By Enock Nyorekwa Twinoburyo, PhD
Uganda’s current National Development Plan (NDP II) sets out to achieve lower middle income through substantial investment in infrastructure sectors while consolidating on progress in NDP I. However, in a decade leading to 2020, average economic growth per annum is poised to be lower than the long run average growth path which suggests that the 2020 development targets envisaged in the Second National Development Plan (NDP II) may not be fully realised. Poverty has increased, so has income inequality and the employment levels are off target with only one in four Ugandans being employed. Against this backdrop, this article explores the country’s performance against some of the key growth targets set out in the NDP II.
The NDPII foresees an average growth rate of 6.3 percent per annum and thus far the average growth outturn per annum has been only 4.3 percent in the first three years of NDPII implementation. In the medium term, growth is expected to rebound to over 6 percent per annum owing to effective expansionary and prudent macro-economic policies1 . However, this growth trajectory is not sufficient to deliver middle income status by 2020. Uganda aims to attain a lower middle income Status with a GDP per capita of USD 1035 by 2020 from the current USD 770. With the Uganda Bureau of Statistics (UBoS) forecasting the population to reach 41.2 million by 2020, it implies that Uganda’s GDP should rise to USD 41.2 billion by 2020 from the current USD 25 billion.
This implies that GDP in USD should grow by 65 percent by 2020 to qualify for lower middle income. The expected growth in GDP in Uganda shillings is expected to be even higher since the Uganda shilling is expected to depreciate against the USD consistent with the past trends. This therefore indicates that the expected leap into middle income is not tenable even with recovery of growth to 6-7% per annum as shown in the Figure 1.
Figure 1: GDP Per Capita Projections Vs Middle Income Threshold
The factors underpinning the slow growth trend are mainly structural: attributed to slowing productivity (agricultural, labour and capital)2 as well as weak execution of public investments. Weaknesses in public investment management manifest across the entire projects’ cycle – thereby creating obstacles for delivering projects on time, on budget and with impact. These tend to have negative ramifications for the overall capital formation and its productivity. Uganda is estimated to lose USD 300 million annually due to public inefficiencies3 . Public investment efficiency in Uganda stands between 0.33 and 0.36, implying that over 60 percent of the resources invested in public projects go to waste.
Considering agriculture which is a strategic sector for Uganda in terms of employment, export composition and for food price stability, there has been slowing productivity as shown by the decline of the agricultural output per worker (constant USD 2010 prices) from over USD 500 in 2003 to USD 460 in 2015. This compares unfavourably with peers – Tanzania (USD 560), Kenya (USD 790) and Vietnam (USD 790). The sector’s recent growth continues to be outpaced by the population growth as shown in Figure 1 at the risk of sustained food insecurity. Food insecurity across all regions in Uganda has been on the increase over the last couple of years. According to the latest National Food Security Assessment in January 2017, 10.9 million Ugandans were experiencing an Acute Food Insecurity situation, of which 1.6 million are in a crisis situation (unable to meet basic dietary needs without engaging in unsustainable strategies to access food and income, including any reliance on humanitarian assistance).
Figure 2: Agriculture Output and Population Growth
Uganda aims to attain middle income status in part by making significant scaling up of infrastructure investments in the works and transport as well as energy and mineral development sectors. However, challenges continue to prevail regarding the realisation of the key targets in the respective sectors. Works and transport sector – that receives the largest share of the budget under NDPII is at the risk of not increasing the quantity of total national paved road network from 3,795 kilometres to 6000 kilometres over the NDPII period. The paved road network stood at 4,257 km in FY 2016/17 – representing an increment of 100 km from FY 2015/16 which is below the usual target of 250 km per year. Even assuming the execution of the planned ten oil roads, the target is seemingly still a hard bargain and so is the first oil production by 2020 as the major infrastructure investments (refinery and pipeline) are yet to reach financial close (all the conditions and structuring of financial agreement being fulfilled).
