UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 UGANDA ECONOMIC UPDATE From Crisis to Green Resilient Growth: Investing in Sustainable Land Management and Climate Smart Agriculture 17TH EDITION | JUNE 2021 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 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 necessarily 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. 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Printed in Uganda by Artfield Graphics Ltd Additional material relating to this report can be found on the World Bank Uganda website (www.worldbank.org/uganda). UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 CONTENTS Foreword ii Acknowledgements iii Abbreviations and Acronyms iv KEY vi MESSAGES vi PART 1 - STATE OF THE ECONOMY 1 1. RECENT ECONOMIC DEVELOPMENTS 2 1.1 A global recovery is gaining momentum but remains uneven 2 1.2 Sub-Saharan Africa rebounded but faced headwinds into 2021 4 1.3 Uganda’s economy contracted sharply in 2020 but is gradually recovering 5 1.4 Inequalities and vulnerability to poverty have increased 9 1.5 Sustained liquidity support remains crucial for recovery 15 1.6 Trade and financial flows reflect Uganda’s recovery from the crisis 17 1.7 Escalating debt risks blur pro-recovery fiscal management 20 2. ECONOMIC OUTLOOK 28 2.1. A modest economic recovery expected amidst uncertainties 28 2.2. Risks remain tilted heavily to the downside 32 2.3. The downside scenario envisages slower recovery 33 2.4. Policy actions for recovery and transition to a greener, resilient, and inclusive growth 34 PART 2 - INVESTING IN GREEN AND RESILIENT PATHWAYS FOR ECONOMIC GROWTH, FOOD SECURITY 39 AND POVERTY REDUCTION 3. UGANDA’S PROSPERITY HINGES ON THE HEALTH OF ITS NATURAL CAPITAL 40 3.1. Natural resource degradation in Uganda. 40 3.2 The nexus between natural resource degradation, agriculture, poverty and climate change 42 3.3 What will it take to achieve a green transition in Uganda’s development? 45 4. STEPS HAVE BEEN MADE TOWARDS A GREEN TRANSITION, YET BARRIERS REMAIN 47 4.1 SLM-CSA innovations in Uganda have increased productivity, and incomes, but adoption is still low. 47 4.2 Why has adoption of SLM and CSA at scale been low? 52 5. STRATEGIES TO ACCELERATE ADOPTION OF INNOVATIONS FOR A GREEN TRANSITION 59 List of References 69 i UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Foreword The global crisis persists with almost every country in the world struggling to manage the devastating effects of the COVID-19 health pandemic, including its impacts on economies and livelihoods. In Uganda, which is now entering a second wave of the pandemic, the impacts have been dire following the slowdown in economic activity and fall in household incomes in 2020, when firms were closed and jobs were lost, particularly in the urban informal sector. Following the loss of these jobs and closure of small businesses, many people returned to agriculture and other natural resource dependent activities, to manage and survive the crisis. This has put additional strain on natural resources, which were already under pressure from rapid population growth, urbanization, a refugee influx, and the drive for industrialization. Increased demand for food and energy to sustain livelihoods and create income sources have added to the already high levels of unsustainable natural resource utilization. About 41 percent of Uganda’s land is now degraded, with an unsustainable rate of soil erosion and land degradation whose cost is estimated at about 17 percent of GDP. At the same time, forest cover is declining by 2.6 percent every year, which is one of the highest rates of forest loss globally. Climate risks, including slow-onset change and extreme events, have exacerbated this natural capital degradation – contributing to economic vulnerabilities and poverty – and will continue to do so in the future. The response of Ugandans to the pandemic have, therefore, heightened the urgency to enhance the sustainable use of natural resources. This includes sustainability increasing productivity and building resilience to enhance livelihoods, the economy and general well-being. Therefore, the macroeconomic recovery and stimulus packages must be combined with measures to address these environmental and structural issues to spur a green, resilient, and inclusive growth path for the country. It is against this backdrop that I am pleased to introduce the Seventeenth Uganda Economic Update. This Update makes the case for promoting 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 security. In line with the structure of earlier editions of the Uganda Economic Update series, this report reviews recent economic developments – with particular attention to the economic effects of the ongoing COVID-19 pandemic – provides an outlook for the macro-economy, and then examines the special topic of how Uganda can move from the current economic crisis to a greener and more resilient growth path. Keith E. Hansen Country Director Kenya, Rwanda, Somalia, and Uganda ii UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Abbreviations and Acronyms AU African Union BBL Barrel BOP Balance of Payments BoU Bank of Uganda CAADP Comprehensive Africa Agriculture Development Program CAP Community Agriculture Promoters CBO Community Based Organizations CBR Central Bank Rate CCAFS CGAIR Research Program on Climate Change, Agriculture and Food Security CCB Capital Conservation Buffer CEM Country Economic Memorandum CFMCA Coalition of Finance Ministers for Climate Action CGAIR Consultative Group for International Agricultural Research CNOOC China National Offshore Oil Corporation COMESA Common Market for Eastern and Southern Africa CPI Consumer Price Index CPIA Country Policy and Institutional Assessment CRGE Climate Resilient Green Economy CSA Climate Smart Agriculture CSA-TF Climate-Smart Agriculture Task Force CSO Civil Society Organizations DRC Democratic Republic of Congo DSA Debt Sustainability Analysis DSSI Debt Service Suspension Initiative EAC East African Community EU European Union FDI Foreign Direct Investment FY Financial Year GCF Green Climate Fund GDP Gross Domestic Product GHG Green House Gas GoU Government of Uganda iii UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 GSOP Ghana Social Opportunities Project HIPC Highly Indebted Poor Countries IBP Integrated Bank of Projects ICT Information and Communications Technology IFC International Finance Corporation IMCF Inter-Ministerial Cooperation Framework LIPWs Labor Intensive Public Works M&E Monitoring and Evaluation MAAIF Ministry of Agriculture Animal Industry and Fisheries MDAs Ministries, Departments, and Agencies MDRI Multilateral Debt Relief Initiative MEMD Ministry of Energy and Mineral Development MFPED Ministry of Finance, Planning and Economic Development MINAGRI Ministry of Agriculture MLHUD Ministry of Lands, Housing and Urban Development MoH Ministry of Health MoLG Ministry of Local Government MRV Monitoring, Reporting and Verification MTEF Medium Term Expenditure Framework MWE Ministry of Water and Environment NAADS National Agriculture Advisory Services (NAADS) NAGRC&DB National Animal Genetic Resources Centre and Data Bank NBFP National Budget Framework Paper NCB Non-Concessional Borrowing NCCP National Climate Change Policy NDCs Nationally Determined Contributions. ND-GAIN Notre Dame Global Adaptation NDP National Development Plan NDPIII Third National Development Plan NEER Nominal Effective Exchange Rate NFA National Forestry Authority NGOs Non-Governmental Organizations NPA National Planning Authority NSSF National Social Security Fund iv UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 ODA Official Development Assistance OECD Organization of Economic Co0operation and Development OPM Office of the Prime Minister PFMA Public Finance Management Act PIM Public Investment Management PMI Purchaser’s Manager Index PBS Program-Based Budgeting PES Payment for Ecosystem Services PFM Public Financial Management PPP Public-Private Partnership REER Real Effective Exchange Rate RWA Risk Weighted Asset SBFP Sector Budget Framework Paper SLM Sustainable Land Management SMEs Small and Medium-sized Enterprises SPGS Sawlog Production Growers Scheme SSA Sub-Saharan Africa SWA Sector Wide Approach SWC Soil and Water Conservation SWG Sector Working Group UBOS Uganda Bureau of Statistics UEU Uganda Economic Update UGGDS Uganda’s Green Growth Development Strategy UGX Uganda Shillings UNHS Uganda National Household Survey UNMA Uganda National Meteorological Authority UNRA Uganda National Roads Authority URA Uganda Revenue Authority USA United States of America U-SIF-SLM Uganda Strategic Investment Framework for Sustainable Land Management VAT Value Added Tax WB World Bank WDI World Development Indicators v UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 vi UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Acknowledgements The Seventeenth Edition of the Uganda Economic Update was prepared by a team consisting of Rachel K. Sebudde, Richard Walker, Tihomir Stucka, Pushina Kunda Ng’andwe, Joseph Oryokot, Nkulumo Zinyengere, John Ilukor, and Ashesh Prasann. The team is grateful to Philip Schuler, Kanta Kumari Rigaud, Abel Lufafa, Robert Johann Utz, Diego Arias, Allen Dennis, Ross Hughes, Lesya Verheijen, and Sofia Elisabet Ahlroth for additional inputs and their guidance on the structure and messaging of the report. Esther Ampumuza and Barbara Katusabe provided logistical support, while Keziah Muthembwa and Josephine Karungi managed the communications and dissemination strategy. The Uganda Country Team provided valuable feedback during the preparation of the report. Overall guidance provided by Vivek Suri (Practice Manager, Macroeconomics, Trade and Investment), Shobha Shetty (Practice Manager for Agriculture, Eastern, Central and Southern Africa), and Antony Thompson (Country Manager) is gratefully acknowledged. Finally, we would like to thank the Hon. Minister of Finance, Planning and Economic Development, Hon. Matia Kasaija, and his staff for their continuous commitment and close collaboration. vii UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 KEY MESSAGES State of the economy: A recovery laced with uncertainties The Ugandan economy is recovering have not fully recovered, and agriculture has absorbed many workers who from a sharp contraction due to the lost their jobs in other sectors. If not temporary, the shift to agriculture would COVID-19 shock that had slowed have reversed somewhat the structural transformation in the labor market (i.e. growth to its lowest pace in over shift to off-farm and wage employment) that had been realized over the last three decades. Real GDP growth is decade. In the initial COVID-19 lockdown period to June 2020, 91 percent of estimated to reach above 3 percent households involved in non-farm family businesses received less or no income during FY21, following the modest from their businesses. By February 2021, about 50 percent of non-farm family recovery of 0.7 percent in the first half businesses still reported revenues to be below pre-COVID-19 levels, which of the FY. On a calendar year basis, real includes about 10 percent whose businesses remain closed. At the same time, GDP had contracted by 1.1 percent in incomes from farming and wage employment also remained lower in about 2020, due to the almost total lockdown 40 percent of households. As a result, the number of poor people in Uganda that lasted over four months, border is projected to increase by 2.6 million in the short-term. Of more concern, closures except for essential cargo, and however, are the longer-term effects on human capital formation from the the spillover effects of the disruption disruption in essential health services – for the treatment of malaria, routine in global demand on Ugandan exports, check-ups, maternal and child health care, and HIV treatment – and widened remittances and foreign direct inequalities in access to education; all on the back of a weak social protection investments. The services sector was system that reaches only 3 percent of the population. particularly hard hit, contracting by over 3 percent in 2020, with activities The formal business sector has so far recorded limited benefits from in key sectors like education and the liquidity support under the Government’s crisis response program, accommodation and food services as traditional intermediation challenges have been exacerbated by the largely curtailed for most of the year. declining quality of collateral and low activity, especially in the services As restrictions were loosened, business sector. Therefore, even as money market interest rates have remained and trading conditions improved low, lending rates have been volatile and high. Private sector credit growth both locally and globally allowing remained robust only for a few sectors like the telecommunications sector, for investments to pick up in the last which it grew by 123 percent in 2020, boosted by increased reliance by many quarter of 2020, with stronger signs economic agents and firms on digital solutions; lending to other businesses of recovery in the manufacturing and shrunk. The macro-prudential risks are rising with the increased lending to construction sectors continuing into Government and non-performing assets in the banking system that doubled the quarter ending March 2021. Growth to 10 percent in the latter part of FY20, compared to levels from a year ago. in agriculture has been sustained Nonetheless, the modest economic upturn and muted demand, income through the cash crops sector, which uncertainty and the potential of an increase in precautionary savings, has is relatively better than the food crop curbed inflationary pressures, which allowed the Bank of Uganda to maintain sector, in the use of improved farming an easy monetary policy stance and liquidity support to the financial system practices to manage weather variability. and wider business community. This may support a firmer recovery. The COVID-19 pandemic is having With only modest recovery in foreign direct investment, government a profoundly negative impact on borrowing has financed the current account deficit, which widened to 9 Uganda’s labor markets, poverty, percent of GDP in the first half of FY21. The strong rebound in merchandise inequality, and human capital exports to US$1.2 billion (mainly supported by gold) in the first half of FY21, formation. Although people have gone was overshadowed by merchandise imports, which shot to US$4.7 billion in back to work since the steep decline in this period as firms re-opened and global supply chains eased, as well as the the employment rate between March sluggish return of tourism inflows. With FDI at just 2 percent of GDP, these and June 2020, household incomes non-debt creating flows financed 20 percent of the current account deficit viii UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 in the first half of FY21, leaving the balance to be financed by government The medium-term outlook borrowing, totaling 7.3 percent of GDP, and use of foreign reserves, which for Uganda has improved fell to US$3.6 billion or 4.5 months of import cover by March 2021 from 5.4 since the end of 2020 due months by end FY20. to advances in domestic The fiscal expansion, while important for supporting economic activity demand conditions and the and social spending during the crisis, has exacerbated Uganda’s fiscal continuing global recovery and debt position and compounded the deteriorating trends of the past five years. The fiscal deficit is estimated to widen to about 9.9 percent of as COVID-19 vaccines are GDP by end FY21, from 7.1 and 4.9 percent in FY20 and FY19 respectively. rolled out With businesses still constrained by COVID-19 related restrictions, and fiscal support to the private sector largely sustained through the exemption and deferral of tax payments, total revenues are estimated at 13.1 percent of GDP in FY21. Meanwhile, both current and development spending are estimated to have breached the budgeted levels for FY21 on the back of supplementary spending to manage the pandemic and its effects, meet classified spending needs, and sustain infrastructure spending. External financing is set to finance 60 percent of the fiscal deficit, which is ambitious and, as a result, and limited access to alternative off- domestic borrowing will likely increase beyond the estimated 3.9 percent farm income streams. of GDP for FY21. As a result, public debt will rise sharply and exceed the 50 percent of GDP threshold by FY22, while liquidity risks have increased due to Going forward, the immediate increased non-concessional and domestic borrowing. priority remains that of saving lives by intensifying measures crucial to The medium-term outlook for Uganda has improved since the end of 2020 limit the spread of the virus, protect due to advances in domestic demand conditions and the continuing global the most at-risk populations and recovery as COVID-19 vaccines are rolled out, but risks are tilted heavily overcome vaccine related challenges to the downside. Investments could surge further if the Final Investment to avoid long-term socio-economic Decision agreements are signed quickly to pave the way for production damage from the pandemic. In this of oil in Uganda. In that scenario, real GDP could grow beyond 4.6 and 6.4 respect, government needs to allocate percent projected for FY22 and FY23, respectively. However, if the vaccine adequate resources for the acquisition programs do not reach a significant proportion of the population and there and deployment of vaccines, are additional waves of the virus globally and in Uganda, this could deter the strengthening surveillance, testing, recovery in Uganda’s exports; adversely impact a rebound in FDI, tourism case management and community and remittances; and further depress the domestic economic recovery. Such engagement to improve uptake of the developments could also worsen the external and fiscal imbalances, and various interventions. Furthermore, the lead to more severe social impacts. Near term macroeconomic management government should boost the capacity also faces major challenges and risks related to the oil sector development, of the health system to concurrently shrinking fiscal space amidst rising security spending, increasing use of respond to the pandemic and other non-concessional borrowing and fast rising debt; and increasing concerns health conditions. over governance that could reduce access to external funding. Furthermore, continued degradation of the country’s natural capital combined with the To address the huge and complex increasing frequency of climatic shocks could impact many farms and set of challenges facing Uganda’s households in Uganda given their limited adaptive capacity to natural economic recovery, the government’s disasters and climatic stressors, generally low technology adoption rates, policy response needs to integrate shorter-term post-recovery macro ix UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 management policies and longer- with upstream reforms to the insolvency and debt resolution frameworks. term actions that will spur a greener, This will ensure a quick resolution of the NPLs, if they increase strongly, to resilient and inclusive recovery. These allow a quicker resumption of lending by banks in support of the recovery. are highlighted below. On the other hand, while the financial system needs to be supported to provide lending for productive households and firms, it is also important Post-recovery macroeconomic and to build its resilience by enhancing balance sheet transparency and macro-prudential management policies cautiously phasing out the most distortive liquidity support measures. a. Prudent and transparent fiscal c. Unwinding of policies that have been concurrently used to mitigate management remains the the impact of the COVID-19 crisis will require close coordination and lynchpin to recovery and resilient sequencing, and a re-think of fiscal-monetary coordination. Learning growth – As the crisis abates, the from global experience, the tighter links between fiscal, financial, and authorities will need to balance monetary policy could have been beneficial in times of crisis but could the risks from the growing size have pitfalls under the conventional code where transparency between of debt and related vulnerabilities monetary and fiscal policy or between financial and monetary policies is with a possible slowdown in crucial. Therefore, unwinding these policies will require close coordination the economy that could arise and sequencing of these policy areas and possibly a reset of institutional with fiscal tightening. Eventually, arrangements that govern their interactions, alongside deepening a fiscal consolidation into the domestic financial markets to expand the space for both monetary and medium term requires raising fiscal policies. revenues, through removal of tax expenditures, and a budget Longer-term policy actions to spur a greener, resilient, and inclusive recovery re-prioritization that reduces security and public administration a. Protecting the livelihoods of the poor and vulnerable – The COVID-19 spending in favor of human capital shock amplifies the urgency of expanding the coverage and reformulating development and improving the the design of social safety nets in Uganda to avoid lasting damage of trade and business environment, shocks to household incomes and human capital. Government needs and green investments to bolster to accelerate the development and implementation of shock responsive growth prospects and steer the social protection programs, that support equity and inclusion by recovery onto a green, resilient, cushioning households from food insecurity and falling into destitution and inclusive development path. and helping to maintain and restore human capital. This will need to be accompanied b. Restoring and strengthening the education response – In addition to the with efforts to strengthen the gradual re-opening of education institutions that is already taking place, institutional framework for fiscal government needs to focus on closing the gaps in learning inequalities policy, including considerations for that have been created by the pandemic – especially with respect to revision of fiscal rules. learning outcomes, ensuring all students catch up for the lost school days b. Monetary and macro-prudential in 2020, and proactively re-enrolling children who dropped out of school. policies will need to be closely Beyond these immediate priorities, Uganda needs to develop a robust coordinated with fiscal policy to digital agenda for education. maintain internal balances, avoid c. Promoting sustainable business growth and job creation – Beyond the inflation and minimize financing emergency liquidity support to business and subsequent management costs for firms. In anticipation of the unwinding of this support, government should address structural of a potential rise in borrower issues such as the cost of finance. More resilient businesses will also distress and hence increasing non- benefit from a faster pace of technology and digitalization adoption to performing loans (NPLs) within the reduce costs and raise productivity of financial systems and firms. To financial system, as the liquidity accelerate the adoption of digital technologies, government needs to support is withdrawn, the strong shift its services to digital platforms, strengthen the legal and regulatory capital base of the banking sector environment for the use of digital platforms, and boost the digital will need to be complemented entrepreneurship ecosystem. x UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 d. Raising productivity of the agricultural sector will remain crucial to accelerate economic growth, reduce poverty and vulnerability, and improve livelihoods in Uganda. This requires adopting practices to arrest degradation and depletion of natural capital, especially land and building up resilience to climate variability. This can allow Uganda’s agriculture sector, which still Whereas natural employs the largest share of the population, to transition towards a higher resources are a major productivity, climate resilient, inclusive, and low emission pathway – one that pillar for Ugandan pursues economic growth, alongside environmentally sustainable and socially inclusive development – a green transition. economy and people’s livelihoods, their contribution to the economy and Supporting recovery by investing in green poverty reduction is and resilient pathways for economic growth, being threatened by mismanagement and food security and poverty reduction climate change Uganda needs to fundamentally shift how land and other natural resources are managed and utilized to meet growing demands on food security, economic growth and poverty reduction under a changing climate. Whereas natural resources are a major pillar for Ugandan economy and people’s livelihoods, their contribution to the economy and poverty reduction is being such as agriculture has been estimated threatened by mismanagement and climate change. More than 80 percent of in the range of 2.3 to 4.2 billion dollars Ugandan households depend on renewable natural resources such as agricultural by 2025, due to crop damage, loss of land, fertile soil, forests, and freshwater resources, for their livelihoods. Natural export crop revenue, loss of livestock, resource based economic sectors generate over one-quarter of GDP. The ability and unmet water demand for plant of Uganda’s natural capital dependent productive sectors such as agriculture to and livestock production. Uganda’s continue playing key roles in the economy and people’s livelihoods effectively prospects for economic growth and dependent on the availability, use and sustainability of natural resources. poverty reduction are expected to Unfortunately, these resources have not been well managed leading to rapid dwindle unless the country manages depletion, which is intensifying economic vulnerabilities for a natural resource- its natural capital base in a sound and dependent economy and population. sustainable manner. The impacts of poor natural resources management on productive sectors, The need to shift to better approaches the economy and poverty is already evident. Soil nutrient depletion, soil erosion, for management of land and natural deforestation, and other manifestations of natural resource degradation have resources, and build resilience to increased significantly over the past decade. About 41 percent of the country’s climate and other hazards, has never land is now degraded. About 39 percent of the country has an unsustainable rate been more urgent. The COVID-19 of mean soil loss, which in the hotspot mountainous regions average rates over pandemic has heightened the urgency 30t/ha/year. By 2019, the overall cost of soil erosion and land degradation was to enhance the sustainable use of estimated at about 17 percent of GDP. Productivity losses per year for maize from natural resources. Given the loss of soil erosion have been estimated in some places as high as 190 kg/ha, threatening jobs and closure of small businesses, food security and incomes of the poor and most vulnerable. Forest cover was many people have returned to declining by 2.6 percent every year—one of the highest rates of forest loss globally, agriculture and other natural resource and with forests on private land almost completely depleted. Between 1990 and dependent activities to manage and 2015, forest cover loss amounted to $1.2 billion worth of economic loss. These survive the crisis. This has put more effects are exacerbated by climate risks, whose economic cost through sectors strain on natural capital. Climate xi UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 risks – both slow-onset change and functions, will need to be adopted alongside climate-smart agricultural (CSA) extreme events – have exacerbated practices to enhance resilience, reduce greenhouse gases emissions, and natural capital degradation, economic boost national food security. vulnerabilities, and poverty, and will continue to do so in the future. Despite progress being made by Uganda, barriers to adoption of SLM and CSA The vicious cycle arising from a continue to affect potential for green and resilient development. combination of poor land and natural Government’s effort in supporting SLM and CSA innovations in Uganda resource management and increasing notwithstanding, adoption is still encumbered by many barriers. The National climate vulnerability threatens Development Plan and Green Growth Development Strategy recognize the livelihoods of people, the economy, need to invest in SLM and CSA to further mainstream investments in SLM and the environment. Thus, increasing and CSA technologies and innovations in agriculture, forestry and other land productivity sustainably, and building uses. The implementation of these modern approaches and innovations to resilience is even more important now. increase productivity sustainably and substantially beyond demonstration A holistic and strategic approach that has been limited, especially their uptake by the rural poor who are most reliant centers the poor and vulnerable and on natural resources for their livelihoods. This is largely due to the following considers interdependencies across factors: key productive systems is urgently i. Policy design and implementation factors: Scaling up standalone required. The demands of a changing externally funded interventions (pilots) are yet to overcome climate require an immediate shift coordination, political economy, and resource challenges. The various from business as usual. For instance, initiatives have been implemented through different government continued opening of land for farming agencies, each pursuing different aspects of SLM-CSA with limited through slash and burn or expanding coordination across them. In fact, different MDAs developed initiatives cultivation further into critical natural independently, leading to duplication and gaps. Beyond coordination and resources, like wetlands and forests, harmonization, policies and regulations issued to implement SLM-CSA, and degrading land through erosion have not been fully implemented or enforced, sometimes due to capacity and nutrient depletion cannot continue constraints within government (e.g. weaknesses in land administration unabated. This means that natural and agricultural extension institutions) and other times, hindered by resource dependent sectors, need vested interests. to achieve and contribute to green growth, as part of an integrated ii. Finance and investment: Overall, there has been an over-reliance national green agenda. This calls on disparate external funding, which tends to be piece-meal. Not for greater responsibility for the enough effort has gone to create fiscal space for SLM-CSA within the environment and natural capital; a public budget. While current and past investment efforts, have been step change in uptake of technology commendable for demonstrating SLM-CSA innovations, they have not innovations that boost productivity in been enough to generate the scaling required. key sectors of the economy especially in agriculture, forestry and other land iii. Cost of establishment and maintenance: Many SLM-CSA technologies uses that are closely tied to natural are costly to establish and maintain, requiring significant upfront resources and livelihoods of the costs and labor. Hence, they can attract mostly households that have poor, while reducing damage to land a relatively larger labor force, and those with