Uganda Digital Economy Assessment Country Diagnostic THE WORLD BANK GROUP NOVEMBER 2020 THE WORLD BANK GROUP © 2020 The World Bank Group 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbankgroup.org Some rights reserved 1 2 3 4 21 20 19 18 This work is a product of the staff of The World Bank Group with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the World Bank Group, its Board of Executive Directors, or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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If you wish to reuse a component of the work, it is your responsibility to determine whether permission is needed for that reuse and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; email: pubrights@worldbank.org. About DE4A Rapid digital transformation is reshaping the global economy, permeating virtually every sector and aspect of daily life and changing the way we learn, work, trade, socialize, and access public and private services and information. In 2016, the global digital economy was worth some US$11.5 trillion, equivalent to 15.5 percent of the world’s overall gross domestic product (GDP). It is expected to reach 25 percent in less than a decade, quickly outpacing the growth of the overall economy. However, countries such as Uganda are currently capturing only a fraction of this growth potential and need to strategically invest in the foundational elements of their digital economy to keep pace. The Digital Economy for Africa (DE4A) Initiative forms part of the World Bank Group’s support for the African Union’s Digital Moonshot for Africa, which aspires to see every African individual, business, and government be digitally enabled by 2030. The DE4A Initiative is underpinned by five principles: 1. Comprehensive: Taking an ecosystem approach to digital economy development that looks at both supply and demand and defies a narrow, siloed approach in defining the elements and foundations that make up the digital economy. THE WORLD BANK GROUP 2. Transformative: Aiming at a very different scale of ambition beyond incremental ‘islands’ of success. 3. Inclusive: Recognizing that the digital economy is for ‘everyone, in every place, and at all times’ as well as creating equal access to opportunities and dealing with risks of exclusion. 4. Homegrown: Supporting solutions anchored in the local context and unleashing the African spirit of enterprise to support more homegrown digital content and solutions. 5. Collaborative: Dealing with the digital economy requires a more flexible mindset, including collaboration among countries, across sectors, and between public and private players. For a successful and inclusive digital economy, African countries need to support the development of the key foundational building blocks (see Figure 0-1). Five foundational elements, which are closely interlinked and synergistic, have been identified: 1. Digital infrastructure: Digital infrastructure provides the means for people, businesses, and governments to get online, and link with local and global digital services, thus connecting them to the global digital economy. High-quality and affordable internet connectivity is a critical foundational component of the digital economy. 2. Digital government platforms: Digital government platforms offer products and services, accessible through digital channels, such as mobile devices, computers, and the internet. They facilitate digital exchange and transactions, enabling producers and users to create value by interacting with each other. Governments, for example, operate digital platforms to offer citizen- facing government services and share information. Commercial firms and nonprofit foundations also operate digital platforms to offer a growing array of products, services, and information. Digital financial services: Digital financial services enable individuals and 3. businesses to conduct transactions electronically and open a pathway to a range of digital financial services in addition to digital payments, including credit, savings, and insurance. Access to affordable and appropriate digital financial services is critical for the participation of individuals and businesses in the digital economy. Digital entrepreneurship: Digital entrepreneurship and innovation create 4. an ecosystem that helps bring the digital economy to life, by spurring new, growth-oriented ventures, products, and services that leverage