KAMPALA, February 13, 2020 – Uganda’s economy grew by 6.5 percent in FY18/19, maintaining the rebound in economic activity over the last two years, according to the latest edition of the Uganda Economic Update released by the World Bank today.
The fourteenth Uganda Economic Update report, “Strengthening Social Protection Investments to Reduce Vulnerability and Promote Inclusive Growth” shows that the economy was boosted by strong consumer spending, and sustained levels of public and private investment. Foreign investors have been particularly interested in the oil and gas, manufacturing and hospitality sectors.
Following the release of new Gross Domestic Product (GDP) estimates in October 2019, the share of the services sector has fallen from 57.7 percent to 46.2 percent, while industry has risen to 29.5 percent from 20.1 percent and agriculture to 24.2 percent from 22.3 percent. There has been a strong jump in manufacturing growth supported by recent expansions in the sector, including investments in new factories.
The outlook is favourable with the economy expected to grow at 6 percent over the next year. This requires sustaining high levels of investment in energy transmission, road construction and maintenance, industrial parks, and oil production-related infrastructure and services. Such investments also need to be executed effectively. Improving domestic revenue collection and utilizing concessional lending is important to ensure continued debt levels sustainability.
Uganda’s economy faces several risks on the macro and micro level. One in five Ugandans still live in extreme poverty and more than a third live on less than $1.90 a day with 70 percent still depending primarily on agriculture for their livelihood. This exposes them to risks of weather-related and other shocks.
Furthermore, with the expected population growth over the next 10 years, it is now estimated that average annual GDP growth rates will need to exceed 8 percent for Uganda to have a chance of reaching lower middle-income status by 2030. So, policy makers need to consider innovative ways for Uganda to reach its development goals.
Evidence shows that social protection programs can provide an answer to some of these challenges. Expanding social protection could have positive impact on growth and would provide social safety nets to reduce vulnerability to shocks, build equity, and maintain high labour productivity.
“Two out of three people who get out of poverty fall back in – that is about 1.4 people in the last household survey conducted in 2016. We need to consider the importance of investing in people, building their human capital, and providing them with the tools and assets to manage shocks and reduce their vulnerability,” said Tony Thompson, Country Manager, World Bank.
Despite the potential that social protection initiatives offer, the Senior Citizens Grant (SCG) and the Northern Uganda Social Action Fund (NUSAF) – the two main social protection programs reach only 3 percent of the population compared to 6 percent in Kenya. The Government of Uganda spent 0.14 percent of GDP (FY17/18) on the two programs, less than Kenya and Rwanda at 0.4 percent and 0.3 percent of GDP, respectively.
The coverage and spending on these types of initiatives in Uganda is not optimal, based on regional and global comparisons. There is therefore a strong case to be made to expand these programs, and to consider how to reach different vulnerable groups. Simulations show, for example, that programs covering the poorest 50 percent of households with infants under 2, would cost an estimated 0.23 percent of GDP, whereas similar programs covering the poorest 50 percent of all households with children under 5 would cost 0.50 percent of GDP.
The Update makes several recommendations, including the need to expand direct income support investments in human capital and to help mitigate shocks and scale up existing disaster risk financing pilot programs to better prepare for climate-related shocks, such as drought, and mitigate other shocks.
Given that there are competing fiscal demands on government resources, there is need to prioritize social protection expansion. One way of doing this, as recommended in the Update, is to focus on the poor and vulnerable in the neediest geographical areas, with various options outlined in the report to guide expansion to these areas, based on levels of vulnerability and human capital.