Uganda has had one of the strongest economic performances in sub-Saharan Africa over the past two decades, growing at about 8 per cent; more than doubling per capita income; and cutting poverty in half.

But in recent years, growth has slowed and is likely to have reached less than 4 per cent last year. A difficult regional environment — impacted by the South Sudan conflict — slow private sector credit growth, and a drought have contributed to the slowdown.

But there are also more structural, deep-rooted factors at play. Productivity growth has fallen, education standards have not kept up with the needs of a modern economy, and inequality has increased.

The challenge now is to return to high and inclusive growth. At the International Monetary Fund, we believe that with the right policies, this is possible.

Pave way for oil
Uganda is expanding its infrastructure network. Improvements in transport and electricity are expected to provide space for more vigorous private sector-led growth.

Oil-related infrastructure investment — including a pipeline, a refinery, roads, and an airport — is leading the way. These investments will pave the way for oil to start flowing, providing a boost to growth and public revenues.

The focus on infrastructure will support growth, but should be complemented with measures to improve public investment efficiency.

Ongoing efforts to enhance project selection, implementation and execution are essential to ensuring that the projects yield the expected growth through improved quality and efficiency.

The emphasis on infrastructure also needs to be complemented with improvements in skills’ formation, service delivery and social protection for the most vulnerable.

Uganda’s productivity in agriculture and manufacturing has declined since 2010. Furthermore, primary school completion rates have declined, in sharp contrast with trends in neighbouring countries that continue to grow strongly. This reinforces the need to carefully balance budget allocations between social sectors and capital investment so that social spending is not excessively constrained.

Quality public (including vocational) education and health services are essential to Uganda’s competitiveness. Empowering women and intervening to reduce inequality can also be part of the solution. Recent IMF analyses show that boosting well-targeted social protection can help build human capital and enhance the inclusivity of growth.

Real estate
Public investment will need to be accompanied by private investment, which has declined since FY2012. Private investment has been tilted toward the real estate sector, to the detriment of investments in areas such as equipment and other productive assets that support productive sectors and are more growth-enhancing.

Improving the business environment would support private-sector activity and attract foreign direct investment.

Although the business environment has improved in recent years, Uganda still lags behind its peers in areas such as starting a business, trading across borders, and effectively fighting corruption.

Deepening regional integration can also enhance the attractiveness of Uganda. Expanding the Common Market and the Single Customs Territory in the East African Community will reduce transaction costs and provide firms with access to a potential market of 150 million people.

The financial sector also has a key role in reinvigorating Uganda’s growth. Mobile money has greatly enhanced access to finance, providing more than 21 million Ugandans with mobile money accounts.

Nonetheless, credit to the private sector remains too low and too costly. There are commendable ongoing initiatives in the banking industry — such as agency banking, Islamic financing and bancassurance — that are expected to bring financial services closer to the public and reduce banks’ operating costs, ultimately allowing cheaper credit for everybody.

Improving financial market infrastructure (credit bureaus and collateral registry) and liberalising financial markets to support long-term finance would also help boost credit to the private sector. 

With the right policies, Uganda’s economic growth can rebound. More importantly, it can be shared with all citizens, durably lifting living standards for all.

Well-implemented infrastructure projects, oil sector investments coupled with strengthened human capital and an improved business environment are going to be key elements to make Uganda a leader on the continent in economic and social terms.

Clara Mira is IMF’s resident representative in Uganda.