uganda gb 06 - oecd

Uganda

Kampala

key figures• Land area, thousands of km2 241• Population, thousands (2005) 28 816• GDP per capita, $ PPP valuation (2005) 1 686• Life expectancy (2000-2005) 46.8• Illiteracy rate (2005) 28.4

African Economic Outlook 2005-2006 www.oecd.org/dev/publications/africanoutlook

www.oecd.org/dev/publications/africanoutlook

UgandaAll tables and graphs in this section are available in Excel format at:

http://dx.doi.org/10.1787/357821463113

African Economic Outlook© AfDB/OECD 2006

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FOR THE PAST TWO DECADES, Uganda has had oneof the most successful economies in Africa, combininghigh growth and low inflation. Real GDP growthwas an estimated 5.8 per cent in the 2004/05 fiscalyear and is projected to remain roughly steady at thatrate in 2005/06. This strong economic performanceis attributable to prudent macroeconomic managementand bold structural reforms, supported by large inflowsof overseas development assistance (ODA). However,recent unsettling political developments have led anumber of international donors to reassess theirsupport.

The government has made important progresstowards liberalising markets and reducing poverty.Under President Yoweri Museveni’s leadership, Uganda

has been a leader in Africa in moving towardsderegulation, privatisation anddecentralisation of governance, withthe goal of enabling the private sectorto become the major engine ofgrowth. The government is advancing with reforms,notably to improve infrastructure and assist small andmedium enterprises. These economic reforms alongwith efforts to boost health and education under the1997 PEAP have been rewarded with sharply fallingpoverty rates, increased life expectancy, higher literacyrates and better health services, including a substantialreduction in HIV/AIDS infection rates.

Although President Museveni is much admired forhis economic stewardship, his government’s ambivalence

Concern about political developments halted large inflows of ODA.

about moving towards multi-party politics anddemocracy is eliciting concern and calling into questionprospects for further economic progress. In 2006,Uganda is scheduled to hold its first multi-partyparliamentary and presidential elections in 25 years, butthe government appears to be stacking the odds for

President Museveni and his party to remain in power.The constitutional term limit for the president wasrevised, removing a legal impediment to PresidentMuseveni’s candidacy. Moreover, the arrest of the largestopposition party’s leader on serious criminal charges iswidely viewed as politically motivated. Donors are also

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Real GDP Growth (%) Per Capita GDP ($ PPP)

Figure 1 - Real GDP Growth and Per Capita GDP($ PPP at current prices)

Source: IMF and domestic authorities’ data; estimates (e) and projections (p) based on authors’ calculations.

African Economic Outlook © AfDB/OECD 2006

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dismayed over the government’s continuedinfringements against the independence of the judiciary,freedom of the press and freedom of association. Fiscalrestraint is also jeopardized by continued state financingof President Museveni’s National Resistance Movement(NRM) and a recent upsurge of public expendituremore generally. Many bilateral donors have withhelda sizeable proportion of their 2005 ODA to Ugandauntil after the February 2006 parliamentary elections.

Military operations in northern and western Ugandaalso continue to be a major source of concern.

Recent Economic Developments

The Ugandan economy continued to experiencestrong growth in 2005. The 5.8 per cent growth ratewas only marginally lower than the 5.9 per cent recorded

Agriculture

Mining

Manufacturing

Construction Energy

Tourism

Wholesale and retail trade

Government services

Other

Transport and communications

33.1%

4.4%2.9%

6.9%

9%11.2%

20.4%

10%

0.8%

1.4%

Figure 2 - GDP by Sector in 2004 (percentage)

Source: Author’s estimates based on domestic authorities’ data.

-1 0 1 2 3 4 5 6

GDP at factor cost

Other

Government services

Tourism

Transport and communications

Wholesale and retail trade

Construction

Energy

Manufacturing

Mining

Agriculture

Figure 3 - Sectoral Contribution to GDP Growth in 2004 (percentage)

Source: Author’s estimates based on domestic authorities’ data.


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in 2004. Agriculture was adversely affected by a seriousdrought, however, and grew by a mere 2.1 per cent in2005. Longer-standing problems of poor soil conditions,pests and crop diseases also continue to hold backagriculture. Food crop production expanded at only1.7 per cent in both of the last two years, well belowthe 2001 peak of 8.2 per cent growth.

