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1 Uganda Uganda's economy stabilised in 2012 but growth of 4.4% is lowest for more than a decade. Growth should recover but will remain under Uganda's potential. The discovery of gas and oil is a unique opportunity to boost and restructure the economy. Overview After a year of turbulence, the Ugandan government stabilised the economy in 2012 with inflation falling to 14.6% from 18.7% in Tightened fiscal and monetary policy helped bring fiscal balances under control. While laying the foundations for recovery and growth, stabilisation came at the cost of a slowdown in gross domestic product (GDP) growth to 3.2% by June A gradual recovery is expected, with real GDP growth projected to reach 4.4% in 2012, then picking up to 4.9% in 2013 and 5.5% in Growth could be lower however if the suspension of budget support aid, announced by several donors in November 2012 over a government corruption case, is maintained. Social developments were mixed. Data indicates children under five are eating better and a sharp decline in infant mortality rates. But there is a worrying increase in maternal mortality and HIV prevalence, as well as persistent deficiencies in the Ugandan healthcare system. Political debate was dominated by the discovery of oil and a number of high-level corruption cases implicating senior government officials. A case affecting the government's northern Uganda programme led several donors to suspend development assistance to the government. These events take place as Uganda completes two decades of rapid economic expansion, with GDP growing at an average annual rate of 7.1% from 1992 to As discussed in the theme chapter on "Structural Change and Natural Resource Management in Africa", fast growth has brought important changes to the Ugandan economy, although this has been limited on several accounts. With a rich and diversified base, natural resources weigh heavily on the Ugandan economy, although their contribution to growth and structural transformation has been declining. However, the recent discovery of commercially viable oil reserves in the Albertine Graben region, in western Uganda, has the potential to provide a unique opportunity for the country to carry out an economic structural transformation. Figure 1: Real GDP growth 2013 (East) 12.5% 10% Real GDP Growth (%) 7.5% 5% 2.5% 0% Real GDP growth (%) Eastern Africa - Real GDP growth (%) Africa - Real GDP growth (%) Figures for 2012 are estimates; for 2013 and later are projections.

2 Table 1: Macroeconomic indicators Real GDP growth Real GDP per capita growth CPI inflation Budget balance % GDP Current account % GDP Figures for 2012 are estimates; for 2013 and later are projections.

3 Recent Developments & Prospects Table 2: GDP by Sector (percentage of GDP) Agriculture, forestry & fishing - - Agriculture, hunting, forestry, fishing Construction Electricity, gas and water Electricity, water and sanitation Extractions Finance, insurance and social solidarity - - Finance, real estate and business services General government services - - Gross domestic product at basic prices / factor cost Manufacturing Mining Other services Public Administration & Personal Services - - Public Administration, Education, Health & Social Work, Community, Social & Personal Services Public administration, education, health & social work, community, social & personal services - - Social services - - Transport, storage and communication Transportation, communication & information - - Wholesale and retail trade, hotels and restaurants Wholesale, retail trade and real estate ownership Uganda saw a sharp slowdown in 2012 because of world economic troubles and the government's tight fiscal and monetary policies. Real GDP growth was only 3.2% for 2011/12. The Bank of Uganda's central bank rate reached 23.0% in January 2012, and this pushed commercial lending rates as high as 27.6% for shillingdenominated loans. Public spending fell in real terms. While helping to stabilise the economy, with inflation dropping from 25.7% to 5.5% between January and December, these policies held back the economy. Projected 2012 real growth of 4.4% is the slowest rate recorded since National figures available for 2011/12 indicate the slowdown was particularly intense for manufacturing, wholesale and retail, financial services, and health and education sectors, which registered negative growth rates of -1.8%, -0.7%, -11.8%, -20% and -5.8%, respectively. Construction and food production, which both accounted for more than 12% of GDP in 2011, performed poorly, reporting growth rates of only 1.7% and 1.0%, down from 7.8% in 2010/11 for construction. Against this background, only cash crop production and hotel and restaurant services posted robust growth at the mid-year stage. Cash crop value added growth reaching 16.2% on the back of a strong rebound of coffee production. Tourism grew by 20.6%, driven by an