access to assets and and natural resources, and building financing, such as credit. This leaves out a large portion of the population resilience of the poor. Sustainable who are often poor and not well endowed with assets. land management (SLM) - measures iv. Structural factors: The size of farms, land tenure system and related and practices that protect, conserve land insecurity remain a major constraint to implementation of new and ensure sustainable use of natural innovations and technologies. Most land parcels are already too small resources (land, soil, water and for SLM-CSA practices to be cost effective when adopted by individual biodiversity) and restore any degraded households. Whereas some SLM-CSA practices are area specific, no natural resources and their ecosystem xii UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 single measure can deliver the desired benefit, requiring matching across various practices to make economic sense. These challenges could have been overcome through collective action among farmers to implement SLM-CSA practices at an efficient scale. However, collective action is inherently difficult. Poor access to markets (roads, information, etc.) negatively influences landowners and producers’ investment decisions on A holistic and strategic land management since it affects local prices and their ability to profit from approach that centers sustainable land management. the poor and vulnerable v. Access to technologies and knowledge: There is limited access to relevant and considers technologies and knowledge, especially for rural households. This is interdependencies across exacerbated by the lack of expertise and low capacity within key national key productive systems and local institutions that can support the expansion of SLM and CSA (e.g. is urgently required. The extension, and local government), partly due to low level of investment in capacity building and financial facilitation from national and external demands of a changing resources. Given that SLM-CSA innovations can be technically complex, a climate require an lack of technical support deters adoption. immediate shift from vi. Attitudes and behavioral norms: The decision not to invest in the new business as usual technologies could be rational given all the other factors mentioned above. However, some landowners and administrators make decisions driven by their mindsets, underpinned by social, economic, political, behavioral norms and constraints. Such mindsets sustain preference for traditional land and natural resource management and use such as slash and burn, with partners, the government monocropping, overstocking of grasslands, and farming on wetlands. can make efforts to enhance Furthermore, attitudes towards women mean that they are regularly excluded the effectiveness of payments from participating in productive enterprise through disempowerment in for ecosystem services (PES) decision making and lack of access to land, despite being among the majority mechanisms. that works the land. c) Strengthen institutional Strategic actions are urgently needed to support a greener transition coordination and capacities at For Uganda to sustain productivity enhancements that will support the much- varying levels of national and needed transformation, all stakeholders must collectively work together to subnational governments, and effectively move a larger proportion of landowners and producers to adopt the community to effectively SLM-CSA practices. GOU working with its partners has a big role to play if implement SLM-CSA in the cross- SLM-CSA innovations are to be adopted in Uganda on a sustainable basis. sectoral nature necessary to Key actions that can be supported include: address multiple developmental goals. Institutions that provide a) Increase financial support for SLM-CSA. First the government needs communities with knowledge on to significantly increase the resources allocated towards promoting and SLM and CSA, to change mindsets implementing SLM-CSA practices. In addition, the resources should be among key stakeholders are allocated in a way that incentivizes stronger cross sectoral collaboration critical. Similarly, institutions for among state ministries, departments, and agencies. the implementation of policies and regulations such as local land b) Provide and apply appropriate financial incentives/instruments to administration institutions need to overcome the cost barrier to adoption of SLM and CSA innovations, with be strengthened. the incentives or instruments aligned to different SLM-CSA typologies based on their cost effectiveness (administrative and economic feasibility). d) Promote area specific technology The government can also support labor intensive public work (LIPW) and packages to address multiple repurpose public finance towards supporting sustainable investments. Along goals of enhanced productivity xiii UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 and incomes, improved and f) Develop alternative and diverse commodity value chains. Promoting sustainable natural resource market access for diverse agriculture, forest and other land-based utilization and climate resilience. commodities that do not put pressure on natural resources, and which Priority should be given to hotspot provide opportunities for inclusion of marginalized groups and value areas, especially where soil addition is vital. Improved access to markets, infrastructure, and services, erosion and nutrient depletion is can improve land managers’ incentive and ability to manage land more high. Technology packages can sustainably, through stimulating more profitable production and greater range from integrated soil fertility ability to produce higher-value products and use inputs more sustainably management, and agro-forestry and intensively which through value addition will reduce pressure on land. accompanied by erosion control infrastructures (e.g. trenches g) Develop appropriate instruments to provide access to assets and and bunds), and small-scale credit to landowners and producers to ease the costs of adopting new water harvesting and irrigation technologies and shifting traditional ways of managing land and natural infrastructures to address erosion, resources. nutrient deficiency, and water h) Improve land administration and secure land rights, through among conservation and utilization others, establishing and implementing effective land use databases, challenges. and by empowering local governments and community institutions and e) Organize landowners and building their capacities for land administration. Securing land rights for producers to ease training the nearly 75 percent of landowners with insecure tenure, will energize and passing of knowledge the land sector. Urgently addressing land access and use right of women on the practices, sharing of should be an important basis for sound land administration for SLM-CSA experiences and lessons and adoption. reduce costs for the adoption i) Support knowledge public goods through improved data collection on of new technologies, including climate data, land use data, and natural resource utilization to enhance labor intensive technologies. knowledge management and support better policy making and targeting Organization should also help of interventions. overcoming common use resources governance and In terms of prioritization, financial incentives, and instruments to overcome enhance bargaining power initial cost barriers and manage risks associated with adoption are vital. to make sustainable land Stronger emphasis should therefore be placed on these as the main entry management more profitable. point to addressing the key constraints to adoption and scale up of SML-CSA Organized communities should innovations. also be afforded access to land to overcome common fragmentation challenges among households. xiv UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Uganda’s agriculture will need to fundamentally shift to meet growing demands for food and to contribute to poverty reduction under a changing climate. xv UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 xvi UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 PART 1 STATE OF THE ECONOMY The global economy has gained momentum, yet the adjustment to new COVID-19 related restrictions, policy induced stimuli, and uneven roll out of vaccination campaigns, suggest an uneven recovery across regions. 1 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 1. RECENT ECONOMIC DEVELOPMENTS 1.1 A global recovery is gaining momentum but remains uneven 1. The worldwide evolution of observed between February and 2. The poverty impacts of the the COVID-19 pandemic remains March (Figure 1). The total number of COVID-19 pandemic are profound unpredictable, as new waves of more recorded cases worldwide exceeded and likely to take longer to reverse, transmissible and virulent strains 150 million by end April. The pace of particularly for low-income of the virus push new infection and vaccination picked up through April as households in urban areas. Latest death records. Some countries USA and other rich countries deployed poverty estimates by the World Bank show signs of returning to normalcy vaccines more rapidly than had been indicate that the COVID-19 pandemic following massive vaccination drives. expected at the beginning of 2021. By could have increased extreme poverty Yet other regions – including South the end April 2021, almost 600 million by between 119 million (baseline Asia (and in particular India) and people had received at least one shot estimate) and 124 million (downside South America – pushed the global of the vaccine – mainly in high-income estimate) in 2020. In 2021, the extreme number of new COVID-19 cases to countries – as progress has been poor could rise further to between 143 over 900,000 cases per day by end slower and started only gradually in million and 163 million, with the bulk April 2021, almost quadrupling rates most low-income countries. taking place in South Asia and sub- Saharan Africa (SSA). By end of 2021, Figure 1: Global evolution COVID-19 pandemic 752 million people could be living in extreme poverty, with 492 million of these located in SSA. 3. The global economy has gained momentum, yet the adjustment to new COVID-19 related restrictions, policy induced stimuli, and uneven roll out of vaccination campaigns, suggest an uneven recovery across regions. The global economy is estimated to have contracted by between 3 and 4 percent during 2020, which is less severe than had been anticipated. The recovery into 2021 is also stronger than had been projected in the January Figure 2: Global vaccination against COVID-19 2021 GEP1 due to the earlier than expected upturn in China and the extraordinarily large fiscal stimulus in the U.S, even as Europe remains in a recession. According to recent high-frequency data,2 the composite Purchasing Managers’ Index (PMI) rose 1.6 points to 54.8, with both manufacturing and services indices higher than they were at least two and half years ago. Despite the surge in cases and the shift back to tighter 1. World Bank (2021, January) Source: World Health Organization data as published by Our World in Data 2. World Bank (2021, February & March) (https://covid.ourworldindata.org/data/owid-covid-data.xlsx 2 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 travel restrictions in some countries, still surround the evolution of COVID-19 the global Sentix Index continued its waves amidst sluggish and uneven rise to 26.8 in April – its highest level vaccine rollout, the extent of new in two years – with the ‘expectations’ restrictions and supply disruptions, The global economy is component rising to the highest level changes in consumption spending estimated to have contracted in the sentiment survey’s 18-year patterns, behavioral changes, and by between 3 and 4 percent history. Increase in manufacturing commodity price volatility. during 2020, which is less trade has contributed to a lengthening of suppliers’ delivery times and a rise in 4. Most commodity prices have severe than had been shipping costs (Figure 3, Panel B) and sustained the rebound that started in anticipated. Most commodity June 2020, due to both demand and the new export orders’ sub-component prices have sustained the remains bullish. Borrowing costs also supply factors. Crude oil prices have increased (Figure 4)3 on the back of rebound that started in June remained low due to elevated equity OPEC’s restraint on production,4 and 2020, due to both demand valuations (Figure 3, Panel C) and low interest rates. Therefore, global growth a boost to demand resulting from and supply factors. could exceed 5 percent in 2021, before the stimulus packages. These prices moderating to about 4 percent in are expected to average US$56/bbl 2022, due to longer term effects of the this year and – as demand continues pandemic. Nonetheless, uncertainties to recover – to increase to US$60/ Figure 3: Global prospects – recovering activity, trade, and financial markets Notes Panel A. – Positive values indicate improvement. Panel B – figure shows global manufacturing suppliers’ delivery times measured by the Purchasing Manager’s Index (PMI) and Harpex Index for container shipping rates. PMI readings above 50 indicate expansion in economic activity; readings below 50 indicate contraction. Last observation is February 2021 for PMI and February 26, 2021 for Harpex Index. Panel C. – 10-year sovereign bond yields are computed summing the J.P. Morgan Emerging Market Bond Index spreads and the U.S. 10-year government bond yields. High-yield corporate bond yields are represented by the effective yields of the ICE BofAML High Yield Emerging Markets Corporate Plus Index. Last observation is September 11, 2020. 3. World Bank (2021a, April) 4. OPEC (2021, January) OPEC and partners’ January 2021 decision to restrain production by 0.5 b/day in February and March 2021, compared to levels marketed during July-December 2020 3 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Figure 4: Commodity prices on the international market increased recently Source: World Bank Commodity Price Data (April 2021) bbl in 2022,5 a positive development three consecutive years leading is positive for Uganda’s export. The for Uganda’s prospects for starting export earner. The rise in agricultural average price of Robusta coffee is to produce oil soon.6 Gold prices commodity, particularly grains and forecast to reach US$ 1.59 per Kg in have been declining since August coffee prices that have gained from 2021 and US$1.60 in 2022. 2020; they are likely to dent Uganda’s the shortfall in production from Brazil, 1.2 Sub-Saharan Africa rebounded but faced headwinds into 2021 5. Economic activity in sub-Saharan experienced its first recession in 25 have increased. This is aggravated Africa (SSA) rebounded during the years, even though the contraction of by sustained investor aversion, with third quarter of 2020 but has been 2.0 percent through 2020 was much capital flows returning to the region moderated by the resurgence of less severe than had been feared (i.e. only slowly. Consequently, SSA region the pandemic. As the first wave of 3.7 percent under the January 2021 growth is forecast at 2.3 percent in the COVID-19 pandemic slackened, Global Economic Prospects). The 2021, and 3.1 percent in 2022, partly countries across the region eased moderate impact of the COVID-19 supported by higher commodity prices. lockdown restrictions. Jointly with virus in the region, the predominance For most countries in the region, the opening of the global economy of agriculture in most countries, and growth in 2021 will remain below the and easing of international supply faster recovery of commodity prices, pre-COVID-19 projections, maintaining chains, this stabilized investments, shielded overall economic activity. the reduction in per capita incomes, increased exports, and slowed down and increasing the risk of long-lasting the fall in private consumption, with the 6. Recovery in economic activity damage from the pandemic on rebound surprisingly strong in Nigeria in SSA is expected to be slow and living standards. Countries that have and South Africa. However, a second uneven. Owing to the slow pace large tourism sectors, dependent wave of COVID-19 infections, driven of vaccine rollouts, the economic on commodity exports and/or face by a general relaxation of protective disruption due to COVID-19 restrictions fiscal vulnerabilities are expected to measures and new and more is likely to continue across the region, grow sluggishly. South Africa and transmissible variants, forced many even as global recovery picks up the Nigeria, the largest economies in SSA, governments to re-impose restrictions. pace. In addition, many countries have are projected to grow by 1.4 and 3.0 The recovery in consumption and limited fiscal space for more stimuli, as percent, respectively, during 2021. investment faltered, and the region borrowing cost and debt vulnerabilities Growth in agricultural commodity 5. World Bank (2021b, April). 6. Patey, L. (2015) estimated the breakeven price for Uganda’s oil getting to the market at US$60/bbl. 4 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 exporters, like Uganda, will benefit from partners in the region are expected to alongside a slow progress in vaccine a sustained increase in commodity experience reasonable growth in 2021 roll out and insufficient fiscal space prices – although they have been (Figure 5), even though Kenya has – will pose challenges to a sustained partially insulated by lower prices of re-instituted mobility restrictions to containment of the virus. Large-scale industrial commodity imports. contain the second wave of COVID-19. community transmission could deepen However, there are significant risks to and protract disruptions to these 7, Within eastern Africa, recovery these projections, as limited access economies, even as countries sustain could be impaired by the resurgence to safe water and sanitation facilities, easing restrictions to entry through of COVID-19 infections. Besides urban crowding, weak health systems, international airports and borders. South Sudan, Uganda’s main trading and large informal economies – all Figure 5: Real GDP growth in Eastern Africa, including Uganda’s main regional trading partners (percent y/y) For most countries in the region, growth in 2021 will remain below the pre- COVID-19 projections, maintaining the reduction in per capita incomes, and increasing the risk of long-lasting damage from the pandemic on living standards. Source: World Bank staff estimates Note: e = estimate; f = forecast; Ethiopia and South Sudan are fiscal-year-based numbers 1.3 Uganda’s economy contracted sharply in 2020 but is gradually recovering 8. COVID-19 cases in Uganda started PCR test kits, although other options possible resumption of more stringent rising in April in what could be a more (e.g. rapid diagnostic tools) are being mobility restrictions. severe second wave. By May 30, 2021, progressively used. The vaccination the cumulative number of recorded program launched in March 2021, 9. Uganda’s economy contracted cases of COVID-19 in Uganda stood has also progressed slowly, having by 1.1 percent in the calendar year at 46,623, with 362 officially recorded covered less than 20 percent of the 2020, but a slow recovery was deaths. After sustaining a steady target groups by end April. Adequate evident towards the end of the year decline for about three months,7 the COVID-19 vaccine coverage is not as COVID-19 restrictions abated. number of new cases has recently expected until later in 2021, which Economic activity stalled in 2020 accelerated, alongside a resurgence alongside the relaxed adherence due to the lockdown that lasted over seen in neighboring Kenya and to standard operating procedures four months and affected domestic globally. Testing capacity continues to (SOPs) could fuel the second wave of demand, border closures except for be constrained by high costs for the the pandemic in the country, with a essential cargo, and the spillover effects of the disruption in global 7. The number of new cases drastically and progressively reduced from a seven-day daily average of 719 cases in mid-December 2020 to 144 in mid-January 2021, 28 in mid-February 2021 and 17 in mid-March. The number of admissions also reduced from 468 cases in early December 2020 to 342 in early January 2021, 114 in early February and less than 80 in early March. 5 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 demand on Ugandan exports. The positive growth of almost 1.6 percent the economy grew again in the first services sector was particularly hard in the last quarter of 2020 (Figure 6).8 half of FY21 by about 0.7 percent, a hit, contracting over 3 percent in The Ugandan economy contracted recovery much stronger than had been 2020, with activities in key sectors like more deeply, compared to Kenya at anticipated, even though still less than education and accommodation and -0.3 percent, but more moderately a tenth of the growth of 8.6 percent food services largely curtailed for most than Rwanda at -3.3 percent over this realized in the corresponding period of of the year. Overall GDP contracted period. In per capita terms, real GDP in FY20 (Figure 6). during the first three quarters of Uganda declined by over 4.5 percent 2020, before recovering to a modest in 2020.9 On a financial year basis, Figure 6: Real GDP growth in Uganda by quarterly sector contributions (percent y/y) Although imports and exports both slowed in the early part of the COVID-19 crisis, the acceleration in imports and slower recovery of exports in the first two quarters of FY21 Source: UBOS 10. On the demand side, the PMI improved steadily for eight more normal economic environment slowdown in growth was driven consecutive months, to reach 51.2 and the reopening of schools, this by a sharp contraction in private in December (Figure 7), as lockdown augurs better for improved growth investment, fall in consumption and restrictions were loosened, business in the second half of FY21. Although slow recovery in exports. Although and trading conditions improved and imports and exports both slowed in government’s capital expenditure employment and purchasing activity the early part of the COVID-19 crisis, performed reasonably well in 2020 – increased.10 Due to reduced demand the acceleration in imports and slower at 7.1 percent of GDP compared to 6 during the election period, however, recovery of exports in the first two percent in 2019 – FDI fell, averaging business conditions deteriorated in quarters of FY21 (see section 1.6), about 2.1 percent of GDP in 2020 January 2021 (the PMI dipped to strained growth in the early part of compared to 2.8 and 3.5 percent in 49.8) as new orders and employment FY21. However, export growth has FY18 and FY19 respectively (see fell. During the post-election period, outpaced import growth in the third section 1.6). At the same time, the PMI improved to 53.2 in March, quarter of FY21,11 which also supports COVID-19 containment measures signalling an improvement in business a likelihood of improved overall and increased uncertainty slashed conditions and rise in new orders economic growth in the second half of growth in private consumption. After for the second succcessive month FY21. falling to 21.6 in April 2020, Uganda’s running. Combined with a return to a 8. Uganda’s fiscal year is from 1 July to 30 June of the subsequent year. For FY20, this is from 1 July 2019 to 30 June 2020 9. This assumes a population growth rate of 3.6 percent in 2020. 10. The PMI is compiled monthly by IHS Markit and is sponsored by Stanbic Bank Uganda. It is a composite index, calculated as a weighted average of five individual sub-components: new orders (30%), output (25%), employment (20%), suppliers delivery times (15%), and stocks of purchases (10%). It gives an indication of business operating conditions in the Ugandan economy. 11. Bank of Uganda (2021, April) 6 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Figure 7: Uganda PMI (>50 = improvement since previous month) of FY20. Besides the dip in January 2021, the improved levels of business confidence, together with fewer trade disruptions and more open regional borders, have contributed to manufacturing growth of 3.5 percent in the first half of FY21. At the same time, the mining and quarrying sector grew by over 30 percent, compared to a steep contraction of about 23 percent in the second half of FY20. This growth has been driven by a surge of activity in the gold mining sector, including a 136 percent increase in the value of gold exports in the first half of FY21, and a growing number of artisanal and small- scale miners. Source: Stanbic Bank, IHS Markit 13. Agricultural growth softened in 11. The poor performance of the of 9 percent in trade and repairs in the first half of FY21 as food crop services sector is largely due to the first half of FY21, fully reversing output slowed down and forestry and COVID-19 effects on the education, a 0.4 percent contraction in FY20. As fishing contracted. Agricultural growth recreational and professional services borders and supply chains opened slowed to 2.4 percent in the first half sectors. The services sector has across the world in the second half of of FY21, compared to 8.5 percent suffered the most from COVID-19 2020, traders were able to replenish growth in the same period of FY20. related shocks, contracting by over 4 inventories and meet the growing Notably, growth in food crops that percent in the three quarters up to the demand as mobility restrictions had been boosted by good weather end of the second quarter of FY21, lessened and business conditions to 8.3 percent in the first half of FY20, compared to about 6 percent growth in improved. At the same time the slowed to only 3.4 percent in the same the same period of FY20. Yet, this poor information and communication (IC) period of FY21. This slowdown could performance is largely being driven sector grew at over 11 percent in the adversely affect livelihoods, given that by three sectors that face sustained first half of FY21, sustaining the growth many who had lost jobs in non-farm operating and mobility restrictions. of FY20, when firms and households sectors because of the COVID-19 crisis Given the protracted closure of many adapted to the use of online solutions – particularly the urban and informal schools and learning institutions, the to ensure continuity of business and poor – had shifted to the agriculture education sector contracted sharply daily life amongst any remaining sector as a buffer against the crisis in the last quarter of FY20 and by over COVID-19 mobility restrictions. (see Section 1.4). However, cash crops 40 percent in the first half of FY21. have continued to grow robustly at 6.6 Moreover, given the limited operating 12. The rebound in the industrial percent in the first half of FY21, with hours (a curfew is still in place between sector benefitted from both a modest the value of coffee exports increasing 9pm and 5am) and with no or little recovery in manufacturing, sustained by over 7.5 percent, despite the fall in recovery in tourism, recreation and growth in utilities, and a resurgence in the annual average price of Robusta entertainment, the accommodation mining and quarrying. The industrial coffee from US$1.62 per kg in 2019 to and food services sector continued sector grew by over 5 percent in the US$1.52 per kg in 2020.12 While poorer its precipitous decline from the final first half of FY21, which, although still weather over the first half of FY21 quarter of FY20 through the first half below the double-digit growth rates affected production of both food and of FY21. On the other hand, there has in the first half of the last few fiscal cash crops, the latter was less affected been a positive recovery in most other years, is a significant improvement on given the higher resilience of perennial services sectors, with notable growth the more than 4 percent contraction crops like coffee (which make the of this sector during the second half 12. World Bank (2021, February) 7 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 bulk of exports) 13 and benefits from and sustainable land management farming practices to manage weather better farming practices to manage the (SLM) practices. COVID-19 has and climate change effects. Thus, weather changes14 . The fishing sector heightened the urgency to enhance increasing productivity and sustainable continues to face COVID-19 related agricultural productivity and the use of resources is more important trade disruptions, as well as sectoral sustainable use of natural resources. now for livelihoods, resilience and challenges such as poor-quality fish Given the loss of jobs and closure of longer-term job creation. Improving stock (e.g. too few adult fish), limited small businesses, many people have the productivity of agricultural land is access to feeds, and trade in illegal and returned to agriculture to help see out also critical to supporting structural unrecorded immature fish. The value of and survive the crisis (see Section transformation (e.g. as the basis for fish exports declined by 23 percent in 1.4). This is putting more strain on budding agro-processing industries) the first half of FY21. environmental resources and partly and for providing jobs (i.e. supporting explains the poorer performance of the movement of labor off farms) in 14. Given increasing weather the food crop sector, which is mainly towns and cities. Section 3 considers variability and population pressures run by small scale farmers, the bulk of this further. on agricultural land, Uganda needs whom have not yet adopted modern to urgently scale up climate smart Table 1: Real GDP sub-sector outcomes   FY20 FY20 FY21 FY21e   Q3 Q4 Q1 Q2   Share of GDP y/y growth rates Growth AGRICULTURE 23.2 -1.8 2.3 1.7 3.1 3.5 Cash crops 2.4 15.5 -5.5 -1.8 14.6 6.7 Food crops 12.2 -11.9 6.6 4.2 2.0 4.1 Livestock 3.2 8.1 7.9 7.5 7.7 7.8 Agriculture support services 0.0 -3.2 -12.4 -18.4 -16.6 1.8 Forestry 3.5 3.8 -2.5 -7.3 -3.0 2.9 Fishing 1.9 -8.4 -13.6 -12.2 -1.8 -11.1 INDUSTRY 26.7 0.1 -8.7 4.3 5.9 3.4 Mining & quarrying 1.8 -14.7 -33.4 53.2 12.9 14.5 Manufacturing 15.2 -1.2 -11.3 3.4 3.6 2.1 Electricity 1.2 9.6 -6.8 3.5 5.5 6.3 Water 2.3 4.2 3.9 4.3 4.5 4.5 Construction 6.2 5.8 -0.4 -10.2 10.1 3.0 SERVICES 43.6 0.8 -6.1 -4.6 -2.6 2.5 Trade & repairs 8.7 -1.7 -6.1 9.6 8.4 -0.4 Transportation & storage 3.2 -1.9 -8.6 -4.2 2.2 -0.7 Accommodation & food service 2.6 -3.2 -45.5 -24.0 -16.9 -0.9 Information & communication 1.9 21.2 12.8 9.4 13.1 11.9 Financial & insurance 2.8 10.4 -4.1 7.2 3.2 6.2 Real estate activities 6.7 4.8 5.5 8.8 6.5 3.9 Professional, scientific & technical 2.1 -29.3 -39.8 -63.3 -55.9 1.3 Administrative & support service 2.0 -0.9 -5.3 -5.1 -7.6 0.7 Public administration 2.8 12.1 18.4 17.4 23.9 12.8 Education 4.2 -3.8 -9.7 -42.7 -40.8 -4.0 Human health & social work 3.3 3.6 2.9 13.9 16.7 6.4 Arts, entertainment & recreation 0.2 -14.2 -42.0 -51.0 -19.5 -13.4 Other service activities 2.4 3.1 1.2 -1.6 -2.4 3.1 Activities of households 0.8 2.8 2.7 2.7 2.7 2.7 ADJUSTMENTS           Taxes on products 6.4 -0.4 -22.0 5.3 6.1 6.8 GDP AT MARKET PRICES 100 0.0 -6.1 -0.1 1.6 3.3 Source: UBOS 13. Perennial crops such as coffee by their nature are less susceptible to short term erratic weather conditions. For instance, once coffee has flowered in the first rainy season March- June, then erratic weather in the second rainy season may only affect the yields to a much lesser extent than beans for instance that need to be planted again in the second rainy season September-December. Sometimes less rain during this period may result in better quality due to lower disease load. 14. Due to better anticipated financial benefits from cash crops, the adoption and use of improved technologies and practices (e.g. variety, optimal plant populations, and better cultural practices) for cash crops is generally higher than for food crops. This enables cash crops to better withstand weather abnormalities than food crops (usually annuals). 