Output in industry and services grew strongly in2005, by 9.7 per cent and 7.2 per cent respectively.The construction and mobile telecommunications sub-sectors were particularly buoyant, growing by 12 per centand 18 per cent respectively. Consequently the sharesof industry and services in GDP have been rising,reaching 20 per cent and 43 per cent respectively in 2005.

In 2005/06, real GDP is forecast to grow by 5.5 percent. Agricultural output is forecast to increase by3.7 per cent, as food production recovers from the2004/05 drought, and coffee output reaps the benefitsof increased planting. Industrial output is expected togrow by 10.2 per cent in 2006, with manufacturing,mining and quarrying projected to remain strong, andnew thermal generation and the expected expansion ofthe Kiira power station boosting electricity production.Services are also expected to grow strongly at a rate ofclose to 7 per cent during 2006.

Macroeconomic Policies

Fiscal and monetary policy in Uganda continuesto be determined by three key objectives: i) maintenance

of stable inflation, interest and exchange rates; ii) anincrease in credit to the private sector; and iii) enhancement of the international competitivenessof exports.

Fiscal Policy

Since President Museveni came to power in 1986,fiscal policy has focused on controlling budget deficits.The withholding of external grants by some bilateraldonor countries in 2005, however, may cause thebudget deficit to increase to an estimated 2.4 per centin 2005/06, up from 0.7 per cent in 2004/05. The fiscaldeficit is unlikely to improve much in 2006/07 unlessthe concerns of the international donor community areallayed and grants return to their previous levels.

Uganda’s tax revenue as a ratio of GDP is low, evenby African standards. In 2005/06, domestic tax revenuesare expected to increase only marginally to 12.1 per centof GDP, from 11.9 per cent of GDP the year before,largely due to disappointing receipts from value addedtax (VAT). Changes to arrangements for collectingVAT on government contracts during the year provedproblematic and compliance with VAT obligationsremains generally poor. Higher income tax receiptsdid more than offset the VAT shortfall, but it is clearthat there is substantial scope for improvement in theoperation of the Uganda Revenue Authority.

The objective of raising tax revenues has been madeeven more difficult by the implementation of the EastAfrica Customs Union in January 2005. The customs

Table 1 - Demand Composition (percentage of GDP)

Source: IMF data; estimates(e) and projections(p) based on authors’ calculations.

1996/97 2001/02 2002/03 2003/04 2004/05(e) 2005/06(p) 2006/07(p)

Gross capital formation 18.9 19.3 20.5 22.5 22.7 23.5 23.8Public 6.4 5.3 4.7 4.9 4.9 5.2 5.1Private 12.6 14.1 15.8 17.6 17.7 18.3 18.8

Consumption 95.6 95.2 93.7 91.4 90.7 89.9 89.5Public 12.3 15.2 14.8 14.5 14.2 13.8 13.3Private 83.3 79.9 78.9 76.9 76.5 76.1 76.2

External sector -14.5 -14.5 -14.2 -13.9 -13.4 -13.4 -13.4Exports 14.5 11.9 12.2 13.7 12.2 12.6 12.6Imports -29.0 -26.4 -26.5 -27.5 -25.6 -26.0 -26.0


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union is expected to lead to a decline in customs revenueof over 80 billion shillings in 2005, with further lossesexpected in the following two years.

Government expenditure declined from 23.8 percent of GDP in 2003/04 to 22.4 per cent in 2004/05.The high domestic interest rates on government debtand increased defence spending, caused by conflictwith the Lord’s Resistance Army (LRA) in northernUganda and continuing instability in neighbouringcountries, pushed spending up. To hold down thebudget deficit, expenditures for poverty eradicationunder the Poverty Action Fund (PAF), althoughsupposedly insulated from general budgetary pressures,were curtailed. These reductions in poverty-reductionexpenditures raised concerns about donor support forthe 2005 budget. In 2005, the government cut non-priority non-PAF and non-wage expenditure tocompensate for an April 2004 wage increase for 109 000primary school teachers and for the clearance of domesticarrears accumulated in the past three years.

Tax receipts from petroleum have remained relativelystable since 2003. In July 2004, the government changedtax collection procedures on petroleum products. Taxesare to be collected at points of entry and not in depotsas had been the case previously.

