Leveraging Sustainable Tourism to Support Growth & Diversification Uganda Economic Update, 21st Edition | June 2023 © 2023 International Bank for Reconstruction and Development/International Development Association or The World Bank Group 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessary reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Photo credits: Derrick Ssenyonyi, 2022 – 2023 and Rachel Mabala (2021-2022) Design/Layout: Artfield Graphics Printed in Uganda by Artfield Graphics Additional material relating to this report can be found on the World Bank Uganda website (www.worldbank.org/uganda). ii Leveraging Sustainable Tourism To Support Growth And Diversification Table of Contents Table of Contents ..................................................................................................................................... iii Foreword ................................................................................................................................................. vi ABBREVIATIONS ................................................................................................................................... vii ACKNOWLEDGEMENTS........................................................................................................................viii EXECUTIVE SUMMARY......................................................................................................................... ix PART 1 ..................................................................................................................................................... 1 STATE OF THE UGANDAN ECONOMY .................................................................................................. 1 1. RECENT ECONOMIC DEVELOPMENTS .......................................................................................... 2 1.1 Exogenous shocks have slowed global growth ................................................................................. 2 1.2 Regional growth is bottoming out, but risks are high .......................................................................... 3 1.3 Uganda’s economy has proven unusually resilient ............................................................................ 4 1.4 Household income and food security have improved, but uncertainty persists ................................. 8 1.5 Successive shocks have weakened the external current-account balance .................................... 10 1.6 Monetary policy is normalizing as inflationary pressures subside ................................................... 14 1.7 Fiscal consolidation has reduced the deficit .................................................................................... 16 ECONOMIC OUTLOOK, RISKS, AND POLICY ACTIONS .................................................................... 21 2.1 Uganda’s economic outlook has greatly improved .......................................................................... 22 2.2 Multiple risks threaten the outlook ................................................................................................... 24 2.3 Policy recommendations ................................................................................................................. 25 PART 2 ................................................................................................................................................... 28 3. LEVERAGING TOURISM TO SPUR JOB GROWTH AND DIVERSIFICATION ............................... 30 3.4 Uganda’s untapped tourism potential .............................................................................................. 30 3.5 The challenges facing tourism development in Uganda .................................................................. 36 3.2.1 The institutional and policy environment ....................................................................................... 36 3.2.2 Enabling factors ............................................................................................................................ 40 3.2.3 The state of the private sector ....................................................................................................... 49 3.3 Toward a strategy for a more vibrant tourism sector ........................................................................ 55 References ............................................................................................................................................. 60 iii Leveraging Sustainable Tourism To Support Growth And Diversification List of Figures Figure 1: Global growth forecasts, original and revised .................................................................................. 2 Figure 2: Purchasing Managers’ Index ............................................................................................................. 4 Figure 3: Economic growth by sector ............................................................................................................... 5 Figure 4: Status of nonfarm family business across survey rounds (% of households) ..................................... 8 Figure 5: Share of households with unchanged or increased income levels across survey rounds (%) ........... 8 Figure 6: Working respondents (%) ................................................................................................................... 8 Figure 7: Reasons for stopping work (%) .......................................................................................................... 8 Figure 8: Price indices for essential goods (May/June 22=base) ..................................................................... 9 Figure 9: Inability to buy desired amounts of key products across survey rounds (%) ..................................... 9 Figure 10: Trends in the moderate and severe food insecurity index scores across survey rounds (%) ........... 10 Figure 11: Trends in the moderate food insecurity index score across survey rounds (%) ............................... 10 Figure 12: Inbound and outbound travel relative to the pre-pandemic baseline ............................................. 13 Figure 13: The current-account balance by financing source ......................................................................... 13 Figure 14: Contribution to Inflation (% Change) .............................................................................................. 14 Figure 15: Decomposition of private-sector credit (% change yoy) ................................................................ 15 Figure 16: Expenditures, H1 FY22/23 ............................................................................................................. 16 Figure 17: Revenues, H1FY22/23 ................................................................................................................... 16 Figure 18: Distribution of UGX 6.2 trillion in domestic arears by type, end-June 2022 ................................... 17 Figure 19: Allocation of the FY23/24 budget ................................................................................................... 23 Figure 2.1: Inbound tourism to Uganda by source countryFigure 40: Perception of Security Index ......................... 26 Figure 2.2: Top 10 Foreign direct investment source countries ............................................................................. 26 Figure 2.3: Source of Funding of Uganda’s National Budget ................................................................................. 27 Figure 2.4: ODA (DAC & Multilateral) flows to Uganda (2020 Constants prices) ................................................... 27 Figure 5: ODA flows by Sector .............................................................................................................................. 27 Figure 6:ODA flows by Source ........................................................................................................................... 27 Figure 20: Tourism’s Contribution to GDP (2014 to 2021) ............................................................................... 30 Figure 21: Uganda’s profile in World Economic Forum Travel and Tourism Competitiveness Report 2019 .... 32 Figure 22: Travel-service exports and total service exports, 2001-2022 ............................................................... 33 Figure 23: Categories of services exports, 2018 (US$) .................................................................................. 33 Figure 24: Non-resident tourist arrivals in East Africa, 2017-2021 .................................................................. 33 Figure 25: Inbound tourist spending by subsector, Uganda and competitors, 2019 ...................................... 34 Figure 26: The Tourism Ecosystem in Uganda ................................................................................................ 36 Figure 27: Global Tourist Perception Index ...................................................................................................... 40 Figure 28: Relative interest by topic ................................................................................................................ 41 Figure 29: Top origin countries according to data on social media ................................................................ 41 Figure 30: Interest in tourism products by national origins, 2022 (%) ............................................................. 42 Figure 31: Most frequently mentioned nature-based tourism products, 2018-2022 ........................................ 43 Figure 32: Sentiments associated with each mention ..................................................................................... 43 Figure 33: Most frequently mentioned nature-based activities, 2018-22 ......................................................... 44 Figure 34: Most frequently mentioned arts-and-culture activities, 2018-22 ..................................................... 44 Figure 35: Interest in nature-based tourism products (%) ............................................................................... 45 Figure 36: Sentiment towards arts-and-culture tourism, 2018-2023 ................................................................ 45 Figure 37: Interest in arts-and-culture tourism, 2018-2023 ............................................................................. 45 Figure 38: Passenger arrivals in East Africa ................................................................................................... 46 Figure 39: Monthly air-passenger arrivals to Uganda by source market, 2019-2022 .............................................47 iv Leveraging Sustainable Tourism To Support Growth And Diversification List of Tables Table 1: Quarterly Real GDP Growth (%) ............................................................................................................... 7 Table 2: Balance of payments developments FY21 to FY23 ................................................................................ 12 Table 3: Fiscal developments, FY20/21 to FY22/23 (% of GDP) ................................................................... 18 Table 4: Baseline economic outlook (annual % change unless otherwise indicated) ........................................... 22 Table 5: Average fares from regional and long-haul markets to Uganda and competitors, 2019 and 2022 ...... .............................................................................................................................................. 47 Table 6: Overview of tourism-sector associations ................................................................................................ 49 Table 7: Overview of Recommendations and Prioritization Matrix ............................................................... 55 List of Boxes Box 1: Climate-smart technologies are vital to increase agricultural productivity and resilience ........................... 6 Box 2: Potential channels of economic impacts of the Ant-Homosexuality Act, 2023 .......................................... 26 Box 3: Why is Tourism Important for Economic Growth? ...................................................................................... 35 Box 4: Online Tourism Platform Analysis .............................................................................................................. 40 Box 5: Areas for further research and analysis ................................................................................................... 54 v Leveraging Sustainable Tourism To Support Growth And Diversification Foreword The global economic environment remains challenging and uncertain, with almost every country in the world struggling to manage multiple crises in the wake of the devastating COVID-19 pandemic. Uganda’s economy has proven strikingly resilient to recent shocks; economic activity accelerated during 2022, and income levels started to rise as firms reopened and employment began to recover. Nevertheless, the country’s growth trajectory is fragile, and several risks could derail the current expansion. Moreover, poverty remains pervasive, and food insecurity poses a persistent threat to the welfare of vulnerable households. Continued growth will be vital to reduce poverty, create adequate employment for the country’s young and rapidly growing population, and enable Uganda to reach middle-income status. Realizing the full potential of underdeveloped sectors such as tourism could help diversify the sources of growth, enhancing resilience while extending new economic opportunities to households and communities across the country. Given a more competitive business climate, Uganda’s immense biodiversity and vibrant culture could support a thriving sustainable tourism industry. In 2019, tourism and travel were among the country’s largest sources of foreign exchange, with personal travel accounting for about 60 percent of the sector’s export earnings. However, tourism’s contribution to economic activity has consistently lagged those of regional peers such as Tanzania, Kenya, Democratic Republic of Congo, and South Africa - and the pandemic brought the sector to a standstill. To leverage its considerable natural and cultural resources, Uganda will need to consolidate the institutional and policy framework for tourism, streamline licensing procedures and tax administration, and foster a robust dialogue between the public and private sectors. This twenty-first edition of the Uganda Economic Update explores how sustainable tourism development would contribute to growth, job creation, and foreign-exchange earnings. While wildlife and nature will continue to be essential elements of Uganda’s value proposition, the country must diversify its offerings and differentiate its brand identity, setting itself apart from other regional destinations. Policy reforms must be complemented by investments in infrastructure and services, product diversification in the emerging areas of culture and heritage tourism, and support to firms to grow their capacities. A well-designed marketing strategy will be necessary to raise Uganda’s profile in key source countries. In parallel, the authorities will need to continue their efforts to strengthen Uganda’s climate resilience, improve food security, and ensure the sustainable use of its unique natural capital. Keith Hansen Country Director Kenya, Rwanda, Somalia, and Uganda Africa Region vi Leveraging Sustainable Tourism To Support Growth And Diversification Abbreviations BoU Bank of Uganda CBR Central Bank Rate CFR Charter of Fiscal Responsibility COVID-19 Coronavirus Disease 2019 DRMS Domestic Revenue Mobilization Strategy ECF Extended Credit Facility FDI Foreign Direct Investment FY Financial Year GDP Gross Domestic Product GEP Global Economic Prospects GFN Gross Financing Needs IDA International Development Association IMF International Monetary Fund MIS Management Information System MoFPED Ministry of Finance, Planning and Economic Development MSME Micro, Small and Medium Enterprise M&E Monitoring and Evaluation NDP III Third National Development Plan NPA National Planning Authority NPLs Non-Performing Loans PIM Public Investment Management PMI Purchasing Manager’s Index PPG Public and Publicly Guaranteed PPP Public-Private Partnership SDR Special Drawing Right SSA Sub-Saharan Africa UBOS Uganda Bureau of Statistics UGX Ugandan Shilling UHFPS Uganda High-Frequency Phone Survey UNHS Uganda National Household Survey UNPS Uganda National Panel Survey URA Uganda Revenue Authority US United States of America VAT Value-Added Tax WEO World Economic Outlook vii Leveraging Sustainable Tourism To Support Growth And Diversification Acknowledgements The 21st edition of the Uganda Economic Update was prepared by a team led by Rachel K. Sebudde, and consisting of Sashana Whyte, Qursum Qasim, and Aziz Atamanov. The team would like to thank Daniel Lukwago, Celia Namyalo, Anthony Patrick Mavrogiannis, Moiz Abdul Majid, John Perrottet, Stephen Ling, Diji Chandrasekharan Behr, Vanessa Christine Satur Satur, Lesya Verheijen, and Paul Robert Turner for their valuable contributions. The team is also grateful to Philip Schuler, Marek Hanusch, Peace Aimee Niyibizi, Calvin Zebaze Djiofack, and Alex Pio for their guidance on the structure and messaging of the report. Esther Ampumuza provided logistical support, while Bernard Tabaire managed the communications and dissemination strategy. Overall guidance provided by Keith Hassen (Country Director), Mukami Kariuki (Country Manager), Alwaleed Fareed Alatabani (Practice Manager, Finance, Competitiveness and Innovation), and Abha Prasad (Practice Manager, Macroeconomics, Trade, and Investment) is gratefully acknowledged. Finally, we would like to thank the Ministries of Finance, Planning and Economic Development, and Tourism, Wildlife and Antiquities staff for their continuous commitment and close collaboration. viii Leveraging Sustainable Tourism To Support Growth And Diversification Executive Summary Thomson’s gazelles (African antelopes) grazing in golden sunlight of the savannah grasslands of the Kidepo Valley National Park, Uganda (Ssenyonyi Derrick, March 2023) Economic activity in Uganda is accelerating despite More businesses resumed operations, about 60 percent commodity-price inflation, global monetary tightening, of households reported either stable or increased income international supply-chain bottlenecks, and a local Ebola levels during the December 2022/January 2023 Uganda outbreak. Real GDP growth is estimated to reach 5.7 percent High-Frequency Phone survey, primarily due to farming in FY22/23, albeit still below the pre-COVID-19 projection and family enterprises. Access to essential goods such as of 6.5 percent. Growth has been supported by a robust maize flour, sugar, and beans improved as prices began post-pandemic recovery in the services sector, bolstered to stabilize, although they remained unaffordable for the by the rapid growth of information and communications poorest households. Inflation left the most impoverished technology. Real estate and construction also performed rural households unable to access or purchase sufficient well, while agriculture suffered from droughts in some food, resulting in more than half the population experiencing regions and heavy rains in others, as well as rising input moderate food insecurity. costs. The recovery of income and employment bolstered The fragile current account has increasingly relied demand, while private investment overcame tight domestic on oil-related foreign direct investment (FDI) inflows. and global financial conditions to sustain increases in new Export performance has been mixed due to fluctuations exports and manufacturing orders into the third quarter in key commodity prices, a slowdown in global demand, of FY22/23. As growth accelerated, Uganda’s per capita and the Ebola outbreak’s disruption of travel and tourism income increased to about US$930 for FY21/22, edging services. In the first half of FY22/23, a 23 percent increase closer to the lower-middle-income threshold. in non-coffee goods exports was offset by reduced coffee Despite adverse weather conditions, the growth of exports (as unit prices fell 12 percent), coupled with family businesses and rising commodity prices have a decline in tourist arrivals and unstable gold exports. boosted household incomes in FY22/23, reducing Conversely, imports have been bolstered by reduced freight food insecurity for all but the poorest households. and shipping costs, as well as the real appreciation of the ix Leveraging Sustainable Tourism To Support Growth And Diversification Ugandan shilling, as firms adapted to global supply-chain distortions while oil-sector construction projects bolstered domestic demand. A 64 percent surge in the oil-import bill drove import growth. Remittances are rebounding but have yet to return to pre-pandemic levels. With net government borrowing down by nearly 1 percentage point of GDP, FDI inflows of about 3.7 percent of GDP have financed the widening trade deficit and boosted overall economic activity. A tight monetary policy stance has helped stabilize domestic prices but rising real interest rates have also increased the cost of borrowing, keeping credit to the private sector at historic lows. Inflation began to decline steadily in February 2023, with the headline and core inflation rates falling to 8.0 percent and 6.8 percent, respectively, by April 2023. Inflationary pressures have weakened due to the continued easing of global commodity prices, a strong domestic harvest that has bolstered the food supply, and the appreciation of the shilling. The Bank of Uganda kept the policy rate at 10 percent through the fourth quarter of FY22/23, but commercial banks’ real lending rates continued to rise. The monetary policy shift was not decisive enough to help anchor expectations and reduce banks’ credit risk. Hence, credit growth to the private sector remained low, recorded at 4.6 percent per year by April 2023 - less than half of the post-pandemic peak of 9.8 percent recorded in May 2022. However, monetary policy will need to strike a delicate balance between suppressing inflationary pressures and supporting the private sector’s continued recovery. The sustained reduction of the fiscal deficit has allowed the authorities to adhere to the fiscal consolidation plan outlined under the Charter of Fiscal Responsibility (CFR), but this has had negative implications for economic Under the baseline scenario, growth due to the structure of the adjustment and deficit real GDP growth is projected to financing. While revenue collection may fall by 0.1 percent reach 6.2 percent in FY23/24, of GDP short of the annual target, expenditure plans have from 5.7 percent in FY22/23, a not been fully realized due primarily to the under-execution of development projects, reflecting persistent shortcomings path slightly exceeding the World in public investment management. Lower-than-planned Bank’s December 2022 forecast. capital spending may slow the economic recovery, which still partly relies on public investment, including investments in the oil sector. The fiscal deficit is projected to narrow to 5.1 percent of GDP in FY22/23, in line with the CFR target path. However, the government’s heavy dependence on domestic borrowing and the accumulation of domestic arrears could hamper private-sector credit growth, which Entebbe Expressway – a vital link between the city and the is currently proceeding at a sluggish pace. Moreover, main international airport (Ssenyonyi Derrick, March 2023) supplementary budgets