75324 v1 EXECUTIVE SUMMARY EXECUTIVE SUMMARY Overview Despite having one of the world’s highest rates of population growth, Uganda has an impressive record of economic growth and poverty reduction. Over a period of approx- imately 20 years, from the 1990s until around 2010, the average an- nual rate of economic growth stood at around 7 percent. During this same period, the proportion of the population living below the pover- ty line declined from 56 percent in 1992 to 24 percent in FY10. Unleashing Uganda’s Regional Trade Potential BRIDGES ACROSS BORDERS UGANDA ECONOMIC UPDATE I n sub-Saharan Africa, Uganda was a pioneer of liberalization and pro-market policies in the 1980s. This established the foundation for the country’s remarkable economic per- formance in the 1990s and the 2000s. During this period, the country di- versified its exports, mainly through fisheries and tourism, with high levels of private investment. Exports of agri- cultural commodities (particularly in- novative crops such as flowers, tobacco and maize, on top of the traditional ex- ports of coffee, tea and cotton) grew by 16 percent per annum during most of the 2000s. Private investment, which increased to an average of 18 percent of GDP at the end of the century from 11 percent in the 1990s, was mostly driven by construction. EXECUTIVE SUMMARY Overview However, in recent years, the rate of growth has pared to FY12 and far lower than the country’s recent slowed down and has been characterized by increased historical rates. From a longer perspective, vulnerabil- volatility. From an average of 9.3 percent per annum ities have also become evident over the past five years, in the period from FY01 to FY08, the rate of growth when public investments have become the key driver declined to 7.2 percent in FY09 and to 5.9 percent in of growth. Exports remain driven by the agricultural FY10. There was a short-lived recovery in FY11, with sector, which is sensitive to climate change. the rate increasing to 6.7 percent, before falling again to 3.4 percent in FY12. Developments in first half If Uganda is to achieve middle income status, it must of FY13 suggest that the rate of growth will remain rebuild a more resilient economy. Such resilience will around 4.5 percent. Uganda, which used to have the be achieved through a more rapid diversification of best performing economy of the nations in the East the economic base, characterized by the production of African Community, now lags behind all the others, higher value products and the judicious exploitation with all the other member nations recording rates of of the country’s oil resources. This has the capacity to growth of at least 4.5 percent per annum since FY12. boost the economy, including the non-oil sector, and to close current external and fiscal imbalances. Inten- The global economic crisis of FY09 and its after effects sified regional trade will be the catalyst for a market- have resulted in the deterioration in Uganda’s terms of oriented growth strategy to accelerate this process. trade, with commodity prices declining while oil prices increased. This had a negative impact on exports and To harness the potential of regional trade, Uganda investment, leading to a decline in the rate of growth. needs to adopt a multi-pronged approach to raise pro- The prolonged drought in Uganda has had a significant ductivity and to get the products to markets. In this negative impact on the performance of the agricultural regard, interventions that create incentives for farm- sector. This, combined with poorly directed govern- ers, firms and services providers are vital measures to ment spending and poor financial management, has raise productivity. Farmers can then produce outputs had a negative impact on the macro environment. In in sufficient quantities and quality. Firms can invest turn, this has resulted in a slowing down of the ser- in higher value export products. And service providers vices and industry sectors. The slowdown in private can invest in quality enhancement to enable Uganda investment and exports was followed by a weakening to tap into the regional market. Transport costs must external current account, driven by a dramatically in- be reduced through the development of better quality creased import bill. While the combined impact of ef- infrastructure and improved logistics, non-tariff barri- forts to achieve stabilization, good weather and reced- ers to goods trade must be addressed, and restrictions BRIDGES ACROSS BORDERS Unleashing Uganda’s Regional Trade Potential UGANDA ECONOMIC UPDATE ing shocks might have facilitated a recovery in FY13, to services trade must be eliminated. Deeper regional uncertainties created by governance-related aid cuts integration is the main means to ensure the establish- and a decline in investor confidence are continuing to ment and implementation of interventions that pro- stifle growth. The World Bank forecasts that the rate mote a high volume and quality of trade and technol- of growth of the Ugandan economy in FY13 will be in ogy transfers. the range of 4.3-5.0 percent, a modest increase com- Good infrastructure, like this Masaka-Mutukula road to enable economic recovery, (Charles Kunaka) May 2011) Part I: State of the Economy: Recent Economic Developments EXECUTIVE SUMMARY and Economic Outlook In FY12, Uganda experienced the double blow of a high rate of inflation and a slump in growth, with inflation averaging 23.5 percent and growth declining to 3.4 