October 1, 2018         Blog

In 1907, Winston Churchill named Uganda ‘’the pearl of Africa’’. One of the reasons was Uganda’s rich wildlife, nature and resources, which imply a huge economic potential. Some even say, that if commercially farmed, Uganda could feed the whole of Africa. This is ironical, as the country was ranked as the seventh poorest country on the continent in 2018.

Nevertheless, after the end of the Amin regime in 1986, Uganda committed to the economic liberalization and became one of the fastest growing countries in Africa. Since then, Uganda ‘s economy not only grew but also witnessed a significant transformation:

While agriculture, fishery and forestry in 1987 stemmed most of the GDP (value added 54.8%), the added value decreased to only 24.9% in 2017. Within the same period , Industry including construction raised its added value from 9.7% in 1987 to 20% in 2017.1 A major transformation into an industrialized country seemed almost in reach. Against this backdrop, Uganda’s President Yoweri Museveni declared the ambitious goal to make Uganda a middle-income country by 2020, which would mean that every Ugandan has an average income of 3.500.000 UGShs.

In order to reach that goal, two National Development Plans have been released. The second plan targeted the period of 2015/16 to 2019/2020 and identified three resorts that have to be at the center of attention. First: Minerals, Agriculture and Tourism, second: Human Capital Development and third: Infrastructure, namely energy, transport, oil and gas. By improving all these three areas, Uganda’s economy should be structurally transformed from a traditional agriculture into a modern agriculture with manufacturing and high value services. Consequently, exports should increase, employment opportunities in high productivity sectors open and the national income of Uganda should thereby increase on long-term.

Although all three priorities of the second National Development Plan have to play together to increase the overall wealth of the country, the third priority is key to economic transformation. However, since Uganda’s economic liberalization, the economy faces two big challenges: First is the Ugandan energy system, the second challenge is an inefficient transportation sector. Let’s take a look at each of the two constraints and its implications:

Although access to energy has always been closely connected to the productivity of businesses, evidence in several literature indicates the existence of an insufficient supply of energy as one of the major constraints to economic growth in Africa. A recent research undertaken by the Center for Development Alternatives (CDA) in partnership with The Konrad Adenauer Stiftung (KAS) on energy as a shaper for the Ugandan economy indicates, that there are still main shortcomings in the Ugandan energy sector, which have to be changed in order to start an economic transformation. As per the study, 87% of the energy is still generated through biomass (charcoal, firewood and crop residues) . Electricity makes only 2%, while oil products make 11% of the overall energy consumption. 64% of the electricity is consumed by the industry, although electricity makes only 5% of the industries total energy consumption. Households and small businesses rely 99% on biomass.

Additionally, access to electricity is unequally distributed among both industry and households as well as rural and urban areas. More and more companies are keen to expand, many citizens in the informal sector are doing business or are willing to start a business, for which they need electricity. But the need for electricity is higher than the generated electricity. And even though more is invested in generating, the lack of effective distribution and transmission systems prohibits the ability to meet the demand and thereby limits economic growth.

Moreover, electricity is not reliable, and the high prices make businesses less competitive, hence biomass has remained the the most viable option for majority of Ugandans. Moreover natural resources like wood and charcoal are limited, yet the demand is overpowering. For these reasons, it is only a matter of time until the energy sector has to find a more sustainable solution.

According to the CDA/KAS study, the current energy sector is a constraint for the Ugandan Economy and is not yet ready to help the economic transformation to its full potential. As a result, Uganda has to work on a more inclusive energy supply that reduces its dependence on natural resources and makes the current use of biomass more efficient. Instead of investing only in generating electricity, the Ugandan government and private investors should also think about expanding distributional systems and making the electricity accessible, reliable and affordable. By this, both, rural and urban areas could increase their productivity immensely.

Apart from energy, an inefficient transportation system is the second big constraint that has negative implementation for Uganda’s economy:. Next to agriculture, the transport sector employs the second biggest number of people throughout the country. Transportation is a major driver of the Ugandan economy, since many other economic sectors depend on a functioning transportation sector. But every day, the amount of traffic in the streets of Uganda causes delays for imports and exports, interrupts business activities,creates a high risk of accidents, that come with very costly medical treatments. and those who suffer from the long term consequences of polluted air.

This predicament is especially common in Uganda’s capital Kampala, where the road system is not well developed and there is a lack of traffic management. Approximately half of all the vehicles in Uganda are centered in Kampala and its surrounding. Poor road networks, management as well as the shier number of vehicles cause traffic incidents like accidents, that can block the streets and make traveling time and costs unpredictable. The negative consequences of the inefficient transportation sector prohibit a faster growing economy. The delays and the higher transportation costs make international trade more difficult and, Uganda as a trading partner less attractive. For these reasons, one should focus on pooling time, resources and expertise to strategize and improve the Ugandan transport sector.

One step in reducing the negative effects is better traffic management. With the recent technical progress, Ugandan companies made use of the ongoing digitization and used it as a tool to manage traffic. Because of companies like Uber and Safe Boda, Uganda could witness first breakthroughs in the transportation sector. David Kasimbazi, representative of the Ministry of Lands, Housing and Urban Development specified: “One of the key constraints of the Ugandan economy are delays caused by traffic. Digitization can be used to help this challenge. But in order to incorporate digitization in the Ugandan transport sector, stakeholders from the private and public sector have to work together. Only with an efficient and uninterrupted transportation system can the transportation sector contribute to transforming Uganda into a middle-income country.’’

The two presented key constraints show, that the government and investors should focus specifically on the third priority of Uganda’s second National Development Plan to enable Uganda to become a middle-income country. The current constraints of a non-inclusive and unreliable energy sector as well as the economic losses caused by an inefficient transportation sector prevent the economy to unfold its full potential and to make a transformation into a more productive economy that will lead to an increased overall wealth.

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