account for 5.7 percent of the x Leveraging Sustainable Tourism To Support Growth And Diversification approved FY 22/23 budget, exceeding the 3 percent regional insecurity, and delays in the implementation of permitted under the Public Financial Management Act. major infrastructure projects. The materialization of these shocks could increase fiscal pressure, jeopardizing the Lower fiscal deficits have helped control the growth planned fiscal consolidation path and raising Uganda’s of the debt stock, but an increased reliance on non- risk of debt distress from its current “moderate” level. concessional debt has intensified liquidity pressures. To foster a resilient and inclusive recovery, the Public debt is projected to rise from 49.6 percent of GDP government will need to focus on four priority areas: in FY20/21 to 50.7 percent at end-FY22/23. The debt trajectory has moderated and is now in line with the path I. Ensure a well-managed fiscal adjustment that does anticipated in the CFR. The ratio of total debt service to not disrupt budget execution, require additional export revenue and grants is expected to climb to 63 domestic deficit financing, or otherwise hinder the percent for FY22/23, up from 42.3 percent in FY21/22, recovery of the private sector. In addition to raising as the share of concessional borrowing declined further revenue and rationalizing expenditures, especially beyond 56.3 percent of the total debt stock recorded in recurrent spending, the capital budget needs to June 2022. work more efficiently by deepening reforms in public investment management, especially ensuring that Uganda’s short- and medium-term economic outlook projects have sufficient resources for execution and is more favorable than it was six months ago when are protected from budget cuts. Moreover, the fiscal the 20th edition of the Uganda Economic Update was strategy should create and protect fiscal space for published. Capitalizing on the resilience demonstrated human capital development. The government must during 2022, economic activity is expected to pick up as also avoid domestic deficit financing, which would inflationary pressures ease, the Bank of Uganda adopts a increase the financial system’s exposure to macro-fiscal more accommodative monetary policy, and investment in risks, and refrain from accumulating domestic arrears. the oil sector continues. Under the baseline scenario, real Instead, policymakers should focus on rationalizing GDP growth is projected to reach 6.2 percent in FY23/24, expenditures and accessing additional sources of from 5.7 percent in FY22/23, a path slightly exceeding concessional financing. the World Bank’s December 2022 forecast. The improved growth outlook reflects a more modest pass-through effect II. Maintain a delicate balance between anchoring from high commodity prices to domestic inflation, an inflationary expectations and supporting growth. earlier-than-anticipated decline in some key international Monetary policy should be closely coordinated with commodity prices, and greater optimism regarding the fiscal policy to enable a less disruptive adjustment of development of the oil sector. However, overall growth inflationary expectations and support private-sector could be tempered by revenue- and expenditure-side growth. Increased net lending to the government through measures to support the fiscal consolidation, including advances from the central bank and/or non-payment direct reductions in public investment. of matured securities would narrow the fiscal space to respond to shocks. The medium-term outlook is clouded by considerable uncertainty, with risks tilted to the downside. Economic III. Adopt a combination of macroeconomic and growth could slow if the global economy deteriorates further structural policies designed to raise productivity and and more severely, particularly in the context of a geopolitical diversify the economy while reducing the persistent crises, disruptions to the global trading system, and/or a structural external current-account deficit. Imports will recession in the United States. Should inflation persist and continue to grow rapidly in the short-to-medium term, call for further monetary tightening in advanced economies, but macroeconomic policy must avoid exchange-rate capital outflows will intensify pressure on domestic liquidity. misalignments, especially as capital flows into the oil If combined with a stronger pass-through effect, liquidity sector intensify. In addition, investment is necessary to pressures could necessitate a delay in easing monetary lower costs, increase productivity, and support export policy, which would slow the recovery of businesses and growth. Export promotion efforts must extend beyond household income. Risks have also been elevated in respect traditional commodities and aggressively promote of the possible reduction in concessional finances, tourism services export. As the second part of this report and foreign direct investments following the enacting of demonstrates, the tourism sector will play a key role the Anti-homosexuality Act (2023) in May 2023. Moreover, in export diversification. Uganda’s economy remains vulnerable to climate shocks, xi Leveraging Sustainable Tourism To Support Growth And Diversification IV. Implement well-targeted interventions to support productive assets, or pulling children out of school. Over vulnerable households. The government must the longer term, these interventions can help households accelerate efforts to establish a national social registry increase income, build assets, and develop resilience. that will enable it to respond quickly and reach vulnerable For Uganda to harness the full potential of its tourism households that are not already enrolled in social sector and abundant assets to support inclusive growth assistance programs. Strengthening and expanding the and diversification, the government must develop digital payment systems will allow for more efficient and and apply a more strategic and well-funded approach transparent distribution of support to shock-affected with a clear value proposition for tourists and sector households. The government must also develop a participants. Uganda receives hundreds of thousands of disaster-risk financing strategy that ensures adequate visitors annually, with tourism bringing in valuable foreign resources are available to support response efforts, exchange earnings, stimulating demand for skilled and which may include labor-intensive public works and unskilled workers and driving inclusive economic growth direct assistance to prevent recourse to negative across communities. Currently, tourists are drawn by the coping strategies such as reducing food intake, selling Harvest time at a tea plantation – one of Uganda main export commodity, Fort Portal, Western Uganda (Ssenyonyi Derrick, June 2021). xii Leveraging Sustainable Tourism To Support Growth And Diversification country’s abundant natural and cultural assets ranging 49 countries, a 1 percentage-point increase in tourism from the world’s largest population of mountain gorillas spending resulted in a 4.5 percent increase in GDP per to rare bird species and thriving local cultures and arts. capita. However, the full potential of the sector cannot be There is considerable untapped potential for agrotourism in realized if budgetary allocations are inconsistent, poorly coffee and tea estates, and cultural tourism by capitalizing allocated and continue to be reduced annually. on local art, food, sports, and other aspects of Uganda’s The World Bank’s tourism ecosystem approach and rich cultural diversity. In the World Economic Forum’s 2019 an innovative social media analysis reveal several key Report on Travel and Tourism Competitiveness, Uganda challenges that Ugandan policymakers must address ranked among Sub-Saharan Africa’s top five destinations to fully realize the sector’s potential. Despite significant for cultural resources and business travel. investment in traditional marketing approaches, Uganda Even as tourism is one of the country’s top foreign- remains relatively unknown to global tourists as seen by exchange earners and a significant job creator, the the country’s low ranking in general travel-related searches sector lags behind its regional peers, remains very even as it is more competitive in the niche segments sensitive to shocks, and budget allocations for the like hiking and ecotourism. On a positive note, interest sector are being reduced which is likely to further in cultural sightseeing tours has increased significantly compromise its ability to fulfill potential. Prior to the since before COVID-19 and source markets like the US, COVID-19 pandemic, which drastically curtailed global UK and Canada show an increasing interest in arts and travel, the sector contributed about 6 percent of Uganda’s cultural tourism, although interest in national parks has GDP, far below the levels of Rwanda (11 percent), Tanzania dwindled. Despite acknowledging tourism’s potential in (10 percent), and Kenya (8 percent). Nevertheless, travel the national vision, the institutional and policy environment receipts totaling US$1.4 billion accounted for half of the is highly fragmented and duplicative, which hinders the service inflows (25 percent of total export receipts). Over implementation of tourism development strategies and 670,000 workers were directly employed in the sector, or plans. Furthermore, the public resources allocated to about 7.4 percent of the labor force, although this could directly support tourism are insufficient and continue to more than double according to estimates by the Uganda dwindle, though some aspects of tourism development Bureau of Statistics (at 14.7 percent and more than 1.5 million may be funded through other sectors like infrastructure Ugandans employed in the sector. As tourism recovers (however, in the absence of strong intersectoral collaboration from the pandemic, during which its contribution fell to just it is difficult to ascertain whether and to what extent this 2.7 percent of GDP in 2020, Uganda’s abundant natural is happening). The business environment is not always and cultural assets can be harnessed to create new jobs, conducive to private investment, and important challenges stimulate business growth, and boost foreign-exchange include a complex sector licensing regime, limited access earnings. Nonetheless, it remains highly sensitive to shocks, to finance for micro, small and medium enterprises, and including disease outbreaks like “ebola, travel bans on gaps in digital connectivity and other essential infrastructure. Uganda imposed by major source countries, and even Inadequate coordination between the public and private domestic developments like the passing of the AHA law sector hinders FDI, which remains focused on large hotels and terrorist attacks. International experience highlights and lodges. Finally, the tourism sector is not promoted the tourism sector’s economic potential: in a survey of strategically, and the country’s undifferentiated product offering means it is constantly playing catch up to better- known and more developed regional destinations such One of the key enabling as Kenya and Tanzania. activities to undertake would For Uganda to harness the potential of its tourism sector be to understand why previous to support inclusive growth and diversification, the government must develop and apply a more strategic strategies, master plans and approach with a clear value proposition This approach recommendations have not been should be designed to increase both tourism arrivals, fully implemented to avoid pitfalls average spending, and repeat visitation. Although wildlife in the future. and nature will remain central to Uganda’s value proposition, xiii Leveraging Sustainable Tourism To Support Growth And Diversification broadening and diversifying its tourism products will be maintain a consistent (or increasing) level of funding for a crucial to maximize the sector’s impact on employment and sector which has far-reaching impact across the economy growth. One of the key enabling activities to undertake would on creating jobs, increasing foreign exchange earnings, be to understand why previous strategies, master plans and stimulating private sector activities which contribute and recommendations have not been fully implemented to domestic resource mobilization. to avoid pitfalls in the future. Moreover, it is essential to Overview of recommendations and prioritization matrix Institutional Private Human Recommendation/dimension & policy Infrastructure sector capital environment 1: Develop an Integrated Policy Framework to Clarify Sectoral Roles and Responsibilities, and Increase X X the Efficiency of Government Spending 2: Establish a Public-Private Dialogue to Strengthen Collaboration on Tourism Policy Development and X X X X Implementation 3: Leverage Innovative Marketing to Highlight Uganda’s X X Diverse Tourism Products 4: Facilitate FDI and Ease Constraints on Access to X X X Finance 5: Invest in product diversification X X 6: lnvest in Human Capital in the Tourism Sector X X X Note: Red = short-term, 0 - 12 months; yellow = medium-term, 12-24 months; green = long-term 24-48 months Youths eking a living on streets of Kampala through sale of assorted consumables, including nyama choma (roasted meat) (Ssenyonyi Derrick, December 2022). xiv Leveraging Sustainable Tourism To Support Growth And Diversification Recommendation 1: Develop an Integrated Policy Recommendation 2: Establish a Public-Private Dialogue to Framework to Clarify Sectoral Roles and Responsibilities, Strengthen Collaboration on Tourism Policy Development and Increase the Efficiency of Government Spending and Implementation I. Establish a formal collaboration mechanism across all To improve the engagement between MoTWA and the tourism agencies and departments to advance common private sector, the government should establish a platform for objectives efficiently. multistakeholder collaboration. To foster a robust dialogue, II. Strengthen links between national and local authorities, policymakers should: especially district-level tourism officers. The government I. Create a public-private dialogue forum on tourism could reallocate district tourism officers to the Ministry of with SMART goals. This forum would provide a formal Tourism, Wildlife and Antiquities (MoTWA) or introduce mechanism for holding regular discussions, taking time- an innovative strategy under which these roles would bound decisions, and developing shared reporting and be overseen by both the MoTWA and the Ministry of accountability frameworks. Public and private-sector Trade, Industry and Cooperatives (MoTIC) through a joint stakeholders would be able to jointly address issues committee. Successful implementation would require as they arise while strengthening transparency and aligning funding for district officers and incentives. accountability in the pursuit of specific, measurable, III. Invest in robust and regular data collection focused on achievable, relevant and time-bound (SMART) goals. developing consumer profiles especially in emerging II. Establish an independent secretariat to coordinate source markets reflected in online platform data. The these efforts. The secretariat should be jointly funded Tourism Information Management System (TIMS) is a by the government, the private sector, and development key element in this process and should be continually partners. funded to fully utilize sector data to inform policymaking. Real-time data collection would allow for adjustments Recommendation 3: Invest in Product Diversification as needed. The government should devise sectoral plans that extend IV. Establish a regular programmatic expenditure review beyond basic infrastructure investments to enable the process to track the efficiency and effectiveness of development of a wider range of tourism products, amenities spending. For example, considerable funds are spent to and experiences. These plans should be informed by a hire market-destination representatives, but it is unclear sector-specific assessment of the PPPs and concessions whether these representatives are meeting their targets frameworks and should aim to work in close collaboration or how these targets align with the challenges facing with the private sector to ensure market-product fit and: Uganda’s tourism sector and whether increasing focus I. Enhance existing tourism sites: Despite being recognized on digital marketing would be more cost-effective and as Uganda’s first Tourism City in 2022, Fort Portal, impactful. positioned strategically near three national parks, V. Ensure that the framework for allocating resources to numerous under-the-radar crater lakes, and significant communities is responsive to local needs and priorities. Tooro Kingdom heritage sites, still lacks crucial amenities such as a marked heritage trail or a public map of VI. Adhere to best practice principles for corporate key attractions. With the emerging interest in arts and governance by implementing transparent and robust cultural tourism by key sources markets like US, UK selection criteria for board members of tourism agencies and Canada, it is essential to capitalize on this interest and ensuring private-sector representation. Board by developing new products to engage tourists. members should be appointed based on a mix of technical and strategic criteria. Adequate accountability II. Improve products and services in underserved locations: and transparency measures should be put in place to Places with great potential, like Kasese, the gateway avoid conflicts of interest. In addition, a robust process for tourists heading to the Rwenzori Mountains, remain for assessing board and agency performance should underdeveloped. The lack of quality accommodation be established and fully aligned with sectoral policies and hospitality services forces tourists to travel long and the National Development Plan, with regular reports distances from other towns to access activities in and from external assessors. around the mountains. xv Leveraging Sustainable Tourism To Support Growth And Diversification The Northern By-pass Road in Kampala easing connection to the different parts of the city. (Ssenyonyi Derrick, March 2023) III. Foster PPPs: The government should pursue PPPs to grid or off-grid), as well as environmentally friendly develop tourism amenities and experiences especially water and sanitation management techniques, and in areas where tourist interest is emerging, which recycling systems. could include the creation of heritage trails, tourism IV. Collaborate to promote sustainability: Work closely information centers, and better accommodation and with the private sector and NGOs to encourage firms hospitality services. to obtain environmental quality certifications and adopt Recommendation 4: Facilitate FDI and Ease Constraints sustainable practices by building on existing initiatives on Access to Finance to reinforce the incentive framework for sustainable investments. Skills’ development programs also need To capitalize on its tourism potential, Uganda needs to to integrate sustainability practices as core part of address overarching challenges in its investment climate curricula. that discourage FDI, joint ventures, and public-private partnerships (PPPs). The global tourism sector is rapidly V. Facilitate access to finance: Develop partial credit evolving in response to changing consumer behavior, guarantees and other risk-sharing mechanisms to new technology, green investments, and cross-border provide financial access to underserved segments of mergers and acquisitions. To capitalize on these trends, the tourism sector, including those considered risky policymakers should: by financial institutions. I. Evaluate the legal framework for the tourism sector: Recommendation 5: Leverage Innovative Marketing to Review the efficacy of existing tourism concessions Highlight Uganda’s Diverse Tourism Products and PPP frameworks as a first step to identify and More effectively marketing Uganda’s tourist attractions will address gaps as part of the ongoing review of the require a shift from the traditional marketing approach, which tourism policy and master plan. focuses primarily on industry events. A more innovative II. Improve the investment climate: Develop a tourism- approach could raise Uganda’s brand profile globally specific strategy for fostering investment under the while taking advantage of changing consumer behaviors, revised Tourism Master Plan. This strategy should new technology, and emerging travel-tech startups. The address longstanding barriers, including access government and the private sector should work together to: to finance, issues with the policy and regulatory I. Create detailed tourist profiles: Gain insights from environment, weak land-tenure protections, and current and emerging source markets to better tailor governance challenges. marketing strategies. III. Prioritize green investments: Mandate that all new tourism II. Make effective use of digital marketing: Utilize digital investments incorporate adequate climate adaptation platforms for direct-to-consumer marketing especially and mitigation measures. For example, investments in emerging source markets, which not only provides in lodges and accommodations should utilize at least a more direct communication channel but also offers some proportion of alternative energy generation (on- invaluable data on tourist behaviors. xvi Leveraging Sustainable Tourism To Support Growth And Diversification III. Adopt key marketing principles: Embrace data-driven digital technologies allow the use of virtual tours and and digital marketing and establish a unique value other innovative marketing tools. Dedicated capacity proposition for Uganda. Set outcome-based goals building will be necessary, as well as more affordable (e.g., increase in average tourist spend per day) access to digital technologies. rather than output-based goals (e.g., number of media Recommendation 6: Invest in Human Capital in the communications). Align messaging in the public and Tourism Sector private sectors to position Uganda as a unique, must-see destination with a depth of products and experiences Developing the necessary skills is crucial to the long-term to differentiate its brand. success of the tourism sector. The government should adopt a more streamlined approach to skills’ development IV. Build a global profile: Capitalize on enhanced public- by mapping skills according to the scale of demand in the private collaboration to raise Uganda’s profile as a market, analyzing emerging demand, and identifying current diverse destination offering a range of experiences. skills gaps. Under this approach, policymakers should: Draw lessons from successful international campaigns such as “Incredible India” and South Africa’s “24 Hours I. Encourage partnerships to expand access to on-the-job of Wow,” which demonstrated the importance of robust training: Partnerships could be established between private-sector input. larger hotels and smaller accommodation providers to exchange and train staff. Associations could act as V. Eliminate tax policies that discourage the use of intermediaries, while larger establishments could send digital technologies: Reform taxes on internet bundles, staff to regional or global training programs. duties on imported devices, and other tax policies that constrain the use of digital technologies and hinder the II. Evaluate previous investments in skills training: An growth of firms in the tourism digital space, including assessment of the