percent. These two phenomena had not occurred concurrently since 1992, when the economic stabilization and reform process begun. The causes for this double whammy were the global economic turbulence that resulted in a decline in ex- ports and investment, higher food and oil prices, together with slippages in fiscal and monetary policy originally meant to counter the global crisis effects, the implementation of which was affected by the February 2011 elections and security spending pressures. Squeeze in Domestic Demand as Investments Decline and Consumption Shrinks Despite these expectations, 8.0% recovery has been constrained by lower than expected ex- % contribution to GDP growth 6.0% penditure resulting from failure 4.0% to achieve tax revenue collec- tion targets, budget execution 2.0% problems, and the recent un- certainty arising from govern- 0.0% ance scandals and correspond- ing aid cuts. During the first -2.0% quarter of FY13, the level of -4.0% tax revenue collection was 3.8 Consumption Public Private Net Exports percent below target. The rate Investment Investment of absorption for the develop- FY11 7.3% 1.7% 1.0% -3.3% ment budget stood at a mere FY12 0.4% -0.5% 1.1% 2.4% 69.6 percent, compared to 94.2 percent for the recurrent budg- et. This has undermined the In FY13, tight management of monetary policy, and in support prudent fis- Unleashing Uganda’s Regional Trade Potential BRIDGES ACROSS BORDERS UGANDA ECONOMIC UPDATE public expenditure program, cal policy, has stabilized the economy. The economy has also benefited from even as security and public a decline in food and energy prices due to external factors, from improved administration budgets were weather, and from the appreciation in the value of Uganda’s currency. With overrun. Key investment pro- the combined impact of these factors, inflation came down to below the 5 jects, such as the construction percent target by the end of the first half of FY13. Fiscal adjustments that of the 600MW Karuma hydro- reduced the deficit by more than 3 percent during FY12 also supported ef- electricity dam, have also been forts to reduce inflation. However, both policy measures also contributed to delayed. a slower rate of economic growth. Finally, the governance scan- In FY13, Uganda had high expectations for a recovery of the economy, sup- dals involving the Office of the ported by macroeconomic stability. With the restoration of stability, both in- Prime Minister and the Min- creased government spending and a moderate easing of monetary conditions istry of Public Service during were expected to stimulate overall demand in the economy. At the same the second quarter of the year time, the Central Bank Rate was cut by 8 percentage points, to 12 percent resulted into a freeze of aid esti- as of December 2012. As a result, the level of lending to the private sector mated at US$ 300 million (4-6 began to gradually increase during the second quarter of FY13. The FY13 percent of the national budget budget had demonstrated the Ugandan government’s intention of utilizing or 0.9 percent of GDP). This spending and taxation as the main instrument to stimulate aggregate de- has not only impacted fiscal mand and supply, particularly through a large investment program. Up to operations, but it has also re- 29 percent of the FY13 budget was allocated to support major road works, sulted in increased economic the rehabilitation of water ferries, the first stages of a design of a standard uncertainty, with implications gauge rail, and the commencement of construction of the 600MW Karuma for planning and investment, hydro-electricity dam. even in the private sector. EXECUTIVE SUMMARY Uganda’s external transactions position improved dur- to corrective actions regarding the misappropriation ing FY12 on account of short term portfolio inflows of funds. However, if the strategies of the medium and increased foreign investment in oil exploration. term expenditure program and efficiency reforms are However, the current account position deteriorated sustained and if aid disbursement resumes, economic further, following the downward trend experienced in recovery may gain momentum in FY14. the past five years. In FY13, the balance of payments has been threatened by lower interest rates that have As a result of the slowdown in the global economy, reduced the short-term portfolio and by the govern- Uganda’s external position is expected to remain ance scandals that have resulted in aid cuts and in- weak, with increases in exports failing to offset the creased uncertainties amongst investors. rapidly increasing growth in imports. Consumer im- ports, mainly consisting of foodstuffs such as dairy Uganda’s short term economic outlook remains mixed, products, fruits and vegetables from Kenya and South as the economy maneuvers the uncertainties sur- Africa, and clothing and household items from China, rounding governance-related disruptions to aid and Europe and USA, are increasing. The weak external the decline in investor confidence. Maneuvering these current account will also continue to reflect the large uncertainties is vital if the country is to sustain recov- gap between the country’s increasing investment ery following the dip in FY12. A positive growth out- needs and its low level of domestic savings, which cur- look is highly dependent on restored macroeconomic rently stands at a value equivalent to 13 percent of stability, characterized by lower inflationary pressures GDP, compared to the