8 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 1.4 Inequalities and vulnerability to poverty have increased15 15. The COVID-19 pandemic has human capital accumulation. The with non-farm family businesses being pushed more Ugandans into poverty number of poor people in Uganda is particularly hard hit. During the initial and added to the already high levels projected to increase by 2.6 million in lockdown in June 2020, 91 percent of of vulnerability to poverty, given the the short-term due to the pandemic.18 households involved in non-farm family limited protection against shocks. Following the mobility restrictions businesses suffered income losses In addition to the 21.4 percent of that were put in place in March 2020, (i.e. less or no earnings). Household Ugandan households classified 16.6 percent of respondents to the incomes then recovered throughout as poor using the national poverty June round of the COVID-19 Uganda the rest of 2020 and into 2021, with line in FY17,16 about 44 percent High-Frequency Phone Survey (UHFPS) particularly large improvements for of households were considered had stopped working. As shown in non-farm family businesses. However, vulnerable to falling into poverty in Figure 8, the number of people who by February 2021, income had still not the face of a negative shock – even stopped working after the onset of the fully recovered for many households though they are not living below the pandemic was higher in urban areas across all income sources, with about poverty line currently.17 These shocks (32 percent) and service sectors (34 50 percent still reporting business can vary from natural disasters and percent). The employment rate also revenues to be lower than compared weather events that negatively impact declined significantly from about 87 to their pre-COVID-19 level (Figure 10). agricultural incomes, to health crises, percent in March, to 70 percent in June, At the same time, about 10 percent of or political and regional instability. before almost fully returning to pre- non-farm family businesses are still The ongoing COVID-19 crisis is such March levels in August. closed. The recovery of household a shock, especially for the vulnerable incomes in other sectors has also sectors of the economy. 17. In contrast to the relatively quick been slow – incomes from farming recovery in employment, the recovery and wage employment were still lower 16. COVID-19 has had a profound of household incomes appears slow. in about 40 percent of households in negative impact on Uganda’s labor According to the UHFPS, the COVID-19 February 2021, as corroborated by markets, poverty, inequality, and crisis negatively affected all sectors, findings from other studies.19 Figure 8: Respondents who stopped working (%) Figure 9: Sectors of employment among those working (%) Source: UHFPS (June2020 and February 2021) 15. This section draws from the COVID-19 Uganda High-Frequency Phone Survey (UHFPS). To track the impacts of the pandemic on households in Uganda, UBOS, with the support from the World Bank, launched the UHFPS in June 2020. The survey is to be conducted periodically and will try to recontact the entire sample of households that had been interviewed during the 2019/20 round of the Uganda National Panel Survey (UNPS) – where phone numbers for at least one household member or a reference individual exist. Five rounds of data collection have been conducted starting with the 3-20 June 2020 (first round) up until the 2-21 February (fifth round). Detailed analysis from the 4th and 5th rounds can be found in Atamanov et al. (2021a) 16. UBOS (2018) According to the most recent poverty estimates from the Uganda National Household Survey (2016/17). 17 World Bank (2019, June). 18. UNDP (2020, April). 19. IGC (2020, September) estimated that about 65 percent of Ugandans had faced significant income losses since the COVID crisis started, equal to about 9.1 percent of GDP. In a study undertaken by Bachas et al. (September 2020) that included Uganda, they predict that less than half of all firms will remain profitable by the end of 2020 and firm exit rates are likely to double, compared to pre-COVID-19 data. Partnership for Evidence-Based Response to COVID-19 data (August 2020) showed that a higher share of respondents in Uganda reported loss of income compared to any other AU Member State surveyed. 9 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Figure 10: Households with income below average monthly Figure 11: Status of non-farm family business (% of households) income during 12-month period prior to lockdown (% receiving income) Source: UHFPS (June and October/November 2020 and February 2021 rounds) 10 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 11 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 18. The COVID-19 crisis has also and 42 percent respectively, during forced more people back to working the March to December 2020 period, in agriculture, resulting in increased compared to the same period in 2019. vulnerability to poverty. In contrast to These findings are corroborated by a the structural changes in employment Global Financing Facility study, which recorded in the previous decade prior predicted that the COVID-19 pandemic to COVID-1920, the employment share is likely to disrupt the supply and of agriculture increased ten percentage demand of maternal and child health points since its pre-COVID-19 share services in Uganda; the interruption prior to March 2020, with this situation in service delivery also could increase persisting into early 2021 (see Figure child mortality by 22 percent and 9). There are several reasons for maternal mortality by 21 percent over this: firstly, many more people in the next year.23 Although access to the non-farm sectors lost their jobs both medicine and medical treatment than in agricultural; secondly, there has improved since the initial period of was a sizeable shift among working lockdown, rural/urban and income-level respondents from non-farm sectors gaps persist (Figure 13). to agriculture because the agriculture sector was least affected by lockdown 20. Combined with the school measures; and thirdly, 2020 was a year closures, which have substantially of mostly favorable climatic conditions. widened inequalities in access to However, increasing dependence on education, the impact on human agriculture is concerning given low capital development is tremendous. growth and productivity of that as well Before the COVID-19 closure, the as its vulnerability to climate shocks distribution of households with (see Section 1.3). any child (age 3-18) enrolled in educational institutions was relatively 19. In addition to impacts on the labor equal across place-of-residence and market, COVID-19 is likely to stall the income groups (at over 90 percent). progress Uganda had been making However, by February 2021, only in improving health services, while about 50 percent of these households widening inequalities in access. The reported having their children engaged indirect health impact of the disruption in any learning activities again. The to essential health services could be level of engagement was highest (at substantial, with effects already felt in 66 percent) among the richest 20 the treatment of malaria cases, routine percent of the population and lowest Uganda’s health management check-ups, maternal and child health (at 39 percent) among the poorest information system shows that care, and HIV Treatment.21 Uganda’s 20 percent (Figure 12). Furthermore, compared to pre-pandemic health management information households with children located in trends and seasonality, Uganda system shows that compared to urban areas reported a 59 percent has experienced significant pre-pandemic trends and seasonality, engagement, compared to 47 percent disruptions in service Uganda has experienced significant among rural residents (Figure 12). The volumes since the outbreak of disruptions in service volumes since negative impacts of COVID-19 have COVID-19. the outbreak of COVID-19.22 For been even more significant for refugee example, outpatient consultations communities (see Box 1). and postnatal care dropped by 18 20. UBOS (2021) According to UBOS panel survey data, employment in the industry and service sectors grew annually on average 12.8 and 4.7 percent between 2015 and 2019 respectively, raising the share of wage employment by about 7 percent; while the employment share in agriculture declined by about 10 percent up to the time of the COVID-19 outbreak. 21. PERC (2020, August). 22. World Bank (2020b, December) 23. World Bank (2020) 12 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Figure 12: Households with children (3-18) participating in Figure 13: Households not able to access medicine and any educational activities (%) by February 2021 medical treatment (% of households who needed) Source: UHFPS (June 2020 and February 2021 rounds) 21. The COVID-19 crisis has further two major programs was about 0.14 from shocks, reduce vulnerability exposed the gaps in coverage and percent of GDP, again less than half and sustain human capital. Social design of the social protection of expenditures on similar programs protection is vital for building resilience programs in Uganda. The existing in neighboring countries - Kenya and supporting households to invest direct income support programs and Rwanda spend 0.4 percent and in children and the youth. Given in Uganda have low coverage, with 0.3 percent of GDP respectively, on government’s limited fiscal envelope, the overall reach of the two main direct income support programs. however, it is essential to improve the programs24 at only 3 percent of the The scope and financing of social targeting and shock responsiveness of population, half the outreach recorded protection programs need to change these programs.25 in Kenya. By FY18, the financing of the to meaningfully shelter the population Warehousing facility 24. The two programs are the Northern Uganda Social Action Fund (NUSAF) which operates in the Northern region, and Senior Citizens Grant (SCG) for person aged 65 years and above. Government’s planned short-term labor- intensive public works program, financed through the Road Fund, is another such mechanism. 25. World Bank (2020, January). 13 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Box 1: The COVID-19 crisis has had a particularly negative impact on refugee communities in Uganda* Many refugees stopped working after the lockdown working fewer hours compared to pre-lockdown. Overall, in March 2020, particularly in Kampala and the refugees were also underemployed, working on average South West regions. At the national level, only about about 27 hours per week only. 43 percent of respondents reported that they were working in the week preceding the interview in October/ Family businesses were negatively affected and have November 2020.** In contrast, about 13 percent of not recovered. About 37 percent of refugee households refugees stopped working after the introduction of the had a family business before March 2020, but by lockdown in March 2020 (Figure B1). Work stoppages December this share had dropped to 27 percent (Figure were significantly higher among refugees in Kampala B2). Considering that only four percent of households (27 percent) and the south west (23 percent), compared reported to be temporarily out of business, and thus to West Nile (5 percent). Results from the second could reopen, six percent of households might have lost round, conducted in December 2020, did not show their family businesses permanently. Those who had a much improvement in the employment rate. Besides business in the non-agriculture sector were also more work stoppages, almost half of refugees reported likely to have closed after March 2020. Figure B1.1: Employment status of refugee Figure B1.22: Status of family business in December respondents by region in October/November (%) among all refugee households (%) Source: URHFPS first and second rounds, authors’ calculation. In December, income levels from key sources were reported that income from humanitarian assistance still below pre-COVID-19 levels for most refugee was higher or equal to the pre-COVID-19 level. households. On average, none of the key income sources, including farming, family business, wage Poverty among refugees was estimated to have employment and humanitarian assistance, had fully increased in October/November compared to pre- recovered to pre-COVID-19 levels. For example, only 25 COVID-19 levels, with a gradual decline in December. percent of refugee households in December reported According to the preliminary estimations, poverty that their family business income was higher or equal among refugees was assessed to have increased from to the pre-COVID-19 level. This share was higher for 44 percent (pre-COVID-19) to 52 percent in October/ income from farming and wage employment – about 37 November, and thereafter to have gradually declined to percent for both sources. Only five percent of refugees 49 percent in December 2020.*** *UBOS (2020). This Box relies on findings from the Uganda Refugee High-Frequency Phone Survey (URHFPS). The URHFPS was undertaken by the World Bank, in collaboration with UNHCR and UBOS. **World Bank (2021e, 2021f,2021g). Compared to the employment rate among Ugandans, which reached almost 90 percent in September/October 2020, the employment rate among refugee respondents was very low. ***Yoshida, N, et al (2015). The URHFPS used a consumption model, which was developed by using the representative household survey of refugees and host communities conducted in 2018, to identify the strongest correlates of consumption. 14 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 1.5 Sustained liquidity support remains crucial for recovery 22. The expansionary monetary 4 percent as food crop and energy, improved not only due to the monetary stance and liquidity support has not fuel and utilities (EFU) prices continue policy actions, but also on account yet closed the output gap, to put declining, albeit at a slower pace. On of macro-prudential measures upward pressure on prices. With the back of modest economic upturn introduced by the BoU in response to economic activity subdued and some and muted demand (see section 1.3), the COVID-19 shock27 and because appreciation of the nominal effective income uncertainty and the potential of of higher deposits as economic exchange rate (averaging one percent an increase in precautionary savings, uncertainty persists, driving up y/y by March 2021), core inflation there has been no threat to inflation, precautionary savings and dampening gradually slowed to 5.3 percent (y/y) which allowed BoU to maintain the private consumption. As a result, the in March 2021. The BoU continued its policy rate at 7 percent for over 11 daily interbank money market rates loose monetary policy and liquidity consecutive months. declined and have remained stable support to bolster the financial system in a 6-7 percent range since June and businesses to respond to the 23. Monetary policy has been 2020, compared to the pre-crisis COVID-19 pandemic, but the upward effective in lowering interest rates, 8-10 percent range (Figure 15). Other pressure on prices continued to supported by the BoU’s macro- regulatory steps, including permission come from supply side factors. While prudential measures and abundant for all supervised financial institutions also declining, transport prices have structural liquidity held by banks. (SFIs) to restructure eligible loans of remained 20 percent higher than their In addition to holding the CBR at corporate and individual customers, levels a year ago for nine consecutive its lowest since inflation targeting such as debt moratoria, also eased months, making it a major driver of was introduced in FY12, BoU stood management of liquidity. Whilst these core inflation – in response to the ready to provide liquidity through its liquidity buffers have been extended reduced occupancy per vehicle, as various instruments.26 This has led by the BoU for another six months well as additional costs from extended to a reduction in interest rates on to September 2021, the uncertain transit times and border delays due Government securities by about 1.5 evolving COVID-19 situation, combined to COVID-19 testing procedures. to 2 percentage points on average with a slow recovery, may force the Deflationary pressures in food and non- over the past six months, which in BoU to sustain the liquidity support alcoholic beverages allowed headline turn lowered the cost of borrowing longer. inflation to remain broadly stable at for government. Liquidity conditions Figure 14: Core inflation is decelerating (monthly Figure 15: Overnight and 7-day interbank money percent change y/y) (in percent) 26. These included the Lombard Facility, Standing Facility, Reverse Repos, as well as purchases of forex. 27. Bank of Uganda has been providing extra liquidity to commercial banks, microfinance deposit taking institutions and credit institutions under duress, particularly due to the COVID-19 pandemic effects of their operations, through (i) a COVID-19 Exceptional Liquidity Assistance Program (CLAP); (ii) conditions on payment of dividends and other discretionary distributions by SFIs; (iii) limits on loan-to-value ratio for residential mortgages and land purchase; and (iv) increase in rations of core and total capital to risk weighted assets 15 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 24. Financial intermediation Meanwhile, lending to other businesses contrast, the investment of commercial challenges have likely affected almost stalled, with a real growth rate banks into government assets reduces the impact of policy measures on of 1 percent during 2020, compared to the space for lending to the private the private sector. In line with the 12 percent the year before. That said, sector. developments in the money markets, some businesses have benefitted from deposit rates generally declined lending programs from the Uganda 27. Whereas the banking system over the most recent six months. Development Bank, for which data is remains resilient to shocks, the Yet, lending rates have been quite not available now. Hence, the driver deterioration in the quality of financial volatile, while sustaining traditionally of the relatively high real growth rate sector assets in the latter part of high spreads24 and high cost of of lending to the private sector is FY20 aggravated the macro-financial borrowing in Uganda. The lending lending to telecommunications and vulnerabilities. Prior to COVID-19, rates for private sector local currency community, social and other services, systemic liquidity risk in the banking borrowing increased from 19.3 which grew an extraordinary 123 sector diminished, as liquidity percent in June 2020, to 20.9 percent and 118 percent, respectively, in real buffers in all institutions improved, in November 2020, before declining terms during 2020. The lending to and Uganda’s non-performing loans by over two percentage points in telecommunications could have been position was significantly better December. Whereas these rates due to increased activity in this sector than that of peers such as Kenya or have since declined, the weighted as many sectors shifted to digital Tanzania. Since the onset of COVID-19, average interest rate on deposits in solutions in response to the COVID-19 however, non-performing loans (NPL) local currency has remained within a effects, which preserved cash flows to total gross loans more than doubled range of 2.3 and 2.7 percent over this in this sector. On the other hand, the to 10 percent in the latter part of FY20, period. The persistently high spreads, surge in lending to community and compared to levels from a year ago. even during periods of high liquidity social services is likely reflecting The true size of NPLs is likely to be and low inflation, continue to portray the lending through microfinance underestimated as liquidity injections the intermediation challenges within institutions under the ‘Emyoga’ into the system have likely led to some the financial system, and difficulty in program – a government initiative to evergreening of obligations that would realizing real impact of the liquidity support social groups to manage the otherwise be non-performing. Uganda’s support on the private sector. crisis. banking sector nevertheless remains 25. The decline in quality of collateral 26. Financial sector exposure to well capitalized. Core capital-to-risk- and the jagged recovery are weighing government lending continues to weighted assets (RWA) ratios for on the effectiveness of the policy grow, increasing the risk of crowding commercial banks, credit institutions measures on the private sector. out the private sector. Domestic and MDIs totaled around 20, 16, and 35 Annual domestic credit growth borrowing to finance the government percent respectively at end-December decelerated to about 12 percent in budget increased to about 3.3 percent 2020 – well above the statutory 2020 in real terms, compared to an of GDP by end December 2020, from minimum of 10, 15, and 10 percent, annual growth rate of 22 percent in 2.8 percent of GDP by end of FY20, respectively. The decrease in capital 2019. This slowdown occurred as as government increased reliance on was largely on account of a reduction net lending to government roughly the domestic market to finance the in aggregate profitability. The average halved to 39 percent, following growth growing fiscal deficit (see section 1.7). cost-to-income ratio for all banking in deposits of central government on The stock of domestic debt stood at institutions rose from 86 percent receipt of emergence budget support US$ 6.5 billion (compared to US$5.1 in 2019 to 92 percent at the end of from International Financial Institutions billion by end June 2020), the bulk of 2020 due to a rise in operating costs. (see section 1.7). In contrast, lending to which is held by commercial banks in However, domestic policy support the private sector grew 8 percent (close the form of short-term Treasury bills. In would need to be maintained for some to the rate recorded last year) but with addition, commercial banks hold some time to avoid a much faster increase significant differences in the lending of the state-owned enterprises debt, in NPLs, which could reduce the ability structure. Real growth in personal and estimated at about 7.6 percent of GDP. of banks to support the recovery with household loans remained relatively This growing exposure of banks to credit growth as their balance sheets robust at roughly 5 percent, thanks to government debt and, thus, sovereign deteriorate. a surge in car loans, which doubled risk, is a concern, with potential in 2020 compared to the year before. implications for financial stability. In 28. Jefferis, K. et al. (2020, January) indicated that interest rate spreads remain high due to the high overhead costs (for staff, property, IT and infrastructure etc), high interest rates on government bonds, and high levels of bank capitalization and profits. 16 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Table 2: Financial soundness indicators 2018 2019 2020 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Capital Adequacy Regulatory capital to risk- 23.8 21.8 21.6 21.6 22.2 21.3 21.4 21.8 21.9 22.7 22.5 22.2 weighted assets Regulatory tier 1 capital to risk- 21.5 19.7 19.8 19.8 20.4 19.6 19.6 20.1 20.3 21.1 20.9 20.6 weighted assets Asset quality NPLs to total gross loans 5.3 4.4 4.7 3.4 3.8 3.8 4.4 4.9 5.4 6.0 5.1 5.3 NPLs to total deposits 3.4 2.8 3.1 2.3 2.5 2.5 2.8 3.1 3.3 3.7 3.1 3.2 Large exposures to gross loans 36.4 43.2 44.5 42.9 42.6 44.3 45.0 42.8 40.6 42.0 42.6 42.5 Earnings & profitability Return on assets 2.6 2.8 2.8 2.5 2.8 2.7 2.8 2.9 2.8 2.6 2.6 2.4 Return on equity 15.0 16.7 16.3 14.4 15.9 15.8 16.1 16.7 15.9 15.2 15.1 14.2 Liquidity Liquid assets to total deposits 52.9 46.6 43.9 45.5 44.1 45.5 50.3 48.6 48.8 49.1 48.8 50.7 Source: Bank of Uganda 1.6 Trade and financial flows reflect Uganda’s recovery from the crisis 28. The current account deficit US$580 million, which is 70 percent of sharply widened, reflecting not only pre-COVID-19 levels, helping finance the ensuing economic recovery but the trade deficit (see Table 3). also the lagging comeback of tourism 29. Imports of non-oil goods led the inflows. Trade (represented by the total surge in imports in the first half of value of exports and imports) reached 44.4 percent of GDP in the first half FY21. As firms re-opened and global of FY21, exceeding that registered supply logistics eased, imports of during the same period a year ago. goods rose to US$4.7 billion in the first Nonetheless, imports grew faster than half of FY21, registering growth of 22 exports, thus widening the current percent from the previous year. Helped account deficit in the first half of FY21 by a roughly 4 percent real appreciation to 9 percent of GDP, from 5 percent of the shilling, this has been the first during the same period a year ago. The sizable increase in imports since the acceleration of imports to the highest pandemic started. Imports of non- level seen so far, totaling US$5.6 billion monetary gold more than doubled in the first half of FY21, was driven during this period and accounted for by the domestic pent-up demand, 30 percent of all imports of goods. shadowing the relatively sizable The gold is imported for processing rebound in exports. Gross inflows from and then re-exported resulting in a travel services have recovered slowly, small trade surplus of US$19 million to a value of only US$196 million, in the first half of FY21. Another fifth which is less than one-third of the pre- of imports, or US$0.8 billion, reflected COVID-19 total. As a result, the trade purchases of investment goods in the form of machinery, equipment, Uganda’Gross inflows from deficit in goods and services widened travel services have recovered sharply to almost 12 percent in the first and vehicles, which rose 20 percent compared to the same period last slowly, to a value of only half of FY21, from 8.5 percent in FY20 year. This is another indicator that US$196 million, which is less and 8.6 percent of GDP in H1 of FY19. the economy is entering the recovery than one-third of the pre- Meanwhile, remittances have started phase. The import of vehicles was COVID-19 total. to gradually increase in line with the global recovery and amounted to about financed by the robust growth in car 17 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 loans to households, the stock of which volumes, while imports of business past, is still suffering from the effects doubled in 2020 compared to the year services accelerated 77 percent, of the crisis and recorded a surplus of before (see section 1.5). At the same largely due to technical services for only US$122, roughly one-fourth of the time, imports of transport services infrastructure developments. Net travel surplus from a year ago. rose 17 percent in line with larger trade inflows, the offsetting surplus in the Table 3: Balance of payments (percent of GDP) FY17/18 FY18/19 FY19/20 FY19/20 FY20/21 H1 Current account balance -5.3 -7.1 -6.5 -5.0 -9.0 Trade in goods and services balance -7.3 -9.4 -9.7 -8.5 -11.9 Exports 16.9 18.3 14.7 15.0 15.0 o/w coffee 1.5 1.2 1.3 1.2 1.2 o/w gross travel 2.7 2.6 1.7 2.2 0.6 Imports 24.1 27.7 24.4 23.5 26.9 o/w oil 2.8 2.6 2.6 2.4 1.8 o/w government imports 1.8 2.0 0.9 1.0 0.7 Primary income, net -2.8 -2.6 -1.6 -1.5 -1.5 o/w public interest payments (debit) 0.3 0.3 0.3 0.3 0.4 Secondary income, net 4.8 5.0 4.9 5.1 4.4 o/w personal transfers (credit) 3.8 3.9 3.5 4.2 2.7 Capital account balance 0.3 0.3 0.2 0.2 0.4 Net borrowing (balance from current and -5.0 -6.8 -6.3 -4.8 -8.6 capital a/c) Financial account balance 3.4 6.9 5.5 2.7 5.8 Direct investment, net 2.8 3.5 2.6 2.8 2.0 Portfolio investment, net -1.0 -0.5 -0.9 -0.9 0.0 Other investment, net 1.6 3.9 3.7 0.8 3.8 o/w Government loans, net 3.2 3.3 4.6 1.6 3.8 Disbursements 3.9 4.0 5.1 2.1 4.4 Repayments 0.7 0.7 0.5 0.5 0.6 Net errors and omissions 1.1 0.1 2.5 2.2 2.8 Overall balance -0.5 0.2 1.7 0.1 0.0 Financing 0.5 -0.2 -1.7 -0.1 0.0 Central bank net reserves (- increase 0.5 -0.2 -1.7 -0.1 0.0 Memorandum GDP, nominal (in mil US$) 32910 35157 37308 19964 20978 Source: Bank of Uganda, World Bank estimates Note: o/w stands for “of which” 18 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 30. The value of exports has surged, of aflatoxin in the grain – threatens to foreign exchange reserves to about almost solely driven by gold. Total reverse this positive trend again. Kenya US$3.6 billion, or 4.5 months of import goods exports grew 34 percent as has also recently re-instated travel cover by end of March 2021. This processed gold exports jumped in the restrictions due to a resurgence in decline of almost US$600 million first half of FY21 to US$1.2 billion or COVID-19 in that country, which could is not sustainable over the medium 136 percent compared to the same affect this trade. term unless FDIs accelerate and/or period last year. The value of exported the current account deficit shrinks. gold products was close to half of the 32. With non-debt creating flows However, an acceleration in direct value of total goods exported during in the private sector remaining low, investments is likely to be associated the period July-December 2020. financing of the current account with a sizable increase in imports. Traditional export commodities such deficit was only manageable through as coffee, tea, beans and flowers higher public sector debt. Net FDI 34. Demand factors have been more also performed well, especially coffee inflows have stabilized in H1 of FY21 significant in the foreign exchange with higher volumes (16 percent) to around 2 percent of GDP from 2.9 market than the flows with the balance offsetting the drop in the average percent at the end of 2019, reflecting of payments. Between February 17 and price of 7 percent. Overall, the value mainly a slowdown in equity and March 25, 2020, the shilling depreciated of exported coffee, once the leading intercompany loan inflows, whereas 6.1 percent as capital outflows export commodity in Uganda, totaled reinvested earning held up. These accelerated and panic gripped the US$255 million in the first half of FY21, largely non-debt creating flows market29 at the start of the pandemic, yet representing only 20 percent of financed 20 percent of the current further buoyed by US dollar appreciation the value of exported gold. Traditional account deficit in the first half of internationally. In order to stabilize the agricultural export commodities such FY21(see Table 3). Net government market and smooth out excess volatility, as maize, sugar, cotton, and tobacco borrowing, on the other hand, totaled the BoU provided an injection of US$200 – which recorded a fall in exports – US$0.8 billion or 3.8 percent of GDP, million into the market. After the foreign were replaced by up-and-coming new of which US$0.3 billion represented exchange market was stabilized, the products such as cocoa beans, fruits budget support from the World Bank shilling appreciated in December 2020 and vegetables, base metal products in July. As a result, external debt and remained at the level corresponding and cement. increased to US$ 10.5 billion or 28 to the pre-crisis period. (Figures 16 and percent of GDP, by December 2020. 