costs and benefits of the skills the 12 percent excise tax on internet bundles, an 18 training offered by existing programs will help ensure percent value-added tax, and a 10 percent duty on that resources are being effectively utilized and that the imported devices. training programs are producing the desired results. VI. Strengthen the digital presence of tourism firms: Create III. Utilize digital training platforms: Digital programs a strong digital footprint and build a critical mass of should be developed to expand access to training. In user-generated reviews to attract new clients. Business- addition to their broader reach, digital training programs management technologies can improve financial also tend to be more scalable and cost-effective than practices among small and medium enterprises, while traditional training. Time to shop – a tourist inside an art and crafts shop. Kampala, Uganda. (Ssenyonyi Derrick, January 2023) xvii Leveraging Sustainable Tourism To Support Growth And Diversification Bridging the past and the future: inset: The new Jinja Bridge versus the old build in 1954, traversing the shimmering River Nile, Jinja, Uganda. (Ssenyonyi Derrick, March 2023) xviii Leveraging Sustainable Tourism To Support Growth And Diversification 1 Part STATE OF THE UGANDAN ECONOMY 1 Leveraging Sustainable Tourism To Support Growth And Diversification 1. RECENT ECONOMIC DEVELOPMENTS 1.1 Exogenous shocks have slowed global growth 1. The lingering effects of multiple shocks continue policies aimed at curbing inflation, combined with financial to hinder the growth of the global economy. Global conditions, which have been worsened by banking sector growth will continue to decelerate and reach 2.0 percent crises, a softening post-pandemic rebound, and continued in 2023, before slightly recovering to 2.4 percent in 2024. disruptions caused by Russia’s invasion of Ukraine. The The stronger growth in 2023 (i.e. 0.3 percentage higher global economy still faces its weakest growth profile since than the World Bank’s January 2023 Global Economic 2001, except for the global financial crisis and the acute Prospects report forecast)1 is because China rebounded phase of the COVID-19 pandemic. Heightened risks, too, strongly following reopening of its economy and the USA call for deeper attention to financial regulatory reform, consumption has been resilient during first half of 20232. clean energy transition and debt relief for an increasing Deeper into 2023 and 2024, many economies, especially number of countries under debt distress. the advanced ones, are expected to slow due to monetary Figure 1: Global growth forecasts, original and revised Source: World Bank Global Economic Monitor, April 2023 2. High prices for food, fertilizer, and energy, compounded 3. Continued policy-rate hikes and unstable financial by the effects of Russia’s war in Ukraine, have increased markets have slowed credit growth and caused certain inflationary pressures across much of the world. financial institutions to incur substantial losses. Although gas and oil prices have fallen recently, and In March 2023, three US banks failed following rapid global supply chain disruption appears to have eased depositor flight. The subsequent crisis at Credit Suisse amid slowing global demand, inflation remains above further destabilized financial markets and caused bank the target level in many advanced economies. To contain depositors and investors to shift away from institutions and inflation, major central banks, including the US Federal investments perceived as vulnerable. In the aftermath of Reserve and the European Central Bank, have continued these events, US and European bank stock prices fell by to tighten monetary policy and slow the growth of the about 25 and 14 percent, respectively. money supply3. 1 World Bank (2023). Global Economic Prospects. January 2023. Washington DC. 2 World Bank. (2023). Global Economic Prospects. June (forthcoming) Washington DC. 3 In the US, the Federal Reserve increased the target range for the federal funds rate by a further 25 basis points to 4.75 percent in March 2023, following a 50-basis points increase in December 2022. The European Central Bank increased its three key interest rates by 50 basis points in December 2022. In March 2023, the Bank of England increased the Bank Rate by 25 basis points, to 4 percent, the tenth consecutive rate rise over the past year. 2 Leveraging Sustainable Tourism To Support Growth And Diversification 4. Sluggish economic growth is weakening global trade. to services supported the continued recovery of services The growth rate of global trade is expected to fall from 4 trade. As travel restrictions were lifted, the global tourism percent in 2022 to 1.6 percent in 2023 as global industrial sector rebounded, but the recovery was uneven across production slows, demand for goods and services return to regions, and tourism flows remain well below pre-pandemic its pre-pandemic balance, and geopolitical shocks continue. levels. The growth of travel and tourism is expected Nevertheless, goods trade surpassed pre-pandemic levels to accelerate during 2023 but will be constrained by last year, while the gradual shift in demand from goods slowing global economic activity and high input costs. 1.2 Sub-Saharan Africa regional growth is bottoming out, but risks are high4 5. Economic activity in Sub-Saharan Africa (SSA) is policy. Supported by declining commodity prices, slowing projected to slow to 3.2 percent in 2023, down 0.3 aggregate demand growth will reduce the region’s overall percentage points from the October 2022 forecast. inflation rate to 7.9 percent in 2023 and 5.4 percent in 2024. This revised growth projection is driven by high (though 7. Food insecurity remains high across SSA, exacerbated declining) inflation rates, tight global and domestic financial first by the pandemic and then by Russia’s war in Ukraine. conditions, and slow global growth. As global economic Food represents a large share of household consumption, activity rebounds in the second half of 2023, austerity especially among poor households. Across the region, measures ease, and declining inflation allows for more soaring food and energy prices have pushed millions of accommodative monetary policy, aggregate economic people into food insecurity and poverty. An estimated 140 growth in SSA is expected to reach 3.7 percent in 2024 and million people in SSA faced acute food insecurity in 2022, 3.9 percent in 2025. However, risks to the outlook are tilted up from 120 million in 2021. In East Africa, the number of to the downside. Weakness in major economies, further people experiencing acute food insecurity rose from 41 increases in global interest rates, higher and persistent million in 2021 to an estimated 55 million in 20225. inflation, mounting geopolitical tensions due to the war in Sudan, and the increased frequency and intensity of 8. Many SSA countries have depleted the fiscal space adverse weather events could further slow growth across necessary to protect the poor from shocks and support the region, exacerbating poverty and leading to debt growth, while the risk of debt distress has increased. distress in some countries. Amid global monetary tightening, rising borrowing costs and weak economic growth are undermining debt sustainability. 6. Inflation has begun to ease in much of SSA but The pandemic placed enormous stress on many countries’ remains above the target levels of many central banks. fiscal positions, which was compounded by measures to Rising prices for food and fuel have driven the increase in mitigate the impact of rising food and fuel prices, including inflation. As food and energy account for half of household subsidies, tax relief, and cash transfers to vulnerable consumption in SSA, living costs across the region have households. The resulting fiscal deficits have intensified spiraled, with annual inflation rates exceeding 20 percent budgetary pressures and threatened debt sustainability in Ethiopia, Ghana, Nigeria, Malawi, Sierra Leone, and across the region. Public gross financing needs in SSA Rwanda. The disruptions caused by Russia’s war in Ukraine, have increased steadily, reaching 11 percent of GDP in coupled with adverse weather conditions, have contributed 2020–22, and are projected to remain at 10 percent of to rising food prices in SSA. To rein in inflation and reduce GDP over the next five years6. the uncertainty hindering consumption and investment, many central banks in the region swiftly tightened monetary 4 World Bank (2023), Africa’s Pulse, No. 27, April 2023: Leveraging Resource Wealth During the Low Carbon Transition 5 FSIN and Global Network Against Food Crises (2022). Global Report on Food Crises 2022 Mid-Year Update. Rome. 6 World Bank (2023), Africa’s Pulse, No. 27, April 2023: Leveraging Resource Wealth During the Low Carbon Transition 3 Leveraging Sustainable Tourism To Support Growth And Diversification 1.3 Uganda’s economy has proven unusually resilient 9. Uganda’s economy has weathered successive significant volatility in the first half of FY22/23, rose by shocks over the past twelve months, but GDP growth 1.2 percent to 152.5 in January 2023, where it remained accelerated between FY21/22 and FY22/23. Extending through February as inflationary pressures eased and the post-pandemic recovery that began in FY21/22, GDP monetary tightening became less intense. Meanwhile, expanded rapidly in the first quarter of FY22/23 despite the headline Purchasing Manager’s Index (PMI) signaled the global headwinds generated by inflation and trade a substantial improvement in demand and underlying disruptions. Tighter monetary policies during the first business conditions starting in December 2022. Although half of the year squeezed private-sector credit growth, the improvement in February was slightly less pronounced, slowing economic activity. Adverse weather conditions the PMI reached 53.2 in March 2023, as robust consumer and an outbreak of Ebola virus between September 2022 demand resulted in seven consecutive months of increasing and January 2023 further weighed on growth. However, new orders and output despite a decline in employment. FDI inflows to finance the construction of oil infrastructure The Bank of Uganda’s Business Tendency Index, which buoyed investment and consumption, and the GDP growth had dropped from 58.4 in June 2022 to 50.1 in November, rate rose to 6.9 percent during the first half of FY22/23, up its lowest point of the year, recovered steadily from January from 3.6 percent during the first half of the previous year7. through March 2023. These positive signs suggest that GDP growth will remain robust during the second half of 10. High-frequency indicators suggest that ongoing FY22/23, with an overall annual growth rate projected to improvements in demand and business conditions are exceed 5.7 percent, up from 4.7 percent in FY21/22. While supporting sustained economic activity, and overall rapid population growth has partially offset these gains, growth is projected to accelerate from 4.7 percent in per capita income reached US$ 930 in FY21/22, bringing FY21/22 to over 5.7 percent in FY22/23. The Composite Uganda closer to the lower-middle-income8 threshold. Index of Economic Activity (CIEA), which experienced Figure 2: Purchasing Managers’ Index 65 10.0 PMI (LHS axis), >50 improvement since previous month 60 5.0 55 0.0 50 45 -5.0 40 -10.0 35 30 -15.0 Jul-21 Jan-22 Jul-22 Jan-23 Dec-21 May-22 Dec-22 Jun-21 Aug-21 Sep-21 Oct-21 Nov-21 Feb-22 Mar-22 Apr-22 Jun-22 Aug-22 Sep-22 Oct-22 Nov-22 Feb-23 Mar-23 Source: Stanbic Bank Uganda. Purchasing Managers’ Index 7 World Bank (2023), Africa’s Pulse, No. 27, April 2023: Leveraging Resource Wealth During the Low Carbon Transition 8 UBOS (2023). GDP Quarterly Series 4 Leveraging Sustainable Tourism To Support Growth And Diversification 11. The services sector has continued to drive growth food services, transportation, storage, arts, entertainment, on the supply side. The services sector, which accounts and recreational activities subsectors indicate that the for 45 percent of Uganda’s economy, expanded by 11.7 recovery of tourism is likely to continue. However, while percent between the first and second quarters of FY22/23. the construction subsector has remained resilient due to The growth of information and communications technology, FDI-funded projects in the oil sector, industrial activity has coupled with a strong recovery in education, health, and been uneven, with unpredictable developments in the gold social services, drove the sector’s positive performance. sector disrupting production despite high international The number of tourists arriving in Uganda increased by prices10. High input costs and credit constraints weighed about 59 percent between 2021 and 2022, rising from on manufacturing, while agricultural output remains volatile 512,270 to 814,508, more than half of pre-pandemic due to a climate-driven increase in extreme weather events levels9. Robust activity in the real estate, accommodation, (Box 1). Figure 3: Economic growth by sector Source: UBOS The Albertine region, base for oil drilling activities, Lake Albert, Uganda (Rachel Mabala, April 2021) 9 Ministry of Tourism, Wildlife and Antiquities 10 According to the World Bank Commodity Prices Historical and Outlook Data, in the first three quarters of 2022, the price index for metals and minerals, such as iron, was about 150 percent higher than its 2020 level, 5 Leveraging Sustainable Tourism To Support Growth And Diversification Box 1. Climate-smart technologies are vital to increase agricultural productivity and resilience While Uganda’s agricultural sector is vulnerable to multiple shocks, output is primarily influenced by weather conditions. The production of cash crops declined by nearly 17 percent during the second quarter of FY22/23 due to near-drought conditions in some parts of the country, global supply-chain disruptions, and rising domestic input prices. As weather conditions improved, however, food crop production accelerated, boosting overall output growth from 0.2 percent to 5.3 percent between the first and second quarters. A high-frequency phone survey by the Uganda Bureau of Statistics (UBOS) showed that about 71 percent of households grew crops in the second agricultural season of 2022, with over two-thirds expecting good or normal output. Farmers in the central and eastern regions and those in the poorest consumption quintile were less optimistic, as they either faced more severe conditions or had fewer mitigation measures available. Few farmers are using improved technologies and fertilizers, primarily because they cannot afford them. Only one out of ten farmers used fertilizer during the second agricultural season of 2022. Better-educated farmers were more likely to use fertilizer: 16 percent of farmers with completed secondary education reported using fertilizer, versus just 3 percent of those with no formal education. The main reasons given for not using fertilizer were the belief that they were not needed (45 percent) and that they were affordable (43 percent). Wealthier farmers were more likely to cite the former, while poorer and uneducated farmers emphasized the latter. Beyond use of fertilizers, it is important that farmers adopt sustainable land management practices to protect, conserve and ensure better use of land, soil, water, and biodiversity resources, whilst restoring any degraded resources and their ecosystem functions. This will need to be accomplished alongside climate-smart agricultural practices that enhance resilience, reduce greenhouse gases emissions, and boost national food securityi. Sensitization programs and measures to address supply and demand factors affecting the costs of improved technologies will be crucial to boost agricultural productivity and reduce volatility. Box Figure 1.1 Share of farmers not expecting a Box Figure 1.2. Main reasons for not applying fertilizers (%) good harvest after the second planting season (%) 40 100 35 32 32 80 30 27 23 22 23 60 20 40 10 20 0 0 Northern Eastern Central Western Poorest Richest PoorestR ichest No formal Post secondary regionsp re-COVID-19 No need Not available in the market/shops Source: UHFPS. Other i World Bank. 2021. Uganda Economic Update, 17th Edition, From Crisis to Green Resilient Growth: Investing in Sustainable Land Management and Climate Smart Agriculture June. Washington DC. 6 Leveraging Sustainable Tourism To Support Growth And Diversification Table 1. Quarterly Real GDP Growth (%) FY2022 FY21/22 FY22/23 Q1 Q2 Q3 Q4 Q1 Q2 Share of y/y growth rates GDP AGRICULTURE 23.3 5.3 -1.1 4.1 8.9 0.2 5.3 Cash crops 2.7 17.1 8.5 -0.9 6.7 9.5 -16.7 Food crops 12.2 3.9 -3.9 4.1 10.1 -0.2 9.4 Livestock 3.5 8.4 8.3 8.2 8.4 8.6 8.8 Agriculture support services 0.0 6.6 2.0 4.0 3.6 5.2 6.5 Forestry 3.4 5.2 -2.5 4.4 5.6 3.9 1.2 Fishing 1.5 -0.1 -13.3 4.5 12.2 -36.8 22.4 INDUSTRY 26.5 0.6 9.0 4.2 6.5 12.5 -3.6 Mining and quarrying 1.6 -55.8 52.2 39.6 79.9 75.0 -55.8 Manufacturing 14.9 -4.9 8.0 5.1 7.0 16.0 -1.1 Electricity 1.4 6.0 4.1 2.2 0.8 2.6 3.6 Water 2.4 5.8 6.3 6.6 6.4 5.0 4.2 Construction 6.2 35.9 3.5 -4.8 -5.8 1.8 2.9 SERVICES 43.4 1.9 4.8 3.5 6.2 13.4 10.0 Trade and repairs 8.2 -6.3 3.6 8.2 9.2 11.5 7.4 Transportation and storage 2.8 -10.1 -3.5 2.8 -4.9 0.6 7.4 Accommodation and food 2.3 0.9 15.0 -19.4 -4.2 3.2 3.5 service Information and 2.3 12.0 7.3 4.7 6.1 18.2 24.7 communication Financial and insurance 2.9 0.1 3.5 6.3 7.8 3.8 11.2 Real estate activities 7.0 7.8 10.6 10.3 9.0 6.7 4.1 Professional services 2.1 26.3 4.0 -10.5 -3.9 59.3 29.5 Administrative and support 1.9 3.1 3.3 2.6 5.1 14.2 9.6 service Public administration 3.0 4.2 3.1 -4.3 12.5 14.7 12.4 Education 3.9 12.6 -4.5 4.3 -5.0 22.7 11.0 Human health and social 3.5 -10.4 10.1 11.1 29.9 19.9 12.6 work Arts, entertainment, and 0.2 21.2 -6.9 -11.8 -10.5 -15.2 35.2 recreation Other service activities 2.5 5.1 4.7 4.1 5.2 5.5 5.5 Activities of households 0.7 2.8 2.8 2.8 2.8 2.7 2.7 Taxes on products 6.8 -0.4 9.8 20.9 1.0 13.1 -0.9 GDP at market prices _ 2.5 4.9 4.9 6.5 9.2 4.4 Source: UBOS 7 Leveraging Sustainable Tourism To Support Growth And Diversification 1.4 Household income and food security have improved, but uncertainty persists 12. Despite adverse weather conditions, household during October/November 2022 (Figure 5). These income incomes increased over the six months prior to gains derived mainly from farming and family businesses, December 2022, largely due to the opening of more family while wage income declined as the employment rate businesses and rising commodity prices. According to among respondents fell. A quarter of employment losses the most recent round of the Uganda High Frequency Phone was attributed to the seasonality of farming or to weather- Survey (UHFPS),11 the share of households with active family related disruptions in agricultural activities, while another businesses reached 46 percent in the December 2022/ 15 percent of respondents indicated job losses were January 2023 round of the survey, up from 35 percent in due to business closure, and 40 percent cited personal June/July 2022 (Figure 4). About 60 percent of households reasons (vacation and other) unrelated to the economic reported that their income levels had increased or remained environment (Figure 7). unchanged in December/January, compared to 43 percent Figure 4: Status of nonfarm family business Figure 5: Share of households with unchanged or across survey rounds (% of households) increased income levels across survey rounds (%) 100 87 82 80 69 63 60 60 54 45 43 40 20 0 Family farming Non-farm family Wage Total income business employment R10 (Oct/Nov 22) R11 (Dec 22/Jan 23) Source: UHFPS Source: UHFPS Figure 6: Working respondents (%) Figure 7: Reasons for stopping work (%) 100 89 89 86 86 88 84 80 74 76 77 75 70 50 0 Source: UHFPS Source: UHFPS Note: Respondents in all rounds are treated as cross-section which explains the different in employment rates reported in previous Uganda Economic Updates. 11 To track the impacts of the COVID-19 pandemic on households in Uganda, UBOS conducted 11 rounds of the UHFPS between June 2020 and January 2023. The survey attempted to recontact the entire sample of households that had been interviewed during the 2019/20 round of the Uganda National Panel Survey (UNPS) in cases where a phone number was available for at least one household member or a reference individual. For further details, see: Atamanov et al. (2023). 8 Leveraging Sustainable Tourism To Support Growth And Diversification 13. Toward the end of 2022, as prices stabilized and the levels observed in June 2022 (Figure 8). The share incomes increased, access to many essential goods of households that needed but were not able to buy the and food products improved for all but the poorest desired amount of rice fell from 51 percent in October/ households. Starting in June 2022, prices of key household November 2022 to 32 percent in December 2022/January essentials such as maize flour, rice, sugar, and beans 2023 (Figure 9). However, access to essentials remained rose sharply, reflecting the global increase in commodity highly unequal. The poorest households—based on pre- prices. However, in November 2022 price pressures began pandemic consumption quintiles—and rural households to ease, and prices for many products fell, though not to were worse off than wealthier and urban households. Figure 8: Price indices for essential goods (May/June 22=base) Source: UHFPS. Note: Prices on fuel and gasoline were collected starting from August 2022 only which does not allow getting the full picture on how prices grew for these products. Figure 9: Inability to buy desired amounts of key products across survey rounds (%) Source: UHFPS. 9 Leveraging Sustainable Tourism To Support Growth And Diversification 14. Better access to essential goods has reduced November 2021. Severe food insecurity also dropped from food insecurity. Measures of moderate and severe 15 percent to 9 percent over the period. Beyond the positive food insecurity both declined during January 2023. The effects of higher incomes and falling prices, broad-based moderate food insecurity index—which had risen to 56 improvements in food security across consumption quintiles percent in October/November 2022—fell to 38 percent in and regions may reflect rebounding agricultural yields, as December 2022/January 2023, the first such decline since well as intra-family transfers during the Christmas season. Figure 10: Trends in the moderate and severe Figure 11: Trends in the moderate and severe food insecurity index scores across survey food insecurity index scores across survey rounds (%) rounds (%) 100 80 72 75 64 60 60 58 59 53 54 47 50 50 48 49 40 42 42 39 35 37 33 30 22 24 20 0 Northern Eastern Q2 Q3 Q4 Urban Rural Central Western Poorest Richest Area Region R10 (Oct/Nov 22) R11 (Dec 22/Jan 23) Source: UHFPS 1.5 Successive shocks have weakened the external current-account balance 15. The current-account deficit is estimated to have 16. Export performance has been mixed. Key commodity widened from 8 percent of GDP in FY21/22 to 9 percent prices declined, affecting exports and imports simultaneously, in FY22/23, reflecting a combination of external and while global demand slowed, and the Ebola outbreak domestic factors. The total value of exports and imports fell interrupted the recovery in travel and tourism. The average from 36.2 percent of GDP during the second half of FY21/22 price for Uganda’s coffee exports was US$2.4 per kilogram, to 34.5 percent during the first half of FY22/23. Disruptions 12 percent below the average for the second half of FY21/22, in global supply chains, tight financial conditions, declining and output slumped in the second quarter of FY22/23 to 1.32 transportation costs, and currency appreciation drove the million 60-kilogram bags, down 18 percent year-on-year. As reduction in imports. However, export receipts declined in a result, the value of coffee exports decreased from US$417 tandem, as prices for some of Uganda’s key commodity million in the first half of FY22/23, just under the US$419 million exports fell, and the Ebola outbreak dampened travel and recorded in the first half of FY21/22 and far below the US$443 tourism activity. Remittances rose by 13 percent to US$680 million registered in the second half of FY21/2212. Non-coffee million in the first half of FY22/23 but could not fully offset exports grew by 23 percent to US$1.4 billion during the first half the deterioration of the other accounts. Amid persistently of FY22/23, including through formal and informal cross-border subdued global demand, declining commodity prices, trade, which has been threatened by sporadic administrative and a sustained surge in imports driven by investments measures imposed by importers13. Services exports declined in the oil sector, the current-account deficit is expected to US$846 billion during the first half of FY22/23, as gross to exceed the average of 8.3 percent of GDP recorded travel-services exports plunged from US$579 million in the during the first half of FY22/23. second half of FY20/21 to US$435 million. 