4 increase in international visitors, coinciding with the nomination of Uganda as the top global destination in 2012 by the Lonely Planet guide. Despite the economic slowdown in the first half of 2012, third quarter GDP information released by the Ugandan Bureau of Statistics indicate a gradual recovery, driven mainly by a rebound in agriculture and services. Other key indicators also suffered in 2011/12. Private household consumption growth fell from 9.4% in 2010/11 to 5.0%, gross capital formation from 10.3% to -0.4%, exports from 0.5% to -7.0% and imports from 13.9% to - 5.0%, reflecting the impact on domestic demand of high interest rates and government spending cuts, as well as the effects of the global economic slowdown on demand for Ugandan goods. African Economic Outlook (AEO) projections for 2012 indicate a recovery of most of these indicators, particularly in investment, with gross fixed capital formation expected to grow by 13.6% in Private consumption is expected to grow by 7.0%, public consumption by 2.0% and imports by 11.9%, while exports are projected to register negative growth of -0.6% in Looking forward, the AEO forecast projects GDP growth reaching 4.9% in 2013 and 5.5% in 2014, indicating a slow, gradual recovery of the economy towards the high growth rates attained during the past decade. This forecast, however, does not take into account the impact that cuts in official development assistance (ODA) could have if they are maintained through Economic recovery in 2013 should be helped by better investment and consumption, with the external sector continuing to drag down growth prospects in the short and medium term. Thus, the AEO forecasts that gross capital formation growth will reach 14.1% in 2013 and 14.6% 2014, up from a projected 13.6% rise for Consumption is expected to increase by 4.2% in 2013 and 5.9% in The trade deficit, on the other hand, is expected to deteriorate, reaching 16.0% of GDP in 2013 and 17.2% in 2014, up from 14.9% in our projection for More worrying, the deterioration in the trade balance is expected to be largely driven by lower exports, forecast to fall by 2.7% in 2013 and 3.1% in Finally, this outlook forecasts that consumer price inflation will continue on moderate growth, with average inflation in 2013 reaching 10.2%, then tailing off to about 7.8% in 2014, closer to the Bank of Uganda core target of 5.0%. The budget deficit, on the other hand, is projected to increase from the current projection of 3.0% of GDP for 2012, to 4.9% in 2013 and 6.2% in However, these figures do not take into account the impact that recent cuts in budget support aid, which in 2011/12 accounted for 8.0% of the budget resource envelope, could have on public finances.

5 Macroeconomic Policy Fiscal Policy The government maintained a tight fiscal policy in 2012 as part of efforts to cool the economy and bring down inflation to single digit levels. The failure to increase tax revenue and the inability to fully utilise budget resources indirectly contributed to this policy stance, by reducing the government s overall fiscal space and actual spending. The government continued to prioritise infrastructure expenditure in the budget, especially capital spending in the energy sector. With the approval of the 2011/12 budget, the government sought to reverse the expansionary fiscal policy pursued in the run up to the February 2011 presidential election, in order to rein in spending, reduce the budget deficit and help stabilise the economy. Government spending for 2011/12, which was initially projected in the budget at 21.5% of GDP, down from 23.2% in 2010/11, only reached 18.6% of GDP, according to the finance ministry. For 2012/13, the national budget projected a slight increase in government spending, up to 20.5% of GDP, although final expenditure by the end of the financial year are likely to be below this level, given the difficulties that government has traditionally faced in disbursing the full value of the budget. The government s fiscal space to pursue a more ambitious public spending programme remains constrained by its inability to increase tax revenue, largely owing to generous tax exemptions and numerous loopholes in the tax regime. Thus, in 2011/12 non-oil domestic revenue was estimated at only 12.7% of GDP, down from 13.4% in the previous financial year and well below the budget plan of 13.4%. For 2012/13, the government is forecasting an increase in this ratio to 13.3%. Even if it is reached, this rate would still be below the levels outlined in the National Development Plan, 2010/ /15, and considerably lower than other East African and sub-saharan countries. The government says it will give priority to infrastructure spending in the budget, especially for energy. It is planning to construct a 600 megawatt dam at Karuma Falls, on the river Nile. As a result, public spending on energy and mineral development, and on works and transport is projected to account for as much as 13.7% and 15.2% of the 2012/13 budget, respectively, up from 5.3% and 7.6% in the 2007/08 budget. This has forced budgetary constraints in other areas, especially in health. The 7.8% budget allocation for health for 2012/13 is below the 10.0% recommended by the World Health Organization (WHO). Table 3: Public Finances (percentage of GDP) Total revenue and grants Tax revenue Oil revenue Grants Total expenditure and net lending (a) Current expenditure Excluding interest Wages and salaries Interest Primary balance Overall balance Figures for 2012 are estimates; for 2013 and later are projections. Monetary Policy Monetary policy in 2012 was geared towards reducing inflation and restoring macroeconomic stability. The Bank of Uganda s success in bringing down inflation to single digit levels and stabilising key monetary and financial

