Climate change, financial exclusion worsen poverty

An unidentified youth takes a nap by the road side in Industrial Area, Kampala, on May 17, 2023. Many youth usually hang around the area for menial jobs like lifting goods off and onto trucks from the nearby warehouses. PHOTO/STEPHEN OTAGE. 

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In the fourth instalment of our series titled Poverty Made in Uganda, Tobbias Jolly Owiny pores over datasets that capture the gravity of subsistence farming and financial exclusion in Uganda’s flagging poverty alleviation drive.

The Finance ministry’s latest Poverty Status Report is unrelenting in its description of financial exclusion and rudimentary farming practices as catalysts of the state of lack among many Ugandans.

The report, for one, points out how an inverse relationship between land rights and subsistence livelihood brews poverty. 
“It is evident that subsistence farming is widely practised in the northern and eastern regions. 
Dependence on subsistence agriculture may also lead to food poverty, food insecurity and under-nutrition when farm output is lower than the minimum consumption level,” it notes.
A World Bank report released this month put poverty in eastern and northern regions at 41.7 percent and 39.9 percent respectively. The national poverty rate was 30.1 percent, with destitution unsurprisingly more pronounced in rural areas (33.8 percent) than their urban cousins (19.8 percent).

Land tenure in Uganda
About 68.65 percent of land in Uganda is held under customary land tenure and governed by customary rules in different regions. In the northern region, the land is communally owned and primarily based on hereditary principles. These principles reduce personal incentives to put the land to optimal use yet the Uganda National Household Survey (UNHS) of 2016/2017 shows that 48.76 percent of the population derive their income from small-scale crop and livestock farming.  
Mr Arthur Owor, a policy analyst with the Centre for African Research, Uganda, says age-old practices and beliefs threaten any attempt at commercial farming.
Pointing to the land rights regime in the north, he notes that there is a lot of unregistered land that is not different from “dead capital.” With non-farm jobs not readily available to rural dwellers, as the World Bank recently noted, agriculture is always the fallback position for many. Yet besides land ownership bottlenecks, climatic shocks have continued to rear an ugly head.
The 2016/2017 UNHS report indicated that drought, crop pests and disease outbreaks triggered increases in the poverty rate by 0.21 percent and 0.45 percent, respectively. Floods further pushed the rate up by 0.56 percent. 
As part of its recommendations in its latest report on poverty in Uganda, the World Bank prescribed that the government predisposes the vast bulk of its citizens to service-based jobs in urban areas. Data for the International Labour Organisation indicates that 78 percent of employed persons in Uganda, in 2018 were self-employed. Most plied their trade in the informal sector and subsistence farming.
“The slow transition out of subsistence agriculture amid modernisation efforts needs to be addressed if the country is to move a significant proportion of the population to a high-productivity sector,” the report noted.

Land conflicts in, for instance, northern Uganda, have not helped matters. Take Nwoya District where, in the past six years, there has been an upsurge in bloody wrangles over land (Aswa-lolim game reserve in Gotapwoyo Sub-county) between the Jonam and Acholi communities. 
Elsewhere, in Pader District, locals of Akemokoc Village, Tyer Parish in Pader Sub-county, in February petitioned the Acholi Parliamentary Group (APG) over an alleged illegal encroachment by the Uganda People’s Defence Forces (UPDF) army.    
“The problem is that we are not using the land properly, and we cannot use the land properly if we are not empowered,” Prof Ogenga Latigo, a former Leader of the Opposition in Parliament (LoP), told Saturday Monitor, adding that the government ought to give low-interest loans to farmers to boost their efforts in their respective agricultural practices. 
Mr Ambrose Olaa, the Acholi chiefdom premier, says the region is still grappling with aftereffects of the war by the Lord’s Resistance Army (LRA). 
“There was the emergence of the land market policies, which changed land from being held for its intrinsic values to being held more for its material and commercial value,” he opined, adding that “many people, because they lack the financial muscle, are not fully utilising their huge chunks of land…” 