12 BoU (2023). Composition-of-Exports: Values-and-Volumes 13 Over the past two years, Kenya has issued bans and sometimes removed them on importation of various imports from Uganda and Tanzania, including maize (for the high levels of aflatoxins), and powdered milk and poultry products on account of pricing distortions 10 Leveraging Sustainable Tourism To Support Growth And Diversification Coffee sorting for export, NUCAFE Coffee Factory, Kampala (Rachel Mabala, 2021) 11 Leveraging Sustainable Tourism To Support Growth And Diversification Table 2: Balance of payments developments FY21 to FY23 (% of GDP, unless otherwise specified) FY20/21 FY21/22 FY22/23 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Current account balance -6.5 -11.4 -7.6 -8.1 -8.8 -7.1 -8.3 -8.2 Trade in goods and -9.0 -14.0 -9.3 -10.6 -10.7 -10.1 -10.8 -10.3 services balance Exports 18.1 18.1 11.3 11.8 13.1 12.8 11.6 12.4 o/w coffee 1.5 1.5 1.8 1.9 2.0 1.9 1.7 1.6 o/w gross travel 2.6 2.8 1.7 1.9 2.5 2.6 1.6 1.8 o/w nonmonetary 5.2 5.2 0.0 0.0 0.0 0.0 1.4 0.1 gold exports Imports 27.1 32.1 20.6 22.4 23.7 22.9 22.4 22.7 o/w oil 2.1 2.5 2.0 2.7 3.0 3.2 3.5 3.1 o/w government 0.7 1.3 0.8 0.9 0.9 0.6 0.3 0.5 imports o/w nonmonetary 4.4 6.7 0.0 0.0 0.0 0.0 1.4 0.1 gold imports Primary income, net -1.9 -1.6 -1.8 -1.8 -1.9 -1.4 -1.6 -1.7 o/w public interest payments 0.7 0.2 0.4 0.3 0.6 0.2 0.5 0.5 (debit) Secondary income, net 4.4 4.2 3.5 4.3 3.8 4.3 4.0 3.8 o/w personal 2.8 2.7 2.2 2.5 2.6 2.7 2.6 2.7 transfers (credit) Capital account balance 0.4 0.2 0.5 0.4 0.3 0.3 0.2 0.5 Balance from current and -6.1 -11.2 -7.2 -7.7 -8.5 -6.8 -8.1 -7.8 capital a/c Financial account balance 7.3 11.0 10.0 4.1 8.5 3.8 2.8 5.3 Direct investment, net 2.4 2.3 2.8 2.9 2.6 2.4 3.5 3.9 Portfolio investment, net 0.0 1.7 0.3 -1.0 -0.3 -1.4 -1.8 -1.2 Other investment, net 4.9 7.1 6.9 2.2 6.1 2.8 1.2 2.6 o/w Government -0.1 4.9 1.6 5.1 0.8 1.6 -0.4 0.8 borrowing, net Disbursements 1.1 5.3 2.8 5.6 2.2 2.2 0.7 1.9 Repayments 1.2 0.4 1.2 0.5 1.4 0.5 1.0 1.1 Net errors and omissions -2.9 3.5 0.1 3.3 0.9 0.2 3.2 0.5 Overall balance 1.8 -3.3 -2.9 0.3 -0.9 2.8 2.0 1.9 Financing -1.8 3.3 2.9 -0.3 0.9 -2.8 -2.0 -1.9 Change in central bank net reserves (“+” is draw 1.8 -5.9 -2.9 0.3 -2.0 2.8 2.0 1.9 down) Use of Fund Credit 0.0 2.5 0.0 0.0 1.1 0.0 0.0 0.0 Memorandum GDP, nominal (in mil US$) 9,595.3 10,146.5 11,444.1 11,146.7 10,998.9 11,969.5 13,487.6 12,207.3 Source: Bank of Uganda and World Bank staff estimates 12 Leveraging Sustainable Tourism To Support Growth And Diversification 17. Falling shipping costs, further adjustments by firms half of FY22/23. Demand for construction-related inputs in to compensate for supply-chain disruptions, robust the oil sector remained strong, and imports of machinery, demand from the oil sector, and the real appreciation equipment, vehicles and accessories, plastics and rubber, of the shilling all bolstered imports of investment and and chemicals and related products accounted for 38 consumer goods. With international oil prices down more percent of the private-sector import bill. Non-oil mineral than 35 percent from their peak in June 2022 and shipping products, base metals, and base-metal products accounted costs steadily declining14, the oil-import bill reached US$853 for a combined 16 percent of private imports. These imports million (3.3 percent of GDP) during the first half of FY22/23. grew by 42 percent to US$830 million and would have However, oil imports were still 64 percent above the level increased by even more had the recovery in gold trade observed in the first half of FY21/22 and 19 percent above in the first quarter been sustained into the second. With the level recorded during the second half of FY21/22. government imports declining, total goods imports grew Other private-sector imports (excluding non-monetary by just 17 percent relative to the level observed during gold) increased by just 12 percent amid disruptions in the first half of FY21/22. Import growth remained strong global supply chains. On the back of increased foreign during the first two months of 2023, exceeding 2022 levels exchange inflows, the shilling appreciated over 6 percent by an average of 12 percent. in real terms, offering support to imports during the first Figure 12: Inbound and outbound travel relative Figure 13: The current-account balance by to the pre-pandemic baseline financing source Source: Bank of Uganda Source: Bank of Uganda 18. A sustained increase in FDI inflows supported GDP, from US$400 million in the second half of FY21/22 to the recovery of economic activity while other foreign US$318 million in the first half of FY22/23. Project support inflows fell. Despite disruptions in international financial continued to account for most government borrowing, markets and slow global growth, FDI continued to increase, and the decline primarily reflected challenges in project rising from US$582 million in the second half of FY21/22 execution. Anticipated budget support from the IMF to US$945 million in the first half of FY22/23—an increase under its Extended Credit Facility (ECF) program did not equal to over one percentage point of GDP. Most FDI was materialize during the first half of FY22/23. equity investment in firms, especially those involved in oil- 19. Global economic shocks have increased foreign- related activities. Meanwhile, portfolio investment outflows exchange volatility, but the Ugandan shilling has mainly doubled to US$388 million during the period, as capital appreciated since August 2022. The Ugandan shilling continued to pursue higher returns amid increasing interest appreciated by 1.5 percent against the US dollar over the rates in developed economies and frontier markets. Net first half of FY22/23, but its nominal value compared to a government borrowing fell by a full percentage point of 14 World Bank. 2023. Commodity Markets Outlook, April 2023: Lower Prices, Little Relief. Washington DC. http://hdl.handle.net/10986/39633 License: CC BY 3.0 IGO. 13 Leveraging Sustainable Tourism To Support Growth And Diversification basket of currencies of other trading partners, increased by rebuild its reserves. By the end of March 2023, foreign- 4.3 percent. The real effective exchange rate appreciated exchange reserves had increased to US$4.1 billion, or 4.5 even more strongly (by 6.3 percent) as inflation accelerated months of import coverage, up from a low of 3.7 months in among Uganda’s trading partners. The real appreciation October 2022 and well above the standard recommended of the shilling provided room for the Bank of Uganda to level of 3.5 months. 1.6 Monetary policy is normalizing as inflationary pressures subside 20. Beginning in February 2023, inflation started to and fuel dealers’ margins account for the remaining 29 decline steadily due to falling global commodity prices, percent15. The inflation rate for food crops and related items an improved domestic food supply, and the effects of remained high, reaching 29.4 percent in December 2022 tighter monetary policies, including the appreciation before declining slightly to 26.7 percent in March 2023. of the Uganda shilling. In line with the downward trend Though down from their peak in May 2022, international of international crude oil prices, the annual energy, fuel, commodity prices remained high, further intensifying and utilities inflation rate in Uganda has been declining pressure on food prices as adverse weather reduced the since August 2022 and reached 4.4 percent in March domestic food supply. Price increases began to ease in the 2023. Research has found that changes in international last quarter of 2022, and during the first quarter of 2023 crude oil prices account for 40 percent of the pump prices, inflation steadily declined, with headline inflation falling to taxation contributes 31 percent, and distribution costs 9.0 percent and core inflation to 7.6 percent. Figure 14: Contribution to Inflation (% Change) Source: UBOS 21. Price stabilization has been reinforced by higher average real lending rate, which had fallen to 7 percent in interest rates, which have increased the cost of October 2022, has rebounded to its pre-pandemic levels borrowing. The Bank of Uganda has kept the policy and exceeded 10 percent in March 2023. rate at 10 percent for four consecutive meetings of the 22. Although tighter monetary policy has played a key Monetary Policy Committee, 350 basis points above the role in controlling inflation, it has also exacerbated credit level set in June 2022. Monetary tightening, coupled with constraints—one of the most significant challenges the public sector’s substantial gross financing needs, has facing Ugandan firms. Private-sector credit is equal elevated real lending rates and reduced loan maturities. The 15 Tonny Odokonyero and Enock W.N. Bulime 2022. The Drivers of Changes in Uganda’s Fuel Pump Prices During the COVID-19 Crisis. Economic Policy Research Centre. Kampala. April 14 Leveraging Sustainable Tourism To Support Growth And Diversification to just 14.2 percent of GDP, barely one-third of the SSA the growth rate of private-sector credit had dropped to 4.6 average of 38 percent. Only 10 percent of domestic firms percent year-on-year, down from 7.1 percent in February in Uganda have a bank loan, just half the SSA average of 2022 and far below the post-pandemic high of 9.8 percent 20 percent. The pandemic has depressed the financial recorded in May 2022. Household borrowing represented sector’s performance over the last three years, and the over 65 percent of private-sector credit growth in February recovery observed during the second half of FY21/22 2023. The manufacturing sector also continued to recover was not sustained. Increased government borrowing from during the first eight months of FY22/23. Trade credit has the banking system during the first quarter of FY22/23 increased steadily, but mortgage, construction, and real compounded the impact of monetary tightening, and private- estate lending have slowed in recent months due to the sector credit growth slowed over the year. By February 2023, rising costs of raw materials. Figure 15: Decomposition of private-sector credit (% change yoy) Source: Bank of Uganda Manufacturing iron sheets at a Tian Tang Group factory, Kampala (Rachel Mabala, April 2021) 15 Leveraging Sustainable Tourism To Support Growth And Diversification 1.7 Fiscal consolidation has reduced the deficit 23. The authorities have adhered to the fiscal of the fiscal year, reflecting the reinstatement of a portion consolidation plan envisaged in the Charter of Fiscal of domestic interest payments that Parliament had initially Responsibility (CFR)16. During the first half of FY22/23, revised downwards during budget preparation as well as the overall fiscal deficit was 5.3 percent of GDP, as high- higher interest rates, which increased yields on treasury than-expected revenue and grants failed to offset higher- bills. Interest payments on domestic debt surged to 2.8 than-expected expenditures during the second quarter. A percent of GDP during the second quarter of FY22/23, combination of stronger revenue administration, including accounting for over 80 percent of total interest payments. the recovery of tax arrears, and expenditure rationalization Mounting debt-service costs could crowd out spending is expected to narrow the deficit to about 5.1 percent of on other priorities especially human capital development. GDP for the full fiscal year, down 2.3 percentage points of Moreover, the largest increase in recurrent spending was GDP from FY21/22 and in line with the target of 5.2 percent on “other programs,” particularly governance and security of GDP established under the CFR. The under-execution programs. Capital spending remained 37 percent below of development spending, which is common in Uganda, its target due to the under-execution of domestically and may also reduce expenditures. externally financed projects. Project execution continues to be hampered by incomplete preparation (including a lack 24. After a slow start, the government accelerated of detailed feasibility studies and/or implementation plans), budget execution and surpassed its target by the uncoordinated budgeting of the government’s contribution, end of the first half of FY22/23. At an estimated 17.7 poor planning for rights of way and land compensation, percent of GDP, expenditures and net lending exceeded inadequate contract management, and weaknesses in the target by 2 percentage points of GDP during the first overall project management. As the implementation of half of FY22/23. Recurrent spending increased, due in development projects accelerates during the second half part to salary enhancements for scientists and some of FY22/23, expenditures and net lending could reach security personnel, boosting expenditures on wages and 19.8 percent of GDP. salaries 18 percent above the target. Interest payments were 42 percent higher than planned during the first half Figure 16: Expenditures, H1 FY22/23 Figure 17: Revenues, H1FY22/23 18000 14000 16000 12000 14000 10000 12000 UShs Billions 8000 UShs Billions 10000 8000 6000 6000 4000 4000 2000 2000 0 Revenues and grants Grants & Projects 0 Expenditures and lending Current expenditures Other recurrent expenditures Development expenditures Target Target Source: Ministry of Finance, Planning and Economic Development, Uganda Source: Ministry of Finance, Planning and Economic Development, Uganda 16 MoFPED (2022). Charter for Fiscal Responsibility FY2021/22 to FY2025/26. https://www.finance.go.ug/sites/ default/files/Publications/Charter%20for%20Fiscal%20Responsibility%202021-2026.pdf 16 Leveraging Sustainable Tourism To Support Growth And Diversification 25. The accumulation of domestic arrears and the securities have been paid off by the Bank of Uganda but frequent use of supplementary budgets undermines not reimbursed by the Treasury. The resulting increase the credibility of the budget process and complicates in the central bank’s net credit to the government has fiscal management. During the first half of FY21/22, the increased its sovereign exposure and reduced its room government exceeded the target for clearing domestic for maneuver in case of shocks. The use of supplementary arrears by 50 percent as it ramped up efforts to provide budgets also poses a persistent challenge. During the first liquidity to the private sector, support the economic recovery, nine months of FY22/23, supplementary spending requests and implement the Domestic Arrears Strategy published to Parliament amounted to UGX 2.76 trillion, towards in 2021. However, according to the Auditor General’s presidency and support to local governments, the health, Report, total domestic arrears increased from UGX 6.65 security, and trade and industry sectors. If approved in trillion in 2021 to UGX 7.55 trillion in 2022. Traditionally, full, the supplementary budget for FY22/23 would equal most arrears have been court-ordered compensation, 5.7 percent of the approved national budget, down from utility payments, and payments for goods and services. 8.5 percent in FY21/22 but still well above the 3 percent However, over the past two years maturing government limit established by the Public Finance Management Act. Figure 18: Distribution of UGX 6.2 trillion in domestic arears by type, end-June 2022 Source: MFPED 26. Enhanced tax administration and improvements in taxes grew by almost 10 percent from the previous year, the economic environment led to a strong recovery in as rising import prices increased import duties. However, tax collection during the second quarter, which caused international taxes remained below their target level due revenues to exceed their target during the first half of to a modest shortfall in customs collections, which were FY22/23. While grants fell short of the target due to issues UGX 110 billion shy of the target of UGX 4,564 billion. with project implementation, tax revenues surged to UGX Meanwhile, intensified efforts to collect tax arrears and 11.7 billion-6 percent above the planned level-thanks to the improve compliance generated surplus nontax revenue. robust collection of income taxes. Accelerating economic As these efforts continue into the second half of the year, activity increased tax revenue, with inflation contributing tax collection will reach 12.7 percent of GDP, up 0.3 to higher nominal values. Rising wages and increased percentage points from its FY21/22 level. Overall revenues employment boosted payroll tax collection, as employment and grants will reach 14.7 percent of GDP, close to the gradually returned to pre-pandemic levels. International budgeted amount. 17 Leveraging Sustainable Tourism To Support Growth And Diversification Table 3: Fiscal developments, FY20/21 to FY22/23 (% of GDP) FY21 FY22 FY23       Actuals Actuals estimate       Q1 Q2 FY Total revenue and grants 14.3 14.1 11.8 14.8 14.7 Revenue    13.4 13.4 11.0 14.1 13.5   Tax   12.4 12.6 10.1 13.1 12.7   Non-tax  1.0 0.9 1.0 1.0 0.9 Grants   0.9 0.7 0.7 0.7 1.2 Expenditures and net lending 23.7 21.5 14.5 21.2 19.8  Current expenditures 12.2 13.1 9.7 14.6 12.4   Wages and salaries 3.5 3.5 3.3 3.9 3.7   Interest payments 2.7 3.1 3.0 3.2 3.3   domestic 2.1   2.2 2.8 2.6   foreign 0.7   0.8 0.4 0.6   Other current 6.1 6.6 3.5 7.6 0.0   Development expenditures 10.2 7.9 3.7 6.1 6.8   External 3.7 2.9 1.3 4.2 6.8   Domestic 6.5 5.0 2.5 1.9 3.7   Net lending and investment 0.7 0.2 0.1 0.0 0.1   Hydropower projects 0.1 0.2 0.1 0.0 0.1   Recapitalization BoU 0.3 0.0 0.0 0.0 0.0   Other spending 0.6 0.4 1.0 0.4 0.5   Clearance of domestic arrears 0.5 0.4 1.0 0.4 0.0               0.0 Primary balance   -6.7 -4.4 0.3 -3.2 -1.9 Overall Balance   -9.4 -7.4 -2.7 -6.4 -5.1 Financing    9.4 7.4 2.7 6.4 5.1 External financing (net) 4.3 3.0 -0.1 0.1 3.7   disbursements 5.0 3.8 1.3 1.1 5.0     projects 2.8 2.5 1.3 1.1 2.1     budget support 2.2 1.3 0.0 0.0 2.9   repayments  0.6 1.1 1.4 1.0 1.3 Domestic financing (net) 4.6 3.4 1.8 6.1 1.4   banks (net) 1.7 1.9 0.1 5.9 0.7   non-banks (net) 2.9 1.8 1.6 0.2 0.7 Errors and omissions  0.5 1.0 1.1 0.2 0.0 Source: MFPED and World Bank Staff Estimates 18 Leveraging Sustainable Tourism To Support Growth And Diversification 27. During the first half of FY22/23, the government 49.6 percent of GDP in FY21/22 to 50.7 percent by the end relied more heavily on domestic borrowing to finance of FY22/23. This rate of increase is far lower than the 9.2 the deficit than had been planned. External financing percentage points recorded in FY20/21. The ratio of total disbursements slowed in tandem with the under-execution debt service to export revenue and grants is expected of externally funded projects. As international interest rates to rise from 42.3 percent in FY21/22 to 63 percent in rose and the government failed to to secure budget support FY22/23, with the effective interest rate (current-year (for instance, IMF ECF disbursements were rescheduled interest payments divided by the previous period debt for the second half of the year), prompted it to increase stock) expected to reach 2.7 percent in FY22/23, compared borrowing from the banking system to 5.9 percent of GDP to 2.3 percent in FY21/22. The share of commercial loans during the second quarter of FY22/23, almost double the in total borrowing has increased, due in part to rising amount for the previous year17. The government formalized EUROBOR and LIBOR rates raising the cost of servicing the arrangements for renewed IMF budget support during the share of Uganda’s debt portfolio that carries variable the second half of FY22/23, which should help reverse the interest rates. As domestic financing of the fiscal deficit trend in domestic borrowing. has increased, with net domestic borrowing exceeding 35 percent of total financing, interest payments have risen to 28. Lower fiscal deficits have stabilized and moderated about 2.7 percent of GDP. Amid tight liquidity conditions, the rate of growth of Uganda’s debt, but increased the payment of advances to the central bank was deferred non-concessional borrowing has exacerbated liquidity and debt was rolled over, and 13 percent of government pressures. The public debt stock is expected to rise from securities were issued to refinance maturing debt. Fort Portal Tourism City, with a glimpse of Tooro Kingdom Palace, Kabarole, Western Uganda (Ssenyonyi Derrick, March 2023) 17 Ministry of Finance, Planning and Economic Development, 2023, Quarterly Debt Statistical Bulletin and Public Debt Portfolio Analysis December 2022. Issue No. 31. Kampala 19 Leveraging Sustainable Tourism To Support Growth And Diversification Vegetables nurseries in Kasubi Farm, Kampala (Rachel Mabala, March 2021) 20 Leveraging Sustainable Tourism To Support Growth And Diversification ECONOMIC OUTLOOK, RISKS, AND POLICY ACTIONS 21 Leveraging Sustainable Tourism To Support Growth And Diversification 2 ECONOMIC OUTLOOK, RISKS, AND POLICY ACTIONS 2.1 Uganda’s economic outlook has greatly improved 29. Real GDP is projected to grow by about 6.2 percent and a climate-driven increase in adverse weather events. during FY23/24 and exceed 6.5 percent into the medium Overall growth is also expected to be moderated by the term as the fiscal consolidation partially offsets the fiscal consolidation efforts and the phasing out of Covid-19 positive effects of dissipating shocks. Overall, this pandemic-related public investment programs. Into the GDP growth projection is slightly above the forecast of 5.5 medium term, economic activity will be driven by private percent presented in the December 2022 edition of the investment, oil exports, and the government’s efforts to Uganda Economic Update. The upward revision reflects promote tourism, export diversification, and agro-industry, a more modest pass-through effect from high commodity causing the real GDP growth rate to return to its long-term prices to domestic inflation, an earlier-than-anticipated trend of 6.0 to 7.0 percent. easing of key international commodity prices, and the 30. The high cost of living will continue to dampen the dismissal