The good news in the energy sector is that Karuma and Isimba power dams of nearly 800MW are expected to be commissioned in FY 2018/19. However, the total installed capacity will still be short of the 2020 target of 2500 MW. Electricity generation capacity stands at 929.6MW while maximum demand (including exports) registered by UETCL stood at 597.4 MW as of October 20174. This also means that the target of increasing the percentage of the population with access to electricity from 14 percent to 30 per cent may not be tenable. Uganda continues to have the lowest rank in the World Bank Doing Business indicators in getting electricity compared to here regional neighbours of Rwanda, Kenya, and Tanzania; despite exporting electricity to the region. The nexus low accessibility of electricity and its excess supply in part illustrate the limited distributional network, slow growth in demand over the last couple of years due to slowing overall growth and limited affordability.
Consistent with the attainment of middle income status, it was envisaged that poverty would reduce from 19.7 percent to 14.2 percent by 2020. However, the final Uganda National Household Survey (UNHS) 2016/17, released on 19th February 2018, puts the poverty level at 21.4 percent, corresponding to nearly 8 million Ugandans. This represents a 1.4 Million increase in the number of poor people from the 6.6 million poor in 2012/13.
Additionally, the average consumption expenditure per adult equivalent of UGX 96,900 is only slightly above the national poverty line, which implies an elevated risk of a number of Ugandans falling back into poverty. This is corroborated by Poverty Assessment Report 2016 that indicated that two of every three citizens lifted out of poverty between 2005 and 2009, fell back in to poverty. It is important to note that Uganda is still using the same poverty line (USD 1) set in 1993 and remains substantially low to capture the changes in prices and consumption patterns. It only accounts for 72- 82 % of the international poverty line. Thus, going by the international poverty line, many more Ugandans would be classified as poor.
It is worth noting that, the final UNHS 2016/17 findings published in February 2018 on poverty represent a 6 percentage point reduction from the initial UNHS 2016/17 publication in September 2017. It is not clear – what the explanation for such large error variation is, especially when many other indicator results did not change. There are also inconsistences in the UNHS statistics which further cause one to question their validity. According to the 2016/17 UNHS, 2.9 percent of the Ugandan population owned a vehicle which translates into 1.1 million Ugandans owning cars. However, when one sums up the cars between the first UAA vehicle registrations plate (number plate) series and the current UBD series, the total number of cars is less than 700,000.
Furthermore the UNHS 2016/17 indicates that inequality has grown over the 2013-2017 period which may compromise the NDPII objective of maintaining the inequality co-efficient at less than 0.45 by 2020The Gini coefficient has increased from 0.4 in 2012/13 to 0.42 in 2016/17. The highest inequality is found in the central region and in Kampala largely owing to the high levels of urban unemployment. Unemployment at national level continues to remain high at 9.2 percent even when considering a labour force that excludes 5 million subsistence workers. Both the labour participation ratio and the employment to adult ratio have increased since the last household survey. With only 9.1 million Ugandans employed, it means only one in four Ugandans is employed. The total population in 2016/17 was estimated at 37.7 million Ugandans. Also the Labour Force Participation Rate (LFPR) indicates the proportion of working age population that is active in the labour market either employed or actively looking for employment reduced from 59.8 to 52.3. Overall, the percentage share of national labor force employed target of 94% in NDPII is not met. This suggests that the estimated creation of an average 640,000 number of jobs annually under the NDPII may not have been reached. UBOS estimates 15,000 formal jobs to be advertised annually. Even then, UBOS forecasts over 700,000 new entrants in job market every year. Excluding subsistence employment, the gap between demand and supply of labour becomes more pronounced.
In conclusion, the yet to be undertaken NDP II medium term review should focus on examining the constraints to attaining the middle income status. At glance, there is need to revisit and tailor structural reforms on the basic factors of production (land, Labour, entrepreneurship, capital). Land mapping, registration and titling remains an imminent reform. Land conflicts are believed to account for a sizeable reduction in agricultural output Again, efficient reform approach on the “4 Is” (individuals, Institutions, Infrastructure and Integration in that order) remains warranted. c)Improving on public investment management is critical to ensure optimal returns. Missing 2020 targets by extension would mean missing the 2030 sustainable goals and Vision 2040 goals. Uganda aims to reach a GDP per capita of USD 9500 by 2040. With current population estimated at 38 million and an estimated annual addition of 1m every year, Uganda’s population will be 60 million in 2040. Multiplying this population with USD 9500 target gives an expected GDP of USD 570 billion, 23 times the current GDP (about twice South Africa economy of today). This means Uganda needs to add the equivalent of the current annual GDP value worth each year.
This article first appeared on ACODE