technology. By enabling the transformation of existing businesses, digital entrepreneurship contributes to net employment growth and helps enhance competitiveness and productivity. THE WORLD BANK GROUP 5. Digital skills: Economies require a digitally savvy workforce to build robust digital economies and competitive markets and to enable individuals to access digital services and information. Digital skills constitute technology skills, together with business skills, for building or running a startup or enterprise. Greater digital literacy enhances the adoption and use of digital products and services among the larger population. Figure 0-1: Key Components of the Digital Economy Ecosystem As part of the DE4A Initiative, ambitious, high-level targets have been established for all five foundational pillars of the digital economy, articulated under a DE4A framework, as a way to define and measure success against the goal of ensuring that every individual, business, and government is digitally enabled by 2030 (see Figure 0-2). THE WORLD BANK GROUP Figure 0-2: Structure of DE4A The analysis presented in this report is subject to the constraints of available data in Uganda. The digital sector is not well documented, with no clear estimation of the number of digital businesses (that is, those offering digital products and services) or startups in the sector. Improved data collection is needed to more accurately examine the cross-sectoral impact of digital technologies in Uganda. This report aims to highlight opportunities to further develop Uganda’s digital economy with a special focus on policies that can bridge the digital divide. Based on quantitative and qualitative assessments, and a series of more in-depth background papers on four of the DE4A’s five pillars (digital infrastructure, digital skills, digital entrepreneurship, digital government platforms, and digital financial services), the diagnostic findings provide recommendations that inform country targets and decisions on priority areas for development, proposing a mix of possible policy reforms and interventions. THE WORLD BANK GROUP Table of Contents Acknowledgements 11 Acronyms and Abbreviations 12 Executive Summary 15 1.0 Introduction 26 1.1 Inclusive Growth and Digital Transformation in 27 Uganda 1.2 Uganda’s National Development Strategy and 30 Digital Economy 1.3 Regional Opportunities in the Digital Economy 31 1.4 COVID-19 and Digital Economy in Uganda 33 1.5 Rationale for Assessment 1.6 Structure of This Report 34 1.7 Limitations and Data Gaps 2.0 Digital Infrastructure 35 2.1 Importance of Digital Infrastructure 36 2.1.1 Socioeconomic Rationale for Digital Infrastructure 2.1.2 Alignment with Country Development Strategy and Goals 2.2 Diagnostic Findings 37 2.2.1 Current State of High-Speed Internet Development 2.2.2 Availability and Access to Broadband 2.2.3 Analysis of Sector Structure, Market Structure, 40 and Regulatory Environment 2.2.4 Constraints to High-Speed Internet Development 2.2.5 First Mile: International Connectivity 41 2.2.6 Middle Mile: Backbone Networks 42 2.2.7 Last Mile: Internet Services 46 2.2.8 Invisible Mile: Regulation, Policy, and 47 Institutions 2.3 Recommendations and Next Steps 49 THE WORLD BANK GROUP NOVEMBER 2020 Table of Contents 3.0 Digital Skills 51 3.1 Importance of Digital Skills 52 3.1.1 Socioeconomic Rationale for Investing in Digital Skills 3.1.2 Alignment with Country Development Strategy 3.2 Diagnostic Findings 53 3.2.1 Current Level of Digital Skills in the Population 3.2.2 Market Analysis of Digital Skills Demand and 55 Availability 3.2.3 Market Analysis of Digital Skills Supply 56 3.2.4 Constraints to Foster Digital Skills and 59 Implications for Policies and Practices 3.3 Recommendations and Next Steps 61 4.0 Digital Entrepreneurship 62 4.1 Importance of Digital Entrepreneurship Services 63 4.1.1 Socioeconomic Rationale for Digital Entrepreneurship Development 4.1.2 Alignment with Country Development Strategy 4.2 Diagnostic Findings 64 4.2.1 Current State of Entrepreneurship and Innovation Ecosystem 4.2.2 Constraints to Digital Entrepreneurship and 69 Innovation 4.3 Recommendations and Next Steps 71 5.0 Digital Government Platforms 74 5.1 Importance of Digital Government Platforms 75 5.1.1 Socioeconomic Rationale for Digital Platform Development 5.1.2 Alignment with Country Development 76 Strategy and Goals THE WORLD BANK GROUP NOVEMBER 2020 