of a lawsuit against Total Energies in March 2023 recovery in employment and real household income. that may have slowed the development of the oil sector. While high commodity prices are expected to boost returns The economy has proven resilient to recent shocks, and to cash crops, households that farm cash crops represent growth is expected to accelerate as inflationary pressures only a small share of all rural households due to the low subside and the central bank eases monetary policy. The level of commercialization in the Ugandan agricultural sustained push to commence oil production during FY24/25 sector. Accelerated growth is projected to reduce the has accelerated the construction of US$20 billion in oil- poverty rate (measured at the international poverty line of related infrastructure, and firms are close to concluding a US$2.15 per day) from 41.4 percent in 2023 to 39 percent financing arrangement to support oil production. However, by 2025. However, households have limited capacity to non-oil private investment is expected to increase more cope with shocks, and the pace of poverty reduction will modestly amid a difficult economic environment marked ultimately depend on food access and affordability, weather by volatile commodity prices, disruptions to global supply patterns, and macroeconomic stability. chains, tighter global financial markets, policy uncertainty, Table 4: Baseline economic outlook (annual % change unless otherwise indicated) FY22 FY23f FY24f FY25f Real GDP growth (baseline) 4.7 5.7 6.2 6.7 Private consumption 3.4 5.0 5.3 5.6 Government consumption -17.4 -0.6 2.2 2.5 Gross fixed capital investment 20.1 9.1 8.0 8.3 Exports of goods and services -18.6 18.0 16.7 15.3 Imports of goods and services -8.9 14.4 11.7 10.6 Agriculture growth 4.4 4.2 4.0 4.3 Industry growth 5.4 6.3 7.9 8.1 Services growth 4.4 6.1 6.3 7.0 Inflation (Consumer Price Index) 3.4 8.3 7.2 5.0 Current account (% GDP) -7.9 -9.0 -10.6 -12.2 Net FDI inflow (% GDP) 3.1 5.2 6.3 6.6 Fiscal balance (% GDP) -7.4 -5.1 -3.5 -3.4 Public debt (% GDP) 55.7 50.7 49.1 48.0 Sources: UBOS, MoFPED, BoU, and World Bank staff estimates 22 Leveraging Sustainable Tourism To Support Growth And Diversification 31. The current account is projected to deteriorate target, has reversed its trend since November 2022 and is further as oil-sector investments continue to boost expected to close the fiscal year at 5–7 percent. Coping import demand. Slowing global economic activity could with uncertain global developments, unstable commodity hinder the growth of commodity exports, including coffee, prices, and climate shocks will require maintaining a maize, and tea, which had recently gained momentum. delicate policy balance that supports economic activity Solid growth could be sustained into the medium term if without giving rise to new inflationary pressures. Until the regional demand increases as consumers start substituting Bank of Uganda has clearly signaled an easing stance into high-value products from Uganda. Meanwhile, the and commercial bank liquidity conditions have improved, outlook for tourism exports over the next three to five years real interest rates will continue to rise, while the pandemic’s has significantly improved. Industry analysts project that lingering effects on private-sector finances and a risk- global tourism could return to pre-pandemic levels by averse banking system will continue to suppress aggregate 2024, following a stronger-than-anticipated rebound in demand. The economic recovery remains fragile, and 2022. Nevertheless, as global supply chains normalize the output gap is likely to expand over the next two years and transportation costs ease, lukewarm export growth before narrowing. is expected to be accompanied by accelerating imports 33. Fiscal consolidation measures should reduce the to support investments in oil production. Remittances are deficit to about 3.5 percent of GDP in FY23/24 and expected to grow moderately as global growth slows in enable the government to achieve the CFR target by FY23/24 but should recover into the medium term as labor FY25/26. The accelerated implementation of the Domestic markets in source countries strengthen. FDI is expected to Revenue Mobilization Strategy (2019/20 - 2023/24)— exceed 3 percent of GDP in FY23/24 and FY24/25, which especially its reforms to tax expenditures, value-added will ease the financing needs and minimize government tax, and tax administration—should raise revenue by the borrowing while bolstering foreign-exchange reserves. target amount of 0.5 percentage points of GDP each year Non-concessional financing is likely to be limited, as into the medium term. A steep reduction in expenditures the authorities aim to maximize the use of concessional of about 1.5 percentage points of GDP per year over the financing to limit the growth of the debt stock. next two years will reduce the fiscal deficit to about 3.5 32. As the inflation outlook improves, the Bank of Uganda percent of GDP in FY23/24. This consolidation effort aims is expected to gradually ease monetary policy to support to limit the size of the debt stock to about 50 percent of the economic recovery. Core inflation, while still above its GDP, consistent with the CFR target. Figure 19: Allocation of the FY23/24 budget 0% 5% 10%1 5% 20% 25% 30% 35% 40% FY 2023/24 FY 2023/23 Source: Parliament of Uganda (Budget Committee Report on the FY23/24 Budget Estimates) 23 Leveraging Sustainable Tourism To Support Growth And Diversification 34. While a significant portion of the fiscal consolidation reduction reaching 17 percent in domestic development is expected to focus on the revenue side, expenditure budget for FY23/24 could have negative effects on the cuts could adversely impact human capital formation overall execution of the capital budget, given previous issues and the implementation of development projects. with inadequate counterpart funding and long-standing According to the approved National Budget for FY23/24, weaknesses in public investment management. Although while investments in human capital still account for the most externally financed projects are fully funded and should second largest share of the budget (18.1 percent), nominal not be subject to cuts, various ministries, departments, spending has stagnated over the years. This is weakening and agencies infringe on their fiscal space due to lack of public service delivery, especially given the country’s high clear guidelines for the treatment of such funds. population growth rate. From a functional perspective, the 2.2 Multiple risks threaten the outlook 35. The medium-term outlook is subject to considerable 36. Under a downside scenario, economic growth could uncertainty, with risks skewed to the downside. A slow to about 5 percent in FY23/24 and 5.5 percent in deteriorating geopolitical situation, a recession in the FY24/25. This scenario assumes that anemic global growth United States, the fragmentation of the international trading reduces demand for Uganda’s exports, commodity prices system, and/or a renewed increase in commodity prices fall, and depreciation pressures increase. If these factors could further slow global economic activity. Stubbornly influence domestic inflation, the Bank of Uganda may need high inflation in advanced economies could necessitate to adopt a more aggressive monetary stance, which could tighter monetary policies, causing additional capital impact the pace of the recovery. Slowing growth could also outflows from developing countries. Potential instability undermine the planned fiscal consolidation by reducing in the global financial sector also poses significant risks. revenues and intensifying expenditure pressures. An Sluggish global growth could also widen the trade deficit uncertain external outlook and the increased frequency of and depress remittances, tourism, and FDI, including climate-induced natural disasters aggravate these risks. FDI in the oil sector. External factors that force Uganda 37. Uganda is at moderate risk of debt distress, but to resume tight domestic monetary policies could slow additional shocks could worsen the debt profile. the recovery of firms and household income. Tighter According to the May 2023 Joint World Bank-IMF Debt monetary policy could cause a sharper deterioration in Sustainability Analysis, Uganda continues to have a medium the asset quality of the banking sector, increasing costs level of debt-carrying capacity. A scenario analysis indicates and further limiting the private sector’s access to finance. a one-off breach of the external-debt-service-to-export ratio There may also be repercussions to the economy following in FY22/23 under the baseline, but all external public and the passing of AHA law in June 2023, including through publicly guaranteed (PPG) debt and the total public debt slower recovery of tourism, slower foreign investment stock remain below their respective indicative thresholds inflows, and a reduction in external concessional financing over the medium term. Stress tests show potential breaches (see Box 2) . In particular, tourism remains highly sensitive of the external-debt threshold and the total public debt to shocks, including disease outbreaks like “ebola, travel benchmark. Specifically, as a medium-intensity shock could bans on Uganda imposed by major source countries, lead to a breach for the external debt-service indicators, and even domestic developments like the passing of the Uganda’s space to absorb shocks is limited, and its risk AHA law and terrorist attacks. The increasing frequency of external debt distress is assessed as moderate. Key of droughts and floods heightens the vulnerability of risks to the debt outlook include environmental shocks, Ugandan firms, farms, and households. A large share of a further tightening of global financial conditions, the the population depends on the agriculture sector for their uneven implementation of planned reforms, and delayed primary livelihood, and they have a limited capacity to oil exports. The most extreme shock to public debt service cope with natural disasters and climate change. A rise in would be a realization of contingent liabilities, which could extreme weather events could reduce agricultural yields, push the debt-service-to-revenue ratio to 65 percent. A diminish export earnings, heighten food insecurity, and sharp decline in exports would pose the greatest risk to increase poverty. external debt sustainability. 24 Leveraging Sustainable Tourism To Support Growth And Diversification 2.3 Policy recommendations 38. The government must execute a well-managed fiscal reducing the persistent structural external current- adjustment that does not disrupt budget execution, account deficit. Imports will continue to grow rapidly in require additional domestic deficit financing, or the short-to-medium term, but macroeconomic policy must otherwise hinder the recovery of the private sector. In avoid exchange-rate misalignments, especially as capital addition to raising revenue and rationalizing expenditures, flows into the oil sector intensify. In addition, investment especially recurrent spending, the capital budget needs is necessary to lower costs, increase productivity, and to work more efficiently by deepening reforms in public support export growth. Export promotion efforts must investment management, especially ensuring that projects extend beyond traditional commodities and aggressively have sufficient resources. Moreover, the fiscal strategy promote services export. As the second part of this report should create and protect fiscal space for human capital demonstrates, the tourism sector will play a key role in development. The government must also avoid domestic export diversification. deficit financing, which would increase the financial 41. As macroeconomic and climate shocks are likely to system’s exposure to macro-fiscal risks, and refrain from become more frequent and intense, policymakers will accumulating domestic arrears. Instead, policymakers need to implement well-targeted interventions to support should focus on rationalizing expenditures and accessing vulnerable households. The government must accelerate additional sources of concessional financing. efforts to establish a national social registry that will enable 39. The authorities must maintain a delicate balance it to respond quickly and reach vulnerable households that between anchoring inflationary expectations and are not already enrolled in social assistance programs. supporting growth. Monetary policy should be closely Strengthening and expanding the digital payment systems coordinated with fiscal policy to enable a less disruptive will allow for more efficient and transparent distribution of adjustment of inflationary expectations and support private- support to shock-affected households. The government sector growth. Increased net lending to the government must also develop a disaster-risk financing strategy that through advances from the central bank and/or non-payment ensures adequate resources are available to support of matured securities would narrow the fiscal space to response efforts, which may include labor-intensive public respond to shocks. works and direct assistance to prevent recourse to negative coping strategies such as reducing food intake, selling 40. The government should adopt a combination of productive assets, or pulling children out of school. Over macroeconomic and structural policies designed to the longer term, these interventions can help households raise productivity and diversify the economy while increase income, build assets, and develop resilience. Harvest from the ponds of shallow Katwe Lake Salt. West Uganda (Senyonyi Derrick, March 2023) 25 Leveraging Sustainable Tourism To Support Growth And Diversification Box 2. Potential channels of economic impacts of the Ant-Homosexuality Act, 2023 The Anti-Homosexuality Act (AHA), 2023, is an Act of the Parliament of Uganda that restricts activities of the Lesbian, Gay, Bisexual, Transgender, Queer, & Intersex (LGBTQI+) community in Uganda by introducing penalties including death and life imprisonment for certain types of homosexual acts. The AHA, enacted in May 2023, has been condemned by several international organizations, western countries, and local and international non-governmental organizations for its violation of human rights. While it is too early to estimate the full magnitude of impacts, this note highlights what could be possible channels of the economic effects on account of this law. a. Balance of payments channel - Tourism which was later nullified by court. The decline will likely have adverse effects on private investment and translate Tourism is an important source of foreign exchange and into significant job losses in the tourism sector. employment for Uganda. The tourism sector contributed UGX 5.1 trillion (3.64 percent of GDP)1/, with inbound b. Balance of payments channel - foreign direct investment tourism expenditure2/ amounting to UGX 4.6 trillion (3.3 inflows percent of GDP) in 20193/. In FY2016/17, the Tourism After a decline due to COVID-19, foreign direct investments sector directly employed 1.56 million people which was (FDI) inflows into Uganda increased by more than 30 14.7 percent of total employment in Uganda. percent, to US$ 1.1 billion in 2021, pushing the stock Uganda received about 182,000 Tourists from the to US$ 16.6 billion 4/. Western countries contribute a Americas (Unites States, Canada and Mexico) and significant amount of these flows. It is estimated that in Europe in 2017, however, the number declined to 2018, Netherlands, Australia, UK, Switzerland, France, 32,000 in 2020 due to Covid-19 pandemic. The in- and USA accounted for two-thirds (US$7billion) of the total bound tourism expenditure by American and European FDI stock (Box Figure 2.2)5/. The advisories from these tourist is estimated to have been UGX 660.1 billion governments to their citizens against travel or investing (US $ 177.7 million) 2019. The tourist numbers were in Uganda, may adversely affect these flows. recovering post-pandemic; however, these may decline as several western countries have advised their citizens Further shocks to FDI will weaken Uganda’s external not to travel to Uganda on account of threats raised by position, which remains fragile due mainly to global financial the AHA. A similar repercussion was observed in 2014, conditions. A reduction in FDI would require turning to when Uganda enacted a similar piece of legislation, more borrowing to finance the current account deficit. Figure 2.1: Inbound tourism to Uganda by Figure 2.2: Top 10 Foreign direct investment source country source countries Source: UBOS Source: UBOS, BoU & UIA (2020) 1/ UBOS (2021), Uganda Tourism Satellite Account 2023 2/ Expenditure of non-resident visitors within the economy of reference 3/ Engagement in production and provision of goods and services acquired by visitors and produced either by establishments in the tourism and hospitality industry or other industries in the economy that cannot be directly observed 4/ UNCTAD (2022), World Investment Report 2022. International Tax Reforms and Sustainable Investment 5/ UBOS, BOU, UIA (2020), Private Sector Investment Survey 2019 Report 26 Leveraging Sustainable Tourism To Support Growth And Diversification c. Fiscal channel – grants and foreign financing 2.3). More than US$3.1 billion of Official Development Assistance (ODA) came into Uganda in 2020 (Box Figure External development partners (DPs) finance a significant 2.4), equivalent to over 6 percent of Uganda’s Gross amount of Uganda development needs, both on-budget National Income, and more than twice as much as the and off-budget support. The on-budget support was about value of remittances from Ugandans living abroad6/. 18 percent of national budget in FY22/23 (Box Figure Figure 2.3: Source of Funding of Uganda’s Figure 2.4: ODA (DAC & Multilateral) flows to National Budget Uganda (2020 Constants prices) Source: OECD Source: MoFPED The OECD reports that more than 60 percent of ODA to Should some of these ODA resources to Uganda decline, Uganda, worth over US$1.6 billion in 2020, was channeled especially through public sector, the fiscal deficit may widen through the Ugandan public sector. Majority of the ODA went beyond the projected 3.4 percent of GDP FY23/24, and hence to support population policies and reproductive health, health, curtail the fiscal consolidation effort. The financing gap may humanitarian aid, economic infrastructure and services, and have to be closed through government borrowing (especially production sectors (Box Figure 5). domestically), and elevate debt vulnerabilities, and further crowd out private sector borrowing. Apart from the multilaterals, the biggest providers of ODA to Uganda are Unites States and Europe (UK, France, Sweden, If the government is to adhere to the fiscal consolidation plan, Denmark, Norway, Austria, Belgium, among others) are estimated it would have to drastically reduce spending, with possible to have provided US$ 1.22 billion in 2020 [Box Figure 6]. This stronger squeeze on economic growth and recovery. Moreover, accounted for nearly 40 percent of total ODA to Uganda. the potential reduction in spending for sectors like health, where Several of these countries ODA to Uganda is provided through 40 percent of the total current expenditure is donor-funded, multilateral organizations. will have major adverse effects on many programs especially on HIV/AIDS. Figure 5: ODA flows by Sector Figure 6: ODA flows by Source Source: OECD 6/ Personal remittances received were worth $1.38 billion from 2018-2019. 27 Leveraging Sustainable Tourism To Support Growth And Diversification Young elephant grazing in the savannah highlands of Kidepo Valley National Park (Senyonyi Derrick, March 2023) 28 Leveraging Sustainable Tourism To Support Growth And Diversification 2 Part TOURISM IN UGANDA: FORGING A PATH TO JOB CREATION AND ECONOMIC TRANSFORMATION 29 Leveraging Sustainable Tourism To Support Growth And Diversification 3 LEVERAGING TOURISM TO SPUR JOBS, GROWTH AND DIVERSIFICATION 3.1 Uganda’s untapped tourism potential 42. Uganda is one of the most biodiverse countries in destinations for cultural resources and business tourism, Sub-Saharan Africa and a vibrant cultural center. The highlighting the potential for the country’s tourism sector to country is home to 54 percent of the world’s mountain gorilla enhance its contributions to the economy and job creation18. population, which resides within the Bwindi Impenetrable 43. Tourism’s contribution to Uganda’s GDP fluctuated Forest National Park and Mgahinga Gorilla National between 2014 and 2019 but remained persistently Park, both offering unique wildlife experiences. Bwindi smaller than those of its regional peers and highly Impenetrable Forest is also recognized as a UNESCO sensitive to shocks. In 2019, Uganda’s tourism sector heritage site. Another unique attraction is the Semuliki contributed 5.9 percent to GDP, well below the peak National Park, which has the region’s only hot springs that of 8.4 percent recorded in 2016. As in many other reach boiling temperatures. Uganda’s other national parks countries, the COVID-19 pandemic severely affected are home to lions, elephants, leopards, and buffalos, and the tourism sector, and its share of GDP plunged to the country boasts the largest number of bird species on 2.7 percent in 2020 before partially recovering to 4.2 the continent. In addition to its natural beauty, Uganda percent in 2021. Recovery into 2022 was also set back has a thriving cultural landscape that includes a rich by the “Ebola” outbreak in September 2022 and could diversity of local cuisine, opportunities for agrotourism in potentially be negatively affected by Uganda’s passing coffee and tea estates, international events such as the of the anti-homosexuality act in June 2023. Despite Kampala Art Biennale, and sports competitions. The Nyege possessing many similar tourist attractions, Uganda’s tourism sector lags regional leaders Tanzania and Nyege festival at Itanda Falls, for example, has become Rwanda (Figure 20). To realize its potential, Uganda a global attraction for electronic music enthusiasts. The will need to focus on enhancing its tourism offerings 2019 World Economic Forum Report on Travel and Tourism and implementing strategies to match the success of Competitiveness ranked Uganda among the top five SSA neighboring countries. Figure 20: Tourism’s Contribution to GDP (2014 to 2021) 0.12 0.1 0.08 0.06 0.04 0.02 0 2014 2015 2016 20172 0182 019 2020 2021 Uganda South Africa Kenya Rwanda Tanzania Source: World Bank Tourist horse-riding amidst zebra’s in Lake Mburo National Park. 18 Uganda was not included in the 2022 report. See : https://www3.weforum.org/docs/WEF_TTCR_2019.pdf?_gl=1*g8if2s*_ up*MQ..