Uganda’s path to structural transformation
As Uganda makes a transformative economic journey, from agriculture towards a more industrialised and service-oriented future, there will be increased productivity and employment - central to its ten-fold growth strategy – but also challenges in infrastructure and skills development.
Structural transformation is typically characterised by a transition from agriculture-based activities of low productivity and labour-intensity to more industrial and service-oriented activities encompassing higher productivity and skill intensity. In Uganda, this transition is crucial in fostering sustainable inclusive economic growth and poverty reduction.
As noted by the World Bank (2016), Uganda’s economy has seen significant shifts in its economic structure, with notable reductions in the share of agriculture in both GDP and employment, accompanied by gradual growth in the industrial and services sectors. However, challenges such as the infrastructural deficit, limited access to finance, and skills mismatch persist, hindering the full realisation of transformational potential. To achieve sustainable development, Uganda needs to build its economic trajectory around boosting agricultural productivity, promoting industrialisation, and scaling up skills.
The International Growth Centre (IGC) and Uganda’s Ministry of Finance, Planning, and Economic Development co-hosted Uganda’s 8th Economic Growth Forum (EGF). The discussions encompassed strategies to support the implementation of Uganda’s ten-fold growth strategy and to guide policy actions for sustainable growth amid global economic fluctuations, geopolitical tensions, and climate change challenges. Additionally, the forum emphasised the importance of creating productive employment, reducing poverty, and promoting human development as integral components of the economic growth agenda.
Uganda’s ten-fold growth strategy
The Ugandan government aims to expand the economy to USD 500 billion by 2040. Achieving this objective requires a deliberate approach, focused resource allocation, fiscal discipline, and consensus on effective methods. Re-establishing meritocracy within government institutions and business processes is essential, as is fostering strong partnerships with the private sector to enhance resource efficiency, productivity, and transparency while combating corruption. Additionally, strengthening resilience and implementing robust mitigation measures for emerging risks, including climate change, will be critical to ensuring sustainable growth.
Moses Bekabye, a Ministry of Finance technical advisor, stated that the strategy aims to double GDP every five years over the next 15 years, with related policies outlined in the upcoming NDP IV. This ambitious growth plan is centred on four key sectors: agro-industrialisation, tourism, minerals development (including oil and gas), and science, technology, and innovation (including ICT), ensuring a diversified and robust economic foundation.
EGF's contribution to economic performance
Albert Musisi, a commissioner in the Macroeconomic Policy Department at the Ministry of Finance reflected how over 1993-2017, Uganda's actual growth was higher than that of its peers and the sub-Saharan Africa average. However, the actual GDP growth remained below its potential GDP. As a result, the first EGF was established to identify policies and strategies to accelerate growth to its potential GDP level. Following this decision, several challenges and constraints were identified, along with policy and strategy recommendations that have informed policy interventions and budgetary resource allocation since 2016. This has resulted in a gradual but steady economic growth recovery, with the growth returning to the pre-pandemic level of 6% and potential growth by 2023-24 (see Figure 1).
Figure 1: Real GDP growth from 2016-2024
Strategies to accelerate economic growth and structural transformation
Albert Musisi stressed that Uganda's structural transformation necessitates growth in both actual and potential GDP above and beyond the 6% annual growth achieved in FY 2023-24. He elaborated that such a trajectory requires the identification of new sources of growth and expansion in productive capacity to achieve higher output potential.
Uganda’s growth potential is greatly bolstered by its natural resources such as oil, gas, gold, and iron ore. It's essential to reinvest the revenues generated into other sectors to promote economic stability and develop a diversification strategy to prevent over-reliance on natural resources.
He emphasised harnessing the demographic dividend due to population growth, characterised by a large and growing young population. He pointed out the market opportunities for Uganda's exports within regional integrations such as EAC, COMESA, and the AfCFTA. Additionally, enhancing productivity in both the agricultural and manufacturing sectors is crucial for Uganda's economic growth. Uganda's domestic savings as a percentage of GDP range between 19-20%, indicating the need to increase savings for investments and reduce reliance on costly external debts.
Building resilience is essential for significantly increasing growth, as it involves maintaining sustainable growth rates over time, despite facing internal and external shocks such as climate change. Therefore, enhancing sectoral resilience to mitigate and minimise the damage caused by climate volatility is vital.
Uganda’s arc of development
Tim Dobermann, IGC’s Research Director, defined structural transformation as a movement along the arc of development. He explained it as the transition from subsistence activities to specialised productive wage work producing diverse products and services (see Figure 2). The movement along the arc triggers the marketisation of work, fuelling the emergence of firms and their subsequent expansion.
Figure 2: The arc of development
Uganda's progress in development hinges on the removal of barriers to market access, the facilitation of new enterprise emergence, and the enhancement of firm productivity. Tim Dobermann underscored that industrial policy can further facilitate this transition, provided it effectively addresses market failures such as externalities and knowledge spill overs, insufficient credit markets, and market power.
Policy priorities for Uganda’s structural transformation
The presentations emphasised the importance of building strong and effective regulatory and institutional capacity and addressing implementation and enforcement gaps to enhance productivity and sustain growth. This further reduces the costs of doing business associated with bureaucracy, corruption, and essential business services. Additionally, there is a need to address transport costs, other logistical and non-tariff barriers, and regional security to fully leverage regional markets to encourage firms' growth and expansion.
Financial sector reforms, including the pension and retirement benefits sector reform, were a focal point of discussions to enhance domestic savings. The objective was to ensure the availability of long-term capital for financing investment and business activities, thereby fostering employment creation. Furthermore, it is essential to have access to key factors of production, including capital, labour, materials, and energy. Improving labour skills through vocational training is also important, particularly among young people. Lastly, there is a strong emphasis on the significance of developing resilience to tackle emerging risks such as climate change.