Monetary Policy

Monetary policy in Uganda remains focused oncontaining inflation below 5 per cent. In 2004 and

2005, the drought pushed up food prices, but there waslimited pass-through of the recent world oil priceincreases to domestic pump prices. The stability oflocal-currency petroleum prices reflects the strongappreciation of the shilling against the US dollar andlower mark-ups due to increased domestic competitionin the distribution of petroleum. As a result of the foodprice increases, the overall inflation rate rose from 5 percent in 2004 to 8.2 per cent in 2005. The inflation rateis likely to fall back to 4.5 per cent in 2006 and to remainat about the same level thereafter, assuming thatmonetary policy is unaffected by the above-describedpolitical developments and resulting pressures tomonetise the deficit.

In 2005, the broad money supply M2 grew by12.1 per cent, below the target rate of 15.3 per centbut higher than the 10.2 per cent growth rate in 2004.Much of the growth in money supply reflected anincrease in net foreign asset holdings in the bankingsystem. The banking system’s net domestic assets actuallycontracted by 2.8 per cent during the year, with adecline in net claims on the government which morethan offset an 11.1 per cent increase in credit to theprivate sector. In other words, the government’s risingfiscal deficit was not a contributor to the growth ofmoney supply, underlining the substantial independenceof the central bank.

Since the second half of 2004, interest rates onTreasury bills (TB) have risen for all maturities. Theaverage rates for the three-month TB rose from 7.1 per

Table 2 - Public Finances (percentage of GDP)

Source: Domestic authorities’ data; estimates(e) and projections(p) based on authors’ calculations.

1996/97 2001/02 2002/03 2003/04 2004/05(e) 2005/06(p) 2006/07(p)

Total revenue and grants 17.0 19.1 19.2 22.0 21.7 19.9 19.6Tax revenue 11.4 11.5 11.4 11.7 11.9 12.1 12.7Grants 4.9 7.1 7.0 9.4 9.0 7.0 6.2

Total expenditure and net lending 19.0 23.9 23.6 23.8 22.4 22.3 21.4Current expenditure 11.1 13.9 13.7 14.7 13.6 13.2 12.4

Excluding interest 10.0 12.4 12.3 12.8 12.1 11.8 11.4Wages and salaries 3.8 5.3 5.2 5.2 5.1 5.0 4.7Interest on public debt 1.0 1.5 1.5 2.0 1.4 1.4 1.1

Capital expenditure 7.9 9.9 9.9 8.8 8.9 9.3 9.1

Primary balance -1.0 -3.3 -2.9 0.2 0.7 -1.0 -0.7Overall balance -2.0 -4.8 -4.3 -1.8 -0.7 -2.4 -1.8


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cent in July 2004 to 10 per cent in December 2004,while the average rates for the one-year TB rose by 1.2percentage points to 13.8 per cent. However, for threeconsecutive months starting in January 2005, interestrates on TBs declined across all maturities. In March2005, issuance of the nine-month TB was phased outto encourage secondary market trading in the one-yearTB. As a result of the relatively tight liquidity conditionsduring April, interest rates rose slightly across all TBmaturities.

The exchange rate of the Ugandan shilling has beengenerally allowed to float, with the Bank of Uganda(BOU) intervening only to stem short-run volatility.Despite large foreign exchange inflows into the economy,the shilling appreciated only moderately in 2005.Between June 2004 and March 2005, the currencyappreciated by 11 per cent and then depreciated by 4 percent between March and April 2005.

External Position

In 2005, Uganda’s exports grew by 10.4 per centto $715 million. Export earnings from coffee, the maintraditional commodity, are estimated to have increasedby 7 per cent in dollar terms in 2005 due to increasesin both world coffee prices and export volumes.Nonetheless, coffee export earnings and volumes remainfar below the record levels of 1996/97 as a result ofcontinued adverse weather conditions. Earnings fromnon-coffee exports are expected to increase by 11.1 percent in 2005 to $593 million, led by rising exports offish and fish products, flowers, tea and cobalt. Cottonexport volumes also increased strongly, despite fallingworld prices.

