UGANDA About the SECOND 80952 ECONOMIC UPDATE v2 THE WORLD BANK What is the Uganda Economic Update ? The Uganda Economic Update (UEU) takes stock of the country’s economy, by identifying challenges and proposing solutions to facilitate more inclusive economic development. The UEU is published regularly by the World Bank on a six-monthly basis. The second update was published in August 2013. Why is the Uganda Economic Update important? The UEU combines Uganda-specific analysis with the World Bank’s experience and lessons, to provide up-to-date information on the Uganda economy, which may serve as significant input for policymakers, supporting them to formulate and implement policies to foster healthy, inclusive growth. What specific issues does the second Uganda Like for other countries Economic Update explore ? around the world, jobs are essential for Uganda’s The second Update focuses on the importance workforce. In particular, the bulk of the development because they of jobs in the context of Uganda’s economic population continues to work in the agricultural determine the living standards growth. Like for other countries around sector, often engaged in subsistence activities, of individuals and households the world, jobs are essential for Uganda’s with only a small proportion of agricultural development because they determine the workers engaged in the cultivation of living standards of individuals and households, high-value, commercialized crops. In the support economic transformation, and urban areas, a significant proportion of the promote social cohesion. While Uganda’s population works in the informal sector, which economy has grown significantly over recent faces particular constraints that prevent it years and will continue to do so into the from achieving high levels of productivity, future, at present, a significant proportion of including limited access to capital, limited the country’s population are not benefiting support and recognition by the authorities, optimally from this growth. Rather, the vast and limited access to workspaces and other majority of Uganda’s labor force remains facilities. The challenge for the Ugandan employed in low productivity activities. Government is to ensure ongoing economic This is largely because the most productive, growth in a manner that enables a higher rapidly expanding economic sectors are often proportion of the population to be engaged in more capital intensive than labor-intensive higher productivity activities that reward them and employ only a small proportion of the with higher wages or incomes. What are the key findings In order to ensure that a greater proportion of the Ugandan population has access to good, productive jobs, the and recommendations of the Government should implement a number of measures to Uganda Economic Update? achieve the following: 1 Raise farm productivity : While the transformation of the Ugandan economy will continue to see an increase in the significance of the services and industrial sectors relative to the agricultural sector, the agricultural sector will continue to employ the largest proportion of the working force for some time into the future. Therefore, the Government must implement measures to raise productivity and, subsequently, incomes on the farm. Such measures should aim at reducing transport costs to connect producers to markets, reforming land laws to provide more security of tenure, and bringing higher productivity inputs and advisory services closer to the farmer. 2 Raise the productivity of the formal sector: While the formal sector today employs only a small proportion of the workforce, this sector has great potential to foster innovation and overall transformation of the economy. A large proportion of workers within this sector are amongst Uganda’s most qualified and skilled workers. In order to enable the formal sector to become a major source of transformative employment, the Ugandan Government must reduce barriers such as high infrastructure costs, lack of access to finance (capital) and the limited availability of skilled workers. In particular, it must address barriers facing small and medium-sized firms, as these are the major provider of employment within the sector. 3 Raise the productivity of the informal sector: The informal sector has potential to This sector is a major provider of employment in urban areas, absorbing large continue to generate more jobs, but numbers of school leavers, migrants from rural areas, and others who cannot find the Government must implement employment within the formal sector. The informal sector has potential to continue measures to overcome obstacles to to generate more jobs, but the Government must implement measures to overcome their productivity growth. obstacles to their productivity growth. 4 Improve the level of skills of the labor force: A skilled labor force is a vital foundation for the creation of a greater number of better jobs - better skills will contribute to the growth in productivity across sectors, thereby generating employment and empowering the labor force to participate in higher productivity jobs. Therefore, the Government must implement measures to encourage the acquisition of these skills, whether through extensions and improvements to the formal educational system or through technical skills training programs, apprenticeships and other means. 