ACCELERATING UGANDA’S ECONOMIC GROWTH MOMENTUM Dr. Albert Musisi Ministry of Finance, Planning and Economic Development, Uganda Uganda Economic Growth Forum Kampala, 14-15 September 2017

OUTLINE Uganda’s Growth Performance: Tracking Economic Growth Trajectory 1982/83 – 2016/17 Uganda’s long term economic growth performance before global economic crisis of 2008/9 – key growth drivers Understanding Recent Economic Growth Trends - What were the Key factors? Key strategies to accelerate and Sustain Economic Growth Momentum

TRACKING UGANDA’S ECONOMIC GROWTH TRAJECTORY 1982/83 – 2016/17

IMPRESSIVE LONG TERM ECONOMIC GROWTH PERFORMANCE BEFORE GLOBAL ECONOMIC CRISIS OF 2008/9 Real GDP growth averaged at 7% per year for the 20 year period between 1987/88 to 2007/08. Key Growth Drivers Prudent macroeconomic policies and management (Macroeconomic Stability) Elimination of Market Distortions – Key Economic Reforms Political and Social stability Primarily industry and services Large improvement in financial sector development Positive Economic Shocks _ Favorable Terms of Trade (Coffee Boom, 1994/95) . Source: World Bank However between 2011 and 2015, Uganda registered the least average growth rate (4.8 percent) compared to her peers of Kenya and Tanzania. This is mainly due to the fact that Uganda’s total factor productivity has been on average low compared to her peers of Kenya and Tanzania .

IMPRESSIVE LONG TERM ECONOMIC GROWTH PERFORMANCE BEFORE GLOBAL ECONOMIC CRISIS OF 2008/9 Key Growth Drivers Investor Confidence – Increased private investment Improvement in Capacity utilization Return of both Human and Financial Capital All the above resulted into more efficient allocation of resources (Private and Public)

UGANDA’S LONG TERM ECONOMIC GROWTH PERFORMANCE 1982/83 – 2016/17 - AT CONSTANT (2009/10 ) PRICES

EXPLORING UGANDA’S RECENT POSITIVE BUT SLOWER ECONOMIC GROWTH Climate Change – More Frequent Droughts - 2009/10, 2011/12 and 2016/17 Negative External Shock - Global Economic Crisis Exchange rate depreciation – Firms with a high share of imported inputs suffered from rising costs. High Inflation High Interest rates Large fall in Private Sector Credit – Impact on Private Investment Affected regional Exports – fall in commodity prices (oil) for mainly south sudan Regional Conflicts, particularly impact of political instability in South Sudan

EXPLORING UGANDA’S RECENT POSITIVE BUT SLOWER ECONOMIC GROWTH (contd) Nevertheless, comparison with peers in the relatively better performing EAC region in SSA, indicates that there are unique (domestic factors) that are affecting economic growth outcomes For the period 1995-2008, Uganda had second highest average growth of 7.6%. However for the period 2011-2015, Uganda’s average growth of 4.8% is lower than that of Kenya, Tanzania and Rwanda even though still significantly above the SSA average of 1.3% (2016).

EXPLORING UGANDA’S RECENT POSITIVE BUT SLOWER ECONOMIC GROWTH (contd) GDP growth, Growth in factors of production (Capital and Human capital) and Productivity growth

EXPLORING UGANDA’S RECENT POSITIVE BUT SLOWER ECONOMIC GROWTH (contd) Productivity loss is at the heart of the growth slowdown. As shown in the graph, for the period 2011/12 to date, the dominating factor is loss of productivity. Manifested mainly in agriculture and manufacturing sectors. Productivity growth in these two sectors is critical because of strong backward and forward linkages. Accelerating and sustaining long-run growth requires; Accelerated productivity growth Higher savings and more productive investments

WHAT STRATEGIES TO ACCELERATE ECONOMIC GROWTH MOMENTUM? Increased Efficiency in Public investments Increase the direct returns from public investments. Currently returns are less than would be expected due to inefficiencies in project execution, inefficiency in management of public investments and poor absorption of available resources especially borrowed funds invest in investment management capacity Increase as much as possible local content in these investments Improve crowding in of private capital – public investments should attract private investments and facilitate rise in the productivity of private capital. Greater domestic revenue mobilization to finance public investment avoiding crowding out private investments through borrowing constraints.

WHAT STRATEGIES TO ACCELERATE ECONOMIC GROWTH MOMENTUM? (contd) Private Investment – raising firm-level productivity reduce cost of doing business - reduce costs associated with bureaucracy, corruption, essential business services Invest in infrastructure needed by the private sector to reduce costs – e.g. industrial parks, export processing zones to lower costs of producing manufactured exports (require effective investment and export promotion institutions ) 3. Increase Productivity in the Agricultural sector Improved quality of inputs (e.g seedlings, fertilizers etc) Productivity enhancing services - agricultural extension, supportive research and development, Irrigation and water for production and, improved production methods. Increase and ensure demand for agricultural output - Agro- industrialization (Agro-processing - food processing)

WHAT STRATEGIES TO ACCELERATE ECONOMIC GROWTH MOMENTUM? (contd) 4. Financial sector reforms Undertake reforms in the financial sector to enable the closing of the gap in the availability of long-term capital. Adequate recapitalization of Uganda Development Bank (UDB) 5. Maximize Opportunities provided by the Oil and Gas sector Maximise local content opportunities Avoid over-specialisation in oil – use acquired financial resources to develop and implement a diversification strategy 6. Enhance Regional Integration EAC and COMESA now account for over 50% of Uganda’s exports (including higher value exports) Together with Asia, these regions are expected to be the fastest growing import markets.

WHAT STRATEGIES TO ACCELERATE ECONOMIC GROWTH MOMENTUM? (contd) Enhance Regional Integration (contd..) There is need to continue to address transport costs, non-tariff barriers, regional security 7. Enhance Fiscal Governance – Achieve best Value for Money - maximize impact of available resources Strict implementation of the Public Financial Management (PFM) Act and Regulations Increased Accountability – strict implementation of Programme Based Budgeting with a focus not only on outputs but also outcomes in line with the NDP

CONCLUSION Policy and Practice On the whole Policies and most relevant legal frameworks are in place. Need to emphasize practice (how things are done) and implementation to boost productivity in all sectors to accelerate and sustain growth. Ensure the right balance between Growth-Enhancing public expenditure and hard-worn debt sustainability.

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