Uganda remains dependent on a few agriculturalexports, particularly coffee, fish, tea, cotton, andtobacco. Between 2000 and 2005, the share of thesetraditional exports in total exports remained steadyat 66.7 per cent. However, the composition oftraditional exports has changed dramatically, withthe share of coffee exports declining from 23.9 percent in 2000 to 17.1 per cent in 2005. Fish has nowreplaced coffee as Uganda’s leading export product.Between 2000/01 and 2004/05, fish exports increaseddramatically from $66.6 million to $155.0 million,while coffee exports increased only marginally from$110 million to $122 million. Tea exports alsoboomed, thanks to improved management of teaestates and increased provision of government supportservices. Likewise, export of flowers increased as aresult of larger farm sizes, construction of moregreenhouses and declining freight charges. The shiftaway from coffee may reduce Uganda’s vulnerabilityto terms of trade shocks.

Merchandise imports shot up by 19.3 per cent in2004-05 to $1 577 million, in part reflecting strongeconomic activity. In particular, increased imports ofbuilding materials reflected the ongoing boom inconstruction. Also, imports of transport andtelecommunications equipment, especially vehicles andmobile phones, grew strongly.

As import growth far outpaced export growth in2005, the trade deficit rose to $862 million (10.2 percent of GDP), up from $675 million in 2004 (9.6 percent of GDP). The increased trade deficit was onlypartially offset by rising net public and private transfers.As a result, the current account deficit widened to

Table 3 - Current Account (percentage of GDP)

Source: Domestic authorities’ data; estimates(e) and projections(p) based on authors’ calculations.

1996/97 2001/02 2002/03 2003/04 2004/05(e) 2005/06(p) 2006/07(p)

Trade balance -10.1 -9.2 -9.9 -9.6 -10.2 -10.3 -10.2Exports of goods (f.o.b.) 11.8 8.2 8.1 9.3 8.5 8.7 8.8Imports of goods (f.o.b.) -21.9 -17.4 -18.0 -18.9 -18.7 -19.0 -18.9

Services -3.6 -5.5 -4.3 -3.2 -3.5Factor income, -1.5 -2.6 -2.8 -2.4 -2.4Current transfers 5.5 11.7 11.3 13.8 12.2

Current account balance -9.7 -5.6 -5.7 -1.5 -3.9


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3.9 per cent of GDP in 2005, more than double the1.5 per cent of GDP in 2004.

While Uganda’s current account has beenpersistently in deficit, the country has simultaneouslyexperienced a substantial increase in capital inflows,resulting in a positive overall balance of payments.Capital inflows more than doubled from $274 millionin 2000/01 to $648 million in 2004/05. As a result,the overall balance of payments swung from a smalldeficit of $1.4 million in 2000/01 to a surplus of$315.5 million in 2004/05. Foreign Direct Investment(FDI) inflows increased from $133.4 million in 2000/01to $306.5 million in 2004/05, accounting for aroundhalf of total capital flows during this period. As a resultof the balance of payments surpluses, gross foreignreserves increased from $33.3 million in 2000/01 to$238.8 million in 2004/05 (equivalent to 6.6 monthsof imports).

Uganda’s foreign debt was projected to increase by8.9 per cent over the previous year to $4.9 billion byend-June 2005. In 2005, total debt service was cut to$96.6 million after $95.5 million in HIPC debt relief.The net present value (NPV) of the ratio of debt to

exports of goods and services was around 280 per centin 2004, well above the Heavily Indebted Poor Countries(HIPC) Initiative threshold for sustainability of 150 percent. However, the ratio of debt service to exports ofgoods and services declined from 11.2 per cent in 2004to 9 per cent in 2005, reflecting the 10-year grace periodand long maturity periods of post-HIPC borrowings.

The country’s debt burden is slated to benefit fromthe G8 initiative for 100 per cent cancellation of debtowed to the African Development Bank (AfDB), theWorld Bank, and the International Monetary Fund(IMF). Given that 90 per cent of Uganda’s total externaldebt was owed to multilateral institutions, 9 per centto non-Paris Club bilateral creditors, and 1 per cent toParis Club creditors, the G8 initiative would greatlyimprove Uganda’s long-term debt sustainability and isexpected to lower the country’s debt to export ratio toabout 50 per cent in 2015.

Even after the G8 debt cancellation initiative,however, the AfDB, the IMF and the World Bank haveemphasised that Uganda should refrain from excessiveborrowing so as to prevent foreign debt from increasingunsustainably again. It should also be noted that for

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Figure 4 - Stock of Total External Debt (percentage of GNI)and Debt Service (percentage of exports of goods and services)

Source: IMF and World Bank.