17). 31. Informal cross-border (ICB) exports are picking up but remain 33. The drawdown of foreign 40 percent below levels seen a year exchange reserves, too, financed ago. These exports are particularly the current account deficit, but it is important for the poor along the not sustainable. Foreign exchange Traditional agricultural borders with Uganda’s neighbors. reserves continued receding from export commodities such During the pandemic, these exports its peak in June and July 2020, when the country accessed sizable as maize, sugar, cotton, came to a complete standstill between emergency financing inflows from and tobacco - which April and June 2020, with the value of international financial institutions recorded a fall in exports exports dropping to a monthly average (IFIs). Whilst the Bank of Uganda has - were replaced by up-and- of US$0.9 million from US$45 million achieved on average over the past made net purchases of up to US$ coming new products such twelve months prior to the standstill. 370 million between July and March as cocoa beans, fruits and By January-February 2021, monthly 2021, the sharp demand for foreign vegetables, base metal exports have risen to around US$38 exchange over this period driven by the products and cement. million, but Kenya’s import ban on acceleration in government imports, Uganda’s maize – citing high levels has resulted in a steep decline in 29. BoU pursues a flexible exchange rate and only intervenes in exceptional circumstances to smooth excessive exchange rate volatility. 19 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Figure 16: Nominal exchange rate (USh/US$) Figure 17: Foreign exchange reserves in US$ million Source: Bank of Uganda 1.7 Escalating debt risks blur pro-recovery fiscal management 35. The COVID-19 crisis has expense of human capital and social and the fiscal support to the private exacerbated Uganda’s fiscal and debt development. Together, these factors sector sustained largely through position that has been deteriorating have significantly raised the debt risks - the exemptions and deferral of tax over the past five years. Prior to the while still sustainable, public debt rose payments, total taxes collected were COVID-19 crisis, the fiscal deficit close to 50 percent of GDP, but debt 10 percent lower than had been expanded substantially and trended vulnerabilities have increased. planned. Meanwhile, total expenditures well above the government’s Charter sharply rose during the first half of 1.7.1 Revenue shortfalls and FY21, sustaining the upward trajectory for Fiscal Responsibility that had unbudgeted spending priorities observed since FY18, with both current intended to narrow the deficit to 3 characterized FY21 budget execution and development spending increasing percent of GDP by FY21. Uganda’s revenue effort has been chronically sharply (Figure 19). By the end of FY21, 36. The fiscal deficit is estimated to low, with tax collections averaging just the fiscal deficit is expected to widen have almost doubled compared to about 11.6 percent of GDP over this considerably to about 9.9 percent of its pre-crisis levels, as government period, well below the government’s GDP, from 7.1 percent in FY20 and 4.9 sustains its investment drive medium-term target of 16 percent of percent during FY19 (Table 4). By April, amidst revenue shortfalls. Domestic GDP and the SSA average of about 18 this had created a fiscal financing gap revenues continued to underperform percent. In contrast, expenditures have in FY21, which government estimated targets during the first half of FY21. accelerated to finance poorly managed at about US$730 million or 1.7 percent With businesses still constrained infrastructure investments, at the of GDP. by COVID-19 related restrictions, Figure 18: Total revenues and expenditures (% of GDP) Figure 19: Nominal exchange rate (USh/US$) Source: MoFPED and World Bank calculations Source: MoFPED and World Bank calculations 20 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Geoffrey Basalirwa, fruit vendor in Nakawa Market 37. At the projected 12.1 percent for support the private sector liquidity 2020. As a result, during the first half of FY21, the tax-to-GDP ratio is expected also reduced collections during the FY21, revenues collected from all tax to remain below pre-crisis levels as first half of the year. Whilst the laws heads in GDP stagnated, compared to the Uganda Revenue Authority (URA) enacting these measures were only the year before. The projected outturn has struggled to meet the revenue passed in November 2020, the URA of revenues and grants in FY21 of targets. Besides the slow recovery in did not enforce collection of these 14.6 percent of GDP, falls short of economic activity, the tax measures taxes in the manufacturing, tourism, the budgeted revenues target of 15.4 to ensure critical access to medical horticulture, floriculture, and education percent (see Table 4). materials and equipment and to sectors between April and December 21 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Table 4: Key fiscal indicators, FY18-FY21 (percent of GDP) FY21 FY18 FY19 FY20 H1FY20 H1FY21 FY21 est. Budget Total revenue and grants 12.7 13.6 13.2 14.4 14.5 14.6 15.4 Revenue 12.0 12.7 12.4 13.1 13.2 13.1 14.3 Tax 11.7 12.3 11.4 12.2 12.2 12.1 13.3 International trade taxes 1.4 1.4 0.9 1.4 1.4 1.3 Income taxes 3.9 4.2 4.3 4.5 4.5 4.4 Taxes on goods and services 6.4 6.7 6.3 6.2 6.3 6.8 Nontax 0.4 0.4 1.0 0.9 1.0 1.0 1.0 Grants 0.6 0.9 0.8 0.9 1.3 1.5 1.1 Expenditures and net lending 16.8 18.5 20.3 21.0 23.4 24.5 24.0 Current expenditures 9.1 9.4 10.8 13.5 14.9 12.5 11.6 Wages and salaries 2.9 3.2 3.5 3.4 3.4 3.5 3.3 Interest payments 1.9 1.9 2.1 2.3 2.8 2.8 2.7 Domestic 1.6 1.5 1.7 2.0 2.0 2.1 2.0 External 0.3 0.4 0.4 0.4 0.8 0.7 0.6 Other current expenditures 4.3 4.3 5.2 7.8 8.7 6.2 5.6 Development expenditures 6.3 7.8 8.6 6.0 7.0 10.4 11.3 External 2.7 3.2 2.8 1.8 2.2 3.7 5.7 Domestic 3.6 4.6 5.8 4.2 4.7 6.7 5.6 Net lending and investment 1.2 1.1 0.6 1.1 0.7 1.0 0.9 Hydro-power projects 1.2 1.1 0.5 0.7 0.1 0.4 0.5 Recapitalization/1 0.0 0.0 0.1 0.3 0.6 0.6 0.3 Clearance of domestic arrears 0.3 0.3 0.3 0.4 0.8 0.5 0.3 Primary balance -2.2 -3.0 -5.0 -4.7 -6.0 -7.1 -5.9 Overall balance -4.1 -4.9 -7.1 -6.6 -8.9 -9.9 -8.6 Financing 4.1 4.9 7.1 6.6 8.9 9.9 8.6 External financing (net) 2.9 2.8 4.4 2.3 4.8 6.0 6.2 Disbursement (+) 3.6 3.7 5.0 2.9 5.4 6.8 7.0 projects 3.5 3.6 2.8 2.9 3.6 3.0 5.2 budget support 0.1 0.1 2.2 0.0 1.8 3.8 1.8 Amortization (–) 0.7 0.9 0.6 0.6 0.6 0.8 0.8 Domestic financing (net) 1.1 1.9 2.8 3.5 3.8 3.9 2.3 Bank financing 0.2 1.0 1.5 2.1 1.2 2.0 1.3 Bank of Uganda -0.1 0.6 -2.9 1.9 -1.4 -5.8 -4.6 Commercial banks 0.3 0.8 4.4 0.2 2.6 7.8 5.9 Nonbank financing 0.9 0.9 1.3 1.4 2.6 1.9 1.0 Errors and ommissions 0.1 0.0 -0.1 0.8 0.3 0.0 0.1 Memorandum: Interest payments (as % of revenue) 15.7 15.0 16.9 17.6 21.2 21.4 18.9 Debt service-to-revenue ratio (%) 51.4 51.1 52.4 … … 50.9 50.0 Notes: 1/ Recaptalization is for Bank of Uganda, except in FY20 where an additional 0.3 percent of GDP is for Uganda Development Bank Source: Ugandan authorities; World Bank staff estimates 22 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 38. Given the pressures on current of the previous year, with its share in emergency security and other spending during the first half of the the total budget rising a percentage ‘classified’ activities, supplementary year, it is likely to breach the budgeted point to 46 percent. Meanwhile, net expenditures had increased to a record levels for FY21. In the first half of the lending declined to 0.7 percent of GDP, 10.6 percent of the approved budget year, current spending rose to 14.9 from 1.1 percent in the same period by the end of the third quarter. In this percent of GDP, from 13.5 percent of of FY20, mostly due to the reduced period, overall expenditures were raised GDP the year before, driven by the financing for the completed Isimba by a cumulative UGX 4.8 trillion – an use of goods and services, transfers and Karuma hydropower dams and estimated 3.4 percent of GDP. Up to 27 to other agencies, and higher interest the one-off recapitalization of UDB and percent of this additional spending was payments on debt. Outlays to other BoU in FY20 (Table 4). financing the government’s COVID-19 agencies, particularly emergency response, yet about 34 percent of this 40. As part of the COVID-19 response additional spending went for classified security and election related spending, rose by 0.8 percent of GDP. Interest plan, Government increased payments Ministry of Defence and State House payments increased by 0.5 percent of for domestic arrears to 0.8 percent expenditures (see Box 2). In addition GDP, on account of interest on external of GDP during the first half of FY21, to distorting the budget process, debt that rose 0.4 percent of GDP. In from 0.4 percent of the same period supplementary budgeting ought to contrast, interest on domestic debt the year before. The stock of domestic be limited to emergency situations, remained constant, at 2.0 percent of arrears had been maintained at 2.7 otherwise it could distort national GDP in this period, following a ‘Bond percent of GDP by end of FY20, the spending priorities. switch’ that extended the maturity of same level recorded in FY19. During the first half of FY21, the allocation 42. Across sectors, security spending securities worth close to UGX 500 billion or 0.3 percent of GDP. The of funding to domestic arrears was continues to increase at the expense level of current spending for FY21 part of government efforts to provide of education, health, and other social is projected at 12.5 percent of GDP, liquidity to the private sector and sectors, which has severe implications compared to budget of 10.8 percent. manage the effects of the pandemic; on human capital development. this included a moratorium on During FY21, security spending is 39. Higher capital spending during disconnecting electricity and water estimated to have accounted for 14.3 FY21 has shifted the spending services, funding for expansion of the percent of the budget, only second to balance back towards development e-voucher system to improve efficiency the works and transport sector, with expenditures, which could support in distribution of agricultural inputs, 18.1 percent. Security spending has a faster recovery. Both domestic and fund transfer to the Uganda more than quadrupled over the past and externally financed development Development Bank to support the four years; it is growing faster than spending increased in the first half manufacturing sector affected by the the revenue base and constraining FY21, driving total development COVID-19 pandemic. Therefore, on the the fiscal space for other priorities expenditures up to 7.0 percent of development side, arrears for service (see Box 3) – while some response GDP in the first half of FY21, from 6.0 providers, suppliers of coffee seedlings, programs to the COVID-19 shock percent in the same period last year. and verified utility arrears were paid, remained unfunded due to the resource Domestically financed investments while recurrent domestic arrears squeeze, the security budget was went into the construction of roads, went into land, cooperatives, and rent, increased, with supplementary budgets bridges, and other structures. The new among others. Due to the tight fiscal funded through unplanned domestic spending pressures to manage the situation, new arrears may have been borrowing. The agricultural sector, too, COVD-19 pandemic notwithstanding, accumulated. remains meagrely funded, with the bulk the government maintained the of resources marked for provision of 41. Spending pressures have been pre-COVID-19 level of expenditures inputs, leaving programs that could managed through supplementary for infrastructure investments. support the adoption of modern budgets as Government maintained If successfully executed, capital technologies unfunded. its investment program. With spending is projected to increase to increased spending needed to finance 10.4 percent of GDP, from 8.6 percent the COVID-19 pandemic response, 23 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Box 2: Persistent Supplementary budgeting denting Uganda’s Budget Credibility Supplementary spending was increasing in the and support for the e-voucher system; recapitalization of recent pre-COVID period and spiked further since the UDB; support to SACCOs through the MFSC; and funding COVID-19 outbreak (Figure B2.1). Up to the end of Q2 for Emyoga. Despite defence and security receiving a FY20/21, approved supplementary spending was already significant share of the National Budget over the years more than 9 percent of the approved Budget for FY20/21. (e.g. during the last five FYs, defence was, on average, Of these funds, only about 27 percent went to support allocated the second largest share of the National the direct COVID-19 response, including: payment of Budget), the Ministry of Defence (MoD), State House and domestic arrears; funding for education capitation the Presidency have so far received the biggest share grants and primary healthcare at the local government (at 37 percent) of supplementary resources in FY20/21 level; support to scientists and innovators engaged in (Figure B2.2). The supplementary spending under MoD COVID-19 scientific research; to the Ministry of Health for and State House is classified and thus it cannot be the COVID-19 response; provision of agricultural inputs scrutinized by Parliament. Figure B2.1: Total value and share os supplementary Figure B2.2: Supplementary Budget beneficiaries Supplementary spending is increasingly undermining Finance Management Regulations (2016) of being the credibility of the annual planning and budgeting unavoidable and unforeseeable; thus, this undermines cycle and is drawing resources away from the credibility of annual planning and budgeting. In critical national development priorities. Although addition to distorting the budget, some of the classified supplementary expenditures are provided for within spending does not align with national development Uganda’s legal framework, the majority of recent priorities and reduces the resources that could supplementary spending (i.e. wages, purchase of otherwise be used for the provision of critical public vehicles) do not meet the conditions under the Public goods and services. Source: MFPED 43. The rising deficit has been GDP. However, the shortfall has been from which it accessed budget support largely funded by external met by increased access to external totalling US$670 million (1.8 percent of borrowing. Government external budget support – mainly as a response GDP) in FY20, with the same amounts borrowing to finance projects is from IFIs to support the country in expected to close the financing estimated at 3.0 percent of GDP managing the pandemic and its effects gap during FY21. Therefore, total during FY21, higher than 2.8 on the economy. In addition, the GoU budget support financing would have percent attained in FY20, but well has established a borrowing line with increased to 3.8 percent of the GDP, below the budget of 5.2 percent of Stanbic and Trade Development Bank from 2.2 percent in the previous year. 24 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Box 3: Defense and security spending is using an increasing share of fiscal resources Defense and security spending is rising fast and at defense spending (see Box 2). Even during the a time when resources are tight. This spending has COVID-19 pandemic (when fiscal space has been highly more than quadrupled in real terms – from UGX 901 constrained), defense spending increased sharply, and billion in FY09 to UGX 3,974 billion in FY20 (Figure B3.1). is expected to reach UGX 4,667 billion in FY21 and UGX In addition, supplementary funding (which is largely 4,038 billion in FY22 (Figure B3.2). classified) is an increasing share of this expanded Figure B3.1: Defense spending (real amounts) Figure B3.2: Defense spending (nominal amounts) Defense and security spending is using an increasing recent increase comes on the back of a pandemic, when share of the resources available for spending on all revenues have fallen dramatically, and whilst Uganda’s national development priorities. As a share of Uganda’s vulnerability to debt distress is rising. Furthermore, total revenues (excluding grants) and total national during the last four years, growth in defense spending budget, defense spending is projected to reach 30 and has significantly outstripped growth in both the national 17 percent, respectively, in FY21 (Figure B3.3). The budget and revenues (Figure B3.4). Figure B3.3: Defense spending (allocation & Figure B3.4: Spending and revenue (excl.grants supplementary) growth rates (y/y) Source: MoFPED 44. Domestic borrowing is also borrowing since FY19. External debt by 3.45 percent of GDP over the same playing a more prominent role and disbursement allowed Government period, driving the overall net borrowing estimated to have expanded to 3.9 to increase its deposits in the Bank from the banking system to reach 7.8 percent of GDP by end of FY21, of Uganda. Nonetheless, borrowing percent, based on estimated FY21 GDP more than doubling this kind of through commercial banks expanded outturn. 25 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 1.7.2 Debt risks are increasing investments. The public debt to GDP sustainable. At the same time, the ratio is projected to exceed 50 percent rising debt-to-GDP ratio, comes along 45. Rising fiscal deficits continue by FY23, before gradually declining. In with higher risks, which for the first to drive public debt, estimated net present value terms, total debt is time since the country received debt to have reached about US$17.96 expected to increase to 39.3 percent relief in 2006, raises the country’s risk billion, or 47 percent of GDP by end- of GDP in FY21 and to the peak of of debt distress from a ‘low’ risk - as December 2020. Public debt grew by 42.9 percent in FY23. Thanks to the was jointly assessed by the World Bank 20 percent of GDP over the past five relatively strong policies and debt and IMF in May 202031 - to ‘moderate’ years. Faster borrowing in FY20 and management institutions, high foreign risk according to the latest Government FY21 was to close financing gaps exchange reserves, and dominance of Uganda debt sustainability induced by the COVID-19 pandemic, of concessional borrowing in its debt analysis.32 amidst accelerated infrastructure portfolio,30 Uganda’s debt seems still Figure 21: External debt service to revenue ratio Figure 20: Evolution of external debt FY11-FY20 (% share) in selected peer countries (%) Source: MFPED and World Bank calculations Source: MoFPED and World Bank calculations 46. Uganda also faces heightened This form of borrowing also requires to is expected to rise to 53 percent by liquidity risks, partly on account of be paid much faster – the average time end of FY21, from 40 percent recorded increased use of non-concessional to maturity33 for Uganda’s domestic in FY20, according to Government of borrowing. By 2019, Uganda’s external debt stood at 4.3 years by June 2020. Uganda debt sustainability analysis. debt service to revenue ratio had On the other hand, the average time risen to 23.7 percent, which was to maturity for external debt has 47. Therefore, the strategy to close comparable to peers, but already also been declining as Government the widening financing gap through above the threshold of 18 percent for increases its exposure to non- more non-concessional external medium performers under the LIC concessional borrowing, which has borrowing and shorter-term debt in DSF. Domestic debt has risen fast shorter maturity time than traditional the domestic market, will increase the recently, and accounts for 70 percent concessional borrowing (Figure 23). debt-service-to-revenue ratio to over of interest payments, due to the high The total debt-service-to-revenue ratio 70 percent by FY22. This would leave cost of domestic government paper. 30. About two-thirds (US$8.5 billion) of outstanding public debt is owed to external creditors, largely for energy and infrastructure projects, and with a weighted average interest rate of about 2 percent. Domestic debt totaled US$4.3 billion, with roughly three-fourths in Treasury Bonds with maturities from 2 to 15 years, while the rest is in short-term Treasury Bills. 31. World Bank (2020, May) 32. GoU MFPED (2020, December) 33. This is the time it would take to roll over or refine the debt portfolio. 26 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Uganda’s debt service-to-revenue ratio percent in 2019. In addition to making value of interest payments (domestic more than double that of many other the country vulnerable and raising and external) is about the same as the comparator countries, including those the fiscal risks, persistently large total spending on the road and works even at ‘high’ risk of debt distress. interest payments will reduce fiscal programs. For instance, none of the countries at space for investments in the country’s high risk of debt distress exceeded 37 development priorities. In FY20, the Figure 23: Average time to maturity (years) Figure 22: Total public debt (% GDP) Source: BOU, UBOS and World Bank calculations Source: MFPED, World Bank Calculations 48. The Debt Service Suspension suspension implies a postponement servicing from Paris Club and non-Paris Initiative (DSSI) by the G20 countries of debt service payments to a later Club creditors. However, the related provided Uganda with an opportunity date, but with no reduction in the Memorandum of Understanding was to postpone debt service payments value of these payments. Borrowers signed in March 2021 and hence from May 2020 to December 2021. In then commit to use freed-up Uganda has continued servicing its debt April 2020, the G20 Finance Ministers resources to increase social, health until March 2021. Nonetheless, Uganda endorsed the DSSI in response to a or economic spending in response to is still eligible for an estimated US$90 call by the World Bank and the IMF for the crisis. Beneficiaries also commit million postponement of debt service the suspension of debt servicing by to disclose all public sector financial payments under the original DSSI which poorer countries, in order to free up commitments (involving debt and should increase to over US$ 250 million resources to help manage the impacts debt-like instruments). MoFPED under the extended DSSI, now running of the COVID-19 pandemic. The requested for the suspension of debt through December 2021.   In April 2020, the G20 Finance Ministers endorsed the DSSI in response to a call by the World Bank and the IMF for the suspension of debt servicing by poorer countries, in order to free up resources to help manage the impacts of the COVID-19 pandemic. Fish markst stall 27 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 2. ECONOMIC OUTLOOK 2.1. A modest economic recovery expected amidst uncertainties 49. Significant uncertainty remains the preventive standard operating assumed to benefit from the global on the evolution of the COVID-19 procedures34 , a resurgence could rollout of COVID-19 vaccines in 2021. pandemic and its effects in Uganda. result in Government re-instating more This forecast is also supported by A resurgence of the virus could turn mobility restrictions, and thereby affect recent PMI data, which suggests that, into a second wave in Uganda, which the economic recovery. as uncertainty around the election could peak around July 2021. Whereas period dissipates, business activity will the vaccination campaign targeting 50. The economy is expected to increase over the coming year.35 If, health workers, teachers, security continue its recovery. Under this however, the Final Investment Decision personnel, the elderly (over 50 years baseline scenario, real GDP growth (FID) on domestic oil production is of age), and those with co-morbidities is expected to reach closer to 5 taken before the end of FY2136 (see has been underway since March 2021, percent in FY22 and above 5 percent Box 3) – stronger private and public its outreach is still small, with just into FY23 (Table 6 and Figure 24), investments could push real GDP 0.85 doses delivered per 100 people. which is broadly in line with the growth in FY22 beyond 6 percent. Even The percentage of the population range forecast in the December 2020 with stronger real GDP growth in FY22, that has been vaccinated could only Uganda Economic Update. This growth the level of per capita GDP will remain rise gradually from 2 doses per 100 will likely be driven by a pick-up in well below its pre-COVID trajectory persons by June 2021 to about 30 private consumption – as household (Figure 24). It is only into FY23 that per percent, due to both reluctancy of incomes recover in the second half capita income growth could recover some sections of the population to of 2021 and beyond. The expected fully, if GDP accelerates to 6.4 percent vaccinate and due to limited supply increase in investment is supported under this scenario. of the vaccines. With the general by a recovery in exports as the global population not keen on abiding by economy stabilises. The latter is Table 6: Baseline macroeconomic outlook (annual percent change unless indicated otherwise) FY20 FY21 estimate FY22 forecast FY23 forecast Real GDP growth (baseline) 2.9 2.6 4.6 6.4 Private consumption 1.2 2.9 3.2 4.0 Government consumption 6.0 11.2 -1.6 5.6 Gross fixed capital investment 0.7 2.8 8.9 10.1 Exports (goods and services) 0.4 3.2 14.6 14.2 Imports (goods and services) -6.2 8.3 10.2 9.1 Agriculture growth 4.8 3.2 4.2 4.2 Industry growth 2.2 6.2 6.4 7.6 Services growth 2.9 0.1 3.5 6.9 Inflation (consumer price index) 3.0 4.0 4.5 5.0 Current account balance (percent of GDP) -5.9 -8.3 -7.7 -7.0 Net foreign direct investment (percent of GDP) 2.6 2.3 2.8 3.1 Fiscal balance (percent of GDP) -7.2 -9.6 -5.6 -4.5 Public debt (percent of GDP) 41.2 47.2 50.3 51.4 Source: UBOS and World Bank estimates 34. GoU, MoH (2021, May) 35. Stanbic Bank, Uganda (2021, April) 36. THE INDEPENDENT, Uganda (2021, January 28) 28 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Box 4: Uganda’s path to producing oil is still bumpy This Over the past 15 years, Uganda has undertaken considered to have been the main reasons for the a series of legal, institutional, structural and policy delay in the final investment decision (FID) by private reforms to enable it to tap into the sizable oil oil companies. By April 2021, GoU was ready to reserves it discovered in the Albertine region. The approve and award contracts to the main Engineering, recoverable reserves, estimated at 1.7 billion barrels Procurement and Construction (EPC) contractors of crude oil, could earn Government about $1.5 billion to start construction work for the US$3.5 billion oil a year in revenues (4 percent of FY20 GDP) over 25 pipeline project, expected to be undertaken between years. During the development phase, Uganda could 36 to 48 months. receive up to US$20 billion investments inflow to put the production infrastructure in place. Some of The pipeline adds to other major infrastructure these flows could benefit local suppliers - as per the investments that are already underway or planned. country’s local content policy - and local communities. These include the Hoima-Kaiso-Tonya road, which In addition to the investment flows and growth effects connects different oil wells in the Albertine region, in the short to medium-term, oil has the potential to and the Nyamasoga Oil Treatment Plant. The contract substantially raise government revenues, increase for an oil refinery, which is expected to domestically exports and drive close to double digit growth rates, process one third of the oil produced, was signed over the longer term. These actual size of impacts will in 2018 with the intention that it will be finalised by vary depending on the international prices, production 2021. Two thirds of oil produced is to be exported via profile and structural changes in the global oil a pipeline to the port of Tanga (Tanzania). Uganda industry over the last five years and a global push for and Tanzania have concluded an Inter Government investments in green energy that may reduce demand Agreement (IGA) to develop this about US$8 for carbon based energy within the next decade. billion investment. The works on Hoima (Kabaale) International Airport were disrupted by COVID-19 but The recent signing of key agreements related to reached 50 percent completion by end December the development of the EACOP oil pipeline, has 2020. re-ignited expectations that Uganda could start the actual development phase for its oil soon. On April A more fundamental and intractable challenge to 11, 2021, Uganda signed key agreements: (i) the Host development of the Albertine oil reserves comes Government Agreement between GoU and EACOP from the high cost and marginal economics of the Company; (ii) the Shareholders Agreement between oil fields, and the environmental concerns. High Uganda National Oil Company (15 percent shares) and pipeline transportation costs and poor crude oil the Joint Venture Partners, including Total E&P Uganda quality will result in wellhead netback prices that are Limited (62 percent shares) and CNOOC Uganda (8 deeply discounted from global crude oil prices, and percent shares), and Tanzania Petroleum Development hence cut into government revenues. Whereas the Cooperation (15 percent shares), hence constituting maritime industry recently increased demand for low- the EACOP Company, its funding shareholders, sulphur fuel oil to meet greenhouse gas limits, which finance structure and governance arrangements; and generated a premium of about US$ 1.3 per barrel in (iii) the Tariff and Transportation Agreement (TTA) the niche markets, it is yet to be established whether between EACOP Co. (the transporter) and the Shippers such markets will be sustained given the fast evolving comprised of the Government of Uganda, UNOC, Total climate change landscape. In addition, the remoteness E&P Uganda Limited and CNOOC Uganda Limited. and environmental sensitivity of the Lake Albert region These, together with the general agreement on the result in high operating costs. Under existing fiscal principles of the future tax regime between GoU and terms, the breakeven global Brent crude oil price oil Companies, and the Host Government Agreement for the Albertine developments is between US$50 between GoU, GoZ and Total E&P Uganda Limited, and US$60 per barrel versus an average price of for the development of the oil pipeline, signed earlier approximately US$41 per barrel in 2020. At this price in September 2020, address the major obstacles level, unless the premium rises to between US$10 29 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 and US$20 per barrel, project economics are unlikely affect access to capital (e.g. climate-change driven to stack up well against other investments in the investments, growth in renewable energy investments), portfolios of Total and CNOOC. Whereas oil prices have the cost basis (e.g. carbon taxes, carbon border surged to above US$60 per barrel during 2021, the risk adjustments), and long term natural gas/oil demand of downward price pressures, underpinned by changes growth. Already, concerned about the environmental in the global environment (including climate change impact of the 1,440 km pipeline, a group of over 250 and the sustained COVID-19 shock) remain real, if the civil society organizations (both local and international) transition into clean energy technologies shifts demand have petitioned commercial banks not to finance the completely out of petroleum-based energy. The latter project. could make Uganda’s oil production project a risky venture for prospective investors, as these challenges Source: Compiled by World Bank staff from interviews and data from Ministry of Energy and Mineral Development, and Petroleum Authority. 