky behaviour, with condom use during sexual intercourse droppingfrom 39% in 2000/01 to 35% in 2005/06 for women, and from 61% to 57% for men during the same period.

Poverty Reduction, Social Protection & LabourEstimates for 2009/10 put poverty incidence in Uganda at 24.5%, less than half the 1992/93 rate of 56%,indicating it has already achieved its target for MDG 1a. Other poverty-related indicators have performedequally well, with the poverty gap measure dropping from 21 to 6.8 during the same period. However, povertyreduction gains have been unevenly distributed, with rural poverty (27.2%) considerably higher than povertyrates in urban areas (9.1%), and the northern region reporting rates of poverty of up to 46.2%, almost twice ashigh as the second poorest region: Eastern Uganda, with a poverty rate of 24.3%.

Uganda has enacted legislation and adopted policies for social security and protection, including the 1994Ministry of Public Service Pension Act for retired civil servants and the 1985 National Social Security Fund(NSSF) Act. One shortcoming of the existing social protection framework, however, is that it largely caters onlyto formal-sector workers. Moreover, plans to revise the pension and social security legislation to meet theInternational Labour Organization (ILO) standards are yet to be implemented. The public-service pensionscheme is non-contributory and is funded from the consolidated fund. Its coverage is very limited, currentlyestimated at about 50 000 retired civil servants. The NSSF, which also targets formal sector employees, isestimated to have covered about 1.5 million workers since it was established in 1967, while its net worthreached a record UGX 2 trillion as of April 2011. Recently, the NSSF announced plans to introduce moreproducts including housing mortgages, as well as various benefits including unemployment, maternity, medicaland school fees.

A notable recent development is the establishment of a Cash Transfer Scheme for the elderly and othervulnerable groups such as, child-headed families, single mothers and the disabled, in October 2011. This schemeis currently in a pilot phase in 14 districts. The government also oversees the implementation of the Orphansand Other Vulnerable Children (OVC) programme set up in 2003, but this programme is rather fragmented andlimited in coverage. The 2010 OVC Situation Analysis Report places the level of vulnerability among children inUganda at 96%, a situation which is largely attributed to poverty, HIV/AIDS, general gaps in the national OVC


response, as well as internal conflicts in some parts of the country. In recognition of this challenge, thegovernment launched the second five year OVC plan in May 2011 that builds on the achievements of the firstplan and targets 51% of the children considered critically and/or moderately vulnerable.

Uganda has ratified all the eight ILO core conventions. However, a report done by the Foundation for HumanRights Initiative (FHRI) in April 2011 reveals that most workers in the country are working under sub-standardconditions and that their rights are being abused. Moreover, child labour still persists and it is estimated that 2.7million children are engaged in various work activities.

Gender EqualityThe Ugandan constitution guarantees equality between women and men and there is a gender policy thatprovides a framework for gender-responsive development. Uganda is a signatory to various internationalcommitments, including the Convention on the Elimination of all forms of Discrimination Against Women(CEDAW), the Beijing Platform of Action and the MDGs. In this sense, Uganda possesses some of the best policy,constitutional and legal frameworks relating to gender equity in Africa and the developing world. However, inpractice, implementation and enforcement mechanisms are still lacking.

The introduction of universal free primary and secondary education in 1997 and 2007, respectively, hasimproved women’s access to education, with the ratio of girls to boys in primary, secondary and tertiaryinstitutions reaching 1.0, 0.84, and 0.79, respectively, in 2009/10. The number of women in parliament rose to130 (out of 375 members, about 35%) in the current session, compared to 98 in the previous parliament. In thecabinet there are 10 women (out of 29) holding a senior ministerial position, and another 12 (out of 47) arestate ministers. Moreover, for the first time, the current parliament appointed a female speaker.


Thematic analysis: Promoting Youth Employment

With one of the youngest and fastest growing populations on the African continent, youth employment hasfeatured prominently in the Ugandan policy agenda and policy debates for several years.