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debt owed to the World Bank and the AfDB, the G8debt cancellation initiative is limited to concessionallenders – the International Development Association(IDA) and the African Development Fund (ADF),respectively. Over the longer term, export earningsmust supplant foreign aid and loans as the main sourceof foreign exchange.

Structural Issues

Recent Developments

Uganda’s ongoing structural reforms are aimed atimproving the investment climate and increasingproductivity through export-led growth. Past reformshave alleviated institutional constraints hinderingdevelopment of the private sector, but substantialobstacles remain and foreign and domestic investmentare insufficient to achieve the government’s ambitiousgrowth objectives. In 2005, therefore, the governmentinitiated further measures to ease barriers to investment,including an Investment and Free Zones Bill authorisingexport-processing zones, and relaxed industrial land-use regulations.

Regional integration, particularly with the EastAfrica Community (EAC)1, is becoming one of themain vehicles for Uganda’s reforms. Uganda is alsoseeking to become a full member of the larger freetrading bloc, COMESA2.

The protocol establishing the EAC in March 2004became effective on 1 January 2005, creating a customsunion featuring a Common External Tariff (CET) onimported goods, including duty free access for mostcapital goods, agricultural inputs, medicines and medicalequipment, raw materials and chemicals, and zerotariffs on most products originating within theCommunity. The agreement also provides for theelimination by Tanzania and Uganda of tariffs onimports of some Kenyan products within five years.

However, the EAC retains import barriers on manyagricultural products such as milk and dairy products,maize, rice and sugar. In addition to this progress ontrade policies, EAC members have also agreed onharmonised export promotion mechanisms coveringexport processing zones, free trade zones, bondedwarehouses and duty drawback systems.

The EAC has moved from being a customs uniontowards becoming a full economic union withharmonisation of monetary and fiscal policies and co-ordination among members in areas such as education,agriculture, environment, defence and the managementof Lake Victoria. The Monetary Policy Co-ordinatingCommittee of EAC central banks was instructed todevelop a strategic plan to achieve a single currency forEast Africa by December 2009. A protocol on freemovement of labour and capital is expected to beconcluded by June 2006, with a full common marketin place by December 2007.

Transport Infrastructure

The government views improved transport servicesas a central part of its strategy for creating a morefavourable environment for private sector development.At present, the costly and slow transport system imposesa high economic penalty, especially on rural areas, interms of shipment of produce to markets. In urban areas,one round trip on a minibus costs an unskilled workerabout 30 per cent of the daily minimum wage. Veryhigh fuel costs contribute to raising transport costs.Uganda had the 5th highest gasoline price of 25 Africancountries and the 23rd highest price in the world duringthe period 1998-2002. Although there is some economicmerit in charging market prices for petroleum, in mostcountries fuel accounts for about 30 per cent of vehicleoperating costs. In Uganda, however, it represents about50 per cent. This high fuel cost reduces Uganda’s exportcompetitiveness and also slows the growth of the aviationindustry, as most airlines find it expensive to refuel atEntebbe airport.

1. The EAC member countries are Kenya, Tanzania and Uganda.

2. The member countries of COMESA include Angola, Burundi, Comoros, DRC, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar,

Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Zambia and Zimbabwe


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Given that Uganda is a landlocked country, regionaltransportation links to neighbouring countries areparticularly important. To reach the sea from Kampala,Ugandan exports must travel 1 200 km through thenorthern corridor to the port of Mombasa, Kenya, or1 600 km through the central corridor to the port ofDar-es-Salaam, Tanzania. High transportation costs,estimated at about 35 per cent of the value of exports,and long transit delays are major impediments to greaterregional trade integration and improvement of thecompetitiveness of Uganda’s exports. The governmenthas been an active participant in a number of regionalinitiatives aimed at improving regional transportefficiency: the East African Trade and TransportFacilitation Project (EATTFP), aimed at enhancingtransport services along key international transportcorridors in East Africa; the above-described EACcustoms union which seeks to accelerate trade growthin the region; and the Kenya-Uganda railway corridor,jointly funded by the African Development Bank(AfDB) and the World Bank’s InternationalDevelopment Association (IDA), at an estimated costof $146 million. Other initiatives include the EastAfrican Road Network Project, the Lake Victoria SafetyNavigation Project, the Railways Transport InitiativeProject (linking the Indian Ocean to the Atlantic Oceanthrough Central Africa), and the Air Transport InitiativesProject. These projects, once completed and efficientlymanaged and maintained, are likely to reducetransaction costs and improve Uganda’s internationalcompetitiveness.