51. The sluggish recovery in the the minerals sector (driven by gold recovery, with the price outlook for services sector will undermine the exports). Uganda’s major exports – such as rebound in industry and sustained Robusta coffee, maize, cotton, and growth in agriculture. The services 52. Inflation is expected to remain tea – being positive over the next three sector will take time to fully recover close to the target of 5 percent over to five years.38Whilst the recovery from the devastating impact of the the medium term. Whereas high of remittances will largely depend COVID-19 crisis on the education, international oil prices could exert on employment income recovery in travel, accommodation, and food non-food inflationary pressures, this sending countries and be expected services sectors. The tourism sector is expected to be subdued by the to strengthen with global economy, may lose more than US$5 billion in continued muted demand in some there is still significant uncertainty revenues over the next five years37 key services sectors, particularly about services (mainly driven by travel and it remains questionable to what accommodation, food, and restaurants. habits in a post-COVID world), with extent employment in the sector will Non-oil imported price inflation is implications to corresponding tourism recover over the medium term. The also assumed to remain muted as inflows to Uganda, currently forecast recent resurgence in COVID-19 cases pandemic related supply interruptions to remain well below the net inflow of and related mobility restrictions in ease over the medium term and the 2.3 percent of GDP in FY20. With the Kenya, as well as imposed trade shilling continues to exhibit gradual slow recovery of FDI to only 3.1 percent restrictions in other parts of the world, appreciative pressures. Food price of GDP in FY22 and FY23, the current will also further dampen prospects in inflation, while volatile, is expected account deficit is expected to be the transportation and storage sector to normalize at a lower average, with largely financed through government into FY22. Agriculture is projected improved weather. The BoU is therefore borrowing, partly through concessional to grow at an average of 3.5 percent expected to maintain its current borrowing from IFIs and drawdown of in FY22, supported by favourable accommodative policy stance into foreign exchange reserves. weather conditions, continuity of FY22, to support a stronger recovery. agriculture and rural-to-urban supply 54. Fiscal policy in FY22 aims to 53. The current account deficit sustain economic recovery and to chains, robust growth in livestock, and is projected to narrow to about 7 address the social economic impacts an eventual recovery in fish exports. percent of GDP by FY23, from the of the COVID-19 pandemic, while The industrial sector too is expected estimate of 8.7 percent of GDP in progressing implementation of the to pick up, as manufacturing benefits FY21, as exports accelerate under third National Development Plan.39 As from stabilization of global supply a stronger global economy and the pandemic, emergency security and chains and Government’s drive for improved domestic production. This election related spending pressures import substitution, and acceleration will also build on the commodity price slow down, and as government of activities in both construction and 37.United Nations Uganda (2020, June) 38. World Bank (2021a, April) 38. GoU NPA (2020, July) The Third National Development Plan was approved by parliament in June 2020, and hence will be in its second year of implementation during FY22. 30 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 reprioritizes its public investment significant cuts will be in energy budget allocated for education and program, overall spending is expected and mineral development, works health, will increase to 14.2 percent to reduce by almost 3 percentage and transport, and information and and 9.9 percent, respectively, from points of GDP to about 23 percent of technology sectors (Figure 24). respective shares of 11.3 percent GDP. According to the FY22 Budget However, works and transport will and 8.5 percent in FY20, which is Draft Estimates, expenditure cuts still take the largest share of the noble for supporting human capital will be broad, which supports a fiscal budget, closely followed by security. development. consolidation to avoid escalating the Meanwhile, the proportion of the fiscal sustainability risks. The most Figure 24: Sector budget allocations FY22 support fiscal consolidation Source: MFPED 55. Improved revenue performance continue to meet investment demands 56. If the projected deficits as the economy picks up, augurs well of oil-related infrastructure, power materialize, total public debt is with a fiscal consolidation aiming transmission and distribution networks expected to rise to almost 54 percent to reduce the deficit by almost 3 to special economic zones and rural of GDP by FY23. According to the percentage points of GDP in FY22, growth centres. Yet, a large share of latest GoU DSA published in January followed by another percentage the proposed FY22 and FY23 deficit 2021,40 the lower projectile - compared point in FY23. While declining into remains unfunded, which may require to that published in the December 2020 FY22 and FY23, the deficit will remain expenditure adjustments or a build-up Economic Update41 - benefits from high as public capital expenditures of debt. government strategy to lower cost and refinance risks by minimizing domestic 40. GoU MFPED (2021, January) 41. World Bank (2020a, December) 31 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 borrowing and taking measures to Nevertheless, the profile of total debt the medium term if exports growth elongate the tenure of securities. service (interest and principal due) decline more strongly. This could Despite the steep trajectory in nominal is expected to surge to around 60 push Uganda into a ‘moderate’ risk of terms, in present value terms, debt percent of government revenues over debt-distress according to the World is projected to reach 43 percent of the next four years, which exposes the Bank-IMF Low-Income Countries Debt GDP in FY23, which is still lower than government to higher liquidity risks. Sustainability Framework (LIC-DSA).42 50 percent committed to under the Moreover, external debt service to Charter of Fiscal Responsibility and exports of goods and services goes the Convergence Criteria under the well above the threshold by FY26, with East African Monetary Union Protocol. the breach much more significant into Table 7: Fiscal outlook (percent of GDP) Actual FY20 Proj. Outturn FY21 Proj. Budget FY22 Total revenue and grants 13.2 14.6 14.4 Total revenue 12.4 13.1 13.2 Grants 0.8 1.5 1.2 Expenditure 20.3 24.5 21.4 Current expenditure 10.8 12.5 11.3 Development expenditure 8.6 10.4 10.1 Primary balance -5.0 -7.1 -4.6 Overall balance -7.1 -9.9 -7.0 Source: MoFPED 2.2. Risks remain tilted heavily to the downside 57. The macroeconomic outlook faces debt levels increase the volatility of the faster cash outlays from government. significant downside risks, mostly global economy, and deter the recovery Furthermore, weak implementation from COVID-19. Whilst the COVID-19 in Uganda’s exports, FDI, tourism and of new tax-enhancing measures and vaccination program has begun in remittances. This could lead severely reforms may strain the government’s many countries including Uganda, affect health and livelihoods, and ability to raise additional revenue there is still significant uncertainty distort macroeconomic variables, to offset higher expenditures. A about the timing of effective roll out including slower growth and worse significant shift in debt towards more to a significant part of the population external and fiscal imbalances. non-concessional borrowing and/or the and the response of countries in easing issuance of a Eurobond would disrupt restrictions, worsened by resurgence 58. Spending pressures and the smooth repayment profile Uganda into second and/or third waves of the adjustments to government’s debt currently enjoys, raise debt burden virus in some countries. Protracted profile could jeopardize Uganda’s trajectories and further increase debt or even extended domestic mobility hard-earned macroeconomic stability. vulnerabilities. restrictions (currently still limited to the Uganda’s spending boom has been entertainment sector and curfew hours mainly related to infrastructure 59. Political uncertainty and security for every sector) will continue to mute investments, but additional pressures threats could undermine investments, domestic demand and production. At may arise as the new government tourism activity and the economic the global level, cycles of outbreaks takes on fresh programs to show recovery. While factored into the and lockdowns, restricted international results, if security threats increase, outlook, political risks could be more borders, financial stress, and elevated and if the oil sector requires higher and pronounced, if pronouncements in 32 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Western capitals on the violation during the crisis may cause a sharper to be amongst the world’s most of human rights and travel bans deterioration in the asset quality of the vulnerable countries to climate shocks, on individuals that may have been banking sector, which may increase and their increasing frequency (e.g. implicated in these vices, escalate into cost and constrain further access drought and floods) could impact sanctions across several economic to finance for firms in the next few many farms and households in Uganda important partners. This could diminish years. Despite the heavy infrastructure given the limited adaptive capacity longer-term investor sentiments (both investments by the government, to natural disasters and climatic domestic and international). This may infrastructure services remain a stressors; generally low technology also slow oil investments and deter a key binding constraint to many firm adoption rates and limited access to recovery in the tourism sector. operations and inhibit productivity alternative off-farm income streams. growth and resilience. Moreover, Uganda also lags its East African 60. Businesses continue to face remaining difficulties in investment peers in water management, storage critical constraints such as access licensing, the regulatory environment and irrigation, which is key to building and cost of finance, skills and and contract enforcement, may further resilience of the agriculture sector.43 electricity, and an uncertain regulatory frustrate the post-COVID rebound in Any weather-related shock over the environment. Premature withdrawal private sector activity. next 1-2 years would certainly impede of liquidity support and macro- the post-COVID recovery. prudential policies that have supported 61. Climate shocks are a risk to commercial banks’ balance sheets economic recovery. Uganda continues 2.3. The downside scenario envisages slower recovery 62.Under a downside scenario, is only achieved by early 2022; re- onwards; and/or average oil prices growth could be more muted and introduction of ad-hoc mobility suddenly dip below US$50/bbl and/ recovery slow and delayed into FY23. restrictions at certain times until or the FID is taken in FY22. Under This scenario assumes that some early 2022; premature scaling back such circumstances, growth could be of the risks above materialize, and of support to vulnerable persons and more muted and stay at 3.5 percent in Uganda experiences a combination businesses; financial sector conditions FY22, and per capital income growth of: additional waves of infections deteriorate markedly; tourists only stagnate. throughout 2021 and into 2022; start traveling to Uganda in larger widespread coverage of the vaccine numbers in the second half of 2022 Figure 25: Real GDP growth rate (percent) Figure 26: Real GDP per capita (US$) Source: World Bank estimates Source: UBOS and World Bank estimates 43. According to World Bank (2018, June), only about 7,000 ha of cultivated land is under formal irrigation - about 1.2 percent of an estimated irrigation potential of 600,000 ha. 33 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Table 8: COVID-19 health and economic assumptions Key variables Baseline scenario Downside scenario Health Declining through 2021 Additional waves into early 2022 Number of daily cases By mid-2021 By early 2022 Widespread coverage of vaccine/1 Economic Lockdown and mobility restrictions Fully lifted through 2021 Ad-hoc restrictions until early 2022 Support to firms and vulnerable h/holds Continued in 2021 and first half of 2022 Fully scaled back in 2022 Financial sector conditions Stable through 2021 Deteriorate through 2021 Oil price, Brent (average US$/bbl) <$40 in FY21 and <$50 in FY22 Key commodity prices (coffee and $50 in FY21 and $60 in FY22 Weak gold) Tourism rebound Moderate In late 2021 In late 2022 Source: World Bank Notes: 1/ ‘Widespread’ means having covered 90 percent of the most vulnerable population (health workers, security personnel, teachers, persons of 50 years and above, and persons with co-morbidities) and at least 10 percent of the non-vulnerable population (i.e. 30 percent of the population). 2.4. Policy actions for recovery and transition to a greener, resilient, and inclusive growth 63. The socioeconomic disruptions productivity through lower human damage from the pandemic. In from the COVID-19 pandemic and capital investment, loss in learning- this respect, government needs to subsequent risks to recovery need adjusted school years and prolonged allocate adequate resources for to be carefully managed for the spells of unemployment, let alone the the acquisition and deployment of country to regain normalcy. Uganda overwhelming effects of declining vaccines, strengthening surveillance, has remained vigilant against the natural capital and climate change. testing, case management and pandemic, even as the second wave Hence, the economic recovery is still community engagement to improve driven by more contagious and virulent expected to be modest and uneven, uptake of the various interventions. strains threatened the country. Public facing a multitude of other risks. So far, global cooperation has allowed health measures (including vaccination Additional government interventions countries to overcome financing44 and of vulnerable groups) to stop the are likely to be constrained by the logistical constraints in accessing the spread of the virus have continued, limited fiscal space due to scanty vaccine. Government has put in place followed with monetary, macro- revenues and rising public debt measures for the bulk of the vulnerable prudential and fiscal policies to cushion vulnerabilities. population to access the vaccine. the economy, solvent businesses, Nonetheless, it will need to engage in and vulnerable populations, against 64. Going forward, the immediate more sensitization, knowledge, and the adverse effects of the pandemic. priority remains that of saving lives awareness programs, to promote Nonetheless, the livelihood of many by intensifying measures crucial to stronger acceptance and more Ugandans has been severely disrupted, limit the spread of the virus, protect successful vaccination programs. and poverty and inequality increased. the most at-risk populations and Furthermore, the government needs Reversing these effects is further overcome vaccine-related challenges to boost the capacity of the health complicated by the loss in longer-term to avoid long-term, socio-economic system to concurrently respond to the 44. The World Bank approved US$6 billion on April 2, 2020 to support countries in responding to the COVID-19 pandemic, and a further US$12 billion on October 13, 2020 to support the procurement and deployment of COVID-19 vaccines. 34 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 pandemic and other health conditions, streamline processes for managing access concessional external such as malaria, maternal and child such incentives. borrowing, the government will health cares, and HIV treatment, where need to consider postponing non- the gaps left due to the pandemic are (ii) Adjust expenditures to support essential infrastructure projects already impacting lives. the economy in the near term, and reprioritize the budget toward followed with policies that spending more on human capital. 65. Uganda’s economic recovery faces facilitate employment in high In addition, enhanced public debt a huge and complex set of challenges, growth sectors, protect vulnerable transparency and transparency which can only be overcome groups, reduce trade costs. The of resources spent on COVID-19 through an integrated response budget re-allocation required to activities would give donors across shorter-term recovery macro implement such policies will also confidence that the country is on management policies and longer-term have to increase investments in the right track and may also help actions that will spur a greener, more education, connectivity, and green bring bilateral creditors back to the resilient, and inclusive recovery. These infrastructure to bolster growth table to discuss budget support. policies are highlighted below: prospects and steer the recovery onto a green, resilient, and inclusive (iv) Strengthen the institutional Pro-recovery macroeconomic and development path. framework for fiscal policy, macro-prudential management by introducing institutional policies (iii) Carefully calibrate the sources of arrangements for independent financing to avoid unnecessarily fiscal policy such as stronger fiscal a) Prudent and transparent fiscal high cost financing. Whilst rules. management remains the lynchpin Government has recently increased to recovery and resilient growth - As the level of non-concessional b) Monetary and financial sector the crisis abates, the authorities borrowing to finance its fiscal policies will need to be closely will need to balance the risks deficits, scaling back on this coordinated with fiscal policy from the growing size of debt form of deficit financing, in to maintain internal balances, and related vulnerabilities with a line with its medium-term debt avoid inflation and minimize the possible slowdown in the economy strategy, will ensure debt remains financing costs for firms. First, through premature monetary manageable and avoid liquidity Government needs to limit domestic and fiscal tightening. Eventually, problems. This can be supported borrowing to moderate benchmark a fiscal consolidation into the by careful debt management that costs for interest rates. As the medium term will be necessary for would limit expensive domestic liquidity support is withdrawn, Uganda to return to a post-crisis financing, elongate the maturity borrower distress may rise and fiscally sustainable path. This fiscal of domestic debt, and maximize the share of non-performing strategy needs to do the following: highly concessional external loans within the financial system borrowing. Such an approach increase sharply. This will drag (i) Raise tax revenues to avoid would also reduce the crowding down capital adequacy and raise significant debt liquidity pressures. out of the private sector, with cost of borrowing. BoU’s action to It can also form part of a strategy positive spillover effects for increase the capital requirements to reduce interest rates in the economic growth. Moreover, in the financial system to prepare domestic debt market if it leads the revenue enhancement and the financial system for such to lower domestic borrowing. expenditure reallocation (in a. and eventualities, will need to be Yet, tax measures need to be b. above) will encourage broader followed with upstream reforms to closely calibrated with economic financing participation from the insolvency and debt resolution performance, especially for sectors external development partners. As frameworks to ensure that the that may be struggling to get back will credibility in management of NPLs are resolved quickly. This to normal business post-COVID-19. resources, considering instances will support quicker resumption A key first step is to remove tax of resource mismanagement of lending by banks in support of exemptions in the post-election in the government’s response the recovery. This could also be period and adopt a tax expenditure to COVID-19.45 To be able to accompanied with a framework for fiscal governance framework to 45. THE DAILY MONITOR (2020, April 29). 35 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 restructuring and recapitalization of reset of institutional arrangements and reformulating the designs of private sector firms balance sheets that govern their interactions, such social safety nets in Uganda, also or creating domestic distressed as institutions for fiscal-monetary recommended under our 12th assets markets. On the other coordination, institutions for Uganda Economic Update.47 These hand, while the financial system greater fiscal independency, such programs will provide an effective needs to be supported to provide as stronger fiscal rules. It might protection for households exposed lending for productive households be worthwhile to also consider the to increasing shocks and put them and firms, it is also important to issue of unwinding policies in the in a better position to recover after a build its resilience by enhancing Ugandan context in more detail. shock. The programs also cushion balance sheet transparency households from food insecurity and cautiously phasing out the Longer-term policy actions to spur a and falling into destitution, and most distortive liquidity support green, resilient, and inclusive recovery from long-term, often irreversible measures. Other policy actions damages to physical assets and a) Investing in the health of the to further reduce lending rates human capital. population – Beyond COVID-19, could include encouraging the the health system needs to c) Restoring and strengthening consolidation of smaller banks, be adequately developed to education response to human sharing of infrastructure, increasing concurrently respond to the capital development – The competition, improving banking pandemic and other health education of children and young supervision and risk management, conditions. To overcome the adults needs to be prioritized and encouraging savings. resource and capabilities throughout and post-crisis. Human c) Unwinding of policies that have constraints at national, sub- capital loss from school closures been concurrently used to mitigate national and health facility in an environment where digital the impact of the COVID-19 crisis levels (see section 1.4), smarter options are very limited for poorer will require close coordination investments are required in the and rural households, can be and sequencing, and a re-think of health sector. This needs to be grave. Government’s decision to fiscal-monetary coordination. In complemented by key reforms gradually return children to school, Uganda, like many other countries, including deepening results-based including allowing even those the response to the crisis called financing in the sector, introducing who may have married or became for doing things in unconventional a prepayment mechanism through pregnant during the prolonged ways, that could have tightened operationalization of the national closure of schools was a prudent links between fiscal, monetary, health insurance scheme, and measure. As recommended under and financial sector polices. digitalization of healthcare, as the previous Update,48 in addition to These tighter links could have proposed under our fifteenth the loan facility that has been made been beneficial in times of crisis. economic update.46 available to teachers in private Global best practices, for instance schools, greater support also needs b) Protecting the livelihood of the poor calls for clear separation between to be given to private providers of and vulnerable - To avoid lasting instrument issuance for fiscal education49, so they remain afloat damage to household incomes operations and that for monetary to sustain a reasonable level of and human capital, it is imperative policy, or between structural liquidity education. Furthermore, a greater to develop and implement shock support to banks and monetary focus will be required on learning responsive social protection operations. Therefore, unwinding outcomes – to ensure students programs, restore human capital, these policies will require close catch up for the lost school days in and support equity and inclusion. coordination and sequencing of 2020 – and proactively re-enrolling The COVID-19 shock amplifies the these policy areas and possibly a children who dropped out of school. urgency of expanding coverage 46. World Bank (2020, July). 47. World Bank (2020a, December) 48. Ibid. 49. Ministry of Education and Sports. This is particularly important for secondary education where private schools account for over 50 percent of secondary school going children. According to the MoES, there are about 4000 private schools in the secondary sub-sector, which is more than double the number of government-funded schools. 36 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Beyond these immediate priorities, been accentuated by the current e) Raising productivity of the Uganda needs to develop a robust developments. One key area is to agricultural sector will remain crucial digital agenda for education. accelerate the pace of technology to accelerate economic growth, and digitalization to reduce cost reduce poverty and vulnerability, and d) Promoting sustainable businesses and raise productivity of financial improve livelihoods in Uganda. This growth and job creation – systems and firms. Digital solutions requires adopting practices to arrest Government responded aptly to can support delivery of essential degradation and depletion of its support businesses to manage the services for firms (e.g. utility and tax natural, especially land, and building crisis through loans, tax payment payments, access to markets via up resilience to climate variability. deferrals, reduction of financing digital platforms and e-commerce, This can allow Uganda’s agriculture costs, suspension of payments to and digital SME finance), sector, which still employs the largest utilities, ensuring a stable currency, consumers (e.g. mobile money, share of the population, to transition and accelerating payment of remittances and e-commerce) and towards a higher productivity, arrears. It also extended the liquidity the most vulnerable (e.g. expanded climate resilient, inclusive, and support windows at Bank of Uganda and new short-term social safety low emission pathway – one that to December 2021 (see section nets). In this COVID-19 recovery, pursues economic growth, alongside 1.5). The withdrawal of this support early evidence suggests that firms environmentally sustainable and will need to be delicately calibrated that could adopt digitalization, socially inclusive development - a with the health of the financial incurred less losses due to the green transition. This is expounded system and the business sector shock.50 To accelerate the pace of upon in the second part of this report. as the pandemic evolves, while adoption of digital technologies, ensuring that unviable businesses Government needs to shift its will be allowed to fail. However, services to digital platforms, beyond these emergency measures, strengthen the legal and regulatory building a resilient economy environment for the use of digital requires addressing the structural platforms, and boosting the digital and policy issues that constrain entrepreneurship ecosystem.51 business growth and could have 50. Bachas, P.J. (2020) 51. World Bank (2020, July) 37 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 38 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 PART 2 INVESTING IN GREEN AND RESILIENT PATHWAYS FOR ECONOMIC GROWTH, FOOD SECURITY AND POVERTY REDUCTION Uganda’s economy and and prospects for inclusive growth and poverty reduction fundamentally depend on her natural resources. 39 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 3. UGANDA’S PROSPERITY HINGES ON THE HEALTH OF ITS NATURAL CAPITAL 3.1. Natural resource degradation in Uganda. 66. Uganda’s economy and people resources for their livelihoods, these up 38 percent of Uganda’s wealth in are highly dependent on its natural being agricultural land, fertile soils, 2014.53 A large part of this natural resources, namely agricultural land forests, and freshwater resources. capital wealth is agricultural land, (pastureland and cropland), forests, The stock of natural resources (also with cropland and pastureland taking water bodies, soils, and other referred to as the country’s natural up 65.4 percent and 21.1 percent, resources. These resources are the capital) is a significant portion of respectively. The non-agricultural foundation of the country’s main Uganda’s comprehensive wealth land comprises protected areas (12.7 economic activities, including industry (Figure 27). The renewable part percent), forests (0.7 percent), minerals and agriculture.52 Consequently, alone, comprising agricultural land and fossil fuel energy (0.1 percent). more than 80 percent of Ugandan (pastureland, cropland), forests, households depend on natural wetlands and water bodies, made Figure 27: Comprehensive Wealth in Uganda Figure 28: Natural Capital Wealth in Uganda Source: World Bank. 2020 67. There is enormous pressure natural resource base is driven mainly Pressure on the country’s on and rapid depletion of natural by population growth, land conversion natural resource base is driven resources in Uganda driven by both for farming, urbanization, biomass mainly by population growth, natural and human factors. Uganda’s energy use, the country’s topography, land conversion for farming, natural capital wealth has generally refugee influx, and the drive for urbanization, biomass energy been declining since the early 1990s industrialization to promote economic use, the country’s topography, (Figure 29). This in turn shows that growth. Between 1990 and 2015, refugee influx, and the drive for renewable resources are being agricultural land expansion occurred industrialization to promote exploited faster than they are being at the expense of woodland/forestland economic growth. renewed. Pressure on the country’s (Figure 30). 