6 aggregates enabled a gradual easing of the tight monetary policy during Annual consumer price inflation was at 25.6% in January, 2012, already falling from the peak of 30.5% reached in October Inflation was pushed up in 2011 by external and domestic factors, including a drought which hit the Horn of Africa in early 2011, high international fuel and commodity prices, and the impact of exchange rate depreciation on imported commodity prices. There was also a rapid expansion in money supply which saw net domestic credit growing by 38.7% in The Bank of Uganda changed its longstanding monetary policy framework because of the inflation, adopting an inflation targeting-lite regime in July 2011, which it has continued to follow. With inflation falling, the Bank of Uganda began a cautious easing of its monetary policy stance in February 2012, with a gradual reduction of its Central Bank Rate. This easing was intended to spur private credit growth and boost business and market confidence, putting interest rates more in line with the improved price stability. The Central Bank Rate saw a gradual decline from a high of 23.0% in January to 12.0% in December Consumer price inflation dropped to a low of 5.5% by the end of the year. The central bank is expected continue to pursue a further cautious easing as inflation returns to the medium-term target of 5.0%. The Bank of Uganda s easing of monetary policy has helped maintain a degree of stability in foreign exchange markets, with the US dollar exchange rate fluctuating around the Ugandan shillings (UGX) to the dollar mark for most of the year. However, private sector credit growth remained subdued. It fell on an annual basis from 46.4% in May 2011 to 3.9% in September 2012, on account of an increase in non-performing loans and commercial banks subsequent need to refinance their loan portfolios. Growth had risen again to 11.6% by the end of the year. As of December 2012, Uganda was not participating in any monetary union. However, East Africa Community (EAC) member states are negotiating convergence criteria for monetary integration. Economic Cooperation, Regional Integration & Trade In line with the EAC development strategy for 2011/ /16, Uganda has integrated international and regional agreements into its legal and regulatory frameworks. It has also taken part in moves toward EAC monetary union and tripartite free trade negotiations with the Common Market for Eastern and Southern Africa (COMESA) and Southern African Development Community (SADC). Uganda is a signatory to the COMESA free trade area protocol which provides for 100% mutual tariff concessions to COMESA member states, as well as to the Inter-Governmental Authority for Development (IGAD) nations, the African Union (AU) and the World Trade Organization (WTO). The external sector deteriorated for the three years up to 2012 and there was a further increase in the current account deficit (including grants) from 11.40% in 2010/11 to 12.25% in 2011/12, driven by high import bills and lower earnings. African Economic Outlook projections indicate it will worsen in 2013 to 13.30% and to 14.60% in The trade balance marginally improved from 16.48% of GDP in 2010/11 to 15.50% in 2011/12. In absolute terms, however, it worsened as a small increase in exports from 15.50% of GDP in 2010/11 to 15.80% in 2011/12 was outweighed by imports which grew to a high of 31.20% in 2011/12 after 31.60% in 2010/11. The increased port tariff at Mombasa, Kenya, and a proposed implementation of a controversial cash bond, has increased the cost of doing business. These measures, intended to make Mombasa port less congested, have delayed freight clearance and contributed to the slowdown of economic growth. Nevertheless, the higher cost of doing business is a good pointer to exploring the viability of an alternative route to the sea. This could impact trade relations between Kenya and landlocked countries that rely on Mombasa, including Uganda, Rwanda and Burundi, Democratic Republic of Congo and South Sudan. Table 4: Current Account (percentage of GDP) Trade balance Exports of goods (f.o.b.) Imports of goods (f.o.b.) Services Factor income Current transfers Current account balance Figures for 2012 are estimates; for 2013 and later are projections.