Following three years of modest growth at an averageannual 5.7 per cent, the road transport share of totalGDP at constant (1997/98) prices in 2004-05 was3.2 per cent. Currently, road transport is the dominantmode of transportation, carrying over 90 per cent ofpassengers and freight, as well as providing the onlymeans of access to rural areas. The length of the roadnetwork is estimated at around 72 000 km, with thenational grid accounting for only 15 per cent(10 500 km). The rest consists of community roads(41 per cent), district roads (38 per cent), urban roads(5 per cent), and private roads (less than 1 per cent).Only 30 per cent of the national grid and 5 per centof urban roads are paved; all other roads are wholly

unpaved. With respect to national roads, 20 per centare rated as “good”, 62 per cent as “fair”, and 18 percent as “poor/bad”.

The government has made substantial investmentsin road transport. During the period 2002/03 to2004/05, total expenditure on national roadimprovement and development amounted to$365.8 million. Nevertheless, the road network remainsinadequate, given that the growth of traffic exceedsthe growth of roads and that insufficient maintenanceis leading to deterioration of the state of existing roads.Deficiencies in the government’s regulatory capacitiesat both national and local levels are also contributingto the poor state of the network. For example, accordingto a 1998 study, insufficient enforcement of axle loadand traffic flow regulations allows about 40 per centof heavy vehicles to travel with loads exceeding thepermitted limits.

The contribution of rail transport to the economyin 2004-05 was 0.13 per cent of value added at constant(1997/98) prices, while average annual growth was0.4 per cent in 2001-04. The country’s railway networkincludes the 251 km Main line (Kampala – Malaba),the 333 km Western line (Kampala – Kasese), the502 km Northern line (Tororo – Pakwach), the 140 kmBusoga loop line (Mbulamuti – Busembatya), the9 km Kampala – Port Bell spur line and various shorterbranches for a total 1 241 km. Only about half of thesystem is operational. The tracks, locomotives andother equipment are old and in poor condition,resulting in falling cargo hauling capacity. The railwaysystem presently carries approximately 1 million tonnesof cargo on the main route between Kampala-PortBell and the Kenyan border at Malaba/Kisumu andMwanza (Tanzania) on the shores of Lake Victoria,compared to about 0.8 million tonnes in 2000.However, commercialisation of rail services in 1992led to services being suspended on the Western,Northern and Busoga lines. The Uganda RailwayCorporation (URC), which manages the sector, hadsuffered cumulative losses of 63 billion shillings as ofend-June 2003. The dilapidated condition of the railsystem results in inadequate service and slow deliveryof merchandise.


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Water transport had been a common transportmode in the early and mid-1900s, with the East AfricanRailways and Harbours operating passenger steamerservices on Lakes Victoria, Albert and Kyoga and onthe navigable sections of the River Nile. The watertransport system never recovered from the 1961flooding, however, and has steadily deteriorated inthe absence of further investment. URC had untilrecently been operating three wagon ferries on LakeVictoria between Port Bell and Kisumu (Kenya) andMwanza (Tanzania). In a recent accident, however,one ferry sank and another was severely damaged.This accident led to cancellation of the insurance onthe remaining vessels and the suspension of alloperations. Inland water transport in Uganda ischaracterised by obsolete vessels, poor landing facilitiesand incoherent oversight. With the exception of theconstruction of a $5 million ship to operate betweenthe Ssese Islands on Lake Victoria and Port Bell anda few ferries, inland water transport in Uganda isdysfunctional. The most urgent measures to be takeninvolve repair of the lake landing site infrastructure,provision of more ferries, and improved enforcementof safety regulations.

Air transport and allied services accounted for0.4 per cent of GDP at constant (1997/98) prices in2004-05 following three years of growth at a briskannual average of 13.7 per cent. This high growth ratein the sub-sector reflects booming exports of freshproduce to Europe and growth in tourism. Despitethis strong growth, the airline sector suffers from theabsence of a strong domestic airline which would raisetraffic volume and help to make Entebbe Airport amajor regional hub. Other challenges include the heavyburden of maintaining non-commercial services atregional airports and under-funding of the Civil AviationAuthority (CAA).