Table of Contents 5.2 Diagnostic Findings 77 5.2.1 Current State of Digital Government Platforms 5.2.2 Interoperability, Shared Infrastructure, and Services 5.2.3 Digital Identification and E-signatures 78 5.2.4 Applications for Core Government Functions 79 and Digital Service Delivery 5.2.5 State of Digital Commercial Platforms 80 5.2.6 Domestic and Foreign E-commerce 81 5.2.7 Constraints to Digital Platform Development 82 5.3 Recommendations and Next Steps 83 6.0 Digital Financial Services 84 6.1 Importance of Digital Financial Services 85 6.1.1 Socioeconomic Rationale for Digital Financial Services 6.1.2 Alignment with Country’s Development Strategy 6.2 Diagnostic Findings 86 6.2.1 Current State of Digital Financial Services 6.2.2 Payment Instruments 87 6.2.3 Cards and Card Infrastructure 6.2.4 Card Switches 88 6.2.5 E-money 6.2.6 Fintechs 90 6.2.7 Remittance Service Providers 6.2.8 Enabling Environment for Digital Financial 91 Services 6.2.9 Constraints to Digital Financial Services 92 Development 6.3 Recommendations and Next Steps 93 7.0 Conclusions 95 THE WORLD BANK GROUP NOVEMBER 2020 Acknowledgements The methodology used for this assessment relied on in-country fact-finding missions, interviews and questionnaires, desk research, regional and global benchmarking, and consultations with stakeholders. In-country fact-finding missions were undertaken in December 2019 and January–February 2020 in preparation for this diagnostic. The analysis presented in this paper also draws on regional and global benchmarking, based on standardized indicators that form part of the DE4A diagnostic methodology. The analysis also draws on government statistics and data shared by the private sector. This report was researched and prepared by a team from the World Bank Group led by Caroline Koech and Qursum Qasim and including Gynedi Srinivas, Alex Twinomugisha, Christian Velichkov Filipov, Anat Lewin, Brian Rwogera Akimanzi, Ernest Wasake, Luda Bujoreanu, and Mavis Ampah. The report also benefited from the valuable feedback and thoughtful comments provided by the following colleagues: Michel Rogy, Niraj Verma, Charles Hurpy, Aki Ilari Enkenberg, Isabella Hayward, Toni Kristian Eliasz, Koji Miyamoto, Emiko Todoroki, Casey Torgusson, and numerous colleagues who reviewed the background papers. Comprehensive national stakeholder consultations were undertaken in preparing and finalizing the document. The team would like to express their sincere gratitude to the Ministry of ICT and National Guidance and the Ministry of Finance, Planning and Economic Development. The Uganda DE4A Diagnostic commissioned several background papers and builds on recent World Bank Group country work, and these benefited from the inputs of many stakeholders. Further to the public stakeholders mentioned, the team wishes to express their thanks to the numerous public and private stakeholders that contributed their time and effort to the elaboration of this report and the associated background papers, among which are the Ministry of Trade, Industry and Cooperatives; Bank of Uganda; National Information Technology Authority of Uganda; Uganda Communications Commission (UCC); National Information Technology Authority (NITA-U); Uganda Electricity Transmission Company; National Council for Higher Education; Uganda Registration Services Bureau; MTN; Airtel; Liquid Telecom; Uganda Internet Exchange Fintech Association; Outbox; Innovation Village; Hive Colab; Refactory; Andela; Jumia; Equity Bank; Stanbic; Teheca; UNFPA; UNDP; UNICEF; GSMA; Interswitch; Eversend; Xente; World Remit; Payway; True African; Pegasus; XSML Capital; Future Link Technologies; SafeBoda; and Makerere Innovation and Incubation Center. THE WORLD BANK GROUP 11 Acronyms and Abbreviations 4IR Fourth Industrial Revolution Initiative ABC Agent Banking Company ABR Agency Banking Regulations ACH Automated Clearing House AML/CFT Anti-Money Laundering/Combating the Financing of Terrorism API Application Program Interface ASToN Africa Smart Towns Network ATC American Tower Corporation BAAS Backup As A Service BCS Bandwidth & Cloud Services BFWA Broadband Fixed Wireless Access BOU Bank of Uganda CERT Cyber Emergency Response Team CII Critical Information Infrastructure CMP Common Market Protocol CNII Critical National Information Infrastructure CSD Central Securities Depository DE4A Digital Economy for Africa DFS Digital Financial Services DSL