5 Support the efficient development of urban areas: As they do almost everywhere in the world, firms in Uganda concentrate in urban areas because they value the agglomeration benefits that this location provides. At the same time, while the bulk of Uganda’s population continues to live in rural areas, a rapidly increasing proportion is migrating from rural areas to urban areas to get jobs. The Government must ensure that the appropriate facilities exist to support firm growth and job creation. Amongst other means, this implies the need to ensure the availability of policies and institutions to allow more flexible land use and a well-functioning transportation system. At the same time, the Government must take measures to ensure that migrants to urban areas migrate with realistic prospects of obtaining productive work, rather than merely being drawn to the cities by the prospect of better social services than exist in rural areas. Scramble for some quick wins amidst a complex agenda : This policy agenda is complex, implying creating jobs in not a one-off action within a single sector or area. Moreover, the impact of some of the actions will likely mainly be realized in the medium-to-long run. Nonetheless, action has to start now and to continue as Uganda’s production structure changes, the workforce increases, and people and firms increasingly move to urban areas. The highest priority lies in ensuring the increased productivity of the agricultural sector, as this is where the bulk of the population works. However, people are also moving off the farm and even the school leavers are finding it increasingly difficult to find jobs. Therefore, short term actions that might help achieve more rapid impact on job creation are: i. A deliberate effort to support the growth of large firms by supporting the development of clusters and full value chains for strategic sectors, in particular light manufacturing, exportable products, building and construction, and the oil industry; ii. Faster targeted improvement in the business environment by industrial zoning and innovative financial solutions; iii. Create linkages between large industries and small and mainly informal manufacturers; iv. Create a matching grant for the informal sector operators; v. Build urban infrastructure to better facilitate the movement of people and products.  Less than a quarter of  The manufacturing sector  Subsistence agriculture  The non-agriculture informal Uganda’s GDP comes directly contributes only 3.3 percent employs 16 times sector currently employs 2.1 from agriculture, but almost of all jobs, after its rate of more workers than the million people or 14 percent three quarters of its working growth declined from 13.8 commercialized agricultural of the labor force, of which population is engaged in this percent in the 1990s to 6.6 sector, yet a worker in 86 percent of the informal sector. percent during the 2000s. non-monetary agriculture sector jobs are household produced 4 percent of based. output by those in the commercialized agriculture.  In the financial sector,  Informal manufacturing  Only 15 percent of informal  Only 2.6 percent of output per worker increased employs 3 times more enterprises in the trade household enterprises in by 37 percent, but the workers than the formal sector operate in specialized urban areas and 1.5 percent sector’s contribution to manufacturing sector, yet fixed locations, most of such businesses in rural number of jobs in the a worker in the informal commonly urban market areas gained access to economy declined by 34 manufacturing sector stalls, but 31 percent of credit facilities offered by percent. produces 11 percent of informal sector workers do microfinance institutions as output by those in the not receive cash payment for sources of capital. formal manufacturing sector. their labor.  Only the communications  37 percent of the workers  92 percent of all new jobs in  74 percent of current sector increased its output in urban areas are engaged in the formal sector are service jobs are found in new per worker while increasing agriculture, but 82 percent based. establishments set up not share in employment. of workers in rural areas are earlier than 2001. farmers.  The non-agricultural wage  Firms with over 100  Rural areas also employ wage  The proportion of sector is growing fast, at employees reduced the workers – 8 percent of rural manufacturing firms located 7.3 percent per annum, and number of workers they laborers work for a wage, but within urban areas has currently holds about 2 employ from approximately almost similar percentage increased from 70 percent in million jobs or 14 percent 400 employees in 2001 to is in the non-agricultural 2001 to 74 percent in 2010. of the labor force but has about 260 employees in informal sector. been able to absorb only 2010. 2 percent of new entrants onto the labor market.  60 percent of jobs are in  Three quarters of the new  Even those who are  Uganda’s labor force, micro-enterprises, employing formal jobs were created in commercialized are still at a estimated at 15 million less than 5 people; 18 the most urbanized districts, very low level - by 2005/06, today, will most likely more percent of jobs are in small Kampala, Wakiso, Mukono, the most commercialized than double to at least enterprises, employing Mbarara, Jinja and Arua. quintile sold no more than 36 million by 2040 (based between 5 and 20 people, 50 percent of their output. on UN medium variant and 12 percent of jobs are in Only 5 percent of those population projection). large enterprises, employing employed in agriculture work more than 20 people. for a wage.  Firms producing tradeable  68 percent of the working  Real value added per worker  The number of the goods accounted for 38 population are youths within formal firms declined workforce employed in percent of the new jobs. (15 to 34 years), yet their by 19 percent over the the services sector and in participation in job market 2000s. the manufacturing sector amounts to only 58 percent could quadruple by 2040, of all jobs. but it will contribute only … percent of total jobs available. Uganda’s labor force, estimated at 15 million today, will most likely more than double to at least 36 million by 2040 (based on UN medium variant population projection). For more information, please visit: www.worldbank.org/uganda Join the discussion on: http://www.facebook.com/worldbankafrica http://www.twitter.com/worldbankafrica http://www.youtube.com/worldbank THE WORLD BANK