&gclid=EAIaIQobChMImfLh69G3_gIVRCqzAB27qQZ2EAAYASAAEgJM8fD_BwE 30 Leveraging Sustainable Tourism To Support Growth And Diversification A baby gorilla under mum’s cuddle at home within Bwindi Impenetrable Forest, South Western Uganda. (Ssenyonyi Derrick, March 2023) 31 Leveraging Sustainable Tourism To Support Growth And Diversification 44. In the World Economic Forum’s 2019 Travel and Uganda enjoys an important price advantage, it is far from Tourism Competitiveness Index, Uganda ranked 112th realizing the full potential of its tourism sector. In particular, out of 140 countries worldwide and 12th in continental cultural resources and business travel, infrastructure (air Africa 19. Uganda performed best on the subindex for and ground transport and tourism service infrastructure), nature-based tourism, ranking 58th worldwide. However, and health and hygiene (Figure 21). With a ranking at Uganda faces strong regional competition on this front and 124th on the tourism service infrastructure and 113th on is still lagging regional peers such as Tanzania, Kenya, road infrastructure, Uganda remains behind Kenya’s 103rd Democratic Republic of Congo, and South Africa. While and 69th positions, respectively. Figure 21: Uganda’s profile in World Economic Forum Travel and Tourism Competitiveness Report 2019 Internation openness Price competitveness 3.0 82nd 5.7 39th Prioritization of Travel & Tourism Environmental sustainability 4.3 4.2 93rd 83rd ICT readiness Air transport infrastructure 3.0 124th 127th 1.7 Human resources Ground & port & labour market infrastructure 2.5 4.1 98th 113rd Tourist service Health & hygiene infrastructure 2.5 2.3 136th 124th Safety & Natural security resources 4.7 3.7 116th 38th Cultural Business resources & environment business travel 4.2 1.5 95th 81st 7 6 5 4 3 2 1 Score 1-7 (best) 1 2 3 4 5 6 7 Source: World Economic Forum 2019 Report 45. Though it underperforms at a global level, Uganda’s receipts soared to US$1.5 billion in 2018 before dipping tourism sector has been a significant-albeit volatile- to US$1.4 billion in 2019. Personal travel accounted for source of service exports. Personal travel, which about US$800 million of the total, making it Uganda’s includes tourism, grew rapidly until 2012, but its output leading source of foreign exchange (Figure 23). Revenues has since become highly variable due to global and plummeted due to the COVID-19 pandemic but have domestic shocks. Moreover, other service exports have since been recovering. Developing the travel and tourism outpaced the growth of personal travel in recent years, sector can support Uganda’s economic recovery while and while it still accounts for the largest share of service bolstering its resilience by diversifying exports beyond exports, its relative importance has decreased (Figure commodities. 22). According to data from the Bank of Uganda, travel 19 The Travel and Tourism Competitiveness Index measures performance on various factors that enable the development of tourism. This assessment is based on the 2019 report, as Uganda was not included in the 2021 index, which has been revised to capture sustainability and resilience in the travel and tourism sector. https://www3.weforum.org/docs/WEF_TTCR_2019.pdf 32 Leveraging Sustainable Tourism To Support Growth And Diversification Figure 22: Travel-service exports and total Figure 23: Categories of services exports, service exports, 2001-2022 2018 (US$) 90% 2500 80% 70% 2000 60% US$ (millions) 1500 % share 50% 40% 1000 30% 20% 500 10% 0% 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Services inflows Travel inflows Travel in services share Source: Bank of Uganda, Balance of Payments Source: Observatory of Economic Complexity20 46. The steady increase in tourist arrivals in Uganda as tourism are crucial to generate adequate employment has created numerous employment opportunities for opportunities. However, the extent of employment spillovers the country’s rapidly growing labor force. International from Uganda’s tourism sector is not yet clear though these arrivals steadily rose before COVID-19 , reaching 1.5 million are usually seen in increased demand for agribusiness in 2019 (Figure 24). It’s estimated that more than 670,000 products, personal services, retail and construction, and workers were employed in the tourism sector, or about 7.4 further research will be required to quantify the scale of percent of the labor force in 201921 (some estimates by indirect job creation. Such research could also help identify the Uganda Bureau of Statistics put this proportion at 14.7 areas of the tourism value chain where labor demand is percent with more than 1.5 million Ugandans employed likely to increase. In addition, the tourism sector typically in tourism). As hundreds of thousands of people enter has lower barriers to entry and offers a wide range of Uganda’s labor force each year, labor-intensive sectors such opportunities for self-employment and entrepreneurship. Figure 24: Non-resident tourist arrivals in East Africa, 2017-2021 2,500,000 Kenya 2,000,000 Tanzania Rwanda Number of arrivals 1,500,000 Uganda 1026942 1,000,000 870465 510833 500,000 512945 0 2017 2018 2019 2020 2021 Source: UN World Tourism Organization Data 20 https://oec.world/en/profile/country/uga/#trade-services 21 World Bank calculations based on the 2021 UBOS Labor Force Survey (https://www.ubos.org/wp-content/uploads/publications/11_2022NLFS_2021_main_ report.pdf) and the WTTC’s Uganda Profile 2022 (https://wttc.org/research/economic-impact) 33 Leveraging Sustainable Tourism To Support Growth And Diversification 47. The number of tourists arriving in Uganda has been According to Global Data 2023, transportation accounted steadily recovering in the wake of the pandemic, albeit for the largest share of tourist spending in 2019 at 31 at a slower pace than elsewhere in the region. By 2022, percent, close to the shares in Rwanda (31 percent) and the number of non-resident visitors arriving in Uganda had Tanzania (30) and slightly higher than the share in Kenya reached 513,000, which is still just one-third of pre-pandemic (26 percent) 22 Other expenditure categories such as levels (Figure 24). As the sector continues to grapple with food service, entertainment, and sightseeing account for the lasting economic impact of COVID-19, it also faces a roughly the same shares, except retail purchases, where range of new shocks, including global financial instability, Kenya has a larger share than its neighbors (Figure 25). mounting inflation, Russia’s ongoing war in Ukraine, and Given that earnings from tourism are a function both of the escalating effects of climate change, all of which affect total tourist numbers and average spending per tourist, global demand, disposable income, and ability to travel. a strategy for raising tourism revenues must focus not only on increasing the number of tourism arrivals but also 48. The spending patterns of tourists visiting Uganda are extending the average duration of their stay and expanding not significantly different from those of its neighbors. the variety of activities and products on offer. Figure 25: Inbound tourist spending by subsector, Uganda and competitors, 2019 100% 80% 60% Retail Other sectors 40% Foodservice Entertainment & Sightseeing 20% 0% KenyaR wandaT anzaniaU ganda Source: (Global Data, 2023) 49. Uganda’s tourism sector holds significant potential to support job creation, foreign-exchange earnings, and economic growth. Despite the sector’s sensitivity to external shocks, it can support more inclusive growth and diversification by enabling Uganda to capitalize on its vast As hundreds of thousands of resources, following the example of other successful tourism people enter Uganda’s labor destinations (Box 3). New data on consumer perceptions force each year, labor-intensive highlights potential areas for product diversification, but sectors such as tourism are a more supportive enabling environment and efforts to crucial to generate adequate promote market development will be necessary for the private sector to fully exploit the opportunities offered by employment opportunities. the sector. A comparison with peer countries underscores the importance of developing a differentiated brand for the Ugandan tourism sector. 22 Global Data source 34 Leveraging Sustainable Tourism To Support Growth And Diversification The stunning Aruu falls. Pader, Northern Uganda, a must-see destination for any nature lover. (Senyonyi Derrick, March 2023) Box 3: Why is Tourism Important for Economic Growth? In 2019, there were an estimate 1.5 billion international in SSA were 37 percent below their 2019 level (UNWTO). tourists worldwide, and the global tourism sector employed A well-functioning tourism sector generates broad-based more than 300 million people. In addition to the direct economic benefits. Tourist demand for food and beverages, jobs created in the sector, each tourism job indirectly hospitality services, transportation, infrastructure, generates an estimated 1.5 additional jobs on average entertainment, and unique local products and services (ILO 2013). Community-based tourism provides livelihoods creates job opportunities for skilled and unskilled labor, and employment opportunities in rural areas, offering a enabling the growth of businesses in a range of sectors. key pathway for inclusive economic development. A 2019 Importantly, tourism itself is a labor-intensive sector estimate by the World Economic Forum suggests that the with limited scope for automation. A study in Romania growth in tourism exports (4 percent) exceeded the growth (Badulescu et al. 2019) found that increased international in merchandise exports (3 percent). tourism receipts drove an increase in GDP and vice versa, The COVID-19 pandemic was a major shock to the global while another study confirmed that tourism development tourism sector, as travel restrictions, health concerns, and boosted GDP across multiple countries (Mahmut et the broader economic downturn compromised its growth. al. 2015). A study in South Africa demonstrated that Following widespread vaccination efforts, the sector is international tourism earnings increased real GDP both steadily recovering, but the pace of recovery varies greatly in the short and long term (Akinboade et al. 2010), and by destination. In 2022, the total number of international an analysis of 49 countries found that a 1 percentage- tourists exceeded 900 million, or about 63 percent of the point increase in tourism spending led to a 4.5 percent 2019 level. In line with the global average, tourist numbers increase in GDP per capita (Seghir et al. 2015). 35 Leveraging Sustainable Tourism To Support Growth And Diversification 3.2 The challenges facing tourism development in Uganda 50. This report utilizes the tourism ecosystem approach Uganda23. The four components of the ecosystem reinforce described in the World Bank’s Tourism Diagnostic one another, and their relationships offer insight into areas Toolkit to analyze the challenges facing the sector in for further investment and support (Figure 26). Figure 26: The Tourism Ecosystem in Uganda • Government strategies • Physical Infrastructure and master plans • Inc. roads, air travel • Business Environment energy and Investment • Digital Infrastructure Climate • Public-Private • Skills Development Dialogue Forum Institutional Enablers • Marketing (collaboration) and policy (infrastructure, • Security, Safety and environment human Health (Sector capital, Management) safety,) Private Sector • Product Resource (Tourism diversification Base Enterprise • Accommodation Clusters) • Firm capabilities • Access to Finance • Natural Environment • Access to Technology • Culture and Heritage • Community • Urban Areas Enterprises • Industry Associations 3.2.1 The institutional and policy environment tourism, infrastructure upgrades, product diversification, a) Strategic planning workforce training, and a strong business climate as 51. Recognizing the potential of the tourism sector, essential to the sector’s growth. However, implementing the Ugandan government has begun to place it at the actions envisaged in the strategy will require significant the center of its development planning. However, the investment, robust management, and consistent monitoring implementation of reforms and investments in the sector of outcomes. At present, no underlying framework exists to has been uneven. The National Development Plan (NDP) III ensure that the plan will be carried out. The government’s identifies tourism as a key growth sector with the potential budget for tourism development is limited and not used to increase foreign exchange earnings to US$1.86 billion efficiently. Moreover, the Budget Framework Paper for and contribute 8.5 percent to the country’s GDP24. The NDP FY23/24-FY26/27 proposes to reduce the budget even III recognizes the constraints facing the sector, including further by more than 50 percent - from UGX 194 billion limited global name recognition, inadequate infrastructure, (US$52 million) to UGX 89.3 billion (US$24 million), which underdeveloped product offerings, the lack of a well-trained would greatly undermine efforts to achieve the NDP III’s tourism workforce, and a weak institutional environment. goals for the tourism sector.25 It emphasizes the importance of focusing on domestic 23 https://openknowledge.worldbank.org/entities/publication/f16e9b57-dc1b-550e-ae13-b3210d591c56 24 NDP III (http://www.npa.go.ug/wp-content/uploads/2020/08/NDPIII-Finale_Compressed.pdf) 25 Https://www.finance.go.ug/sites/default/files/Publications/Final%20National%20Budget%20Framework%20Paper%20FY%202023-24.pdf 36 Leveraging Sustainable Tourism To Support Growth And Diversification 52. Multiple public sector institutions are operating in 53. The policy and regulatory environment for Uganda’s or aligned with the tourism sector in Uganda, some tourism sector consists of multiple laws, policies, and a of which have overlapping mandates. The Ministry masterplan. Many of these documents must be updated to of Tourism, Wildlife and Antiquities (MoTWA) leads the align them with evolving industry dynamics and to eliminate development of the tourism sector. MoTWA’s mandate is administrative redundancy. The National Tourism Policy, to formulate and implement policies, strategies, plans, and developed in 2015, emphasizes infrastructure investments, programs that promote tourism, wildlife, and cultural heritage skills development, marketing, and product diversification. conservation26. Several institutions support MoTWA in However, in a context of shrinking budgets, these focus achieving its mission. These include: (i) the Uganda Tourism areas must be evaluated and reprioritized. In addition to Board (UTB), which promotes tourism through market the National Tourism Policy, there are several other key research, product development, investment promotion, documents, including the Tourism Act (2008), the Wildlife and quality assurance; (ii) the Uganda Wildlife Authority Policy (2014), the Wildlife Act (2019), the Museums and (UWA): this institution focuses on wildlife management Monuments Policy (2015), and the Tourism Master Plan and conservation; (iii) the Uganda Hotel and Tourism (2014). The Tourism Act and Tourism Master Plan are Training Institute, which is primarily concerned with skills currently under review, but despite the enormous impact development in the tourism sector; (iv) the Uganda Wildlife of COVID-19 on the sector, no further reviews of these Education Center, which runs a conservation-focused zoo policies and plans have been conducted, even though in Entebbe; and (v) the Uganda Wildlife Research and many have been in effect for nearly a decade. Considering Training Institute, which conducts research and trains the multi-sectoral nature of tourism, other important policies wildlife professionals. In addition, MoTWA has desk officers and legislation include the Uganda National Culture Policy at the district level, and various district governments have (2019), the National Forestry and Tree Planting Act (2003), started to hire tourism officers, though these officers do not the National Forestry and Tree Planting Regulations (2016), formally report to MoTWA. The duplication of responsibilities the Water Policy (2005), the Land Act (1998) and its among the institutions involved in tourism could result in Amendments (2004 and 2010), the National Land Policy inefficiency and lack of accountability. (2013), the National Transport Master Plan (2017), the Boat ride on the Nile to watch the mighty Murchison falls, Murchison Falls National Park, Western Uganda (Ssenyonyi Derrick, March 2023) 26 https://www.tourism.go.ug/about-us 37 Leveraging Sustainable Tourism To Support Growth And Diversification The Karamajong ‘tag of war’, a cultural measure of prowess and endurance, Moroto, Uganda (Senyonyi Derrick, March 2023) Rural Electrification Strategy and Plan (2013-2022), the mechanisms makes it difficult to ascertain how efficiently National Investment Policy (2018), the Physical Planning allocated resources are being used, hindering informed Act (2010), the National Environmental Management Act decision-making, and ultimately inhibiting the sector’s (2019), the National Environment Act (2000), and the Local growth and development. Government Act (2008). Various institutions within the b) The Business Environment and Investment Climate tourism sector have also developed their own strategic plans, which sometimes include overlapping objectives 55. The complexity of the licensing and taxation regime that may lead to inefficiency. poses significant challenges for firms operating in the tourism sector. According to industry operators, as 54. The tourism sector’s institutional and policy many as 25 licenses and taxes apply to tourism firms. environment is highly fragmented, leading to For instance, an accommodations provider must obtain coordination and implementation challenges. Although separate licenses for each amenity (e.g., restaurants, the government acknowledges the need to address these swimming pools, bars, spas, etc.)27. The lack of a clear issues of insufficient coordination and overlap between framework and high bureaucratic costs, both in terms of government agencies, the steps taken to date are overly money and time, impose additional burdens on businesses. broad and lack specific, institutionalized implementation In principle, the Uganda Registration Services Bureau mechanisms. Several strategies and plans are not fully (URSB) has digitalized the registration process, but aligned with the broader sectoral policy, resulting in in practice some steps still require the submission of redundant activities, unplanned initiatives, and limited physical documentation, leading to duplicated efforts. evaluation of the efficiency and effectiveness of public The UTB mandates additional tourism-specific licenses, spending. A lack of coordination within and across relevant further complicating the regulatory environment. The ministries has led to the duplication of effort. Moreover, UTB is also responsible for conducting accommodations the capacity of agencies varies significantly, with ad inspections, but it lacks the capacity to do so. Often, this hoc appointments of board members and staff, limited task is outsourced to district tourism officers with limited funds for hiring professionals, uncertainty about annual training. This ad hoc arrangement results in inconsistent budget allocations, and weak adherence to principles of implementation and varying quality assurance, exacerbating corporate governance. The absence of effective monitoring the challenges faced by tourism businesses. 27 https://utb.go.ug/news-and-views/registration-and-licensing-tourism-facilities-and-services-uganda 38 Leveraging Sustainable Tourism To Support Growth And Diversification 56. Due to these weaknesses in the business environment, specific consumer segments, and determining how to best FDI inflows in Uganda’s tourism sector have been limited, market its tourism products. and investors have tended to focus on large hotels c) Public-Private Dialogue and Collaboration and lodges. The COVID-19 pandemic led to a 35 percent decrease in overall FDI in Uganda, and FDI in the tourism 59. Collaboration between the public and private sectors sector plunged by 70 percent between 2019 and 202028. in Uganda’s tourism industry are ad hoc, with no This sharp drop in investment resulted in a significant loss systematic mechanisms in place to ensure coordinated in export revenues and employment. action on key issues, including the development of national marketing strategies, the allocation of financing, 57. In 2022, the UWA signed concession agreements and the creation of industry standards. Among the tourism with investors to expand high-end accommodations industry’s major challenges, private-sector associations cite in certain national parks29. Previous concessions have a top-down approach to policymaking that is not aligned also been awarded for the development of a trail in the with their priorities. Meanwhile, policymakers perceive the Rwenzori mountains, but no public evaluations have private sector as disorganized. In several recent instances, been conducted to assess the adequacy and impact of a breakdown of communications and coordination has led the existing concession framework, and there are some to public disagreements between the public and private concerns among the private sector about the transparency sectors. Key tourism associations boycotted the launch of and governance of the concession award process. the national brand in 2021, citing inadequate consultation, 58. Policy uncertainty and inadequate transportation and many firms continue to avoid using the brand. The networks, utilities, and digital infrastructure are lack of public-private coordination undermines sectoral significant barriers for foreign and local investors. development and complicates the implementation of a The Uganda Investment Authority has a key role to play forward-looking tourism development strategy. There is in addressing these challenges. To boost FDI in tourism, a pressing need for improved mechanisms to underpin Uganda needs to create a curated investor experience that public-private partnerships, consultation, and coordination, showcases the country’s unique value propositions. This guiding the successful development and implementation strategy would entail identifying tourism assets, targeting of pro-growth policies in the tourism sector. The leopard remains watchful in its natural habitat, Queen Elizabeth, Western Uganda (Senyonyi Derrick, March 2023) 28 According to a World Bank analysis of Uganda’s investment climate 29 According to a World Bank analysis of Uganda’s investment climate 39 Leveraging Sustainable Tourism To Support Growth And Diversification 3.2.2 Enabling factors a) Marketing and product diversification insights into consumer trends, behaviors, and preferences. The data come directly from platforms used by tourists 60. Tourist perceptions about Uganda provide valuable who have visited or are considering visiting Uganda30. insights into demand dynamics, although the available The analysis indicates that content about Uganda remains content is limited. An in-depth analysis of user perceptions limited, highlighting the need to expand its digital profile. and user-generated data on platforms such as TripAdvisor, Twitter, Booking.com, and Hotels.com provides some initial 61. Uganda received remarkably high satisfaction rates. According to the data, Uganda’s primary source markets included the United States and the United Kingdom, which together account for over a quarter of all mentions. Box 4: Online Tourism Platform Analysis Critically, tourists who had visited Uganda 30 reported a slightly higher level of satisfaction than those who visited peer countries, particularly regarding tourism products and the local climate (Figure 27). Ongoing analysis of Using data generated from online platforms, tourists data from these platforms can be used to develop a perceptions were analyzed. The analysis covered more diversified portfolio of products and more targeted the period January-March, aiming to garner insights marketing strategies. into the historical data from 2018 onwards. The analysis covered two key specific aspects: 1. Behavioral aspect. Analyzed the interest and perceptions of the destination’s visitors: tourist Figure 27: Global Tourist Perception Index products, satisfaction, etc. This involved capturing and analyzing millions of spontaneous interactions on on-line portals as long as spontaneous travel search trends in Google. 