Recently, Amos Lugoloobi, the junior minister in the finance ministry, tabled before Parliament the strategy paper for implementation of the National Development Plan IV (NDPIV) to be officially launched in June.
The document was prepared by the National Planning Authority (NPA), the authors and caretakers of the three previous NDPs, all intended to chart the country’s road to future prosperity as imagined in Uganda Vision 2040.
For those unfamiliar with Uganda Vision 2040, it is country.
The theme for NDPIV is ‘Sustainable industrialization for inclusive growth, employment, and wealth creation’ and the strategy paper outlines what needs to be done between financial year 2025/26 and 2029/30.
It envisioned that by 2040, the economy would grow to generate an annual wealth equivalent to $581 billion, with a per capita of $9,500; and 90% of Ugandans fully integrated in the money economy.
This requires a more than 10-fold increase in the current GDP of $50 billion during the remaining 15 years. However, the NPA concedes that, based on the performance of the first three plans, the country is still lagging behind the desired socio-economic transformation targets.
The truth of the matter is Uganda’s journey to prosperity is characterized by stops and starts in between dramatic reversals then great leaps forward.
Making reference to the NDPIII, the NPA says implementation of the plan had been affected by: external shocks (no one foresaw the World Bank suspension); constrained fiscal space; implementation gaps especially for public investments, and; weak follow up, performance management, and accountability for results.
Also, like in the previous plans, several implementation reforms that were proposed have not yet been implemented. To accelerate the socio-economic transformation agenda, the NPA recommends something to fundamentally change in the remaining vision period.
This necessitates among others; innovative and transformative policy actions, better prioritization, and closure of implementation gaps to yield double-digit growth and achieve the desired socio-economic transformation targets before 2040.
As an example, the government and public service structure is still too rigid to implement the program approach to planning, budgeting, and implementation. The program approach envisages a flexible structure that can easily respond to changes in priorities and strategy. However, the current structure is too rigid and bureaucratic to successfully implement the plans and budgets.
The poor implementation of core projects is due to poor project planning and preparation which affects their readiness for implementation, low or no budget releases, budget cuts, and lengthy and complex procurement processes. At the same time, there are complications in the acquisition of land for the core projects which causes further delays in the losses to the country.
In the meantime, NPA points out that many industries and production units are operating below 50% of their installed capacity majorly due to low aggregate demand, and high cost of production (driven by high cost of capital, electricity, regulatory compliance, and logistics) which reduces their level of competitiveness.
There is also a lack of appropriate technology which affects the full exploitation of key opportunities in agriculture, minerals, and other natural resources. The low production in agriculture and industry also negatively affects the level of activity in the services sector.
In the agriculture sector, there is limited application of science, technology, and innovation. Agricultural yields are low due to limited use of fertilizer, low-quality seeds, and planting materials, lack of irrigation infrastructure, and limited knowledge of modern production practices due to limited extension services.
Industrial productivity is constrained by the use of outdated technologies, inadequate knowledge of the application of modern production techniques, and the absence of shared infrastructure for production (industrial parks, incubation centers, and so on. Another drawback is an inadequately skilled and unethical labor force.
There is low productivity in the service sector largely due to limited skills, large informality, low entrepreneurial acumen, and low competitiveness, especially in transport services, and the low application of ICT.
Uganda still produces and exports low-value primary commodities. In particular, the share of manufactured exports in total exports is only 13.5% due to the low competitiveness of industrialization, limited access to value-adding technologies, and low incentives for value addition. The low value-added exports imply that only a small fraction of the potential income and jobs are consistently hemorrhaged to already developed export destinations.
There is also a lack of capacity to sustain available regional and international markets with the required volumes and quality of products on a consistent basis. Some of the outstanding bottlenecks to exploitation of the available markets include; low production of and value addition to the required products, the failure to meet standards, trade facilitation constraints, non-tariff barriers (NTBs), technical barriers to trade (TBTs) among others.
Uganda’s tax revenues averaged 13.3% of GDP in the past two years of NDPIII implementation which is below the government’s medium-term target of 16%. This is also below the COMESA average of 15.9%, and also below other East African Community (EAC) countries, with Kenya at 18%, Rwanda at 16%, and Tanzania at 14.5%.
This is largely due to a narrow tax base driven by a large informal sector, weaknesses in tax administration, tax exemptions, and low returns from public investment. This puts pressure on deficit financing which has worsened Uganda’s debt position. As a result, Uganda’s fiscal space is too low to finance the required development agenda.
Interest rates on loans continue to be high and have consequently made doing business in Uganda difficult for the private sector. Interest rates in Uganda have averaged 22% in the last five years compared to the EAC average of 16%. This is largely due to the high cost of operations by commercial banks that use outdated technology and approaches. Also, Uganda’s financial market is largely dominated by short-term capital that cannot finance long-term investments due to underdeveloped development finance institutions.
Other factors say NPA include the low level of savings, the high risk for many borrowers, the profit motive of the privately-owned financial institutions, government domestic borrowing which crowds out private sector credit, under capitalization of public banks, and the long list of pending commercial cases. Currently, over UGX 7 trillion is locked up in commercial cases largely due to long turnaround times.
Uganda’s private sector is largely dominated by informal small and medium enterprises (SMEs), the majority of whom collapse within the first year or remain small-scale and informal over their lifetime. Uganda has just over a million micro, small, and medium enterprises (MSMEs) which account for 60% of businesses, 80% of the country’s GDP, and 90% of the private sector.
However, these SMEs are uncompetitive due to: lack of access to and high cost of financing; limited access to appropriate technology; uncompetitive business environment evidenced by high cost of electricity, logistics, and regulatory compliance; low business acumen; limited access to markets; and a weak framework for business incubation. In addition, with the government being a key consumer of SME services, the failure to pay domestic arrears on time has contributed to the collapse of some enterprises.
When it comes to Public Sector Management and administration in Uganda NPA says it is characterized by weak policy, legal and regulatory frameworks; and weak institutional structures and systems.
Add to this is a bloated public administration; weak civil society and civic participation; inadequate data and information; inadequate standards and weak quality infrastructure. This is exacerbated by a weak decentralization system, slow implementation characterized by lengthy and cumbersome procurement cycles, poor enforcement of standards and regulations, and ineffective monitoring and evaluation.
Weak institutions have exacerbated corruption which remains one of Uganda’s major challenges, increases the cost of doing business, and negatively affects service delivery.
In addition, NPA says frequent supplementary budgets continue to undermine planning and budgeting processes while domestic arrears have remained high due to fiscal indiscipline, poor financial management, and weak system controls.