Uganda’s budget focus on infrastructure does not bear fruit

For the seventh year running Uganda will increase the national budget to finance more investments in infrastructure, a strategy that experts say could explain the stagnation of the economy.

For the financial year starting July 2017, Uganda’s budget will increase by 17.7 per cent from Ush25.7 trillion ($7 billion) to Ush30.2 trillion ($8.3 billion).

The biggest beneficiary will be the transport sector, whose budget will increase by 27.3 per cent from Ush3.8 trillion ($7 billion) in the 2016/17 financial year to Ush4.9 trillion ($1.3 billion) in 2017/18.

The energy sector, another beneficiary of the perennial increases in allocations, will receive Ush3 trillion ($820.4 million), which is 26.1 per cent more than last year’s allocation.

Uganda’s secretary to the Treasury Keith Muhakanizi said that the rationale for the continued increase in allocation of funds to infrastructure is that the sector will create more jobs.

Mr Muhakanizi added that availability of electricity, better roads and a functioning transport system will guarantee increased growth in the next three to five years.

A 2016 World Bank report showed that Uganda was not recouping the money invested in infrastructure due to inefficiency. 
For the 2016/17 financial year, Uganda’s economy is expected to grow by at most 4.5 per cent, a percentage point less than had been predicted last June.

Mr Muhukanizi blames this year’s underperformance on the drought that affected productivity in the agricultural sector.

Fred Muhumuza, an independent researcher, said Uganda’s economic growth has been sluggish and that the only way to reverse this trend is for the government to get out of the domestic markets and to invest more on people.

Uganda’s appetite for infrastructure investment has been accompanied by heavy borrowing from the domestic market, which crowds out the private sector. For the 2016/17 financial year, Uganda’s new borrowing from the financial markets will amount to Ush1.4 trillion ($404 million).

The government will also roll over the Ush6.3 trillion ($1.7 billion) that was borrowed from the domestic markets in previous financial years.
According to Mr Muhumuza, the government should pay back this money and get out of the domestic market. This would allow banks to lend more to the private sector at a lower rate, which would boost household cash flow and spur demand.

The government should also increase the salaries of lower cadre public servants like teachers, nurses, soldiers and low level police officers, as these people would spend their money within Uganda boosting the market for agricultural produce and locally produced goods, he added.

However, Mr Muhakanizi argues that stopping infrastructure investment would affect Uganda’s future growth prospects.

Uganda has been investing heavily in infrastructure since 2007. But the country’s economic growth plummeted in 2011 and has generally failed to recover.

Information from the national planning authority shows that for the five year period in which the first national development plan was under implementation, economic growth averaged 5.5 per cent instead of the 7.2 per cent that had been projected.

Augustus Nuwagaba, a lecturer at Makerere University, said the problem of underperformance is worsened by the fact that with a population growth rate of 3 per cent, Uganda’s actual economic growth is only around 2 per cent.

“For Uganda to achieve the revenues and other economic indications it needs, growth would have to be 12.8 per cent,” Mr Nuwagaba said.
Godber Tumushabe, an associate director at the Great Lakes Institute for Strategic Studies, said that the government would need to allocate Ush1 billion ($276,000) to each of Uganda’s 1,403 sub counties to be invested in increasing agricultural productivity. The areas to be covered would include marketing, provision of extension workers, and improved usage of water resources.

Mr Tumushabe added that for this money to make a difference, it should be the sub counties that decide on how it is spent. The current arrangement is that the Ministry of Agriculture and its departments spend most of the sector’s allocation. 

In the coming financial year, agriculture will receive Ush846.7 billion ($231 million), compared with the Ush823.42 billion ($225.2 million) from the previous financial year.

One of the biggest beneficiaries from the agricultural sector is the National Agricultural Advisory Services (NAADS). According to Mr Nuwagaba, the project does not address low productivity in the agricultural sector.

Yet in the 2016/17 financial year, Uganda more than doubled allocations to the agricultural sector, thanks to a 2016 campaign promise by President Yoweri Museveni to increase NAADS allocations to Ush1 trillion ($273.5 million).
This willingness to implement this campaign promise appears to have waned as Mr Muhakanizi says the focus now is on development expenditure and infrastructure.