2. Accommodation aspects: Analyzed the accommodation offer at the destination, for both hotels and holiday rentals: number of establishments, prices, satisfaction, etc. This involved analyzing global data from the main OTA’s and on-line reservation portals. The data mining was conducted by Mabrian Technologies. Global Tourist Perception Index The data collection is not exhaustive and is intended Source: Mabrian, 2023 to be utilized as part of a broader set of data points to develop a fuller picture of the sector in Uganda. Note: This index measures the overall level of visitor satisfaction with the destination. This combines the Hotel, Product, Security and Climate indices and analyses the distribution of general sentiment about the destination. 30 Marbrian Technologies, 2023. 40 Leveraging Sustainable Tourism To Support Growth And Diversification 62. The analysis of tourism platforms suggests that significant investments in marketing through destination Uganda does not prominently feature in general travel- representatives, these findings point to a need for a more related searches but is more competitive in niche-market tailored marketing strategy that focuses on differentiating searches. These specialized searches focus on activities Uganda from its regional peers by emphasizing its unique such as diving, hiking, and ecotourism (Figure 28). Despite offerings and attractions. Figure 28: Relative interest by topic Source: Mabrian, 2023 Note: Based on Google searches related to the destination – US Market 63. To maximize tourist inflows, Uganda should focus on and Netherlands are among the largest source markets nurturing domestic tourism, diversifying its offerings, for tourists. At least three of these markets—the United and regionalizing its appeal. Notably, Ugandans are the Kingdom, United States, and Germany—are highly desirable country’s largest consumer market; nationals living abroad international tourism source markets. Intense regional return home frequently, while domestic tourism became competition for the same niche of tourists underscores the increasingly common during the COVID-19 pandemic. The need for Uganda to differentiate its offerings and develop top countries of origins in Europe and North America for a unique value proposition. Additionally, there is a strategic non-Ugandan tourists visiting Uganda as featured on the opportunity to market the region as a comprehensive online platforms are the United Kingdom, the United States, tourism product, leveraging the diverse attractions and Germany, the Netherlands, and Spain (Figure 29); this also experiences offered across different countries. aligns with overall arrival numbers where US, UK, Germany Figure 29: Top origin countries according to data on social media Source: Mabrian Technologies, 2023 41 Leveraging Sustainable Tourism To Support Growth And Diversification 64. Uganda’s current marketing approach relies heavily tourists visiting Uganda from across all source markets. on traditional methods such as industry exhibitions. However, active lifestyle experiences are also gaining While these are valuable forums for showcasing the popularity. Tourists from Canada, the United States, and country’s tourism offerings, a more diversified approach is the United Kingdom show interest in emerging products necessary to enhance Uganda’s global brand recognition such as arts and culture, reflecting the growing popularity to bring in more tourists. Detailed profiles of tourists from of cultural tourism. Uganda’s diverse cultural heritage offers different source markets are not currently available. This an appealing proposition for tourists seeking immersive information would facilitate more sophisticated marketing cultural experiences. For domestic tourists, lifestyle efforts aimed at specific tourist segments. The potential of experiences take precedence over nature-based tourism, digital marketing is especially underutilized despite the lower and interest in nautical tourism is also an important category. cost associated with digital marketing versus expensive A review of regional trends from December 2022 to March destination representation firms. Digital platforms provide 2023 reveals similar patterns. Uganda ranks second to direct-to-consumer marketing channels and generate Kenya in terms of mentions of nature-based tourism and rich data on tourist behaviors, which can be utilized to arts-and-culture activities, and second to Rwanda in the refine marketing strategies; these also tend to more cost- context of lifestyle activities. However, Uganda leads in effective sources of data and there is a need to advance family activities. During the year ending in March 2023, this sophisticated analysis. interest in nautical activities grew substantially. While further research is required to identify new source markets and 65. An analysis of online tourism platforms during emerging trends, these data provide a valuable starting January–December 2022 indicates that nature-based point for strategic planning. activities continue to be the primary attraction for Figure 30: Interest in tourism products by national origins, 2022 (%) 51 51 47 48 36 34 27 26 25 21 15 13 13 11 8 9 5 66 6 Nature Arts and culture Uganda US UK South Africa Canada 66. Data from online platforms also suggest that whereas and Canada frequently mention these attractions. In the the country’s major natural attractions still receive arts-and-culture category, the Gaddafi National Mosque, the most mentions, new products and activities are Uganda Museum, and Speke Monument collectively account featured. Bwindi Impenetrable Forest, Kazinga Channel, and for 45 percent of mentions. Additionally, several beach Murchison Falls make up 46 percent of all mentions related locations, including Aero Beach and the Sesse Islands, to nature-based attractions, largely due to Uganda being are mentioned in online platforms, fueling the growth in one of the few locations globally where one can observe an emerging nautical tourism market despite Uganda’s mountain gorillas in their natural habitat. Tourists from lack of a marine coastline. primary markets like the United States, the United Kingdom, 42 Leveraging Sustainable Tourism To Support Growth And Diversification Figure 31: Most frequently mentioned nature- Figure 32: Sentiments associated based tourism products, 2018-2022 with each mention Bwindi Bwindi Impenetrable Impenetrable Forest Forest -U nites StatesState - United -U nited Kingdom Bwindi Impenetrable Forest 25 - United Kingdom -C anada - Canada Kazinga Channel 12 34 51 15 Murchison Falls 9 5 neutral Explore Sipi Falls 4 Kazinga Channel Bigodi Wetlands Sanctuary 3 Kazinga Channel -U nites States - United States -U nited Kingdom Rhino Fund Uganda ( Ziwa Rhino Sanctuary) 3 - United Kingdom - Canada Source of the Nile - Speke Monument 3 25 57 19 Ngamba Island Chimpanzee Sanctuary 3 neutral 3 others 29 Murchison Falls Murchison Falls -U nites States - United States -U nited Kingdom 05 10 15 20 25 30 35 - United Kingdom - Uganda 32 60 8 Source: Mabrian, 2023 neutral 67. Among the most frequently mentioned natural and South Africa show a strong preference for sightseeing attractions, only about one-third of mentions are expeditions. Safaris attract a lot of interest from tourists clearly positive. In online reviews, 34 percent of tourists from the United States and Canada, while hiking and express positive sentiments towards Bwindi Impenetrable camping tours are popular with visitors from the United Forest, and the shares for Kazinga Channel (25 percent) Kingdom and Canada. By contrast, sacred and religious and Murchison (32 percent) are even lower. Negative sites are more prominent attractions for domestic tourists. sentiments are highest for the Kazinga Channel, with Bwindi Boat tours are the favored option for most nautical tourists, Impenetrable Forest also receiving a large share of negative as they offer an excellent opportunity to observe various mentions. Policymakers require a better understanding species like hippos, crocodiles, buffaloes, and a variety of of what aspects of these experiences are failing to meet birds. Tourists from Canada, the United Kingdom, and the tourist expectations or driving these comments, as these domestic market show a particular interest in boat tours. reviews influence future demand. However, tourists from the United States, South Africa, and Canada appear to have a greater preference for 68.Nature-based tourism is dominated by safaris, while boat rentals, suggesting a desire for more exclusive and sightseeing tours are the main activity in the arts-and- private experiences, which aligns with their preferences culture segment. Visitors from the United States, Canada, regarding hotel accommodations. Beautiful flamingos wading the shallow waters of Lake Munyanyange in Kasese district, Uganda (Senyonyi Derrick, March 2023) 43 Leveraging Sustainable Tourism To Support Growth And Diversification Murchison Falls, a magnificent display of power and natural beauty, Murchison Falls National Park, Northwestern Uganda. (Senyonyi Derrick, March 2023). Figure 33: Most frequently mentioned Figure 34: Sentiments associated with nature-based activities, 2018-22 each mention Sightseeing Tours Points of Interest & Landmarks Sacred & Religious Sites Historic Sites Specialty Museums 01 02 03 04 05 06 07 0 Canada South Africa UK US Uganda Source: Mabrian 2023 Source: Mabrian 2023 44 Leveraging Sustainable Tourism To Support Growth And Diversification 69. The COVID-19 pandemic has led to shifts in tourist national parks, but it may also suggest a trend towards preferences, with some indications of a modest decline visiting national parks for specific activities and experiences in interest in natural environments. An analysis of market and combining these visits with other attractions. Developing sentiments before, during, and after the pandemic shows additional offerings in locations and communities around that while interest in tours and safaris has increased, interest national parks can encourage tourists to extend their stay in national parks has decreased31. This is a somewhat and increase their spending in the area. unexpected finding, as nature tours typically occur within Figure 35: Interest in nature-based tourism products (%) Source: Mabrian, 2023 70. The increasingly positive mentions of art and (Figure 376. Within the arts-and-culture segment, interest cultural attractions highlight the need for diversification in sightseeing tours has significantly increased (Figure 37). and strategic packaging of tourists’ products. Positive These findings suggest that promoting arts and cultural sentiments towards arts-and-culture products have tourism could provide a valuable avenue for diversifying increased from 45 to 57 percent, from pre to post-COVID19 Uganda’s tourism sector and enhancing its attractiveness highlighting tourists’ demand for more diverse activities to different types of tourists. Figure 36: Sentiment towards arts- Figure 37: Interest in arts-and-culture tourism, and-culture tourism, 2018-2023 2018-202332 31 Pre-covid: Jan 2018 – Feb 2020; Covid: Mar 2020 – Dec 2021; Post Covid: Jan 2022 – Feb 2023 45 Leveraging Sustainable Tourism To Support Growth And Diversification b) Physical infrastructure 21 percent, whereas air arrivals were much more common in Tanzania (59 percent) and Kenya (75 percent) (UNWTO, 71. The tourism sector relies heavily on physical 2022). From 2018 to 2022, Kenya had the highest volume of connectivity to and within destinations, and road travel air passengers, but the most recent data show that Kenya is the most common transportation mode in Uganda’s has been the least successful in recovering pre-pandemic tourism sector. According to the UNWTO, 81 percent of air-passenger levels. In November 2022, air-passenger travelers entering Uganda in 2021 used road transport, while arrivals to Rwanda were 95 percent of the same month the remaining 19 percent arrived by air. Although Uganda in 2019, followed by Tanzania (90 percent), Uganda (88 has lake borders with Kenya, Tanzania, and Democratic percent), and Kenya (82 percent) (OAG, 2023). Republic of Congo, arrivals by boat were negligible. Travel patterns to Rwanda were nearly identical, with air arrivals at Figure 38: Passenger arrivals in East Africa 250,000 200,000 150,000 Kenya Tanzania United Republic of 100,000 Uganda Rwanda 50,000 0 2018/01 2018/03 2018/05 2018/07 2018/09 2018/11 2019/01 2019/03 2019/05 2019/07 2019/09 2019/11 2020/01 2020/03 2020/05 2020/07 2020/09 2020/11 2021/01 2021/03 2021/05 2021/07 2021/09 2021/11 2022/01 2022/03 2022/05 2022/07 2022/09 2022/11 Source: OAG (2023) 72. Roads are the main mode of inland travel in Uganda, 73. Uganda appears to derive some of its price but the country’s road infrastructure is far from ideal. competitiveness from the lower cost of air transport, Although the network of paved roads rose from 8 percent as most its international tourists come from within the in 1986 to 21.1 percent (4,551 km) in 2018 and 70 percent region. A comparison of airfares shows that Uganda is of paved roads are classified as being in good condition, the least expensive destination for intra-regional travel in there are frequent . Increased cargo traffic on roads not built East Africa. While the average fare from Kenya, Tanzania, to bear the load has compromised road quality. Uganda and Rwanda to Uganda increased by approximately 25 has one of the highest per capita death rates due to road percent between 2019 and 2022, it remained the lowest fare incidents at 29 per 100,000 population compared to a option both before and after the pandemic (OAG, 2023). global average of 17 deaths per 100,000 people (World However, Uganda and Rwanda are relatively expensive Bank, 2023). The roads to Murchison Falls National Park destinations for tourists from Europe and America. The and Kidepo Valley National Park are either unpaved or in gap in airfares between destinations widened during the poor condition, requiring 4x4 vehicles and experienced pandemic, with flights to Uganda costing tourists from drivers to navigate. The Mbale-Sironko-Budadiri-Bumasifwa France, Russia, the United Kingdom, and the United Road, despite being a key economic link, is one of the States over $200 more than similar flights to Kenya or most degraded in the country. In addition, the lack of an Tanzania (OAG, 2023). efficient public transportation system connecting to tourist sites discourages potential tourists who do not own personal vehicles or find that hiring a private car is too expensive. 46 Leveraging Sustainable Tourism To Support Growth And Diversification Table 5: Average fares from regional and long-haul markets to Uganda and competitors, 2019 and 2022 Average airfare from Uganda, Average airfare from France, Russia, UK, Kenya, Tanzania, Rwanda USA 2019 2022 2019 2022 Kenya $112 $136 $367 $585 Tanzania $105 $125 $329 $523 Rwanda $104 $159 $583 $73733 Uganda $98 $122 $397 $785 Source: (OAG, 2023) 74. Uganda’s reliance on regional tourists and relatively largest number of arrivals came from the United Kingdom modest number of arrivals from long-haul countries (111,353), but these passengers had to make one or more may be due to a lack of nonstop options from distant connections en route to Uganda, as did tourists from the markets. Passengers (which includes but is not restricted United States and France (OAG, 2023). These numbers to tourists) on nonstop flights from Kenya accounted for may also be attributable to business travelers and more the largest volume of air arrivals to Uganda between 2019 in-depth analysis is needed to isolate those wo are tourists. and 2022, totaling 371,451 passengers. The second- Figure 39: Monthly air-passenger arrivals to Uganda by source market, 2019-2022 35,000 30,000 25,000 20,000 Rwanda (nonstop) 15,000 Tanzania (nonstop) 10,000 Kenya (nonstop) 5,000 0 201901 201907 2020012 020072 021012 02107 202201 202207 Source: (OAG, 2023) c) Digital Infrastructure limits the connectivity of firms and attractions in rural areas. In addition, a 12 percent levy and an 18 percent value- 75. Uganda has made significant strides in enhancing added tax on internet services have made internet usage its digital infrastructure, which is critical to the future in Uganda the most expensive among its peers. The cost of its tourism sector. Digital connectivity facilitates direct of 1 gigabyte of internet data in Uganda is US$ 1.32, far consumer engagement, improves market accessibility, higher than the rates in Rwanda (US$1.10), Kenya (US$ strengthens firm management, and promotes the 0.85), and Tanzania (US$ 0.84)35. dissemination of digital resources. The number of cellular subscriptions rose from 54 per 100 people in 2015 to 66 in 2021, while mobile-money usage soared. Mobile internet subscriptions increased by 16 percent, rising from 18.92 33 Excludes Russia, as data are not available. million in FY2019/20 to 21.92 million in FY2020/21 34. 34 NITA-U https://www.nita.go.ug/sites/default/files/2022-06/2021%20NITA-U- However, a persistent urban-rural divide in digital access Statistical%20Abstract%20Infographic.pdf 35 https://www.cable.co.uk/mobiles/worldwide-data-pricing/ 47 Leveraging Sustainable Tourism To Support Growth And Diversification 76. The presence of international platforms such as e) Security, Safety, and Health TripAdvisor and Airbnb for several years, coupled 79. Tourist perceptions of security in Uganda are with the emergence of local online travel aggregators, comparable to those of peer countries. The Perception demonstrates the growing demand for digital tourism of Security Index measures the level of security perceived platforms in Uganda. Applications like Tripesa facilitate by visitors based on tourist mentions on social media end-to-end digitalization by providing a platform that enables (Figure 40). The index is calculated using advanced natural tourism operators to create websites, integrate payments language techniques. It reveals that Uganda’s perceived (including in foreign currency), and tailor itineraries for level of security is close to that of Kenya and halfway a more personalized travel experience. However, the between the levels of Rwanda and Tanzania. uptake of these apps presents a challenge, as local firms lack proficiency in content development and digital asset management. Furthermore, digital payments, including Figure 40: Perception of Security Index international payment channels like Visa and Mastercard, are not fully integrated into emerging tourism applications. These gaps in digital financial services, coupled with their high costs, pose a significant barrier to further technological integration in the Ugandan tourism sector. d) Skills Development 77. Despite Uganda’s vast, young, and rapidly growing population, tourism firms often struggle to obtain skilled labor. In the World Economic Forum’s 2019 Travel and Tourism Competitiveness Index, Uganda ranked 122nd in terms of the availability of qualified labor for tourism. The sector demands skilled professionals in various fields, including hospitality, guiding, customer service, marketing, and conservation, but few domestic workers possess these Perception of Security Index competencies. The Uganda Hotel and Tourism Training Institute is the country’s leading public training institution in the tourism sector. Although it has received substantial support, improvements have been slow due to its limited institutional capacity. 78. In 2019, the Tourism and Hospitality Sector Skills Council renewed its effort to establish internationally acceptable standards for tourism-related skills. The skill set of tour guides was the first to be targeted, and assessment and training packages were developed. These certifications are currently being rolled out, and it will be important to monitor their impact on the supply of workforce skills in the sector. While many technical institutions now offer hospitality training, and the number of public-private training partnerships has increased, training quality is not subject to meaningful oversight. An industry-wide standard, potentially adapted from other destinations, should be adopted by both public and private sector providers. 42: Readying to board Aero link flight at Pakuba Airstrip in Murchison Falls National Park. Northwestern Uganda. (Senyonyi Derrick, March 2023) 48 Leveraging Sustainable Tourism To Support Growth And Diversification 80. Uganda managed the recent Ebola outbreak uses improved sanitary facilities, far below the levels of effectively, but the quality of country’s overall health Tanzania (29 percent) and Rwanda (54 percent). Public and sanitation services remains low. World Bank data sanitation facilities in Uganda are limited and urgently indicate that only 16 percent of Uganda’s rural population require additional investment. 3.2.3 The state of the private sector 81. While the public sector has a critical role to play, 82. The lack of systematic data collection on the private tourism development in Uganda is driven by the private sector poses an additional challenge. A Census of sector. The sector is dominated by large tour operators, Business Establishments, which could provide insight into while options for international tourists to create their own the scope of tourism enterprises in Uganda, has been in itineraries or travel independently are limited. Tourism firms development for five years but has yet to be completed. are organized into activity-specific associations based in The MoTWA and its agencies occasionally collect enterprise Kampala, which may not effectively engage with tourism data, but data collection is irregular and not nationally enterprises at the district level. Meanwhile, numerous small representative. Furthermore, little or no data are available associations lack the critical mass of stakeholders necessary on community tourism enterprises. to advocate for sector-level reforms. The Uganda Tourism Association is striving to transform itself into a federation of associations, which could enable it to coordinate and oversee sectoral activities more effectively. Table 6: Overview of tourism-sector associations Tourism Name of Association Subcategory The Association of Uganda Tour Operators (AUTO): Uganda’s leading tourism trade 1. Tour Operators association, representing the interests of the country’s leading professional tour operators. Hotels and The Uganda Hotel Owners’ Association (UHOA): a trade and lobbying organization 2. restaurants that includes almost all of the nation’s hotels, lodges, and camps. The Uganda Safari Guides Association (USAGA): a platform to advocate for safari 3. Safari guides guides as key actors in the tourism industry. The National Arts and Cultural Crafts Association of Uganda (NACCAU): a National Arts and 4. cooperative that buys products from member producers and sells them domestically Crafts and internationally at their National Arts and Crafts Village. Uganda Community Tourism Association (UCOTA): the official umbrella body that brings together and advocates for the interests of community tourism groups in Community 5. Uganda to ensure that the local tourist host communities benefit from tourism. To Enterprises date, the association includes over 70 member groups nationwide, representing 2,121 individuals, 63 percent of whom are women. The Uganda Association of Travel Agents (TUGATA): a professional association with 6. Travel Agents over 100 registered members The Association of Uganda Women in Tourism Trade (AUWOTT): an advocacy 7. Women in Tourism organization that aims to empower women working in the tourism sector. Note: This list is not exhaustive. 