7 Debt Policy Under Uganda s 2007 External Debt Strategy 80% of public borrowing should be obtained on concessional terms over the medium and long term, with the remaining 20% in non-concessional borrowing. In line with these principles, during 2012 the government pursued its cautious approach, prioritising grant financing and concessional loans where available. Uganda s total debt stock is estimated to have increased from 17.3% of GDP in 2010/11 to 20.4% in 2011/12. Of the total public debt, 64% is external debt, while the rest is domestic debt holdings, comprising government bonds and treasury bills. Currently, over 89% of the external debt is owed to multilateral partners on concessional terms, with Paris and non-paris Club lenders accounting for the rest. The majority of new external borrowing was allocated to municipal infrastructure development (27%), health (16%), works and transport (14%), water and environment (12%), accountability (9%) and education (4%). Despite the increase in total debt, Uganda continues to be considered at low risk of debt distress, according to a joint assessment by the International Monetary Fund (IMF) and World Bank in May According to this assessment, indicators of debt stress, such as the present value of public and publicly guaranteed debt service to revenue ratio (which remained stable at 4.5%) and the debt service to exports ratio (also stable at 2.7%), indicate that Uganda s debt remains sustainable in the medium and the long term. As such, the IMF s Policy Support Instrument external non-concessional borrowing ceiling is expected to be increased in 2013 from the current USD 800 million to USD 1 billion. The magnitude of the infrastructure funding gap has prompted the government to adopt a Public Private Partnership approach to increase private investment in public infrastructure. This, on top of increased investment in oil, has increased FDI from USD 726 million in 2010/11 to USD 1.5 billion in 2011/12, making Uganda the lead foreign investment destination among EAC member states. Similarly, net donor support or ODA increased from USD 584 million (3.0% of GDP) in 2010/11 to USD 746 million (3.6% of GDP) in 2011/12. Figure 2: Stock of total external debt and debt service % 200% Percentage 150% 100% 50% 0% Debt/GDP Figures for 2012 are estimates; for 2013 and later are projections. Debt service/exports

8 Economic & Political Governance Private Sector Uganda s competitiveness stagnated over the last two years, although the business climate remains fairly favourable. The country's ranking in the World Bank report Doing Business 2013 fell to 120 from 119 and in the World Economic Forum's Global Competitiveness Report to 123 from 121. The assessments said investors continued to face barriers in starting businesses and obtaining construction permits, with ranks of 144 and 118, respectively, in the two reports. While the Doing Business "Resolving Insolvency" indicator deteriorated to 69, from 64 in 2012, it compares favourably with the ranking of neighbouring Kenya (100) or Rwanda (167). Regulations associated with land transfers remained at 124, requiring 12 procedures, and taking 52 days to complete, up from the 45 days in Employment law, on the other hand, provides a high degree of flexibility to hire and fire workers at low cost. According to the Heritage Foundation's 2012 Index of Economic Freedom, labour regulations have a score of 87.9, about the same as in Access to credit improved, with Uganda ranking 40 in 2013, up from 52 in The main challenges that businesses in Uganda face in their operations include constant power cuts, corruption, bureaucratic procedures and excessive administrative fees. The government's 2011 Comprehensive Business Licensing reform study recommended that 169 licenses, out of the 789 total, should be streamlined, 45 amalgamated into 19, and 112 eliminated altogether. On a more positive note, investment in infrastructure development and, in particular electricity generation and distribution, over the past decade has enabled Uganda to double electricity generation capacity. An example of this is the commissioning of the 250 MW Bujagali hydro power plant in October Construction of the 600 MW Karuma hydro power plant is due to start in 2013 and when this is finished electricity supply will have increased four fold. The government has also set up a special task force to propose laws to improve Uganda s international competitiveness. Financial Sector Uganda's core financial system indicators, including those for capital adequacy, asset quality, profitability, and liquidity conditions, remained reasonably sound in Bank portfolios have grown. Even though this growth has come with a slight deterioration in non-performing loan ratios, these remained low at 3.4% in June, 2012 up from 1.6% one year earlier. Capital adequacy ratios stood at 18.3% in June 2012, much