average level of 17 percent for and looser monetary and fiscal policies to stimulate ag- sub-Saharan Africa. gregate demand in the short term. Favorable weather will also boost agricultural output, allowing the agri- In the medium term, Uganda’s economic performance cultural sector to regain its importance. However, the is expected to improve as a result of the government’s services sector will remain the key driver of economic pro-growth policies, which involve reforms to en- growth. hance fiscal efficiency and to generate productivity improvements in private activities. In addition, rev- The World Bank forecasts that the rate of growth of enues derived from the production of oil will make an the Ugandan economy in FY13 will be in the range increasingly significant contribution. With these fac- of 4.3-5.0 percent, a modest increase compared to tors, the growth of GDP could revert to the rate of ap- FY12 and far lower than the country’s recent historical proximately 7 percent, consistent with recent histori- rates. With curtailed momentum as a result of the gov- cal performance. The spending geared at alleviating ernance scandals and ensuing disruptions to aid, the constraints to growth, particularly constraints related economy is expected to recover only modestly in the to energy supply and transport infrastructure, should, second half of the FY13 financial year. Facing these in the medium term, revive private investments, BRIDGES ACROSS BORDERS Unleashing Uganda’s Regional Trade Potential UGANDA ECONOMIC UPDATE problems, the Ugandan government is expected to boost agriculture production, and energize the light reduce its level of expenditure, including expenditure manufacturing sector. The new oil economy will dra- in the key transport sector. Hence, while agricultural matically change Uganda’s economic outlook through output is expected to improve as projected, the reduc- stepped-up investment in production infrastructure. tion in government spending is expected to curtail In future years, when production facilities become economic activity, even if aid assistance may resume active, actual oil revenues could double the country’s later in the year, following a government commitment current level of fiscal revenue. The experience of other Worsening Current Account, but Inflows on Capital Account Turned Around Overall External Position 6000.00 15.00 0.00 7.00 5000.00 10.00 FY06 FY07 FY08 FY09 FY10 FY11 FY12 -500.00 4000.00 5.00 3000.00 -1000.00 2.00 0.00 2000.00 -1500.00 -5.00 1000.00 -3.00 -10.00 0.00 -2000.00 FY08 FY09 FY10 FY11 FY12 -1000.00 -15.00 -8.00 current accout/GDP(%) Other investments(Project loans) -2500.00 Portfolio investment & Derivatives Foreign Direct Investment Capital and Finanacial account/GDP(%) -3000.00 -13.00 Overall balance/GDP(%) Trade Balance Net Services Net Income countries shows that the oil development preparation Uganda will require a significantly increased rate EXECUTIVE SUMMARY phase is often characterized by a high level of foreign of economic growth to achieve its vision of reaching investments that significantly impact economic per- middle income status in the next 10 years. With the formance, at least in the regions implementing those medium-term projection of 7 percent, which is based investments. Developing institutions to ensure trans- on a high-growth scenario, Uganda’s per-capita in- parency and the prudent management of revenue will come could reach US$ 814 by 2025. To achieve a per facilitate the optimal utilization of the country’s oil capita income of US$ 1000 within a decade, Uganda resources. must achieve a rate of growth in excess of 10 percent per year. Faster diversification of the economy and ap- However, Uganda’s economic prospects could be propriate use of resources, including oil, must be the negatively impacted by either external or internal de- engine to facilitate the renewed growth momentum velopments or both. In the short term, external turbu- required to achieve this figure. In addition to having lence from Europe, where the Euro Zone is struggling, the potential to close the current account deficit, oil instability due to the Arab Spring, poor relations with can boost the capacity of the economy, particularly the donors, and rising food and oil prices could destabi- non-oil sector, enabling it to grow at a more rapid rate. lize the domestic economy and slow down growth. Government expenditure remains vulnerable to im- Regional trade may be the catalyst to ensure rapid plementation constraints and lack of political will to economic growth. To achieve this, Uganda’s economy enforce discipline in the utilization of limited financial must undergo a fundamental transformation. This resources. The short-term prospects for increased do- transformation must affect what the country produc- mestic revenue remain slim, as measures to eliminate es, how it produces it, and where it finds markets for the leakages resulting from tax exemptions are still its outputs. Policies to improve the business environ- either lacking or are poorly enforced. Uganda’s large ment, to develop human capital, and to raise the stock public investment program continues to be funded of infrastructure will remain the key drivers of this through external financing, as collected domestic transformation. To overcome implementation chal- revenue, equivalent to 13 percent of GDP, is barely lenges, improving the efficiency of fiscal policy, includ- enough to cover the recurrent expenditures. Further- ing