The Ministry of Works, Housing andCommunications (MWHC) is charged with overseeingthe transport system as a whole and regulates thenational road system. An autonomous Road Agencyis expected to be created in the very near future. ARoad Agency Formation Unit (RAFU) has been set upas a precursor to the future Road Agency.

The national roads are developed and maintainedby the Ministry of Works, Housing andCommunications (MWHC). District, urban, andcommunity roads are maintained and regulated byauthorities at their respective local levels.

Regulatory and policy guidelines for the railways,water transport and air transport sub sectors areestablished by the MWHC but direct supervision is theresponsibility of the Uganda Railways Corporation(URC) and Civil Aviation Authority (CAA) respectively.The URC was established in 1977 after the collapse ofthe East African Community (EAC). The CAA hasbeen operational since 1991 although the formal statuteauthorising it was not put in place until 1994.

The policy framework for the transport sector isderived from the overall Poverty Eradication and ActionPlan (PEAP) objectives. The PEAP policy frameworkfor the transport sector generally favours greaterinvolvement of the private sector, whenever possible,to increase efficiency and reduce costs. Roadconstruction is recognised as still mainly the purviewof the public sector but railways and air transportshould be led by the private sector, especiallyconsidering the limited availability of public fundingfor the development and financing of transportinfrastructure. In 2005, the government provided along-term budget envelope of $181 million for thetransport sector, a sum which is forecast to rise to$283 million in constant dollar terms in 2013/2014.On average, the government plans to invest about$140 million per year in new infrastructure over thisperiod. These figures fall well short of the $3.1 billionlong-term, multi-modal transport investment envisagedby Uganda’s National Transport Master Plan for theperiod 2005-15.

The government favours public-private partnership(PPP) schemes as a way of involving the private sector.The modalities for the PPPs are being worked out inconjunction with the privatisation agency. The Ministryof Works and Transport plans to commission a studyin 2006 to investigate the viability of adapting PPPprinciples to Uganda’s transport sector. Improvementin rural roads is another high priority of the PEAP


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with the aim of helping to alleviate rural poverty throughgreater agricultural production.

The following development partners play asignificant role in financing infrastructure investmentin Uganda: the International Development Association(IDA), the European Union (EU), the AfricanDevelopment Bank (AfDB), the Danish InternationalDevelopment Assistance (DANIDA), the JapanInternational Cooperation Agency (JICA), Germany’sKreditanstalt für Wiederaufbau (KFW), the UnitedKingdom’s Department for International Development(DfID), the Arab Bank for Economic Development inAfrica (BADEA) and the Nordic Development Fund(NDF). In 2004/05, international donors contributedabout 4 per cent of funds for road maintenance.

Political and Social Context

Uganda’s social peace threatened to unravel as thecountry moved towards general and presidentialelections slated for February/March 2006. For the lasttwo decades, President Museveni has governed Ugandaunder a “Movement System”, a de facto single partywithout any opposition. The political scene has beentransformed with the opening of the upcoming electionsto other political parties. After a referendum, Museveni’sMovement System was transformed into the NationalResistance Movement Organization (NMRO), apolitical party. The NMRO’s election prospects wereenhanced by several amendments to the Constitutionand other Acts of Parliament, including the Presidentialand Parliamentary Elections Acts. Most notably, theconstitutional limit on the President’s tenure of officeto two terms was abolished in what appeared to theopposition to be a blatant manipulation to keepPresident Museveni in office. Although 36 new partieshave registered, only six of these parties have fieldedqualified candidates for the 2006 presidential electionand none seems strong enough to challenge theNMRO’s power.

President Museveni’s tactics have led to considerabledissatisfaction, even within NMRO ranks. SomeNMRO members have split off and created the largest

opposition party, the Forum for Democratic Change(FDC), which was expected to receive sizeable electoralsupport even if it was thought unlikely to win. Politicaltensions came to the boil following the arrest of FDCleader Kizza Besigye for alleged treason and rape onapparently flimsy evidence. Riots took place in Kampalaand the situation was tense. As a result of thesedevelopments, donors withheld substantial budgetsupport from the government. Resumption of highaid inflows appeared to be dependent on whether theelections took place on schedule and whether or notthey were perceived to be transparent and fair.