higher than the required 8.0%, while liquidity conditions remained tight until September 2012 when it was eased to accommodate for Open Market Operations (OMO) and Central Bank s reserve build up purchases. Consequently, in September 2012 the net OMO (Treasury Bills, Treasury bonds, Repos) injected UGX 35.5 billion into the banking sector to reflect the easing, an improvement compared to August 2011 when OMO withdrew UGX 52.1 billion consistent with the tight monetary policy at the time. Despite the difficult macroeconomic environment financial operators faced during 2012, commercial banks total assets grew by 15.1% in 2011/2012, mainly driven by growth in foreign assets. To mitigate the growth of non-performing loans, the Bank of Uganda raised commercial banks reserve deposit thresholds to UGX 25 billion from March 2013, in order to absorb future loan losses. At the policy level, while the central bank made progress in implementing risk-based supervision, most analysts consider that the implementation of the Basel Core Principles needs to be strengthened. This is particularly the case with regulation and monitoring the financial sector regulatory framework. This is deemed critical in relation to the fast growing mobile payment and cross-border business, which has seen the introduction of a range of new products and services and greater access to financial services for rural and under-served communities. A large number of non-bank institutions (mainly credit co-operatives), which have helped expand financial services to rural areas, remain unregulated and unsupervised. The spread of mobile payments and its growing integration with the more formal retail payment and bank systems poses challenges to payment system stability. In the pensions sector, the government continued to implement reforms to allow more private pension providers, in line with the 2011 Uganda Retirements Benefits Regulatory Authority Act. Public Sector Management, Institutions & Reform The Ugandan constitution mandates the prime minister's office to co-ordinate, monitor and evaluate the implementation of government policies and programmes. Central government maintains an oversight of national security, planning, immigration, and foreign affairs, while service delivery is the mandate of local government. The central government structure has ensured that performance targets are set by all ministries, departments, agencies and local governments based on indicators agreed by the government and donors. While this institutional framework has contributed to enhanced decision-making and accountability, less impact has been registered as evidenced in the 2011/12 government assessment report, which shows a mixed performance on human development indicators. Against this background, the government continues with efforts to strengthen public sector management of service delivery, with a focus on contract management, addressing corruption, salary enhancement, inefficiency and waste in public expenditure as a priority.

9 Despite these efforts, Uganda continues to perform poorly in governance assessments. The Ibrahim Index of African Governance, for instance, shows little progress in the quality of governance. Uganda received a score of 55.1, slightly above the Africa average of 51.2, placing the country 19 th out of 52 countries in the index. Uganda performed strongly or above average in national security and, to a lesser extent, rule of law and participation. It underperformed in accountability, personal safety and rights. Natural Resource Management & Environment Biodiversity conservation and environmental management continued to be a source of concern in Figures released in the year put Uganda's annual forest cover loss at hectares, with a particularly high rate in protected areas. In response, the government declared a national ban on logging in March 2012, although its effectiveness remains to be assessed. Increased environmental degradation in Uganda poses severe stresses not only on the environment, but also on human life. Mudslides in the Mount Elgon region in June left at least 32 people dead and were linked to forest cover loss. A number of factors are seen driving these worrying environmental trends. The 2012 Water and Environment Sector Performance Report, released by the Ministry of Water and Environment in October 2012, highlights population growth, poverty, urbanisation, agricultural expansion, informal settlement development, industrialisation, and the impact of climate variability among the most pressing factors. There is a weak governance structure for environmental management at all levels of government, according to the report, which identifies the lack of political will to address the concerns, inadequate levels of public investment in environmental and natural resource management, and weak institutional capacities as hindering legal