Strengthening Uganda’s economic muscle

It is a critical time for Uganda to refocus and rethink parts of its economy, not only to speed up recovery from Covid-19 and other global shocks, but also to build a stronger foundation for long-term, sustainable growth and job creation.
A new report by IFC and the World Bank suggests ways this might be done. The report, The Uganda Country Private Sector Diagnostic (CPSD), is a detailed study of the workings of Uganda’s private sector—its strengths, its weaknesses, and its many opportunities.
The CPSD identifies three sectors in particular with stronger potential to jumpstart broad economic growth and recovery in Uganda. These are: agribusiness, energy, and housing.
Agribusiness is key for Uganda: Eight of the country’s top 10 export industries are in agribusiness, including sugar, coffee, tea, fish, dairy, and cereals. Foreign direct investments into the country’s agro-processing sector more than tripled between 2010 and 2019, hitting $230 million.
Still, bigger development dividends could be realized by boosting the quality and value of Uganda’s processed products.
The CPSD suggests Uganda enact the National Accreditation System Bill, which aims to boost international recognition of Ugandan quality assurance systems, international certification, and service providers. Enacting the Bill will help expand Uganda’s access to export markets.
Agriculture generates a quarter of Uganda’s GDP and employs 70 percent of the labor force. However, the sector remains dominated by smallholder subsistence farmers, and suffers from low productivity levels, high post-harvest losses, and poor market access.
Here, the CPSD found that inefficiencies and market fragmentation could be addressed by connecting small-scale farmers to private agribusinesses, including through contract farming. 
Regarding energy, this is a foundational sector that powers all others. Between 2002 and 2020, Uganda’s installed generation capacity quadrupled, with renewables such as hydropower and solar representing the largest share of the energy mix. 
Over the same period, Uganda’s transmission network more than doubled in size, while system losses fell significantly.
Despite these laudable improvements, only about a quarter of Ugandans are connected to the national grid, among the lowest rates in Africa - the end user grid electricity tariffs in Uganda, contrary to most countries in sub-Saharan Africa, have been largely cost reflective.
The CPSD outlines how increased investment in transmission and distribution networks, including through public-private partnerships (PPPs), can ensure that more Ugandans are connected, thus sharing the cost of service delivery and enabling more affordable electricity prices.  
Increased private sector participation will also boost the sector’s reach, increase efficiency and ensure a reliable power supply for consumers. The level of investment needed to ensure universal electricity access in Uganda needs funding support from government’s own resources, donor contribution and private sector involvement.
Public-private partnerships could also help Uganda plug its yawning housing deficit, estimated at 2.1 million units and growing by about 200,000 more a year, according to the country’s bureau of statistics.
To support increased home ownership, the CPSD recommends Uganda’s financial sector introduce more flexible home finance solutions to help buyers more easily purchase and mortgage homes.
There is more to Uganda’s economy than agribusiness, energy, and housing, of course, and the report therefore outlines how the country can tap into its potential role as a major regional trading hub, serving neighboring markets and beyond.  Its central position, bordering five countries, is an opportunity to exploit the African Continental Free Trade Area.
Enhancing connectivity through infrastructure and the use of cutting-edge logistics and will also speed up this process. Here too public-private partnerships could be leveraged to construct roads, railroads, and inland or dry ports and enable access to more users through smart tools.
The World Bank Group is committed to deepening their already strong partnership with Uganda to support its development agenda, including by implementing recommendations made in the CPSD, and speed its economic recovery from Covid-19.

This article is co-authored by Amena Arif, IFC Country Manager, Uganda and Mukami Kari uki, the World Bank Country Manager, Uganda.