49 Leveraging Sustainable Tourism To Support Growth And Diversification a) Accommodation its strategic position near three national parks, the crater lakes, and significant heritage sites of the Tooro Kingdom, 83. High-quality hotels are heavily concentrated in still lacks key amenities. Fort Portal has only 2 percent of Kampala. The capital has 60 percent of Uganda’s 5-star the country’s 4-star hotels and no 5-star hotels. Similarly, hotels, as well as 64 percent of its 4-star hotels and 42 Kasese, which is the last stop for most tourists heading percent of its 3-star hotels. Meanwhile, the more numerous to the Rwenzori Mountains, remains underdeveloped, 0-, 1-, and 2-star hotels can be found throughout the country. with low-quality accommodation and hospitality products, Hotels and other accommodations are also less diverse which compels tourists to drive long distances from other outside of Kampala. For example, Fort Portal, which was towns to access activities in the mountains or their vicinity. designated Uganda’s first “Tourism City” in 2022 due to Figure 41: The hotel industry in Uganda 84. Only three of Uganda’s national parks—Bwindi and types of tourists who can be accommodated within Impenetrable Forest National Park, Murchison Falls the parks. The lack of hotels is partly due to inadequate National Park, and Queen Elizabeth National Park—have infrastructure within the parks and a dearth of attractive significant numbers of hotels rated 3-stars and above. investment opportunities for accommodation providers. The limited pool of accommodations constrains the number Figure 42: The hotel industry in Uganda’s national parks 50 Leveraging Sustainable Tourism To Support Growth And Diversification 85. In 2022, Uganda compared favorably to its German and Dutch tourists tended to favor 0-, 1-, and competitors on measures of tourist satisfaction with 2-star accommodations, while American and British tourists hotel accommodations. For 3-star and 4-star hotels, exhibited a more even distribution across categories, with satisfaction levels in Uganda surpassed those of its peers a slight inclination towards 4- and 5-star hotels. Conversely, (Figure 44) which highlights an important advantage for South African tourists displayed the greatest affinity for the country in the key source markets of UK, and US. luxury accommodations (Figure 45). Figure 43: Hotel Satisfaction by hotel category for UK and US tourists, Uganda and Comparators, Jan-Dec 2022 Figure 44: Hotel demand composition by source market, Uganda, Jan-Dec 2022 0* 1* & 2* 3* 4* 5* 58% 49% 67% 59% 61% 1% 7% 1% 4% 9% 4% 1% 5% 6% 4% 2% 1% 2% 2% 9% 13% 4% 13% 10% 8% 10% 8% 15% 11% 13% 11% 13% 6% 6% 6% b) Firm capabilities, access to finance and technology business planning, marketing, and financial management capacity, combined with a lack of market information and 86. As in other sectors of the Ugandan economy, limited access to digital platforms, constrains firm growth. firms in the tourism sector face skills gaps, financial Prospective tourists also face information constraints, constraints, inadequate access to technology, and especially regarding firms with no digital presence. Most regulatory issues. According to the IFC’s 2021 Country successful enterprises report investing in on-the-job staff Private Sector Diagnostic, the main obstacles to private- training, as much of the formal skills training in the tourism sector development in Uganda include the poor quality of sector tends to be more theoretical than applied. The public institutions, inadequate access to finance, and gaps remaining skills gap is often filled by hiring foreign workers in human capital36. Limited firm capabilities and lack of for management roles, which increases operating costs access to markets and technology can hinder innovation and reduces the tourism sector’s employment impact on and slow the growth of the tourism sector. Inadequate local employment and wages. 36 https://www.ifc.org/wps/wcm/connect/7f8d2a3b-36fc-4216-8f0a-3eacdd26731e/CPSD-Uganda. pdf?MOD=AJPERES&CVID=nY3osyr 51 Leveraging Sustainable Tourism To Support Growth And Diversification Lake Kitandara at 4,023 kilometers above see-level on the Rwenzori Mountain (Mountains of the Moon). Western Uganda (Ssenyonyi Derrick, February, 2023) 52 Leveraging Sustainable Tourism To Support Growth And Diversification Bird Nest Resort a true partnership with private sector to support tourism. Lake at Lake Bunyonyi, South West Uganda (Ssenyonyi Derrick, March 2023). 53 Leveraging Sustainable Tourism To Support Growth And Diversification 87. To meet tourists’ expectations, firms must invest widely across regions. For instance, communities near in safe vehicles, improved local infrastructure, and Bwindi National Park are very active, conducting cultural environmentally friendly technologies, but credit tours, selling handicrafts, and managing a lodge within constraints pose a serious challenge. The tourism sector the park. More recently, the Bigodi community near Kibale in Uganda is highly seasonal, which increases revenue National Park has also scaled up its engagement, offering volatility. The sector involves many small and medium tours and handicrafts to tourists. enterprises with limited collateral, which financial institutions 89. Funds allocated to community enterprises through often regard as risky borrowers. Land is the standard form the UWA’s revenue-sharing model are intended to support of collateral required by most financial institutions, but only communities and minimize human-wildlife conflict, but about 21 percent of land in Uganda is titled. Women are the system has considerable scope for improvement. especially vulnerable to credit constraints. Because of its Anecdotal evidence suggests that consultation with local unique characteristics, the tourism sector is deemed a high- communities regarding the distribution of tourism revenues risk sector by commercial banks, resulting in higher interest is inadequate. It is crucial to transparently document rates. Tourism associations will need to work closely with how revenues are shared and how the consultation and the financial sector to develop tailored lending products allocation process can be better aligned with the self- that enable the necessary investment. defined objectives of local communities. The process c) Community Enterprises for managing human-wildlife conflicts and providing restitution for damages is reportedly quite complex and 88. Community enterprises in Uganda are key stakeholders time-consuming, with long delays before funds are disbursed in the tourism sector and vital to inclusive economic growth. to the affected individuals. The level of community engagement in tourism varies Box 5: Areas for further research and analysis In developing new policy frameworks for tourist sector and • structural transformation expected as labor shifts from designing dedicated support programs, it is important to agriculture to this sector undertake deeper research and assessments targeted • structural transformation expected as full potential of specifically at key enablers identified here and tourism sector the sector is realized reforms required for the sector to regain and improve its • potential for domestic resource mobilization and lost competitiveness. If this is carried out, its important that it is revenues as sector underperforms tied directly to a reform under consideration by the government to ensure focus and operationalization of key findings. • role of the private sector (including in a more liberal air transport system) Some key areas include: • customer segmentation and emerging source markets to identify growth areas, enable targeted product development and marketing 54 Leveraging Sustainable Tourism To Support Growth And Diversification 3.3 Toward a strategy for a more vibrant tourism sector 90. Overall, while wildlife and nature will continue to recommendations below, it is essential to better understand be essential elements of Uganda’s value proposition the status of implementation of previous recommendations. for tourists, there is a strong need to diversify and One of the key enabling activities to undertake would be broaden the bundle of tourism products on offer as to understand why previous strategies, master plans and tourist segments seek more authentic experiences recommendations have not been fully implemented to and the interest levels in new product categories rises. avoid pitfalls in the future. It is here that Uganda is likely to be more competitive 91. Overall, it is essential to go beyond a high-level in the region where more advanced destinations like recognition of the potential of tourism which is Kenya and Tanzania also prioritize nature-based tourism. acknowledged across National Development Plans and The recommendations provided here are organized back up the recognition with maintaining or increasing across the tourism ecosystem, and span: institutional and funding for the sector. It is essential to maintain a policy environment (recommendations 1-7); private sector consistent (or increasing) level of funding for a sector (recommendations 2-7); human capital (recommendations 2 which has far-reaching impact across the economy on and 7); and infrastructure and connectivity (recommendations creating jobs, increasing foreign exchange earnings, 1, 2, 4, and 5). The integrated nature of the sector means and stimulating private sector activities which contribute that most recommendations address multiple areas of the to domestic resource mobilization. This is not currently ecosystem. Table 7 illustrates a proposed prioritization matrix being done as the as well highlighting areas that need urgent attention even as work on all key aspects is scaled up. In considering the Table 7: Overview of Recommendations and Prioritization Matrix Institutional Private Human Recommendation/dimension & policy Infrastructure sector capital environment 1: Develop an Integrated Policy Framework to Clarify Sectoral Roles and Responsibilities, and Increase X X the Efficiency of Government Spending 2: Establish a Public-Private Dialogue to Strengthen Collaboration on Tourism Policy Development and X X X X Implementation 3: Leverage Innovative Marketing to Highlight Uganda’s X X Diverse Tourism Products 4: Facilitate FDI and Ease Constraints on Access to X X X Finance 5: Invest in product diversification X X 6: lnvest in Human Capital in the Tourism Sector X X X Note: Red = short-term, 0 - 12 months; yellow = medium-term, 12-24 months; green = long-term 24-48 months 55 Leveraging Sustainable Tourism To Support Growth And Diversification King of the jungle’ lion and lioness keep guard of the road in Kidepo National Park, Uganda (Senyonyi Derrick, March 2023) Recommendation 1: Develop an Integrated Policy iii. Invest in robust and regular data collection focused on Framework to Clarify Sectoral Roles and Responsibilities, developing consumer profiles especially in emerging and Increase the Efficiency of Government Spending source markets reflected in online platform data. The Tourism Information Management System (TIMS) i. Establish a formal collaboration mechanism across is a key element in this process and should be all tourism agencies and departments to advance continually funded to fully utilize sector data to inform common objectives efficiently. The government policymaking. Real-time data collection would allow must review existing agencies and their mandates to for adjustments as needed. streamline operations and use government resources more effectively. iv. Establish a regular programmatic expenditure review process to track the efficiency and effectiveness ii. Strengthen links between national and local authorities, of spending. For example, considerable funds are especially district-level tourism officers. The spent to hire market-destination representatives, government could reallocate district tourism officers but it is unclear whether these representatives are to the Ministry of Tourism, Wildlife and Antiquities meeting their targets or how these targets align with (MoTWA) or introduce an innovative strategy under the challenges facing Uganda’s tourism sector and which these roles would be overseen by both the whether increasing focus on digital marketing would MoTWA and the Ministry of Trade, Industry and be more cost-effective and impactful. Cooperatives (MoTIC) through a joint committee. Successful implementation would require aligning v. Ensure that the framework for allocating resources to funding for district officers and incentives. communities is responsive to local needs and priorities. 56 Leveraging Sustainable Tourism To Support Growth And Diversification vi. Adhere to best practice principles for corporate bound (SMART) goals. governance by implementing transparent and robust ii. Establish an independent secretariat to coordinate selection criteria for board members of tourism these efforts. The secretariat should be jointly agencies and ensuring private-sector representation. funded by the government, the private sector, and Board members should be appointed based on a development partners. mix of technical and strategic criteria. Adequate Recommendation 3: Invest in Product Diversification accountability and transparency measures should be put in place to avoid conflicts of interest. In addition, The government should devise sectoral plans that a robust process for assessing board and agency extend beyond basic infrastructure investments to performance should be established and fully aligned enable the development of a wider range of tourism with sectoral policies and the National Development products, amenities and experiences. These plans Plan, with regular reports from external assessors. should be informed by a sector-specific assessment of Recommendation 2: Establish a Public-Private Dialogue to the PPPs and concessions frameworks and should aim to Strengthen Collaboration on Tourism Policy Development work in close collaboration with the private sector to ensure and Implementation market-product fit and: i. Enhance existing tourism sites: Despite being To improve the engagement between MoTWA and recognized as Uganda’s first Tourism City in 2022, the private sector, the government should establish a Fort Portal, positioned strategically near three national platform for multistakeholder collaboration. To foster parks, numerous under-the-radar crater lakes, and a robust dialogue, policymakers should: significant Tooro Kingdom heritage sites, still lacks i. Create a public-private dialogue forum on tourism crucial amenities such as a marked heritage trail or with SMART goals. This forum would provide a a public map of key attractions. With the emerging formal mechanism for holding regular discussions, interest in arts and cultural tourism by key sources taking time-bound decisions, and developing shared markets like US, UK and Canada, it is essential to reporting and accountability frameworks. Public and capitalize on this interest by developing new products private-sector stakeholders would be able to jointly to engage tourists. address issues as they arise while strengthening ii. Improve products and services in underserved transparency and accountability in the pursuit of locations: Places with great potential, like Kasese, specific, measurable, achievable, relevant and time- Fascinating natural wonder of Simpaya Female Hot Springs, Semuliki National Park, Western Uganda. (Senyonyi Derrick, March 2023) 57 Leveraging Sustainable Tourism To Support Growth And Diversification the gateway for tourists heading to the Rwenzori adopt sustainable practices by building on existing Mountains, remain underdeveloped. The lack of quality initiatives to reinforce the incentive framework for accommodation and hospitality services forces tourists sustainable investments. Skills’ development programs to travel long distances from other towns to access also need to integrate sustainability practices as core activities in and around the mountains. part of curricula. iii. Foster PPPs: The government should pursue PPPs to v. Facilitate access to finance: Develop partial credit develop tourism amenities and experiences especially guarantees and other risk-sharing mechanisms to in areas where tourist interest is emerging, which provide financial access to underserved segments of could include the creation of heritage trails, tourism the tourism sector, including those considered risky information centers, and better accommodation and by financial institutions. hospitality services. Recommendation 5: Leverage Innovative Marketing to Recommendation 4: Facilitate FDI and Ease Constraints Highlight Uganda’s Diverse Tourism Products on Access to Finance More effectively marketing Uganda’s tourist attractions To capitalize on its tourism potential, Uganda needs to will require a shift from the traditional marketing address overarching challenges in its investment climate approach, which focuses primarily on industry events. A that discourage FDI, joint ventures, and public-private more innovative approach could raise Uganda’s brand profile partnerships (PPPs). The global tourism sector is rapidly globally while taking advantage of changing consumer evolving in response to changing consumer behavior, behaviors, new technology, and emerging travel-tech new technology, green investments, and cross-border startups. The government and the private sector should mergers and acquisitions. To capitalize on these trends, work together to: policymakers should: i. Create detailed tourist profiles: Gain insights from i. Evaluate the legal framework for the tourism sector: current and emerging source markets to better tailor Review the efficacy of existing tourism concessions marketing strategies. and PPP frameworks as a first step to identify and ii. Make effective use of digital marketing: Utilize digital address gaps as part of the ongoing review of the platforms for direct-to-consumer marketing especially tourism policy and master plan. in emerging source markets, which not only provides ii. Improve the investment climate: Develop a tourism- a more direct communication channel but also offers specific strategy for fostering investment under the invaluable data on tourist behaviors. revised Tourism Master Plan. This strategy should iii. Adopt key marketing principles: Embrace data- address longstanding barriers, including access driven and digital marketing and establish a unique to finance, issues with the policy and regulatory value proposition for Uganda. Set outcome-based environment, weak land-tenure protections, and goals (e.g., increase in average tourist spend per governance challenges. day) rather than output-based goals (e.g., number iii. Prioritize green investments: Mandate that all new of media communications). Align messaging in the tourism investments incorporate adequate climate public and private sectors to position Uganda as a adaptation and mitigation measures. For example, unique, must-see destination with a depth of products investments in lodges and accommodations should and experiences to differentiate its brand. utilize at least some proportion of alternative iv. Build a global profile: Capitalize on enhanced public- energy generation (on-grid or off-grid), as well private collaboration to raise Uganda’s profile as a as environmentally friendly water and sanitation diverse destination offering a range of experiences. management techniques, and recycling systems. Draw lessons from successful international campaigns iv. Collaborate to promote sustainability: Work closely such as “Incredible India” and South Africa’s “24 with the private sector and NGOs to encourage firms Hours of Wow,” which demonstrated the importance to obtain environmental quality certifications and of robust private-sector input. 58 Leveraging Sustainable Tourism To Support Growth And Diversification v. Eliminate tax policies that discourage the use of digital development by mapping skills according to the scale technologies: Reform taxes on internet bundles, duties of demand in the market, analyzing emerging demand, on imported devices, and other tax policies that and identifying current skills gaps. Under this approach, constrain the use of digital technologies and hinder the policymakers should: growth of firms in the tourism digital space, including i. (iv) Encourage partnerships to expand access to on- the 12 percent excise tax on internet bundles, an 18 the-job training: Partnerships could be established percent value-added tax, and a 10 percent duty on between larger hotels and smaller accommodation imported devices. providers to exchange and train staff. Associations vi. Strengthen the digital presence of tourism firms: could act as intermediaries, while larger establishments Create a strong digital footprint and build a critical could send staff to regional or global training programs. mass of user-generated reviews to attract new clients. Business-management technologies can ii. (v) Evaluate previous investments in skills training: improve financial practices among small and An assessment of the costs and benefits of the skills medium enterprises, while digital technologies training offered by existing programs will help ensure allow the use of virtual tours and other innovative that resources are being effectively utilized and that the marketing tools. Dedicated capacity building will training programs are producing the desired results. be necessary, as well as more affordable access iii. (vi) Utilize digital training platforms: Digital programs to digital technologies. should be developed to expand access to training. Recommendation 6: Invest in Human Capital in the In addition to their broader reach, digital training Tourism Sector programs also tend to be more scalable and cost- Developing the necessary skills is crucial to the long- effective than traditional training. term success of the tourism sector. The government should adopt a more streamlined approach to skills’ Getting close to the majestic rhinos at their home at Ziwa Rhino Sanctuary, Uganda (Senyonyi Derrick, January, 2023) 59 Leveraging Sustainable Tourism To Support Growth And Diversification References Akinboade, Oludele A., and Lydia A. Braimoh (2010). International tourism and economic development in South Africa: A Granger causality test. International Journal of Tourism Research 12.2 : 149-163. Badulescu, Alina, et al (2020). Tourism–economic growth nexus. The case of Romania.Technological and Economic Development of Economy 26.4 : 867-884. ILO (2013). https://www.ilo.org/wcmsp5/groups/public/@ed_dialogue/@sector/documents/publication/wcms_159257. pdf Mahmut Bilen, Veli Yilanci & Hakan Eryüzlü (2015).Tourism development and economic growth: a panel Granger causality analysis in the frequency domain, Current Issues in Tourism Seghir, Guellil Mohammed, et al (2015). 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North-Eastern Uganda (Ssenyonyi Derrick, August 2022). 61 Leveraging Sustainable Tourism To Support Growth And Diversification Trekking through the snow near the top of Mountain Rwenzori (Ssenyonyi Derrick, March 2023 62 Leveraging Sustainable Tourism To Support Growth And Diversification 63 Leveraging Sustainable Tourism To Support Growth And Diversification 64 Leveraging Sustainable Tourism To Support Growth And Diversification