52. GOU, NEMA (2019) 53. World Bank (2020, October) 40 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Figure 29: Total Natural Capital Depletion ($ of GNI) Figure 30: Changes in landcover area – 1990-2015 Source: MoFPED (2019). Source: World Bank. (2019). Figure 31: Potential and Estimated Soil Erosion Risk in Uganda Source: Karamage, F. et al. (2017) 41 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 68. Land degradation is a leading the central plains of the country, forest degradation. About 90 percent form of natural resource degradation silting a vast network of wetlands. of Uganda’s energy is still sourced from in Uganda, especially in the highlands Human factors have also led to land biomass, comprised of 79 percent and cattle corridor. About 41 percent degradation through soil erosion from firewood, 6 percent from charcoal of the country’s land is now degraded, and nutrient depletion. Crop farming and 5 percent from crop residues.60 of which 12 percent is severely has contributed to land degradation Uganda’s wetland coverage, has also degraded. Soil erosion affects around through soil fertility mining, slash reduced from 15.5 percent in 1994 to 85 percent of degraded land,54 with and burn, and unsustainable soil and 13 percent in 2017. Of the remaining the highlands of Kabale and Kisoro water management practices. Poor wetland, 4.1 percent is degraded, severely affected (85–90 percent), grazing management also significantly leaving only 8.9 percent intact.61 The while Mbale, Rakai and the cattle contributes to high erosion rates in the country’s expansive water resources corridor districts are badly affected cattle corridor.58 have not been spared in spite of their (75–80 percent).55 By 2014, the mean critical role in supporting a large and rate of soil risk erosion was estimated 69. Uganda has witnessed severe varied fish population, 50 percent of at 3.2 ton per ha per year within degradation of forestland and which is from Lake Victoria.62 However, erosion prone areas, and at more wetlands, mainly driven by primary Lake Victoria along with its catchment, than 1 ton per ha per year in 66 of land conversion for agriculture and which includes wetlands from 112 districts (Figure. 31).56 However, biomass energy use. Over the past 60 Bushenyi, Mbala, Mbarara, Ntungamo, there is significant spatial variation years, Uganda’s forest cover declined Lyantonde, Rakai and Isingiro, has in these rates of soil loss across at a rate of 2.6 percent per year—one been adversely impacted by the the country. In the hotspot highland of the highest rates of forest loss establishment of farming activities. regions, annual soil loss can exceed 30 globally - with forests on private land For instance, dairy cattle keeping in the tons per ha per year. Natural factors almost completely depleted. Overall, wetlands along the river Rwizi-Rufuha, such as abundant tropical rainfall, a the share of natural forest in Uganda’s leading to a large loss of wetlands steep topography, and high weathering total surface area declined from 54 across this major catchment.63 rates have increased soil erosion in percent in the 1950s to 20 percent in Wetland degradation is highest in the highlands.57 High rainfall in the 2015, implying the country lost more Lake Kyoga basin, where wetlands are steeply bare slopes of the highlands than 50 percent of its forest cover.59 also being converted to subsistence of eastern, northern and western The high demand for wood biomass cultivation of mainly rice, sugarcane Uganda have eroded soils towards for energy and the conversion of forest and maize. land to farming land has driven the 3.2 The nexus between natural resource degradation, agriculture, poverty and climate change 70. A strong relationship exists amounted to $1.2 billion worth of million per year of potential economic between natural resource degradation, economic loss.64 Wetland degradation value of wetlands.65 By as far back as poverty, and economic loss. Rapid has led to biodiversity and habitats 2003, the annual cost of soil nutrient natural resource degradation destruction, deterioration of water loss due primarily to erosion was contributes to economic loss and quality, and impeded natural drainage already about US$ 625 million per poverty due to negative impacts patterns leading to frequent flooding year. Poverty can in turn contribute on agriculture and the reduction of of farmlands. While estimates of the to natural resource degradation valuable goods and services like costs of wetland degradation are through unsustainable exploitation of wood and hydro energy, construction limited, degradation can lead to a loss natural resources to derive short-term materials, and ecosystem services of around US$200 per capita worth of benefits, and poor investment in their derived from natural capital. Between goods and services that are derived conservation and improvement (Figure 1990 and 2015, forest cover loss from wetlands, or affect up to US$ 1.5 32).66 54. CIAT; BFS/USAID (2017). 61. GoU NEMA (2019). 55. Ibid. 62. GoU (2015a). 56. Karamage, F. et al (2017) 63. World Bank (2020, June). 57. Ibid 64. World Bank (2020, June). 58. World Bank (2020, June). 65. UNDP-UNEP-NEMA, (2009). 59. GoU UBOS (2020, June). 66. Nkonya E. et al (2008). 60. Bamwesigye, D. et al (2020). 42 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Figure 32: The interplay between natural resource degradation and vulnerability of natural resource dependent economies and people Source: Adapted from World Bank (2021d, April) 71. Agriculture is a dominant pathway Crop farming covers over about It is estimated that up to 27 percent through which natural resource 44 percent of total land area in the of agricultural GDP can be lost degradation is experienced by the country and grasslands, dominated by from environmental degradation.69 economy and people. While natural grazing livestock cover 21 percent.68 Productivity losses per year for maize resource degradation can impact However, Uganda’s agriculture total from soil erosion have been estimated poverty and economic performance factor productivity – a measure of in some places as high as 190 kg/ directly, the outsized contribution of productivity which accounts for ha, which increases pressure on food the agriculture sector to the economy the land, labor, capital, and material security.70 On the other hand, due and people’s livelihoods makes it a resources employed in production – to its large environmental footprint, dominant pathway for natural resource has declined consistently relative to its agriculture is also a major contributor degradation to affect livelihoods and East African neighbors over the 2005- to natural resource degradation, and the economy. Agriculture provides 2016 period (Figure 33). This trend economic loss. Agricultural production primary employment to about 60–70 underscores the underperformance has contributed to 85 percent of land percent of the labor force, generates of the sector, relative to its immense degradation being experienced via soil around one-quarter of GDP, and is the potential. While many factors are at erosion and nutrient loss. Soil erosion main source of income for the bottom play, natural resources degradation and land degradation alone in 2019 40 percent of rural households.67 contributes to the underperformance. were estimated to costs about 17 percent of GDP. 67. GoU UBOS (2014, November) 68. GoU NEMA (2019). 69. Ibid 70. GoU MAAIF (2010). 43 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 72. Climate risks, both slow onset Figure 33: Uganda’s Low and Declining Agriculture Total Factor change and extreme events, Productivity (2005-2016) are exacerbating the negative relationship between agriculture and natural resources degradation. In Uganda, climate hazards act as threat multipliers (Figure 32), with consequences such as poverty and food insecurity and in some cases, migration. Uganda is among the countries that are most vulnerable but least adapted to climate change, ranking 166 out of 181 countries on the ND-GAIN index.71 In particular, the country’s exposure to agriculture- related risks like pests, diseases, torrential rains, floods, and drought spells is high and their incidence and severity are projected to increase Source: USDA Economic Research Service under climate change.72 In fact, severe weather events have already lowered agricultural productivity and performance by increasing the 73. Climate change is also imposing water demand for production (irrigation uncertainty of cropping calendars, significant economic costs and and livestock) is projected to be in the production losses, and post-harvest contributing to growing poverty. range of $2.3 – $4.2 billion by 2025. damages. The agricultural sector is Severe weather events have already The largest drops in crop production highly sensitive to climate change degraded infrastructure systems, are predicted for cassava, potato, and and variability because more than human health, and impacted sweet potato, which could decline by 95 percent of cropland is rainfed agricultural productivity, further as much as 40 percent by 2050.78 and subsistent.73 This vulnerability compounding the country’s poverty situation. The rise in the poverty rate 74. Overall, the prospects for is exacerbated by natural resource in Uganda from 19.7 percent in FY economic growth, poverty reduction degradation. For instance, degradation of wetlands has increased the 2016/17 to 21.4 percent in FY 2018/19, and improved livelihoods in Uganda incidence of flooding in lowlands, was spatially concentrated in sub- will dwindle if the country does not affecting farmland. Flooding in national regions facing high levels of arrest natural resource degradation, lowlands impacts at least 50,000 natural resource degradation.76 Climate build resilience to climate change, people annually and costs over $62 change inaction is projected to cost and boost agriculture productivity million.74 All other factors being Uganda about 2-4 percent of the GDP sustainably. The country’s land and constant, soils in the hot and arid annually, with damages to agriculture, natural resources need to be managed climates of the cattle corridor have water, infrastructure and energy in a sound and sustainable manner, been more prone to degradation estimated to cost equivalent to $7- $11 including managing the risks posed and desertification due to extreme billion per annum over the 2010-2050 by climate change and variability. The temperatures and the decrease in period.77 The economic cost resulting agriculture sector’s large footprint in mean annual precipitation.75 from crop damage, loss of export crop terms of GDP, rural livelihoods, and revenue, loss of livestock, and unmet natural resources degradation need 71. The ND-GAIN Country Index summarizes a country’s 74. World Bank (2020, June). vulnerability to climate change and other global challenges 75. Department of Disaster Preparedness and Management (2011). in combination with its readiness to improve resilience. It 76. The most severely affected areas or regions being Mount Elgon region (Elgon and Bukedi), eastern lowlands of the aims to help governments, businesses and communities Kyoga plains (Teso and Lango), and the Karamoja region. The poverty analysis results from the Uganda Bureau of Statistics better prioritize investments for a more efficient response to reveals that, the same regions have higher poverty levels. the immediate global challenges ahead. 77. Markandya, A. et al (2015). 72. CIAT; BFS/USAID (2017). 78. GoU MWE Climate Change Department (2015c). 73. Sridharan, V. et al (2019) 44 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 to be considered and utilized, to build and socially inclusive development GHG emissions. Combined with land resilience in Uganda’s development i.e. green transition), that it pays close use changes like deforestation and pathway and contribute to sustainable attention to boosting agricultural desertification of fragile land, this economic growth and poverty productivity sustainably, accompanied share grows to about 83 percent.79 As reduction. It is critical that as the by building resilience to climate such, sustainable agriculture sector country’s efforts to transition towards change and reducing natural resource development and natural resources a higher productivity, climate resilient, degradation. Uganda’s agriculture management can contribute towards inclusive, and low emission pathway sector contributes to 38 percent the country’s commitments to (one that pursues economic growth, (22.38 Mt CO2e) of the country’s total addressing climate change. alongside environmentally sustainable 3.3 What will it take to achieve a green transition in Uganda’s development? 75. For a green and resilient transition urgency of such an approach. With fossil fuels and agrochemicals. It in Uganda’s development, the many people returning to agriculture also contributes to reduction of development agenda or interventions and natural resources for surviving environmental pollution (water and air) need to be viewed not only from the the crisis, improved agriculture and and better waste management. Still, perspective of inclusive economic natural resources management is not even under such practices, climate and social outcomes but also only crucial for transitioning to a more change can continue to cause havoc. sustainable environment and natural resilient and sustainable development, Therefore, deliberate climate smart resources management outcomes. but it is central to a green, inclusive, agriculture (CSA) innovations, and This broad-based green approach and resilient recovery of the economy. management practices will help to to development, addresses multiple address climate change effects. CSA 76. A green transition can partly be as an approach helps agricultural development problems – food achieved through scaling sustainable systems respond effectively to climate security and nutrition, natural capital land management and climate change through the triple objectives management, poverty reduction and smart agriculture. Sustainable land of sustainably increasing productivity economic growth through addressing management (SLM) is the use and and incomes, building adaptation risks and constraints emerging from management of land resources – land, capacity and resilience, and reducing land and natural degradation, poor soil, water, animals, and plants – to greenhouse gas emissions where agricultural performance, and climate produce goods to meet changing possible.82 There is a massive overlap hazards. This holistic approach human needs, while ensuring the between SLM and CSA. The adoption considers the end-to-end range of long-term productive potential of of SLM and CSA as an integrated issues from farms to landscapes to these resources and maintenance framework will improve agricultural value chains, and maximizes benefits of environmental functions.81 SLM performance (resilience, productivity for the economy, people and the can help sustain or restore the and incomes), protect natural environment (Figure 34). The impact productive capacity of land, including resources, and sustainably provide of the COVID-19 pandemic that has cropland, grassland, and forestland, opportunities to maximize win-win slowed growth in Uganda, increased to deliver public and private goods. outcomes and minimize trade-offs poverty, and threatens to reverse the Many SLM practices also contribute across the three main developmental structural transformation realized in to sequestering carbon in soils and outcomes, economy, people, and the country’s labor market over the last vegetation, reducing emissions environment (Figure 34). three decades,80 has heightened the of greenhouse gases and use of 79. GoU MWE (2015b). 80. World Bank (2021c, April). 81. FAO (2017). 82. FAO (2010) 45 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Figure 34: Relationship between SLM, CSA and the triple bottom-line Source: World Bank staff formulation, 2021 77. SLM-CSA innovations do policies, behaviors, institutions, and green transition that supports resilient, not act alone to achieve a green investment. The following section sustainable and low emissions transition. While SLM-CSA relates explores how Uganda can leverage growth, especially through actions to technical actions in croplands, its experience, to overcome the in agriculture production and natural pasturelands, forest/woodlands constraints and challenges to the use resources management. and beyond, they also incorporate of SLM and CSA at scale to achieve a Digging contours in Bududa to reduce erosion and landslides 46 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 4. STEPS HAVE BEEN MADE TOWARDS A GREEN TRANSITION, YET BARRIERS REMAIN 4.1 SLM-CSA innovations in Uganda have increased productivity, and incomes, but adoption is still low. 78. Several SLM and CSA seek to address broader landscape On grasslands, SLM- innovations have been tested in and natural resource degradation. CSA in Uganda focuses Uganda, largely through pilots. Forest and woodland related SLM- largely on revegetation The SLM-CSA practices that have CSA include forest fire management, and management of been implemented in Uganda have afforestation, and agroforestry. On grasslands, and more varied widely, from region to region grasslands, SLM-CSA in Uganda recently, zero grazing, and in some cases from one plot focuses largely on revegetation improvements of of land to another. However, there and management of grasslands, livestock breeds and is generally a strong overlap across and more recently, zero grazing, feeding regimes. SLM and CSA practices (Table 9). On improvements of livestock breeds croplands, SLM-CSA practices mainly and feeding regimes. These practices focus on agronomic and soil fertility have realized tangible benefits to management. Off croplands, they producers as discussed below. Table 9. Typology of SLM and CSA practices interventions in Uganda. Sustainable Land Management Climate Smart Agriculture Cropland: Soil and water conservation • Terracing • Permanent planting basins • Contour ridges (soil/grass/bunds/) • Small-scale irrigation • Water retention ditches • Water efficient crop varieties • Infiltration pits • Renewable energy and energy efficient equipment and machinery • Flood control measures (e.g. cut-off drains) • Water harvesting (e.g. from rainwater) • Small scale irrigation • Gulley control measures • Waste recycling Cropland: Soil fertility and agronomic management • Mulching and crop residue • Integration of biogas • Intercropping • Green manuring • Crop rotation • Improved seeds and crop varieties • Manure use • Crop diversification • Fallowing • Mulching • No/Low till • Intercropping • Composting/green manure • Crop rotation • Integrated pest management • Manure use 47 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Forestland • Community-based afforestation • Agroforestry • Institutional Based Afforestation • Clean cook stoves • Integrated community agroforestry • Biogas energy • Woodlots • Forest fire management Rangeland • Re-vegetation of rangelands • Silvo pastoral systems • Agroforestry on grazing systems • Adoption of improved breeds • Bush fire management • Improved livestock feeding regimes • Improved access to quality water • Improved animal health management • Grazing land management Water systems • Weed management e. g water hyacinth • Improved farm siting and design. • Treatment of fish production wastewater before • Use indigenous or non-reproducing stocks to minimize discharge biodiversity impacts and selective breeding • Integration of aquaculture • Water quality improvement Source: Uganda CSA country profile (2017) and World Bank. 2020 79. On croplands, the probability of organic inputs relative to other through integration of multi-purpose of technologies improving output African countries. Up to 68 percent of trees in pastures in Nwoya.85 depends on the livelihood and households use organic fertilizers over agricultural enterprise of the inorganic.83 Legume cover crops are 78. Erosion control infrastructure has farmer, as well as the region. For also favored as they can produce high historically been used to address land crop farmers, a combination of soil quality fodder as well as green manure degradation, especially in the highland fertility management, and erosion and other soil enhancing properties. regions. The main soil erosion control control where necessary are critical Establishing cover crops was found technologies used by farmers singly in increasing productivity, reducing to be cheap in Gulu, with very limited or in combination include terraces, damage and enhancing profitability maintenance costs (Figure 37). Ground contours, trenches, and planting of of crop enterprises. Common SLM- cover is critical to reduce erosion and trees and grass. These structures are CSA practices vary from one region fertility losses associated with erosion relatively cheap to establish (Figure to another in Uganda, and within and hence has been widely promoted. 37) but require a lot of labor. Cost regions. However, the more common Rotational systems with legumes have varies depending on whether farmers practices for restoring soil fertility are; proven to lead to high returns, even use vegetation to stabilize contours short-term soil and water conservation better than fertilizer application in and terraces, with the costs highest practices (such as zero tillage), crop some cases.84 Other benefits observed when trees are used over grasses. rotation, fertilizer application, and the include; productivity increase by 40 Labor costs vary greatly depending use of organic matter (manure and percent through mulching in Amuru, on the type of technology, the number coffee husks). Improved management yields and farm incomes increased of structures - contours/terraces or of organic sources is encouraged by 50 percent through introduction trenches - the size (dimensions) of since it significantly increases soil of green manure in Bulambuli. 6-fold the structures, and the spacing used. organic matter (which is vital for soil increase in productivity through Generally siting contours and digging health) and reduces nutrient loss. In intercropping maize and soya in Gulu, trenches are the most labor-intensive fact, Uganda has a very high use rate 66 percent increase in farmer incomes technologies.86 However, few farmers 83. Nkonya E. et al. (2016a) 84. Ibid 85. Uganda Landcare Network (2020). 86. Barungi, M. et al (2013). 48 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 (as low as 10 percent in some places) in Uganda.88 However, in the recent took off with the establishment of the see erosion as a major problem for past, efforts to improve grassland National Animal Genetic Resources farm productivity.87 In the highlands, management through controlled Centre and Data Bank (NAGRC&DB) such as in Kabale, it is not unusual grazing (e.g. rotational) to promote under the Animal Breeding Act of 2001. to see erosion control structures like natural regrowth of grasslands, Most farmers now appreciate the contour bunds neglected, and in some and silvopastoral systems among need to have better breeds of livestock cases have simply becoming field other amenable practices have been and have adopted different breeding boundary markers. demonstrated in the cattle corridor.89 technologies including artificial Some livestock keepers have been insemination services, use of improved 80. SLM-CSA on grasslands shifting towards zero-grazing, tethering, or quality males, and females, with has largely sought to address and supplementary feeding and tremendous gains in productivity (milk overstocking, and overgrazing, watering (Figure 36), with manure production and livestock value). This especially in the cattle corridor, where regularly applied to crop fields, thereby has incentivized improved livestock productive livestock production is raising incomes and improving food management. Breed improvement concentrated. Ordinarily, free range security and nutrition (Box 5).90 is however quite expensive. Artificial grazing where grazers had open Intervention in breed improvement insemination can cost up to US$2000. access to resources were dominant Figure 35: Changes in livestock management Source: Ministry of Agriculture, Animal Industries and Fisheries Box 5: Zero Grazing in Sironko and Bulambuli. This Zero grazed dairy cattle supported by the four for the non-dairy cattle zero grazing households Heifer Project in Sironko and Bulambuli contributed indicating increased livelihood options. However, substantially to rural household welfare and incomes, challenges of sustainability of the zero grazing practice food security and improved community social included that: networks. Average annual income from dairy farming 1. Farmers could only access Artificial Insemination was approximately US$ 894. Through use of cow dung (AI) services when the pilot projects were ongoing manure from the zero grazing units, average crop yields and couldn’t pay for services beyond the project. significantly increased relative to higher amongst the project participants contributing to an average annual 2. Farmers had no progeny. income more than 3 times households without zero grazing. 3. Government extension services were unable to reach farmers, build and sustain their capacity to engage in Households practicing dairy zero grazing diversified sustainable livestock agriculture. into seven more income sources as compared to only 87. Ibid. 88. Mugerwa, S., & Emmanuel, Z. (2014). 89. Thornton, P. et al (2019). 90. Zimbe, J. J. (2012). 91. Edimu et al. (2018) 49 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 81. Some fishing communities are that up to 23.9MWh of energy can be offer to the households, such as the shifting to aquaculture, helping generated monthly from the 1641.92 edible fruits, firewood, timber, and to reduce pressure on dwindling tons of water hyacinth harvested. construction wood/poles. Households water resources and fisheries while The amount of energy generated and communities tend to favor tree increasing production and export of can service about 305 domestic planting activities that are subsidized, fish. Integrated aquaculture has applied households in Uganda with an average and have clear income and household for its multiple benefits. It promotes monthly energy consumption of service benefits. Community-based efficient use of resources for example 78.1kWh.91 tree planting projects have also been water from the ponds can be used to piloted in many places across the 82. To reverse fast tree cover loss in irrigate fruits and vegetables. In other country with relative success, largely Uganda, individuals and communities cases, a channel for fish is constructed through the support of grants and have taken up tree planting with along the edge of rice fields. Other other incentives (Box 6), thereby the aim of having regular access innovations include the placing of providing environmental conservation to products that satisfy household benefits while also providing poultry pens over a fishpond, which needs and income generation. communities access to diversified reduces the cost of feed. One of the Various programs, such as the Sawlog income sources. A range of biomass greatest threats to Ugandan fisheries Production Growers Scheme (SPGS), energy saving technologies have also – the water hyacinth – was initially targeted large plantation farmers in the been promoted and piloted in Uganda controlled through chemicals, which past but later extended to small-holder to reduce reliance on firewood for had negative environmental effects. farmers to increase tree/shrub cover, energy. These include the use of solar Recently, Uganda has harvested water since these own most – approximately energy, biogas, and energy saving clean hyacinth as feedstock for biogas 70 percent – of the land in Uganda. cook stoves. generation to manage the weeds. In Mayuge district, tree species were With this innovation, it is estimated prioritized based on the products they Box 6: Women Group Community tree planting in Nwoya The WALA women’s tree planting group was group activities. Each member dedicated 0.20-4 ha established for environmental conservation through of their land to tree planting. The group also received tree planting, to improve sawlog production, for access to communal land for tree planting, leading to a sustainable land utilization, and to improve the dual approach of tree planting on private and communal incomes of women. The initiative was supported by land. Small Production Grants Scheme (SPGS). The group Successes of the approach are attributable to: (i) Site was linked to Saw log production scheme Grant (SPGS) trainings, farmer-to-farmer learning, and demonstration by National Forestry Authority (NFA) who supported the plots, (ii) access to information and decision support women with tree seedlings, forest tools and technical to on commercial forest plantation establishment, (iii) sale support tree planting. of products and income earning, (iv) access to a social The approach demanded that beneficiaries be network, (v) availability of subsidies for inputs such as organized into groups of at least 37 women with a seedlings and equipment, and (vi) access to a savings leadership committee and constitution to guide the and credit organization. 92. Kyarikunda, M. et al (2017). 93. Institute of Development Studies (2017). 50 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Figure 36: Select SLM-CSA practices in Uganda: establishment and maintenance cost (US$), and adoption rate (percent). Source: Compiled by World Bank staff (authors) from a review of literature, especially compiled by IFAD, and expert knowledge (Uganda Landcare Network, 2020). Estimated costs were in some cases converted from Ugandan Shillings by the authors, so costs are not exact but largely indicative. 83. On average, adoption of SLM-CSA - adoption rates of CSA in Tanzania are artificial insemination, management in Uganda is still low. Based on a estimated at 20-34 percent.95 Similar of small ruminants, and integration select set of projects, adoption rates rates of adoption are achieved in other of fruit trees and beans (Figure 37), vary from below 10 percent up to 87 parts of Africa - in Mali they ranged partly because these are associated percent in some cases (Figure 37). from 21-89 percent.96 with commercial enterprises; (ii) Even though weak community data organization in groups and cash 84. Success in adoption is driven by a collection systems used to assess or non-cash incentives (Box 6); (iii) host of factors determined by location the impacts are not suited for the innovative engagement by farmers and type of intervention. Where collection of the SLM-CSA data, there is with diverse stakeholders including adoption has been high, contributing some degree of uncertainty in adoption experts; (iv) definite and immediate factors included: (i) commercialization of technologies across different productivity and income benefits; and or semi-commercialization (with practices and locations. The data (v) access to information and technical significant financial returns) and good challenges notwithstanding, adoption training (see Box 7). The next section access to land. Adoption is higher rates in Uganda average around 30 explores the reasons for low adoption. for more costly activities such as percent,94which is comparable to rates improving livestock breeds through achieved within the East African region 94. CIAT; BFS/USAID. (2017) 95. Kurgat, B. K. et al (2020). 96. Ouédraogo, M. et al (2019). 