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Factsheet June 7, 2019

Uganda Economic Update: Investing $2 Billion Will Put One Million More Children in School-Factsheet

What is the Uganda Economic Update?

This is a bi-annual assessment of the state of the economy by the World Bank. It analyzes the performance of the economy, key challenges and opportunities, and provides an economic forecast for the year ahead.

The previous economic update focused on agriculture and how developing the agri-food system could result in inclusive economic growth. It noted a rebound in growth to 6.1% in FY17/18, up from 3.9% the previous year. The update highlighted that growth was largely driven by a rise in investments and exports, as well as strengthened credit and favorable weather. However, in per capita terms, this rebound translated into a 3.1% growth rate, owing to Uganda’s rapidly growing population.

What is the current state of Uganda’s economy?

The 13th economic update, Economic Development and Human Capital in Uganda: A Case for Investing More in Education, notes that Uganda’s real gross domestic product (GDP) growth remained strong at 6.4% during the first half of FY18/19. However, the country’s per capita growth is insufficient to propel Uganda to lower middle-income status. Growth has largely been driven by strong investment and consumption performance, favorable weather conditions and strengthened credit. The Information and Communications sector sustained double-digit growth levels, financial services continued to recover, and agriculture was boosted by another decent harvest.

What is the outlook for the economy?

The growth outlook for Uganda is positive and the economy is expected to grow by over 6% in FY18/19 and FY19/20, driven by intensified public and private investments, especially to support developments in the energy and oil sectors.

With better prioritization of spending, improving spending execution rates, and increasing revenue mobilization, the country could maintain its macroeconomic stability and reduce debt vulnerabilities. However, three areas present risks to the economy:

  • Heightened political activity and uncertainty could lead to a drop-in investments and economic activity as the 2021 elections draw closer.
  • Reliance on rain-fed and subsistence agriculture continue to expose the economy to risks, including volatile exports and a disproportionate impact on the income of the 70% of Ugandans who rely on agriculture as a primary livelihood.
  • Tensions with Rwanda and volatility in the Democratic Republic of the Congo, South Sudan, and other export markets present risks to external stability and export performance.

What is the significance of focusing the report on increasing investment in education?

The World Bank’s analysis of data on human capital indicates that Uganda is underinvesting in the future productivity of its citizens. The Bank’s Human Capital Index shows that a child born in Uganda today will be only 38% as productive when she grows up as she could be if she enjoyed complete education and full health.  

Uganda’s low ranking in the HCI is mainly due to the country’s low education outcomes. For instance, a child born today in Uganda is expected to complete only seven years of education by age 18, compared to a regional average of 8.1. Because of the low levels of learning achievement in Uganda, this is only equivalent to 4.5 years of learning, with 2.5 “wasted” years due to poor quality of education. Uganda’s score on this component is the lowest amongst the comparator countries and below the Sub-Saharan Africa’s average. 

With the system’s current quality, efficiency, financing characteristics and demographic trends, enrollment rates in primary and secondary education are expected to decline by 2025. This would be a major setback, rarely seen in any country in time of peace.

What key actions does government need to undertake to turn around the education sector?

  • Improve the Leaning-Adjusted Years of Schooling component of the HCI, which will need to grow from 4.5 currently to at least 5.5 by 2025 (i.e. a 20% increase).
  • A three-pronged strategy is needed that aims at (i) improving the quality and the completion rate of primary education, (ii) expanding access to secondary education, while improving its quality, equity and efficiency, and (iii) devising ways to finance such efforts in a sustainable manner.
  • Retaining all primary students in schools and learning and creating additional one million places for them in secondary schools, as well as deploying teachers and suppling books will cost an additional $2 billion till 2025. This would leave a major budget gap.
  • This gap might be halved if solid efficiency improvement measures are implemented in line with best international experience. Key measures discussed in the UEU13 include expanding access to early childhood development programs, better support to teaching and learning and transition within primary and to secondary schools, optimizing curriculum and teaching time in secondary schools, building lower secondary schools in a sustainable manner and getting higher value for money from private resources invested in education.
  • To bridge the remaining (but drastically reduced by efficiency gains) budget gap, extra public resources are to be mobilized. Gradually increase government levels of spending on education with a view to allocate 16% of the budget by 2025, which is the average for countries in SSA (instead of the current 10%). This would generate $1.6 billion in additional resources between 2019 and 2025.

What is the relationship between investment in education and economic development?

Africa is the region of the world with the highest economic returns to education. The key drivers of these returns are the quality of education and the average years of schooling that a child may benefit from. Each year of schooling raises average earnings by 11.3% for males and 14.5% for females.

Education interventions are shown to have a direct impact on skills, academic achievement and, consequently, earnings. For instance, attending pre-school for one year enhances cognitive skills during early childhood, improves academic skills during elementary school, and increases earnings by 5%.  Additionally, education contributes to empowering women, allowing them to access better jobs, have fewer children and invest more in each child.

How is the World Bank positioned to support Government of Uganda on education improvement?

The World Bank has invested $400 million to the education portfolio in Uganda with the aim of improving enrolment and quality of education at all levels. This includes: 

  • Pre-primary and primary education support with emphasis on early grade reading, strengthening teachers’ content knowledge and pedagogical skills, as well as provision of learning materials and building schools.
  • Skills development support focusing on skills and policy reform, establishing national Centers of Excellence for skills development, putting up a system of qualifications assessment, as well as employer-led skilling opportunities.
  • Nutrition support in schools focusing on production and consumption of micronutrient- rich foods, utilization of community-based nutrition services, and establishing demonstration gardens containing bio-fortified and other nutritious crops.
  • Higher education development support through regional African Centers of Excellence II. Four Ugandan Centers of Excellence hosted by three universities in agri-business, crops improvements, herbs medicine, manufacturing and Nano-technologies.
  • Intergovernmental Fiscal Transfers Program supports increasing budget allocations to education sector as well as more fare and results-based distribution of the resources among districts and schools.