compliance and the full enforcement of environmental regulations in Uganda. It is also undermining the sustainable management of Uganda s natural resource wealth, it added. Political Context Political tensions that followed the February 2011 presidential election abated in However, opposition parties continued to organise sporadic rallies around the country, most notably in the capital, Kampala, while the main opposition leader, Kizza Besigye, of the Forum for Democratic Change, remained under house arrest for extended periods. As in previous years, allegations of large-scale corruption involving senior politicians and government officials dominate the Ugandan news. The most notable of these cases in 2012 involved the alleged theft of about USD 20 million of development assistance at the prime minister's office. Originally intended for the Peace Recovery and Development Plan for northern Uganda, the funds were allegedly diverted to the personal accounts of staff in the prime minister's office, the finance ministry and Bank of Uganda. Allegations were made of the involvement of senior government members. As a result of this case, in November 2012 budget support donors suspended aid to the Ugandan government for a period of at least six months. They demanded policy actions to strengthen public financial management systems to be implemented by April 2013 as a condition for resuming the aid, which for 2012/13 was projected to reach USD 281 million, including loans and grants. This has come on top of other large-scale corruption cases unveiled in 2012, including pension and global fund misappropriation scandals, and many others over the past decade. Corruption is now considered a major problem and an obstacle to development. According to the 2012 East African Bribery Index by Transparency International, Uganda had the highest rate for requesting bribes. Adding to the growing sense of dissatisfaction, the 2012 Afrobarometer report, based on surveys in a number of countries, revealed that up to 74% of Ugandans think the country is going in the wrong direction.

10 Social Context & Human Development Building Human Resources According to the 2011 UN Human Development Report, Uganda s human development index increased from in 2010 to in 2011, reflecting improvements across all three key development dimensions: health, education and living standards. In the report, Uganda was 161 st out of 187 countries considered for the ranking in the "low human development" category. Progress was made in the UN Millennium Development Goals (MDGs) in 2012, especially against child mortality and improving nutrition. Still, other goals remain a concern, notably the environment, maternal health and the fight against HIV/AIDS. In education, primary school enrolment increased from about 2.7 million pupils in 1997 to 8.2 million in 2009, partly due to the government's introduction of a Universal Primary Education policy in As a result, net enrolment rates were 93.0% in 2009, close to the MDG target of 100%, whilst literacy rates reached 76.0% in Despite these improvements, Uganda s education sector still faces challenges. These include closing the education gender gap, especially at the tertiary level, where female enrolments stood at 44.5% in 2010, below the 50.0% parity mark. Completion rates are also poor, with only 52.0% of pupils that start grade one reaching grade seven. Education suffers from poor quality and keeping children in school, especially in primary education. There is a dropout rate of 22.0% at primary school level. Teacher absenteeism is also a problem. In response, the government implemented measures in 2011/12 aimed at keeping children and teachers in school to improve effectiveness and efficiency. These include a new teacher allocation and deployment formula, a commitment to raise teachers pay, support to district service commissions for teacher recruitment, constructing houses for teachers, the construction and rehabilitation of schools and strengthening public-private partnerships in business, technical and vocational education and training. Considerable progress has been made in recent years on improving the population's general health. The results of the 2011 Uganda Demographic Health Survey, released in August 2012, showed improvements in nutrition for children under five and a sharp decline in infant mortality rates from 88 deaths per thousand live births in 2000/01 to 54 in This partly reflects health care improvements, with births in a health facility increasing from 41% to 57%, the share of children under five with malaria having access to medication increasing from 61.3% to 64.5% during the same period. The proportion of children under five sleeping under insecticidetreated nets rose from 43% to 53% between 2005 and But the healthcare system still has deficiencies, particularly in areas such as child and maternal