factors that influence it, such as good governance, more, corruption and related scandals may result in cannot be overlooked, particularly when the country the diversion of public resources and the derailment makes the transition to becoming an oil producer. of the public investment program, 50 percent of which However, international experience suggests that it is was expected to be financed with external resources. hard for a small landlocked country such as Uganda to move alone along the path of economic develop- In this period of transition to becoming an oil produc- ment. Improved levels of openness and transparency ing nation, poor relations with donors could exacer- can help ensure the achievement of these goals by Unleashing Uganda’s Regional Trade Potential BRIDGES ACROSS BORDERS UGANDA ECONOMIC UPDATE bate instability. By January 2013, the cuts in aid an- facilitating access to new markets (demand side) and nounced by donors amounted to 4 percent of the total by pushing firms to become more competitive (supply FY13 budget. These cuts could be managed through side). This leads to an expansion in production, diver- cuts in some non-priority expenditures. However, lack sification and increased employment opportunities. of progress in improving spending efficiency and a failure to entrench good value-for-money practices in government operations could worsen donor relations and result in further declines in investor confidence. This in turn could result in ongoing negative impacts Part II: Harnessing the for Uganda, whose international rankings for transpar- ency and good governance remain poor. potential in regional trade to help Uganda’s economy expand In the medium term, the challenge remains for Ugan- da to utilize its oil resources to create economic op- and diversify portunities. The manner in which oil resources are utilized will be a major factor in mapping the country’s If a typical African village is used as a metaphor medium- and long-term development path. Oil reve- for the Great Lakes region, Uganda is in the posi- nues can substitute for aid, but the transition could be tion of a typical villager who can only grow by a source of macro risk if these revenues are not man- developing deeper links with neighbors and aged properly. Elsewhere in the world, the prospect of increased revenues from oil has often been associ- members of surrounding communities. In Ugan- ated with increased levels of corruption. If corruption da’s case, it must develop deeper links between continues to increase in Uganda, further reductions in domestic producers and external markets. Ugan- aid are likely, making the transition towards a well- da has been at the forefront of regional integra- managed oil economy more difficult. tion, which is a key means of facilitating intensi- fied regional trade. It has entered into a number Uganda must continue to harness its agricultural po- EXECUTIVE SUMMARY of regional agreements, including the EAC and tential to feed the region. However, the full benefits COMESA. of regional trade will only be realized by climbing the value export ladder and by exporting services. Fa- cilitating intensified regional trade must involve three Uganda must tap the remaining underutilized oppor- strategic pillars, as follows: tunities within the region. Amongst other measures, this involves exploiting its position as a land bridge linking other landlocked countries to the coastal econ- omies; diversifying the export base within the agricul- PILLAR 1: Harnessing the agricultural sector to feed tural sector and out of agriculture into higher value the region: Uganda has a flexible climate and fertile products; and tapping the potential of services trade. soils. This gives it prospective comparative advan- To achieve this, working together with others, Uganda tages as a food basket zone for the EAC, principally has to build the bridges to facilitate intensified region- Kenya. Agricultural exports, particularly the export of al trade. While this agenda involves regional coopera- food commodities, will buttress export growth and fa- tion, Uganda must pursue a re-energized policy action cilitate diversification if productivity improves to meet that focuses on what the country can do on its own. the rising demand associated with the growth of re- Uganda cannot afford to wait. This economic update gional economies and the urbanization of their popu- proposes an action plan to achieve these goals, as fol- lations. The challenge lies in ensuring farms produce outputs in sufficient quantities and of sufficiently high lows: quality at competitive prices and are able to (i) Beyond the East African Community: Uganda as a land bridge for the Great Lakes region PILLAR 2: Climbing the export value ladder by expanding Uganda’s range of outputs: This will be achieved by building on what Uganda already pro- The first opportunity to exploit the dynamic regional duces and by participating in regional production market lies within the EAC. However, beyond that, chains. Moving from low to higher value exports re- Uganda must position itself as a land bridge to con- quires building production capabilities and capacities. nect other nations within the Great Lakes regions with In the EAC, Uganda has made the fastest transition coastal nations. In the period from 2001 to 2010, the from low value primary product exports to higher EAC was the second-fastest growing economic bloc value primary products; resource based manufactures; in