Digital transformation in Uganda: Path to recovery

Thursday July 09 2020
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Tony Thompson

The coronavirus pandemic is the most significant global shock since World War II. Infections are now accelerating in Africa, and the Government of Uganda has taken swift measures to respond to this threat both to the health sector and the economy.

The restrictions on movement of people, goods and services to contain the pandemic have severely affected lives and livelihoods in Uganda, just like everywhere else around the world. As a result of the pandemic, up to three million Ugandans could fall into poverty due to the economic hardship.

Many businesses are struggling to stay open and workers are being laid off. Informal businesses in urban areas are among those hit most by the crisis. Money that family members send from abroad, which usually helps to support consumption, has also dried up.

With the slump in consumption and trade, tax revenues have fallen, forcing government to borrow to keep providing services to its citizens. Government will need to cut back on non-priority spending and focus expenditures on critical services like health, education, water and electricity, but also on supporting the recovery phase down the road.

The latter also means, among others, managing very carefully public debt as interest and principal payments are climbing sharply, and preparing the ground for boosting tax receipts.
Government is scaling up existing and new social safety nets.

It will need to expand them further, including labour-intensive public works providing short-term opportunities for the most affected, and cash transfers to the most vulnerable households. The higher use of digital technology during the Covid-19 lockdown such as mobile money, online shopping, online education, and disease surveillance and monitoring shows the great potential to aid faster economic recovery and strengthen resilience.

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In our latest Uganda Economic Update, “Digital Solutions in a Time of Crisis,” we show how digital technologies can support the health response and economic recovery in Uganda. Scaling up available digital health solutions and using data from mobile network operators can allow for more effective epidemiological surveillance and outbreak control.

In parallel, better integration of digital technologies with the real sector like agribusiness (eg expanding e-vouchers for farmers to buy fertilizers and seeds), manufacturing (eg adoption of smart manufacturing for safer products standards) and tourism (eg stimulating domestic tourism through use of virtual assistants for customized itineraries) industries could help the economy recover faster.

Digital enterprises will need scaled-up support through hubs that offer product development and testing services, management skills trainings and access to investors.

Access to digital technologies remain limited for many Ugandans, who find mobile services to be unaffordable. In 2019, less than 70 percent of the population had access to mobile phones compared to an average of 84 percent of the population in other similar countries in the East Africa region.

This is partly a function of high cost of devices and services. Continued government infrastructure investment is in part addressing this issue, including with support from the World Bank through the Regional Communications Infrastructure Program (RCIP).

Nevertheless, high taxes on imported handsets, mobile money withdrawals and social media access inhibit making digital products and services affordable for all Ugandans.

Government has to undertake a cost-benefit analysis of taxation policies with regard to mobile money withdrawals and social media access. The recently adopted National Payments Bill will improve regulation and expand digital financial services in Uganda.

The next step should be to improve the environment for venture capital and private equity to allow increased investment in the digital sector.

The development of a regional Single Digital Market would give Ugandan enterprises access to an additional 200 million consumers, and increase choices for consumers. Estimates show Ugandan mobile broadband subscribers would gain more than US$0.5billion through lower prices and increased network effects.

Through greater integration of digital technologies, Uganda can accelerate its economic recovery and advance the frontier of its digital transformation.

Mr Thompson is the Country Manager
of the World Bank in Uganda

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