health, which remains underfunded. Maternal health is a serious concern. Uganda s maternal mortality ratio increased from 435 per thousand live births in 2005 to 438 in 2011, way above the MDG target of 131. Uganda has had past successes in the fight against HIV, but the epidemic has made a comeback. The 2011 Uganda AIDS Indicator Survey, released in July 2012, indicated that the HIV prevalence rate (ages 15-49) increased from 6.4% to 7.3% between 2005 and The report estimated that the number of new infections rose steadily from in 2009 to in 2010, to in Poverty Reduction, Social Protection & Labour The 2009/10 Uganda National Household Survey estimated the poverty level at 24.5% of the population, down from 56.0% in 1992/93 and indicating that the country has achieved the MDG target of cutting half the number of people who live on one UD dollar per day. Other poverty-related indicators have also performed well. However, an estimated 7.5 million Ugandans live in absolute poverty and poverty reduction gains have been unevenly distributed, with northern Uganda reporting poverty rates of up to 46.2%. Moreover, results from the finance ministry's Poverty Status Report, released in May 2012, show the number of "Insecure Non-poor" persons have increased from 33.4% of the population to 43.0%, or about 13.2 million people. These are people who, while able to meet their basic daily needs, earn incomes that are highly volatile, therefore remaining vulnerable to falling back into absolute poverty during economic troubles or illness. In an attempt to reduce the vulnerability of disadvantaged groups, the Ministry of Gender, Labour and Social Development established in 2010 its Expanding Social Protection Programme with the support of donors. Since late 2011, this programme has been piloting a Senior Citizens Grants scheme and a Vulnerable Family Grants scheme in 14 districts. These provide allowances of about USD 8 per month to people above the age of 65 and households with low labour capacity and high dependency. More than were taking part in the schemes. In 2011/12 the government started contributing direct finance to the programme, with an annual budget allocation of UGX 125 million, in addition to in-kind contributions of UGX 6 billion for the first five years of this programme. On the employment side, the Poverty Status Report indicated growing diversification of employment and income over the past decade. This process has been particularly pronounced in rural areas. Between 2005/06 and 2009/10, there was a sharp decline in the share of rural households relying on subsistence agriculture as their main source of income from 64% to 54%, according to the study. There was a corresponding increase in wage employment from 12% to 17% and non-farm enterprises from 13% to 18% as the main source of income. This gradual shift away from subsistence based agriculture has enhanced welfare, led to increased consumption and helped bring down absolute poverty in Uganda.

11 Gender Equality Uganda is a signatory to various international agreements on gender equality, a principle that is enshrined and guaranteed in the 1995 constitution. These include the Convention on the Elimination of all forms of Discrimination Against Women, the Beijing Platform of Action and the MDGs. Uganda has some of the best policy and legal frameworks on gender equity in Africa and the developing world. The practice, implementation and enforcement of the mechanisms are lacking however. The introduction of universal free primary education in 1997 and free secondary education in 2007 have dramatically improved gender equality. It has led to a general increase in women s access to education, with the ratio of girls to boys in primary, secondary and tertiary institutions reaching 1.00, 0.84, and 0.79, respectively, in 2009/10. The past two decades have also seen women take an increased role in the public sphere. The number of women in parliament reached 130 in the current parliament, out of a total of 375 members. There were 98 in the previous assembly. Moreover, parliament appointed a female speaker for the first time in Important lingering gender disparities remain. In employment, women, who as a whole accounted for 53.3% of the labour force in 2009/10, work on average 24% fewer hours per week than men. The situation changes when it comes to time devoted to household duties, with working age women spending an average of 19.0 hours per week undertaking these type of activities, against 13.4 hours per week for working age men. Against this background, a new ten year strategic plan, "Skilling Uganda", was launched in October 2012 to scale up business, technical, vocational education and training. This aimed to increase equitable access to skills development. This has targeted early school leavers and girls and women in need of a skills upgrade or to learn a new skill.