the world. The Community has a rapidly expand- and low technology manufactures. This has expanded ing population and rapidly expanding levels of intra- BRIDGES ACROSS BORDERS Unleashing Uganda’s Regional Trade Potential UGANDA ECONOMIC UPDATE its opportunities to develop other products of similar regional trade. Uganda’s level of trade within the EAC and substitutable or adaptable capabilities. Uganda has grown more rapidly than its trade with the rest of can also participate in regional production chains and the world. However, Uganda has the potential to al- trade in “parts� or “tasks�. For instance, by export- most double its trading space through an expansion of ing plastics, Uganda has built capabilities to assemble trade with nearby nations in the Great Lakes region, and/or manufacture toys. It could build upon these such as South Sudan and the Democratic Republic capabilities to produce car parts or higher level out- of Congo. In such nations, Uganda’s private sector puts. Beating the stiff competition from the more eco- has already established trading partnerships, mainly nomically developed Kenya will remain a challenge, through informal means. Building on these existing given that Uganda is a small landlocked country, far trade relations, Uganda must play a stronger strategic from the coast, and its industrial sector lags behind role in coordinating and harmonizing policies relating Kenya’s, with less established businesses and a lower to trade between EAC and non-EAC Great Lakes level of access to technologies and skills. Better con- countries, especially through the development of bet- nectivity and the removal of non-tariff barriers will be ter infrastructure and institutions to support trade. vital if Uganda is to leverage these trade opportunities (ii) Boosting Uganda’s regional trade by optimally. moving beyond food crops To achieve this, working together with others, Uganda has to build the bridges to facilitate intensified regional trade. While this agenda involves regional cooperation, Uganda must pursue a re-energized policy action that focuses on what the country can do on its own. Uganda cannot afford to wait. Uganda’s Top 10 Regional Trade Goods in 2012 - Exports Concentrate in Agricultural produce, Many EXECUTIVE SUMMARY of the Manufactured Goods Exports are also Imported Diary products, eggs, honey, edible animal… Exports Imports Electrical, electronic equipment Articles of iron or steel Machinery, nuclear reactors, boilers, etc. % share of total imports from EAC Edible vegtables, & certain roots &tubers Vehicles other than railway, tramway % Share of total exports to EAC Minerals fuels, oils, distillation products, etc Soaps, lubricants, waxes, candles, modelling pastes Machinery, nuclear reactors, boilers, etc Pharmaceutical products Soaps, lubricant, waxes, candles, modelling… Paper & paperboard, articles of pulp, paper and board Cereals Plastics and articles thereof Iron &steel Beverages, spirits and vinegar Salt, sulphur, earth, stone, plaster, lime &… Iron and steel Animal, vegetable fat & oils, cleavege… Mineral fuels, oils, distillation products, etc. Coffee, tea, mate & spices Salt, sulphur, earth, stone, plaster, lime and cement - 5 10 15 20 25 -25 -20 -15 -10 -5 0 PILLAR 3: Promoting the export of services: water transportation systems must be made more Amongst other benefits, this may be one means for viable through the rehabilitation of existing lines. Uganda to overcome distance disadvantages associ- The EAC has already committed to the installa- ated with its landlocked status. Although the ser- tion of a standard railway gauge network. This is vices sector accounts for more than 45 percent of an important measure towards facilitating regional GDP, Uganda remains a net importer of services, connectivity both within and beyond the EAC, en- with exports accounting for 9 percent of GDP while compassing nations including Ethiopia, Somalia, imports account for 14 percent. About 55 percent Zambia and Malawi. Improving lake transport will of the service imports are in the transport services also improve the efficiency of railway transport, re- sector, while 56 percent of exports are in the travel ducing distances and easing connections, compared and tourism sector. This situation could improve if to use of rail-road intermodal transport. trade constraints are removed in strategic sectors including tourism, transport, and logistics. The Improvements in physical infrastructure must be situation could also improve if Uganda is able to accompanied by improvements in logistics servic- build on recent trends that have made it a growing es. There is evidence that reductions in transport regional hub for education and transit for goods in costs are driven by improving both infrastructure the Great Lakes region. and transport logistics, including improvements to the trucking, freight, and storage industries. Heavy taxation and high operational costs exacerbate Unleashing Uganda’s Regional Trade Potential BRIDGES ACROSS BORDERS UGANDA ECONOMIC UPDATE distance disadvantages, with Uganda still being (iii) A waiting game will be a losing game: required to import transit services, as the regional Uganda can do a lot on its own to en- fleet is dominated by Kenya and Tanzania. In- hance regional trade. troduction of a regional customs bond will reduce constraints on forwarding businesses, especially the small freight forwarders, who form the bulk such Harnessing the potential of regional trade