51 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Box 7: SLM-CSA Innovations adoption through information services and training. BRAC Uganda, an NGO promoting SLM-CSA in Uganda, learned techniques and providing a three-day training designed and operated an agriculture extension activity for fifty other farmers in their villages It showed program for smallholder women farmers. The program that adoption of SLM-CSA can be improved with access promoted improved technologies (high yielding variety to information and training. Within a 6 km radius from seeds, manure usage, intercropping, crop rotation, model farmers, adoption rates of manure use increased and irrigation, using a network of model farmers as by 4.5 percent, intercropping by 6 percent, crop rotation examples to encourage adoption and Community by 5.4 percent, and irrigation by 2.8 percent (Smith et al. Agriculture Promoters (CAP). Model farmers were 2017). responsible for setting up a demonstration plot using 4.2 Why has adoption of SLM and CSA at scale been low? 85. Despite some successes, adoption at scale are explained below. strategies and plans (see Box 8) is highlighted in the previous section, supported by other sector specific (i) Gaps in institutional arrangements, the adoption of SLM-CSA innovations policies on land, environment, forest, capacities, and coordination in Uganda remains low and highly fish and rangeland and climate change, uncertain. The reasons for Uganda not 86. The Government of Uganda (GoU) that have assisted the country to have being able to translate the benefits of has taken some steps frameworks a holistic policy environment for SLM- SLM-CSA in increasing productivity, and action plans. An elaborate towards CSA implementation. incomes, and ecological benefits, from mainstreaming SLM and CSA practices demonstrations and pilots to rapid into development set of policies, Box 8: SLM-CSA Policy Landscape in Uganda. • The Third National Development Plan (NDPIII) • Uganda has ratified the Paris Agreement and 2020/21 to 2024/25 recognizes the need to invest in submitted their Nationally Determined Contributions SLM and CSA to achieve sustainable industrialization (NDCs). The ratification means that the Government for inclusive growth, employment, and sustainable of Uganda is ready to mainstream SLM and wealth creation. The plan has Climate Change, CSA throughout national and sectoral planning Natural Resources, Environment, Land and Water instruments; strengthen institutional coordination Management program that emphasizes the and technical capacities; improve methodologies for promotion of SLM and CSA practices. assessing the climate change impacts on agriculture and related sectors; and address data gaps. • Uganda’s Green Growth Development Strategy aims to achieve an inclusive low emissions economic • Uganda’s COVID-19 recovery plan seeks to (i) growth process that emphasizes effective and enhance the provision of improved agricultural efficient use of the country’s natural, human, and inputs to farmers, (ii) upscale agriculture extension physical capital. services, (iii) provide seed capital to organised special interest groups such as women and youth, • The Uganda Strategic Investment Framework for (iv) provide relief aid in response to natural disasters Sustainable Land Management (U-SIF SLM) under such as the locust invasion and climate change the stewardship of the Ministry of Agriculture Animal crisis. Industry and Fisheries (MAAIF) aimed to scale up and mainstream SLM and CSA into the national development agenda and across sectors. 52 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 87. Institutional frameworks for private sector organizations, local While policies and institutional implementation of SLM-CSA policies governments, other government frameworks do support SLM-CSA also spreads over various sectors. institutions and donors, are also to a large extent, public financing On the SLM side, Uganda Strategic represented on these platforms. does not easily lend itself to support Investment Framework for Sustainable multi-sector approaches needed 89. Although the policy frameworks Land Management (U-SIF SLM) as a to implement SLM-CSA at scale. are supported through a multi-sector national initiative, sought Budgets are allocated based on comprehensive multi-sectoral to set up an integrated cross-sector individual ministries and are not set institutional framework, they are approach to investing in solutions up for cross-sectoral and integrated not fully operationalized. This is to crosscutting SLM challenges.97 implementation of SLM-CSA. Ministries largely because of the gaps in land Core natural resources management and MDAs therefore continue to use policies, such as not being related government line ministries, operate independently of other area specific; lack of technical and including MAAIF, Ministry of Water relevant institutions and mechanisms financial resources; and weakness in and Environment (MWE), the Ministry for multi-sector engagement when enforcement of the laws. In addition, of Energy and Mineral Development they design and implement projects activities related to land management (MEMD) and the Ministry of Lands, and programs. Moreover, even within and climate change mitigation Housing and Urban Development ministries, budgets are allocated based through SLM-CSA, are not prioritized (MLHUD), undertook to collectively on individual departments without during budgeting, thus constraining pursue objectives of mainstreaming accounting for the integrated cross their operationalization. However, work on SLM as a critical component departmental implementation. the establishment of the institutional of the new agriculture drive. Some of frameworks has led to the increase 91. Key institutions for land these institutions are also responsible in the interest of the government and administration and agricultural for CSA-related activities. An Inter- other key stakeholders to investment in extension have weak capacities. Ministerial Cooperation Framework SLM-CSA as evidenced by the number Currently, the ratio of extension worker (IMCF) on SLM was signed in 2007 to of programs or projects that have been to farming households is about 1:1800, enhance collaboration and joint action lined up for investment. Currently, the which is lower than the internationally between the sectors. climate change and natural resource accepted ratio of 1:500.99 Furthermore, 88. An Inter-Ministerial National program has about 9 projects and extension system staff do not have Steering Committee composed of 24 more new projects being lined up adequate capacity and knowledge of Permanent Secretaries (MFPED, for investment. This hopefully, will SLM and CSA, and the interrelations [MFPED, MAAIF, MWE, MLHUD, support faster and more extensive between them; climate change, MEMD, MTTI, and the Ministry operationalization of these programs. soil, water, agro-biodiversity and of Local Government (MoLG)] integrated ecosystem management. 90. The operation and funding was also set up to provide policy Their training does not usually extend of public institutions can hinder guidance and oversight. This was beyond the agriculture sector. The effective coordination in design supported at the technical level by an national extension services also have and implementation of SLM- Inter-Ministerial Technical Working poor linkages to other key national CSA at scale. As such, scaling up Committee (IMTC).98 The Climate- institutions like Uganda National standalone externally funded pilots Smart Agriculture Task Force, which Meteorological Authority (UNMA) are yet to overcome coordination, comprises various key stakeholders and hydrological service providers. political economy, and resource on CSA, is chaired by the Sustainable Additionally, relationships with non- challenges. Various initiatives have Land Management (SLM) Unit of state providers of SLM-CSA related been implemented through different MAAIF. There are national platforms technologies, information, and services government agencies, each pursuing for SLM and CSA, which convene key such as NGOs, private sector, and different aspects of SLM-CSA without implementers and other stakeholders civil society, are weak. As such, the coordination across them. In fact, in one forum for coordination, sharing delivery of what are in many instances different ministries, departments, information, harmonizing protocols are well-laid plans at national level and agencies (MDAs) have ordinarily for data collection, and providing to farmers and communities lag developed initiatives independently, an opportunity for participatory policy because of the poor capacity leading to duplication and gaps. monitoring. NGOs, CSOs, CBOs, 97. GoU (2010, March). 98. Ibid 99.GoU MFPED BMAU (2019). 53 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 and fractured approaches. Similarly, lot of areas in Uganda, these groupings 93. Institutions that promote SLM- land administration institutions and do not exist or are too weak to sustain CSA usually do not match technology policy are a major barrier to the the continued demands of maintaining recommendations with prevailing adoption of good land management SLM-CSA activities at community household circumstances, and land practices. The leading constraints level, administratively and financially. tenure systems.102 This is so even are weak land and land-use policies, Collective action is also inherently though there are significant differences which do not effectively protect difficult. in some land management practices over 85 percent of the total land across different land tenure types.103 In (ii) Poor access to appropriate under customary tenure.100 This is Uganda, crop rotation and short-term technologies and knowledge made worse by existing and new soil and water conservation (SWC) regulations for implementing SLM, 92. Producers and land managers practices are less likely to be practiced that are not fully enforced, sometimes have limited access to locally on plots under customary tenure than due to capacity constraints within specific and relevant technologies plots under freehold or leasehold. Use government, and other times hindered and information. Without appropriate of SWC practices is less common on by vested interests. At local levels, land technologies and the right mailo than freehold and leasehold management institutions are weak, information, producers risk investing plots. However, use of organic matter such that they are unable to resolve in inappropriate technologies and is more likely on plots under mailo land conflicts to the detriment of wasting meagre resources. Limited tenure than those under freehold investments. presence and involvement of extension and leasehold tenure, likely due to services is a key factor. Studies show traditional customs among farmers 79. The location specificity of SLM- that access to extension services in the Lake Victoria crescent region, CSA practices means that scaling will and to information such as climate where mailo tenure is common, of rely strongly on local action, making information are some of the major growing perennial crops and applying local institutions vital. However, these factors in determining adoption of organic manure.104 institutions are few and far between, CSA,101 more so if the services are and where they exist, they are poorly 94. There is a lack of actionable participatory, fostering experiential capacitated. Practices that work in weather and climate information to and iterative learning, and in some one location do not necessarily work inform producers’ actions and choice cases farmer-led. There is a lack of in another, meaning local knowledge of climate resilient practices. Weather expertise in extension services for SLM and understanding of local contexts prediction in Uganda has been known and CSA and the extension services are important for implementation of to be unreliable and uncertain. Effective aren’t inherently participatory. This is SLM-CSA at scale. At the local level, disseminating climate information is partly attributable to low investments evidence from past projects shows known to trigger producers to adopt in knowledge institutions [such as that implementation of activities is appropriate SLM-CSA technologies.105 the National Agricultural Research more successful when implemented However, when this information is Organization (NARO), and extension by groups as key main entry points for inaccurate often enough, trust is lost, and advisory services (NAADS)]. SLM-CSA at the grassroots i.e. farmer and use of climate information dips Moreover, improving extension and groups and environmental committees. significantly. However, a lack of data research linkages would play a greater Because of the considerable initial collection and management equipment role in building the capacity of the costs and non-negligible maintenance and poor capacities for developing extension of officers to demonstrate, costs (Figure 37), SLM-CSA are climate services continues to bedevil train farmers and provide advice on sometimes better managed through Uganda’s climate service providers, soil, water, crop, livestock SLM and pooling funds and resources. Yet, in a thereby affecting SLM-CSA adoption CSA practices. at scale. 100. Bannada (2019) 101. Acevedo, M. et al (2020) 102. There are presently four types of land tenure systems in Uganda: customary, mailo, freehold and leasehold. (i) Leasehold: land is held based on an agreement between lessor and the lessee. Customary systems: land is owned and disposed of under customary regulations. The land can be owned by an individual, a family or a community, and is the most dominant system in Uganda. Under this tenure, proper records are not kept which makes it difficult to purchase land and resolve land-related conflicts. Freehold system: ownership of land freely with no time limit. Mailo: land is privately held in perpetuity with no limited period. Mailo land can only be owned by Ugandans, organizations, or companies. 103. Nkonya E. et al (2008) 104. Ibid 105. Acevedo, M. et al (2020) 54 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 (iii) Low Government funding and sub-national level, to deliver and shown in Figure 37, the estimated uncoordinated investment financing disseminate technologies at scale. The costs of establishing SLM-CSA fiscal space within the public budget practices vary by technologies and 95. Public investment in SLM- to make SLM-CSA priority issues has locations and can be very high. The CSA is still low, leaving the bulk of been limited given competing national costs for maintaining the SLM-CSA interventions to be funded through priorities. This has left a lot of potential interventions are also non-negligible. external development partners. In SLM-CSA activities unfunded and Many SLM-CSA practices are labor 2008, external development partners therefore failing to scale. intensive both at establishment and spending on SLM was estimated at during maintenance and hence can 83 percent of total spending on SLM 97. Reliance on donor funding for be attractive only to households that in Uganda. It is also assumed that 70 implementation has limitations, including coherence, coordination, have a relatively larger labor force. The percent of the cost of implementation and reliability. The amount of off- problem is compounded by the high of the National Climate Change budget support to SLM-CSA in cost of labor, as workers shift to other Policy, expected to cover most of the Uganda via NGOs, and international (normally more rewarding) forms of proposed CSA investments is to be development partners, is encouraging, employment. Households with access raised from external partners. Over as it means that SLM and CSA to less family labor relative to their the past decade, the government has demonstrations will continue to occur land are less likely to use more labor- spent less than 4 percent of its budget and evidence of the utility of the intensive practices such as frequent on the land-based sectors (agriculture, approaches to support conservation, tilling, conservation agriculture, tree forestry, and wildlife) and fisheries, productivity, mitigation and resilience planting, applying manure or mulch, or even though these sectors account will continue to mount. However, the water conservation. Yet, the dynamics for about 25 percent of the GDP on delivery fostered via such funding of access to labor and uptake of SLM- average. channels does not always lead to CSA are not always considered when 96. The costs of Uganda’s Framework coherent, coordinated, and integrated CSA-SLM is promoted. Furthermore, for Sustainable Land Management approaches needed for SLM-CSA rural households have limited access were estimated at US$ 245 million at scale via the necessary mix of to credit because they do not have over 10 years. The agriculture sector interventions; technologies, extension, assets to put forward. Community is a key source of SLM funding. While and cross-sectoral engagement. These groups such as self-help revolving Uganda has committed at least a financing channels tend to result in funds and women’s community groups 10 percent target of spending in the interventions scattered across different can be very helpful in defraying the sector, under the Malabo-CAADP places and concentrated on limited costs of establishing and maintaining declaration, spending continues interventions. Without higher levels of SLM-CSA, such as tree planting (Box to be off target, even though it has commitment of public funds towards 6). However, these would need to be improved over the years, and relative a more holistic approach to SLM-CSA, well established and administratively to other African countries. As of the there will continue to be untapped strong, and with strong roots in trust FY 2019/2020, Uganda’s spending potential for SLM-CSA at scale in to be effective, which isn’t always the on Agriculture was 5.68 percent, yet Uganda. case with available groups in Uganda. the contribution to GDP was about 99. Payments for ecosystem service 98. The high costs of establishing 23percent111. This means the country (PES) mechanisms have been and implementing SLM-CSA practices is not on track to meet the CAADP operated in Uganda to incentivize on small pieces of land can deter commitment by 2025. Setting up the adoption of SLM-CSA, especially producers with limited assets and structures to scale SLM-CSA is costly afforestation/reforestation with access to credit to adopt them. As for Government, particularly at the 106. World Bank. (2008). 107. CIAT; BFS/USAID. (2017) 108. Nkonya E. et al (2016a) 109. GoU (2010, March) 110. ESAFF (2020). 111. World Bank (2021, January) 55 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 reasonable success. However, the has regularly limited the scaling of in Uganda sustain preferences and amounts of advance capital required successes. Project managers of PES bias for specific agricultural activities by PES projects has regularly limited programs in Uganda (e.g. ECOTRUST) and practices; traditional farming the scaling of successes. Since usually must put up a lot of capital practices, modern inputs with less adoption of SLM-CSA can improve to buy credits up front for credit attention to SLM-CSA practices; ecosystems services such as water registries to make them available commercialization of agriculture, thus quality for downstream users, PES to larger groups of buyers. Limited promoting mechanized land opening, projects, where farmers are paid to financing means that the amounts of monocropping; and other practices. adopt specific practices have been participants that can be drawn into Many producers are accustomed to implemented in Uganda, mainly such programs is limited even where thinking of the ox-drawn plough as through agreements/collaboration demand to join exists. Furthermore, an essential part of agriculture and between government agencies, there are significant costs related to farming culture and continue to find private sector/companies, and training, and monitoring, reporting and it difficult to overcome the idea that nongovernmental organizations. verification (MRV), which may mean ploughing is not a required part of PESs are commonly supported by that the payments to participants successful farming. Others still prefer payments from water users, such as are not always the most attractive to to use plant biomass as fodder for bottling plants, purification utilities, incentivize adoption. livestock rather than to place them on and breweries. They tend to make fields as mulch. Many communities 100. Poor data on land use and use of established community groups, in Uganda tend to prefer slash and impacts of adoption of the SLM-CSA providing technical advice and capacity on natural resources, agriculture burn to clear land for use at the building, and payments to farmers, in productivity weaken the targeting of expense of forests and biodiversity, some cases as early as the first year innovations. There is a lack of data on simply because it is easier, and has of the program, which defrays costs of the true value of natural resources and been practiced for generations. Such establishing the SLM-CSA practices. SLM-CSA practices on producers and mindsets make it difficult to promote These combinations of activities landowners due to weakness in data some SLM-CSA practices that disrupts that have accompanied SLM-CSA collection and M&E systems, as well long standing traditions and practices. under PES programs in Uganda have as natural capital accounting. Often 102. Poverty, and limited livelihood contributed to the relative effectiveness measurements of the adoption of SLM- alternatives make it difficult to adopt in establishing and maintaining the CSA practices such as crop residue good land management practices. SLM-CSA as they included some of the cover are dependent on the self- Limited livelihoods alternative for key levers of adoption of CSA-SLM i.e. estimate which tend to be inaccurate producers mean that they would prefer incentive payments, technical training, and variable. Data on the true value to invest where returns are immediate and multi-stakeholder engagement. of natural resources on the economy or at least apparent in the short term. However, the high amounts of advance and livelihoods is also sparse and However, some SLM-CSA practices capital required by Payment for highly uncertain. As such, planning for can be costly, and can take long Ecosystem Services (PES) projects resource management and judicious before benefits can be realized and exploitation is hampered. are technically complex. Furthermore, poor households that depend entirely on their land often overmine the soil for Women are not empowered (iv) Social factors, behavioral their sustenance. to make decisions about characteristics and norms resistant important changes in farmland to modern technologies 103. Women are not empowered management given that many to make decisions about important do not hold title to land, and 101. The decision not to invest in or changes in farmland management men are usually the primary adopt new technologies by farmers, given that many do not hold title communities and administrators is to land, and men are usually the decision-makers partially informed by mindsets and primary decision-makers. This is underpinned by social and behavioral despite being a large proportion of norms. Predominant cultural mindsets the land managers, and labor (women 56 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 contribute up to 75 percent of total funds and loan and savings schemes, improved livelihoods of the poor. To agricultural labor; 55 percent of land present strong opportunities for an extent, formalization of land rights preparation, 65 percent of planting, women and other farmers/pastoralists can be considered a prerequisite to and 90 percent of weeding and food to adopt SLM-CSA. Yet, this social SLM-CSA. This is particularly so for processing). In Lango sub-region, close capital is usually not at the disposal of investments that are long lasting, and to 70 percent of the land was owned farmers/pastoralists, to the detriment costly, such as irrigation. Investors by men, while 25 percent was jointly of adoption and scaling. have been unable to secure land for owned by a married couple and family purchasing or for renting on a large land inherited from the man’s family. scale due to the customary land (v) Land fragmentation, uncertain land Women owned only 5 percent of the ownership that prevails in some areas rights and poor access to markets land 112. Given the investment demands in Uganda, such as the northern and of some SLM-CSA practices, women north Eastern regions. Farmers or in Uganda are inclined to only adopt 104. Land tenure system and community groups who use land under a limited set of SLM-CSA practices, related land insecurity remain major customary arrangements cannot particularly low investment practices constraints to implementation of participate in land markets or enter like agronomic managements (e.g. new technologies. Most land plots contracts with investors because cover cropping and intercropping). are already too small for SLM-CSA they do not have legal title to the land This exclusion of women is a missed practices to be cost effective when they work. Weak land administration adopted by individual farmers, yet opportunity, especially given that the institutions in these areas also mean farm size continues to diminish. proportion of farm area owned by that land disputes are not uncommon From 2006 to 2016, the share of small female members of the household and often go unresolved. The impact household farms, with less than 2 is positively associated with higher of land disputes on agriculture has hectares of land, rose to 83 percent crop productivity113. Membership in been estimated at 5-11 percent of from 75 percent. The average net women’s groups has often presented agricultural production being lost land size operated fell from 1.7 to 1.2 opportunities for women to participate 116 . Gender in-equalities around land hectares per household 115. This limits in more diverse SLM-CSA activities ownership and related decision-making the amount of investments farmers like tree planting.114 In fact, access to in Uganda threaten the greening of can make. Lack of secure access to community groups, among other social the agriculture sector and sustainable private property is commonly viewed infrastructure like revolving credit management of natural capital further. as a major constraint to SLM and 105. Poor access to markets and roads negatively influences farmer investment decisions on land management, since it affects local prices, availability of inputs and market information, and other socioeconomic aspects. Existing and new commodity value chains can contribute to the green transformation through increasing profitability from agriculture and natural resources, by preserving natural capital through becoming as green as possible themselves, that is operate efficiently, be inclusive, minimize the destruction of existing natural resources and Rose Najjuma, a model farmer in Kulambiro, Nakawa, in her vegetable garden 112. Kaweesa, S. et al (2018). 113. Nkonya E. et al (2008) 114. Uganda Landcare Network (2020) 115. Nkonya E et al. (2008) 116. Deininger, K. and R. Castagnini (2004 57 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 minimize pollution and carbon roads disfavors farmer adoption of far from roads, disincentivize the use emissions. However, value chains are purchased inputs, by reducing their of the labor intensive approaches and not inclusive. Producers in Uganda availability and increasing their costs encourage slash and burn despite the regularly lose value to other actors relative to farm-level commodity potential natural resource damage along the value chain due to value prices. Lack of market access also effects.119 In Uganda, there is low chain bottlenecks such as access to disfavors the commercial production of access to and poor adoption of new markets and information asymmetries, higher-value crops, such a tree crops, and green technologies for production, among others. For banana for instance, some legumes and roots and tubers, post-harvest storage, processing, the loss of value along the value which are very important for land and transport of agriculture and chain can range between 29 and 40 degradation management. A lack of forest related commodities. This percent, before reaching the market. all-weather roads in Uganda has been is despite the fact many means of 117 Producers with greater market associated with the practice of slash raising profitability also conserve access adopt better land management and burn, where the diminished returns natural resources and protect the practices than those in remote of labor and other inputs invested in environment.120 areas.118 Poor access to markets and the effort to prepare land sustainably A boy ploughs to open up the feilds as they prepare for planting 117. Westlake, M.J. (2014) 118. Nkonya E. et al (2008). 119. Ibid 120. Nkonya E. et al. (2016a) 58 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 5. STRATEGIES TO ACCELERATE ADOPTION OF INNOVATIONS FOR A GREEN TRANSITION Drying coffee on sacks in Bushenyi 106. For Uganda to maximize the implementation. This will require sources of finance to support potential of its natural resources involvement of many public agencies investments in adaptation and dependent sectors to promote a working together in a coordinated mitigation. Significantly increasing green, resilient, and inclusive growth and integrated way. However, central funding towards SLM-CSA will be agenda, it will have to sustainably to that will be the stepping up of a major step for MFPED towards raise productivity of agriculture public financing towards SLM-CSA honoring the Helsinki Principles. On- and support effective management to significantly increase the share going support from the World Bank to and preservation of natural capital. of public financing going towards enhance government-led processes This requires overcoming barriers to SLM-CSA. As such, apart from the of identification, measurement, adoption of innovations to improved usual environment and land sectors, and monitoring of climate-relevant management of land and natural the country’s Ministry of Finance, public expenditures through climate resources, and climate resilience. Planning and Economic Development budget tagging will provide a better Uganda will need to target scaling up will be central in not only financing understanding of where climate of high impact SLM-CSA at all scales such an approach but also actively funding is being prioritized and where supported by appropriate polices facilitating and leading. Uganda was gaps exists for MFPED to prioritize and institutional arrangements and one of the first African countries to future funding. capacity building, behavioral changes, sign up for the Coalition of Finance and financing and investments. Ministers for Climate Action, which 108. Design and implement creative The key actions to achieve this are recognizes that finance ministers public support programs and elaborated below. hold the key to unlocking climate related policy reforms that promote action and are capable of incentivizing sustainable, and judicious natural a) Increase budgetary funding and climate informed public expenditure by resources management and use. provide incentives for uptake of utilizing climate fiscal tools to support The Ugandan government needs SML-CSA innovations a green economy transition. Under the to creatively apply the economic coalition’s Helsinki Principles, through instruments at its disposal to enhance 107. Increase public funding in the effectiveness of available public MFPED, the country would seek to SLM-CSA that supports a shift from support and incentivize landowners align policies to the Paris Agreement projects towards more programmatic to improve management of their land and support NDC implementation, approaches and from siloed and provide some essential ecological account for climate change in public sectoral approaches to multi-sector functions and services through uptake investment management, budgeting, implementation. A cross-sectoral of appropriate and environmentally fiscal planning and macro-economic approach is needed for SLM-CSA friendly technologies. policy, and mobilize private sector 121. World Bank (2019b). 