Estimates from the 2009/10 national household survey put the population in Uganda between the ages of 15and 24 years at 5.9 million people, representing 19.3% of the total. A majority of young people, 78.3%, live inrural areas, although this proportion is somewhat lower than the total average rural population in the country(85%), indicating that young Ugandans are more urban than the population as a whole. Uganda’s youth arebetter educated than their older peers according to this same household survey, with only 5.7% of youth neverhaving attended school, as opposed to 17.3% for the population as whole; and with up to 32.4% of peoplebetween the ages of 15 and 24 having secondary education, a share which is considerably higher than theoverall proportion of 13.9%.

In 2009/10 young Ugandans were an estimated 40.9% of the working-age population between the ages of 15and 64 years. Their share of the economically active population was slightly lower, at 36.7%, owing to the factthat the proportion of youth employed or actively seeking employment (81%) is lower than for the working agepopulation as a whole (90.2%). By sector, the majority of working youth in Uganda (74.1%) is employed inagriculture, forestry and fisheries, with this share being significantly higher than for the labour force as a whole(65.1%). Conversely, their share of employment in wholesale and retail trade activities (6.2%) and the publicsector (2.6%) is considerably lower than average at 10.8% and 6.3%, respectively. Despite their betterpreparation, employment conditions for Uganda’s youth are not good, and in many cases compare unfavourablyto that of the rest of the labour force. To start, youth unemployment, at 4.3%, is slightly higher than for thelabour force as a whole, 3.8%, with unemployment being somewhat higher for young women (4.9%) than foryoung men (3.6%). Moreover, a large majority of young workers (73.3%) are self-employed, with this share’sbeing particularly high for young women at 76.5% as opposed to 70.3% for their male counterparts. In addition,only a small fraction of young workers (1.6%) earn a regular wage, while up to 7% of them are engaged inunpaid family work, doing considerably worse than the labour force as a whole on both accounts at 6.5 % and1.7%, respectively.

A number of factors undermine Uganda’s youth access to quality employment and decent jobs. The current draftof the National Youth Policy identifies the lack of employable skills, a lack of access to land and capital, and fewapprenticeship schemes, together with an overemphasis on work experience and a rate of job creation which isnot in tandem with population growth, as key constrains to (better) youth employment. In addition, the skeweddistribution of education and training institutions in favour of urban areas, unequal access to education,insufficient vocational education, inadequate and insufficient facilities, and the chronic shortage of teaching staffwith the required qualifications and practical skills are key shortcomings in an education and training systemwhich is not responding to the skill requirements of the job market.

At an institutional level, youth employment issues largely fall under the mandate of the Ministry of Gender,Labour and Social Development (MGLSD), although the Ministry of Education and Sports plays a key role inanything related to education and training. In addition, there are a number of national stakeholders’ councilswhich seek to co-ordinate and mobilise efforts in areas relevant to youth employment. These include theNational Youth (NYC) and the Industrial Training (ITC) Councils.

The government has recognised the challenge posed by youth employment in Uganda and is in the process ofimplementing a series of activities aimed at improving the employability of the country’s youth. Thus, the NDP2010/11-2014/15, which has employment creation as one of its main objectives, has as its number oneintervention in its first strategic objective for the area of labour and employment to “implement the nationalyouth employment policy and plan”. The Plan also contemplates the formulation and implementation of aNational Non-Formal Skills Development Programme that will focus on developing non-formal skills in theUgandan labour force, targeting especially youth and women. In line with the NDP’s orientations, during 2011the government has been revising its National Youth Policy for the period 2011-16, the previous one datingback to 2001, which presents a strong focus on giving young people better access to employment and income-generating activities by enhancing the skills and livelihoods of Uganda’s youth. In addition, the government, inco-ordination with other relevant stakeholders, is currently implementing a number of programmes that havethe potential for improving youth employment prospects in Uganda, with the Labour Market InformationSystem (LMIS), the Youth Venture Capital Fund to support entrepreneurial bankable ideas/initiatives and the2008 Business, Technical and Vocational Education and Training (BTVET) programme among the mostprominent.


Documents

Uganda - African Economic Outlook...Uganda Real GDP growth slowed down in 2011 to an estimated 4.1%. Projections prepared for the 2012 African Economic Outlook, suggest it will improve