Climate change
Meanwhile, the move to implement the National Climate Change Policy and Climate Change Operationalisation Strategy (2014) also provides a good foundation to expand investments in support of adaptation to climate change. This includes strengthening the Uganda National Meteorological Authority to provide reliable forecasts. 
On April 4, Ms Grace Freedom Kwiyocwiny, the junior Northern Uganda minister, told Parliament that rudimental farming practices, failure to adopt the changing technology and environmental degradation were ensuring a grim picture continues to emerge. 
While the Cabinet, in January 2022, authorised the Office of the Prime Minister (OPM) and the Ministry of Finance to design Northern Uganda Social Action Fund (Nusaf) IV to deliberately reverse the poverty trend in the region, this continues to be bleak. 
“The Nusaf IV will have a sub-regional focus and will support sustainable livelihood and shock-responsive interventions to build household resilience,” she revealed, adding, “The ministry wrote to the World Bank in preparation for external borrowing for Nusaf IV and consultations were made with some district chairpersons, resident district commissioners, chief administrative officers and NRM chairpersons.”

Financial exclusion
The Finance ministry’s latest report indicates that whereas there could be reverse causality between registration for mobile money and poverty, areas with high poverty rates, like Acholi, Karamoja, Lango and Bukedi, have low mobile money registration. This is financial exclusion. Its opposite—financial inclusion—is the availability and equality of opportunities to access financial services. 
Financial inclusion is critical in poverty reduction since it broadens access to credit, savings facilities, payment systems, and insurance. People, who are excluded from the financial system, have limited or no access to the resources required to pay for goods and services that help households to expand their productive capacity to exploit opportunities for income generation. 
An analysis by the Financial Sector Deepening (FSD) Uganda conducted in 2018 indicated that women were more severely challenged in accessing financing than men.
One in five women is financially excluded, with nearly a third of the excluded women believing that the financial services are too expensive. 
Elsewhere, seven percent believe services are situated too far from where they live; six percent see no value proposition, and four percent believe the services on offer are not relevant to their needs.
“A market development approach to include young adults is also recommended. This can be achieved through investment in expanding financial services infrastructure in rural areas, as well as by enhancing digital literacy among young adults,” the FSD noted, mirroring what the World Bank captured in its 2017 Uganda Economic Update.

Trust deficit
The update argues that the major hurdle for Uganda’s households remains the high cost of financial services, citing that interest rates typically range between 22 percent and 25 percent.
According to the National Financial Inclusion Strategy, 2017-2022 document, citing findings of the Uganda FinScope survey in 2013, up to 76 percent of adults in urban areas in Uganda utilised either formal financial institutions or non-banks. This is in contrast to the 49 percent of adults utilising formal financial services in rural Uganda.
The formal institutions include banks and micro-finance deposit-taking institutions. Elsewhere, the non-formal include mobile money, Saccos and micro-finance institutions.
Whereas Saccos remain a major potential source of financial services and inclusion for large segments of the population, there is a big trust deficit with these institutions.
The Sacco sector in general faces several challenges, including a serious lack of oversight and capacity, poor bookkeeping, and inadequately skilled staff and boards.
“Weaknesses in the Sacco sector could have a significant adverse socio-economic impact if left unaddressed and a loss of Sacco members’ savings could have negative knock-on effects by causing a loss of confidence in the financial sector and hinder financial inclusion,” the document suggested.

Vulnerability to poverty

At least 54.66 percent of the population was vulnerable to poverty in 2020, representing about 22.7 million people. 
If this same vulnerability rate persists, the proportion of people living below the poverty line will increase. This, the poverty status report notes, is because the poor are more vulnerable to remaining in poverty than those in the middle class. 
While the central region has the lowest proportion of vulnerable people for both urban and rural residents (the World Bank recently put the number at 15 percent against western region’s 26.6 percent), rural residents of the eastern region have the most significant proportion of those vulnerable to poverty. They are followed by their peers in northern Uganda.  
In urban areas, vulnerability to poverty is lowest in the central region but highest in the north. 
The spatial distribution of vulnerability to poverty shows that Karamoja, parts of Acholi, Lango, Teso, Bukedi and West Nile are highly vulnerable. 
The top 10 districts in their ranking of vulnerability to poverty in 2020 were Nabilatuk, Napak, Kotido, Kaabong, Moroto, Nwoya, Nakapiripirit, Rubanda, Busia and Pakwach. 
Acholi Sub-region is the poorest among all sub-regions in the country, followed by Karamoja sub-region.