Sources of Productivity Growth in Uganda The role of inter-industry and intra-industry misallocation in the 2000s Allen Dennis, Taye Mengistae, Yutaka Yoshino, Albert Zeufack World Bank February 2016

Paul Krugman, The Age of Diminishing Expectations (1994) Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker. Paul Krugman, The Age of Diminishing Expectations (1994)

Productivity Matters in Order to Improve Living Standards in a Country Source: Handbook of Macroeconomics

Productivity Differences Among Countries Explain Differences in Output of Workers Source: Handbook of Macroeconomics

PRODUCTIVITY TRENDS IN UGANDA

Trends in Total Factor Productivity Source: World Bank, MFMOD

Economy-wide Worker Output Recorded Healthy Increase

(Value-Added per Worker at 2000 Prices, Millions of UGX) Labor Productivity Increased in the Tradeable Sector but fell in the Non-Tradeable Sector (Value-Added per Worker at 2000 Prices, Millions of UGX)

Digging Deeper: What Has Been Driving Productivity Trends in Uganda? Productivity: Labour & TFP Between Sectors Within a Sector

Resource Allocation in Non-Tradables Sector had Negative Impact on Productivity (Value-Added per Worker at 2000 Prices, Millions of UGX)

Resource Allocation in Non-Tradables Sector had Negative Impact on Productivity (Total Factor Productivity, Millions of UGX at 2000 prices)

Labor was Re-allocated to Lower Productivity Sectors (changes to shares of employment by sector, 2002-2009)

(Value-Added per Worker at 2000 Prices, Millions of UGX) Labor Productivity Increased in the Tradeable Sector but fell in the Non-Tradeable Sector (Value-Added per Worker at 2000 Prices, Millions of UGX)

Summary of Findings 1. Uganda’s Labor Productivity Increased Significantly Over the 2002-2009 Period. 2. However this was not due to favorable structural change (since labor re-allocated to the low productive sectors. 3. But most likely due to capital deepening (increased investment) in tradeables sectors.

How to Get Labor Moving to More Productive Sectors What Were the Drivers of This Adverse Resource Allocation? Demographics Urbanization Spatial Distribution of Poverty Opening up the Economy to External Trade and Investment

So What Can be Done? 1. Increase Productivity in the Informal sector? 2. Policies that can increase the share of employment in the more productive sectors?

Where Should the Focus Be? Important need to focus on the exportables sector to be able to absorb surplus labor in low productivity activities. And within the Exportables Sector there is the Need to Focus on Areas of Comparative Advantage In this regard the NDP provides the right focus areas on agricultural exports, where significant potential remains

Cross Country Maize Yields Source: Yield Gap Project

Cross Country Maize Yields, without water stress. Source: Yield Gap Project

Cross Country Maize Yields, at Potential Source: Yield Gap Project

However Uganda Also Needs to Look Beyond Agriculture

Potential of Mineral, Oil and Gas sector 1. Capital Intensive so limited direct employment 2. Need to be mindful of Dutch Disease so that tradeable sector still remains competitive and can absorb surplus labor.

PRODUCT SPACE MAP

Uganda’s Efficiency Frontier

How Can Uganda Move up the Value Chain? Start from Comparative advantage Build Basic Capabilities Then Upgrade along the Product Space to Higher Value-added products and Services Like South Korea

‘’The people walking in darkness have seen a great light; on those living in the land of the deep darkness a light has dawned” Isaiah 9:2 THANK YOU