12 Thematic analysis: Structural transformation and natural resources The Ugandan economy has witnessed dramatic growth in the past two decades, with GDP rising at an average annual rate of 7.0% from 1992 to It was the third highest rate in sub-saharan Africa for the period, only surpassed by Equatorial Guinea (20.0%) and Liberia (10.0%). This has been driven by growth in the industry and services, with value added for these sectors growing at an average of 10.0% and 8.0% between 1992 and It has been underpinned by strong investment and export growth. Gross fixed capital formation grew on average by 8.6% per year during the period and exports of goods and services by 17.0%. This growth benefited from relative macroeconomic and political stability, especially since the end of the armed conflict in northern Uganda in the mid 2000s. Growth has also been bolstered by large inflows of ODA, averaging 15.0% of gross national income from 1991 to 2010, as well as by a general policy of openness to foreign investment and international trade. This period has also seen important changes in the structure of the Ugandan economy. Agriculture, which in 1990 accounted for 57.0% of GDP, contributed only 23.0% in In contrast, industry and services have seen their weight increase from 32.0% and 11.0% respectively in 1990 to 51.0% and 25.0% in However, these developments have not made any significant change to the employment pattern. The latest estimates for 2009/10 showed that agriculture accounted for 65.0% of jobs, manufacturing 6.0% and retail and wholesale 10.0%. These shares have only changed marginally from the 65.0%, 6.0% and 12.0%, respectively, in 2002/03. Even within agriculture, the move to commercial farming and away from subsistence agricultural activities has also been small. The non-monetised agricultural sector, including subsistence farming, still accounted for 39.0% of agricultural value added in 2011, against 41.6% in The natural resources sector has continued to play a prominent role, especially primary commodities such as cocoa, coffee, cotton, flowers, fish, tea and tobacco as well as cement. These eight product categories accounted for 40% of total exports in 2011, although this share has fallen sharply from 84% in The growing diversification of Uganda s export base towards non-traditional exports has also taken place within the resource sector, with the emergence of activities that barely existed 20 years ago, such as cement, flowers or fish-products. However, the scope for more natural resource-based transformation appears limited. Thus, while Uganda has been able to diversify production and export base of primary commodities and enter new higher value-added activities, such as fish products, flowers or cement, there is no reason to expect an acceleration in production trends in these sectors. Moreover, the contribution of these products to tax revenues and their contribution to government revenues while difficult to establish, is likely to remain small. The role of natural resources in Uganda, however, is likely to change significantly in the next decade, with the recent discovery of oil in the Albertine Graben, in western Uganda. The first discoveries of commercially viable oil reserves were made in Up to 20 major discoveries of oil and gas reserves have been made since then, amounting to 3.5 billion barrels of oil equivalent as of In current conditions, it is thought that production in Uganda could reach a peak of barrels per day by Industry experts estimate that this rate could be maintained for about 10 years, with oil production expected to remain commercially viable for 25 to 50 years in total, depending on technological developments in the oil industry and whether additional reserves are found. While government wants to develop refining capacities in the country as a first step towards developing a national oil sector, the experience of other developing countries suggests there is limited scope in this sector. In fact, oil production could actually dampen prospects for soft commodity sectors, if it eventually leads to an appreciation of Uganda s real exchange rate and causes Dutch Disease a decline in manufacturing. Oil revenue could lay the basis for structural transformation, by providing a unique opportunity to push ahead infrastructure investment in transport, energy, agriculture or human development. Existing estimates of government revenue from oil range around USD 2 billion to USD 3 billion per year during peak production. But given the volatility of international markets and uncertainty over the exact volume of Uganda s oil reserves, these remain estimates. To give an idea, at current prices, USD 2 billion is three times the government s proposed budget for education in 2013/14, and six times the health budget. With current unit costs for road construction in Uganda ranging between USD and USD 1 million per kilometre, it could also serve to double Uganda s existing paved road network of km every year. Realising these oil-dividends, however, will depend on the government s ability to address capacity constraints and bottlenecks that cause long delays in the completion of infrastructure projects and high infrastructure development costs in Uganda. In any case, it will be several years before these investments are finalised and start feeding into economy-wide productivity gains. It is important to note that oil production is only expected to start in 2017 and to reach a commercial scale will require investment to establish key oil production and distribution infrastructure in Uganda and the East Africa region. This will include refinery capacity, pipelines, road and rail transport and basic oil development. Industry experts say this could require between USD 7 billion and USD 11 billion. Any delays in completing these projects will likely push back the start date for commercial oil production and of the benefits it might generate in government revenue and transforming Uganda's economy.

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