Security problems also continue to threaten Uganda’sdemocracy. The long-running conflict in the north ofthe country with the brutal Lord’s Resistance Army(LRA) continues to pose serious challenges for thegovernment. Tense relations with Rwanda have beenfostered by instability in the Democratic Republic ofCongo, where rival militias, loosely supported byUganda and Rwanda, continue to battle.

Notwithstanding these political and securitytensions, Uganda has made significant progress inimproving governance. A National Integrity Survey in2003 revealed some reduction in perceptions of the scaleof corruption, although it remains a significant problem.Corruption was particularly noted in publicprocurement, where it drives up the cost of publicinvestment and lowers the quality of public services.To correct this, the Ugandan government has reaffirmedits commitment to good governance as a cornerstoneof its fight against poverty via the National Strategy toFight Corruption and Build Ethics and Integrity inPublic Offices, which runs over the 2004-07 period.The programme’s momentum was slowed, however, bya court ruling that the government’s anti-corruptionLeadership Code violates the constitution. Thegovernment is currently finalising revisions to addressthese concerns.

After nearly a decade of implementation of thePoverty Eradication Action Plan (PEAP), poverty inUganda has fallen but remains high. At the inceptionof the PEAP in 1996/1997, 44 per cent of thepopulation was classified as poor. According to the


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Ugandan National Household Survey 2003 (UNHSII), the percentage of people living in poverty has fallento 38 per cent, corresponding to 8.9 million Ugandans.On the other hand, the 2003 figure is significantlyhigher than that of 2000, when 34 per cent of thepopulation (approximately 7.2 million Ugandans) wasestimated to be living in poverty. Between 1999 and2003, the absolute number of poor people increasedmore in rural areas than in urban areas even thoughthe proportionate rise in poverty was actually higherin urban areas. The rise in poverty has been particularlymarked in households where agriculture is the mainoccupation, with crop farmers worse off than thoseinvolved in other agricultural activities. Incomeinequality in Uganda also increased by 23 per centbetween 1997 and 2003, with urban areas experiencinghigher income inequality growth - 37.5 per cent - thanrural areas, where income inequality increased by only9.5 per cent during the same period.

Under the Health Sector Strategic Plan (HSSP),some headway has been made in the provision ofprimary health care services, as well as in the buildingof new health centres and the upgrading of others.Access to health care has also improved following theelimination of patient co-payments. Yet, life expectancywas only 43.1 years in 2002, and child and maternalmortality remain high. In 2002, the mortality rate forchildren under five was 141 per 1000 births; in 2001,the most recent year for which data is available, thematernal mortality rate was 880 per 100 000 live births.The health care system continues to suffer fromshortages of drugs, absence of qualified health personnel,insufficient preventive primary health care, poorsanitation, and high prevalence of malaria andHIV/AIDS. Malaria is the leading cause of death inUganda, and is estimated to cause 51 per cent of allinfant deaths in the country. Fortunately, Uganda’sHIV/AIDS prevalence rate declined from around 20 percent in 1991 to 6.5 per cent in 2002, and has sincestabilised at that level; the government aims to reduceit to 5 per cent by 2005/06.

Since introduction of the Universal PrimaryEducation (UPE) policy in 1997, the government hassteadily increased access to primary education through

construction of new public schools using the SchoolsFacilities Grant (SFG) scheme and the provision ofassistance to community and private schools. The UPEhas significantly raised access to primary education forthe poor and for girls, notably eliminating the gendergap. Gross primary school enrolment increased from3.4 million in 1996 to nearly 7 million in the early 2000sand net primary enrolment rates increased from 62 percent in 1992 to nearly 90 per cent in 2005. There werealso significant improvements in the pupil-teacherratio, pupil-classroom ratio, and pupil-textbook ratio.

In spite of the progress made on primary education,enrolment rates in secondary and tertiary educationremain low. The latest available evidence suggests thataverage net secondary school enrolment in 2002 was16.5 per cent (15.6 per cent for females and 17.4 percent for males), up from 8.1 per cent (7 per cent forfemale and 9.3 per cent for males) in 1999. In termsof tertiary education, little progress was made onenrolment, as only 3 per cent of the tertiary school agepopulation (2.2 per cent for females and 4.3 per centfor males) attended school in 2002, up slightly from2.7 per cent (1.8 per cent for females and 3.6 per centfor males) in 1999. Nevertheless, youth and adultliteracy rates in Uganda, at 69 and 86 per centrespectively, appear to be high by African standards.

uganda gb 06 - oecd

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