will not operators. Breaking down “cartel� practices in the be easy, given that many of the constraints to such trucking business to improve trade competitiveness trade lie beyond Uganda’s borders and are beyond will require renegotiating road-user fees with EAC its control. However, Uganda cannot afford to wait partners; accelerating improvements in key strate- for others to act. There is still much that it can do gic border operations, including those connecting on its own initiative. To stimulate regional trade, Uganda to South Sudan, DRC, and Congo; and Uganda has to implement a multipronged ap- increasing the capacity of bonded storage facilities. proach that ranges from raising productivity to get- ting outputs to the market at a competitive price. A solution must be found to the problem of non- Action must focus on the following three priorities: tariff barriers. The ineffectiveness of past efforts to eliminate NTBs cannot be an excuse for inaction. To reduce transport costs, more efficient modes Efforts to intensify trade are self-defeating un- of transport will need to be developed and to be- less they are accompanied by efforts to reduce or come operational. Uganda has made commendable eliminate non-tariff barriers (NTBs). Such NTBs progress towards improving roads in the trade cor- are currently mainly manifested through rules and ridors. These efforts must be sustained and comple- regulations. Although these rules and regulations mented through government-led initiatives to work are sometimes legitimate, they are often inappro- with neighbors to maintain these roads and to im- priately implemented. Common NTBs include prove ports. In the short-to-medium term, rail and standards regulations and weigh bridges. In addi- EXECUTIVE SUMMARY tion to creating delays for traders, NTBs also result in increased cost through the imposition of illegal fees and charges. NTBs raise the prices of traded goods in the same manner that tariffs would. Uganda and Kenya’s NTBs have the most significant negative impact on regional trade. Building on previous efforts to raise awareness and improve transparency in the management of the NTBs, Uganda must enter into bilateral negotiations with strategic partners to harmonize trade policies. A strong commitment to re- move its numerous trade-related rules and regulations would assist in negotiations with partner states to remove theirs. Regionally, the introduction of a mutual recognition of conformity-assessment procedures and a sanctions system of the sort implemented by other regional blocs, such as ASEAN and the EU, would help. Such measures must be accompanied by the introduction, through the EAC framework, of regional sanctions, as well as strengthened sanitary and phyto-sanitary testing and verification capabili- ties. In addition, efforts must be made towards mutual recognition of conformity assessment procedures. To unleash the potential of the service exports, a number of restrictions must be eliminated. Uganda needs to prioritize specific sector interventions in the area of tourism, education and professional services, and transportation and logistics services for the greater hinterland. In the tourism sector, for instance, in addition to improving human resources, the public sector can play an important role by developing the appropriate infrastructure to reduce the cost of access to tourist centers and potential tourist attrac- tions. In the business and professional services sector, more flexible immigration regulations are crucial to ensuring the mobility of service providers. The challenge is to develop and implement an adequate regulatory framework to support existing engagements in education, regulation, trade policy, and labor mobility. To conclude, while developing other factors of growth, Uganda needs to sustain its efforts to deepen regional integration as a means of facilitating greater trade opportunities, but primary agenda remains it its own hands. The first point of action is to address constraints to productivity growth in sectors that have the highest potential for regional expansion, including the agriculture, manufacturing and services sectors. Uganda must ‘advocate by setting an example’ by removing its own NTBs as a means of encouraging neighboring countries to address theirs. However, it also needs to use its position to persuade the coastal countries to do their part, since they will also benefit from such programs. In addition, BRIDGES ACROSS BORDERS Unleashing Uganda’s Regional Trade Potential UGANDA ECONOMIC UPDATE Uganda must seize every opportunity to promote peace and tranquility in the Great Lakes regions. Without peace, there can be no trade. Deeper regional integration will facilitate the development of regional public goods such as roads and railways; reduce transaction costs and create econo- mies of scale; provide a regulatory environment in which goods and services can flow freely; and support cross-border production networks. It will also reduce the constraints faced by many local firms in accessing the essential services and skills that are needed to boost productivity and further diversify into higher value-add- ed production and trade. Implementing this regional agenda will not be easy. However, as a landlocked country, Uganda cannot afford to forget her neighbors. Therefore, the country must choose its strategic positioning carefully. Improved water transport to remain the key to lowering transport costs (Charles Kunaka), April 2011