59 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Distortive public sector support the highlands, and the cattle corridor. could also support programs for labor and policies need to be repurposed. Policy reform and other financial intensive public works (LIPWs). LIPWs Agricultural subsidies, such as incentives should also go towards will act as both a social safety net those for fertilizer, which have been private sector players who have green coming out of the COVID-19 pandemic increasing in Uganda121 should businesses that stimulate growth in and provide the much-needed labor be repurposed to reduce their climate smart and environmentally for communal and landscape-based distortionary effect on incentives to sustainable goods and services e.g. SLM infrastructure e.g. erosion control adopt other more holistic practices through tax breaks. Government trenches, and gulley reclamation, and such as ISFM, natural resource should also make use of the power of biodiversity restoration activities. regenerative practices (e.g. mulching, public procurement and shift towards Such programs can be targeted at rotation, and intercropping), and greener procurements to encourage unemployed youth. Evidence from integrated agro-silvopastoral systems, sustainable production and natural Ghana shows that such programs have which can help restore the functioning capital exploitation, efficiency, minimal multiple benefits; job creation, poverty and fertility of cropland, and restore pollution, and waste generating reduction and biodiversity restoration biodiversity on grasslands and forests. products and value chains. Given that (Box 9).122 To succeed, such programs should labor intensity and cost are a major prioritize hot-spot regions such as barrier for SLM-CSA, the government Box 9: Using Labor Intensive Public Works to Scale Up Slm-Csa, Create Jobs and Reduce Poverty: The Case for Ghana The World Bank supported Ghana Social Opportunities Project (GSOP) was a 7 year project that ran from The implementation of LIPW, was accompanied by 2010 to 2018, which aimed to avail income earning policy reform, including the formulation of a national opportunities for poor households in northern Ghana labor-intensive public works policy under GSOP through a public works program that contributes to aimed at institutionalizing the LIPW as a tool for rehabilitating local infrastructure and reforestation employment creation in Ghana. through Labor Intensive Public Works (LIPWs). Lessons: The project carried out a total of 902 LIPW sub-projects in 1125 communities; Of these, 250 climate change 1. LIPW can reduction in extreme poverty incidence. In mitigation initiatives (tree planting) were completed Ghana, extreme poverty declined by 3.7 percentage covering 2,268.24 ha and 349 feeder roads covering points over control households. a total of 1,336 km and 263 small earth dams and 2. GSOP-LIPW can generate reliable employment. dugouts were rehabilitated and/or complete. The About 19,023 full time employment annually was project provided short-term employment to 167,243 created in Ghana, and it was found that LIPW was a people living in extreme poverty (61% of whom are good response to the massive youth unemployment women) and paid more than $17 million in wage in Ghana. earnings. 109. Give a new impetus to the achieve positive results for SLM- targeted and large enough. Pay payment for ecosystem services CSA uptake.123 However, to make outs for landowners need to be (PES) mechanisms that have been the financial incentive mechanisms meaningful, otherwise they will not piloted to broadly address the loss for SLM-CSA implementation be taken up or will not be sustained. of ecosystem services. Evidence more attractive and to encourage The pool of potential sources of exists that incentive payments for conservation in Uganda, the PES payments need to be expanded environmental services in Uganda mechanisms need to be more beyond the water sector, which is 121. World Bank (2019b). 122. World Bank (2018c). 123. Jayachandran, S. et al (2018) 60 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 currently dominant to other actors, in government. The design of PES will markets, infrastructure, and services, such as through carbon emissions need to be flexible and account for can improve land managers’ incentive reduction payments. Uganda does not heterogeneity in landowners’ payment and ability to manage land more currently have much access to large preferences. PES should emphasize sustainably, through stimulating more carbon emission reduction purchase upfront payment (cash or inputs) to profitable production and greater ability arrangements and is ineligible for offset initial high costs of adoption, to produce higher-value products support from various facilities such accompanied by periodic payments to and use inputs more intensively. As as the carbon fund or Biocarbon support continued application of SLM such, for SLM-CSA technologies to be fund. However, the government needs and CSA. Such PES will need to find a adopted at scale, they need to have to explore new opportunities such balance between individual payments attractive investment return profiles as through the green climate fund and communal payments to cater and serve multiple purposes. The (GCF), and voluntary carbon markets. for farmers preferences. A level of Uganda government needs to create Setting up monitoring, reporting aversion to communal payments exists markets and/or access to markets. To and verification (MRV) systems for due to perceptions of bureaucracy overcome major barriers to markets, tracking carbon changes and other and corruption, which create distrust inadequate market information, high environmental indicators will be a of local authorities. Furthermore, in- transport costs, and poor storage and vital tool for supporting PES and kind payments will need to be a key handling facilities, the Government providing access to a larger pool of complementary component of such should aim at expanding markets for climate and environmental finance. incentives. Labor assistance, and tools, more diverse commodities and should The government should also consider are known to increase willingness to be committed to addressing some financing PES systems that operate accept PES contracts in Uganda.124 of the obstacles to their marketing. on large scales, with larger funds, for Farmers should be linked to local more efficiency due to economies of 110. Promote market access for markets and to regional and export scale. This is in line with the National diverse agriculture and natural markets depending on the commodity Environment Act, which calls for resource-based commodities that profiles they manage. Locally, markets the setting up of mechanisms for does not put pressure on natural for vegetables, legumes, small payment for ecosystem services. resources, and which provide livestock, and poultry where women However, there is need to build opportunities for inclusion and are most active can be promoted. strengthen capacities to design PES value addition. Improved access to Market support should cover access A tarmac road in Malaba 124. Geussens, K., et al (2019). 61 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 to improved climate resilient crop and 111. Invest in site specific SLM- well practiced in the country and would tree seed/seedlings, and affordable CSA packages, which prioritize be easy to integrate. Erosion control animal breeding services. At the addressing erosion and nutrient infrastructure will need to be a part of beginning, the priority can be placed deficiency on cropland. Several SLM- priority SLM-CSA packages. Terraces, on postharvest storage and feeder CSA innovations can be scaled-up contour bunds, and trenches, should roads. Producers should be assisted in Uganda. However, SLM-CSA to be be integrated on farms and productive to organize into groups, to collectively promoted must be chosen to suit soil landscapes accompanied by grass (e.g. manage post-harvest activities, type, climate, physiography, and social/ Napier) and multipurpose trees, which reduce costs of processing and boost economic/cultural factors following a will ensure structure stability, while bargaining power. Technologies well thought out action plan. Table 10 serving other purposes (fodder and that reduce the negative impact of shows the SLM-CSA packages that tree products). In the highlands, where commodity value chain activities on can be promoted in different regions of they have been neglected, reviving the environment such as through Uganda. Given the highly degraded and such infrastructure will need to be carbon emissions, pollution and loss nutrient depleted soils, integrated soil accompanied by better communication and waste should also be identified fertility management (ISFM) systems about how they fit into farmers’ and supported, say through renewable ought to be applied across all regions, livelihood strategies, and incentives energy and energy efficient equipment along with intercropping and manure to drive individual and community for processing and storage. applications. Crop rotation with action for their construction and to legumes such as beans should also ensure their permanence. Experiences b) Promote location specific comple- form part of SLM-CSA packages on from Rwanda show successful mentary technologies that address cropland, especially with cereal crops. implementation of erosion control multiple objectives Organic manure application is already measures like terracing (Box 10). Pupils learning about fish farming in Kisubi 62 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 112. Agro-forestry accompanied by land in the country. Agro-forestry and feeding regimes to reduce land energy saving technologies should be accompanied by clean cookstoves to and forest degradation, while reversing a leading entry point for addressing reduce pressure on wood biomass desertification. Smaller ruminant forest and grasslands degradation. energy can considerably reduce livestock and poultry that are less Agro-forestry in Uganda can take forest degradation. On grasslands, land intensive but good for manure advantage of already dominant integrated silvo-pastoral systems, can production will also be key to integrate activities of tree crop production, and be scaled up in the cattle corridor with at scale in production systems. horticultural production on private integration of improved cattle breeds Table 10. SLM-CSA practices implemented in Uganda – both climate smart and with potential for regional scale-up. SLM-CSA Commodity Combinations of technical options Relevant regions Interventions Integrated Maize Cover crops and organic manure application All of Uganda soil fertility management Coffee Intercropping with beans, soybean Eastern and Central (ISFM) Integrating horticultural production, banana, and other fruit trees. Cassava Intercropping with legumes e.g. beans All of Uganda Banana Cover crops, mulching, organic manure Central, Eastern and application, and intercropping with legumes Southwestern humid highlands Crop rotation Soybean With cereal crops, supported by early planting Northern, Eastern, and Western Beans Rotation with cereal crops Eastern, Northern and Southwestern Silvo-pastoral systems Cattle Trees and shrubs planted interspersed among Southwest cattle corridor fodder crops e.g. Napier and Rhodes grass Central Improved cattle breeds and feeding regimes Rotational Grazing Integration of small livestock and poultry (pigs and poultry) Agroforestry Tea Integrating horticultural production of fruit trees Central and Western like banana, orange, mango. N/A Household energy saving clean cook stoves All of Uganda Diversification from Maize Diversifying to high-value climate resilient crops: All of Uganda monocropping Tree crops, fruits, legumes, and roots & tubers (sweet potato, cassava). Climate Resilient Sweet potato Pest and disease resistant, and early maturing Northern, Central and Eastern Varieties varieties 63 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Box 10: Implementing Erosion Control Infrasturucture in Rwanda. The Rwanda Land Husbandry, Water Harvesting and less than 30 percent of farmers in the project area Hillside Irrigation Project (LWH), funded by the World reported using these technologies. By mid-2016, almost Bank and implemented over 5 years from 2011 had all farmers were using some of these technologies. the stated objective to “increase the productivity and Furthermore, the project irrigated 1,356 hectares of land, commercialization of hillside agriculture in target protected about 88 percent of hilly land areas against areas”. The project invested in a landscape approach soil erosion, and reduced the volume of sediment yield to introduce sustainable land husbandry measures for or soil washed down from hilly slopes during heavy hillside agriculture, terraces, and hillside irrigation. The rain in project areas by 89 percent. The project also suite of LWH interventions was integral to the Ministry strengthened farmers’ organizations to effectively of Agriculture (MINAGRI)’s goal of transforming the rural support farmers in their transition to move to higher economy. value chain activities. LWH benefitted more than 280,000 farmers over five A major lesson emerging from the project is that years – about one-half were women. The project there is a need for flexibility. Site specific conditions successfully achieved its two main objectives of were critical for determining what type of land increasing both productivity and the commercialization husbandry package should be applied. The initial rate of farm produce. model of implementing all three components of L (land To achieve its stated outcomes, the project husbandry), W (water harvesting dam) and H (hillside disseminated improved technologies to farmers that irrigation) did not universally meet the needs of all sites. addressed issues such as erosion control, productivity Flexibility had to be introduced, therefore, to ensure enhancement, and soil fertility. Before the project, cost-effectiveness and technical soundness. c) Streamline natural resource gover- institutional arrangements improved as an important basis for sound land nance policies and institutions for to ensure that cross-sectoral project/ administration. Given that SLM-CSA consistency, comprehensiveness program design and implementation suits differently depending on land and effectiveness across all levels can occur seamlessly. tenure systems, the government of governance - from national to should take the opportunity that local. 114. Land policies should effectively implementing SLM-CSA provides for accommodate customary land deeper engagement on land tenure 113. Natural resource governance tenure and open up access to land security and gender inequality in land policies in Uganda need to be more to a broader set of actors, including access and ownership. Implementing coherent and cross-sectoral to women. With only 15-20 percent of SLM-CSA can catalyze the process support rapid transition towards, the national land registered with land of land demarcation and definition higher productivity, climate resilience, rights protected under mailo, freehold of land ownership and land use and environmental sustainability. and leasehold tenure systems, the rights. To address the challenge Taking the case of agroforestry, most serious challenge to introducing of fragmented land, which deters Uganda’s Forestry Policy recognizes SLM-CSA remains insecurity of investments in technology innovations, ‘farm forestry’ as one of its pillars. land tenure. Increasing the value the government should implement land However, strategies to implement of common pool resources (such policies that facilitate access to land agroforestry are limited or incoherent. as degraded grazing land) without for organized groups of producers, Sustainable land Management and clear land use and rights agreements with commitments to adopt SLM-CSA Climate Smart Agriculture are found can lead to predation by elites and and judiciously manage natural capital under the Ministry of Agriculture encroachment. As such protecting as one criteria for access to land. (MIAAF), presenting a challenge, land use rights is critical. In addition, Women’s groups can be prioritized for in budgeting for investment in Uganda needs to urgently address such arrangements. agroforestry. All policies related land access and use right of women to SLM-CSA must be aligned and 64 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 115. Institutional coordination at the and institutional arrangements already extension service, and UNMA to deliver national level needs to be enhanced, set up need to be better implemented agroclimatic services to farmers. They especially across key national and with mandates at the highest level of can be launchpads for community sub-national institutions through government and political leadership as credit and savings schemes, such as green economy focused institutional demonstrated by Ethiopia’s example revolving funds, addressing the lack arrangement and related budgeting. (Box 11). Ethiopia’s example also of collateralizable land titles for loans. The goal of reducing natural resources shows that a dedicated funding body, Community institutions can also degradation, enhancing agricultural which can rapidly mobilize funds to enable smallholder farmers to engage productivity, and promoting climate support the implementation of an in collective bargaining, carry out value resilience and mitigation, cannot economy-wide green agenda can be addition and processing activities be achieved through independent very useful. Ultimately however, the that open opportunities to access sectoral action. Rather, it will require allocation of public budgets will need markets. Concerted efforts should implementing an encompassing to reflect the economy-wide approach be made to help organize farmers, government green growth agenda to enhance more collaboration set up community groups, build their and institutionalizing co-ordination between ministries and agencies. capacities for effective administration, processes for meeting the goals of and where appropriate register them a green economy as espoused in 116. Strengthen the link between as legal entities. Farmer groups Uganda’s green growth development the national, local, and community- should be the anchor of community strategy (UGGDS). The inter-ministerial based institutions to effectively institutions; however, other institutions and cross-sectoral institutional close the gap between policy and should be supported depending on frameworks articulated in UGGDS and implementation. Building institutions the goals. For extension or agro- U-SIF SLM such as inter-ministerial at the local and community level climate services, farmer field schools committees and a technical steering should be a priority. Strong local and and climate field schools should be committees led by MFPED and community institutions will facilitate considered. Catchment or district level based on major “green” ministries, adoption of SLM-CSA, for instance institutions should be supported, such MAAIF, MWE, MLHUD, and MEMD through community action required as environmental committees, and and including other key ministries like to establish some SLM-CSA such as catchment management committees, MoLG can be the basis of governance trenches. Local institutions can be to support landscape level SLM-CSA and implementation of green growth the main entry point for national and interventions. agenda. However, these frameworks sub-national state institutions like the 65 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 Box 11: Implementantion of Ethiopia’s Climate Resilient Green Economy – CGRE The Government of the Federal Democratic Republic to support the creation of country specific cross- of Ethiopia initiated the Climate-Resilient Green sector commitments. However, these were tied up Economy (CRGE) initiative to protect the country from to the international interests and commitments in the adverse effects of climate change and to build low-carbon transition, which drove a very strong a green economy that will help realise its ambition engagement with the international community, of reaching middle income status before 2025. and therefore also helped to generate funding for The CRGE initiative, which was initiated under the investments under CGRE from the international leadership of the Prime Minister’s Office as a strategy community. to build a green economy identifying green economy iv. Establish a dedicated climate funding body: opportunities, could help Ethiopia reach its stated Establishing a dedicated climate funding body ambitions. The CGRE climate leadership has been allowed the rapid mobilization of resources to applauded by the international community. Some execute the CRGE strategy and other climate lessons emerging from the CGRE for implementing an commitments. The Green Economy pillar of the economy wide transition are summarized below: CRGE strategy alone was costed at US$150 billion. i. Develop a clear, ambitious vision: The CGRE The Ministry of Finance went on to establish was set in motion through the unveiling of the a CRGE Facility to mobilize resources from CRGE strategy in 2011. The strategy unveiled bilateral donors and international climate finance ambitions for reaching middle income status by institutions, this was managed jointly with the 2025 and coupled this goal with a zero net carbon Ministry of Environment, Forest and Climate Change growth goal. The strategy was followed by the (MEFCC). The Facility received accreditation with development of climate-resilient sectoral strategies Climate Change Funds like Adaptation Fund, and for agriculture, forestry, water, energy and transport, Green Climate Fund and has been able to secure which were aligned to long-standing national funding from them. priorities. The strategy developed nearly 150 v. Establish an economy wide institutional framework: projects and programs were identified. The CRGE Initiative was initiated under the ii. Secure political commitment at the highest level: leadership of and overseen by the prime-minister’s Having champions for the CGRE at the highest level office (PMO), Ministry of Environment and Forestry of government gave impetus to the CGRE and aided (MEF), and Ministry of Finance and Economic rapid action. The late prime Minister Meles Zenawi Development (MOFED). The secretariat and facility was deeply committed to acting on climate change were hosted by MOFED, while MEFCC provided the at national, regional, and international levels and technical team. A ministerial steering committee gave impetus to the agenda. While maintaining representing each ministry of the economy and political support through the years has had its ups chaired by the PMO had overall responsibility and and downs, the CGRE remains central to Ethiopia’s authority over the CRGE Facility and provided overall ten-year development plan. guidance to the work conducted by the CGRE. iii. Link national and international priorities: The country’s focus on a national priority was useful 66 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 d) Increase access to data and knowl- increase understanding, facilitate buy development, extension, and climate edge, and deepen stakeholder en- in and uptake of greener approaches services, and create an environment gagement for better policy formu- to production and natural resources for non-state actors in knowledge lation and behavioral change use among key stakeholders, services. Knowledge providers like especially the public and producers. extension and meteorological services 117. Fast track integration of Multiple pilots have demonstrated (Uganda National Meteorological systems for land, crop production promising innovations but will Agency) will need support to build their and environmental accounting data need to be promoted to broader knowledge value-chains from data to improve policy making and project stakeholders. These efforts can have collection, management, information implementation. What cannot be powerful impacts on attitudes and service design and delivery to deliver measured and tracked cannot be well perceptions concerning key SLM-CSA information for decision making on managed. Ugandan government should technologies and innovations. Some SLM-CSA. This will entail support make efforts to improve measurement, powerful mindset change interventions for data collection equipment, and assessment, and reporting on key include peer-to-peer learning and capacity building to modernize skills land and natural resource exploiting demonstrations. Producers willing in line with emerging demands from activities. Implementation of a land to experiment with SLM-CSA should climate change. Many of UNMA’s database is crucial to support and be fully supported so that skeptics weather stations are not operational inform national land-use policies and can observe first-hand the benefits of due to lack of staffing, inadequate planning. The government should SLM-CSA among their peers. Peer to maintenance, or vandalism. The aim to operationalize a database that peer learning in Uganda can be up to density of ground weather stations is supports mapping, enumeration and 6 times more effective in influencing also far too low.126 inventory of the existing land use adoption of CSA practices.125 Beyond and land rights of producers, and In addition, government should create community champions and first streamline the data systems all the enabling environments for non-state movers, it is useful to organize learning way to village levels for monitoring, actors such as NGOs, and private and knowledge sharing, including reporting and verification of the companies to deliver knowledge well-targeted field visits, so that impact of SLM-CSA investments. services. However, public institutions officials, practitioners, and producers The system for routine collection of will still need to be active to provide learn about positive experiences production data on croplands formerly in neighboring communities and knowledge public goods. Extension conducted by National Agricultural landscapes, across the basin and services and UNMA should build Advisory Services (NAADS)-MAAIF, even from other basins that have had partnerships with other non-state which broke down many years ago successes. Learning alliances at the actors to plug knowledge gaps and due to internal instability and to lack landscape-level facilitated through take advantage of their comparative of resource needs to be revitalized. institutions like local government, advantages. Public-Private Partnership The government should also rapidly environmental committees and (PPP) arrangements can significantly integrate environmental economic watershed management committees boost delivery of information and accounts to improve attribution of can drive knowledge exchange, social knowledge to farmers which will help economic activities that deplete or learning and behavioral change, boost SLM-CSA adoption. The Ag- appreciate natural resources and to which can spur adoption of SLM-CSA better allocate responsibilities for Observatory, which has been set up innovations at scale. Learning alliances resource management and improve in Uganda with World Bank support (Box 12) can also support, vertical regulation. presents an opportunity to build such and horizontal integration of SLM and partnerships through bringing together 118. Facilitate knowledge CSA interventions through inclusive actors such as researchers, extensions dissemination including lessons stakeholder engagements. services, NGOs, and entrepreneurs to learned and good practices from pilot 119. To optimize access to knowledge innovate and develop tailored climate projects. Uganda government needs for farmers, the government should services using private sector data to create a broader awareness and prioritize investments in research and innovations. 125. CCAFS, (2017). 126. World Bank (2019c). 67 UGANDA ECONOMIC UPDATE 17TH EDITION | JUNE 2021 120. Engage SLM-CSA implementing CSA intervention implementation develop and disseminate technologies communities on an equal footing can give producers and land owners that respond to farmer and community to build trust and instill confidence. the confidence that their knowledge, needs. Learning Alliances can anchor Participatory activities with farmer experience and views are valued and such engagements to drive adoption of and community groups have proved that they are agent participants in, CSA-SLM. to be useful in improving existing rather than recipients of interventions indigenous knowledge about SLM- in which they are powerless to direct. CSA and opening the minds of the By so doing, they are more receptive communities to not only depend on to new innovations and changes to bad traditional practices. When it traditional practices such as biomass comes to adoption of SLM-CSA, how burning for fuel, slash and burn, and communities are engaged, and the monocultures. A strong link is required extent to which diverse knowledge between farmers, the extension is explored matters127. Genuinely system, agricultural research and participatory approaches to SLM- other delivery institutions like NGOs to Box 12: Learning Alliances – what are they and how could they help scale SLM-CSA in uganda. The Learning Alliances approach was designed to implemented through district level learning alliances, overcome new technologies and techniques and where platforms/spaces at the district level (i.e. four social innovations remaining confined to small districts) were created to facilitate not just co-learning pockets of success, and inaccessible to others. LAs and knowledge sharing but also to promote local enable knowledge sharing and build capacity in a policy engagement activities and development of learning environment that is demand-led, practice- tools and strategies. The LAs were created to jointly based, and flexible enough to meet the needs of learn and share knowledge and experiences about diverse participants. Since the approach involves the climate change and gender related issues, across adaptation of good practices to meet the specific actors ranging from NGOs and farmer associations, needs of communities, it is most suitable for location to academics and local governments, among others. specific SLM-CSA. The LA approach is an iterative It was successful in improving understanding of learning process among multiple stakeholders and climate change and its impacts, and enabling public draws on knowledge and information from different institutions, farmers, and other non-state actors to actors and across multiple scales, from local to adopt CSA. Lessons for successful implementation of national and beyond, while equally valuing the LAs generated include the need to; contributed knowledge. Learning Alliances typically i. Foster strong leadership include a diverse range of participants: rural women, men, and young people, extension service and NGO ii. 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