Digital Subscriber Line EASSy Eastern Africa Submarine Cable System EFT EFT Electronic Funds Transfer e-KYC Electronic Know Your Customer EMV Europay Mastercard Visa EU European Union FITSPA Financial Technology Service Providers Association FTTB Fiber to the Building FTTH Fiber to the Home GDP Gross Domestic Product GIF Global Innovation Fund GII Global Innovation Index GoU Government of Uganda GSMA Global System for Mobile Communication Association HIV Human Immunodeficiency Virus HPC High-Performance Computing HRMIS Human Resource Management Information System IAAS Infrastructure As A Service ICT Information and Communication Technology THE WORLD BANK GROUP 12 Acronyms and Abbreviations ICT SIP ICT Sector Strategic Investment Plan ID Identification Document IDI ICT Development Index IFAD International Fund for Agricultural Development IFMIS Integrated Financial Management Information System IoT Internet of Things ISP Internet Service Provider ITU International Telecommunications Union IXP Internet Exchange Point KAIN Kampala Angel Investment Network LTE Long-Term Evolution MDAs Ministries, Departments and Agencies MDFI Microfinance Development Finance Institutions MMG Mobile Money Guidelines MNO Mobile Network Operator MOIA Ministry of Internal Affairs MOICT Ministry of Information and Communication Technology MOICT&NG Ministry of Information and Communication Technology and National Guidance MSACCO Mobile Banking for Savings and Credit Cooperative Organization MSMEs Micro, Small and Medium Enterprises NBI National Data Transmission Backbone Infrastructure NBI/EGI National Data Transmission Backbone Infrastructure and e-Government Infrastructure Project NCHE National Council for Higher Education NCIP Northern Corridor Integration Project NFIS National Financial Inclusion Strategy NIISP National ICT Initiatives Support Program NIRA National Identification and Registration Authority NISF National Information Security Framework NISS National Information Security Strategy NITA-U National Information Technology Authority - Uganda NTB Non-Tariff Barrier NSIS National Security Information System NSSF National Social Security Fund OTT Over-the-Top OVA Online Vendor Account PAAS Platform As A Service POS Point of Sale PSFU Private Sector Foundation Uganda THE WORLD BANK GROUP 13 Acronyms and Abbreviations QoS Quality of Service RCDF Rural Communications Development Fund RCIP Regional Communications Infrastructure Project RENU Research and Education Network of Uganda RHC Refugee and Host Community RSP Remittance Service Provider RTGS Real-Time Gross Settlement SAAS Software As A Service SABS Shared Agent Banking System SACCO Savings and Credit Cooperative Organization SEACOM SEA Cable System SFIA Skills Framework for the Information Age SMEs Small and Medium Enterprises SOC Security Operations Centers STEM Science, Technology, Engineering, and Mathematics TCMO Total Cost of Mobile Ownership TD-LTE Time Division – Long-Term Evolution TEAMS The East African Marine System TIN Tax Identification Number TVET Technical and Vocational Education and Training UBA Uganda Bankers Association UBOS Uganda Bureau of Statistics UCC Uganda Communications Commission UETCL Uganda Electricity Transmission Company Limited UgCERT Uganda Computer Emergency Response Team UMCS Universal Messaging and Collaboration Service UNCTAD United Nations Conference on Trade and Development UNESCO United Nations Educational, Scientific and Cultural Organisation UNIS Uganda National Interbank Settlement System UIXP Uganda Internet Exchange Point URA Uganda Revenue Authority USAID United States Agency for International Development WIMAX Worldwide Interoperability for Microwave Access VAT Value Added Tax THE WORLD BANK GROUP 14 Executive Summary The Government of Uganda (GoU) recognizes Information and Communication Technology (ICT) and Innovation as critical to the success of its Vision 2040. The government’s Vision 20401 aims to accelerate inclusive economic growth by leveraging the country’s expanding ICT infrastructure and technological base to increase opportunities, especially for its burgeoning youth population. The Digital Uganda Vision 2019 further marks the government’s commitment to “Transform Uganda into a digitally-enabled society that is innovative, productive and competitive.”2 This vision would need sustained effort to materialize: although Uganda’s ranking in the International Telecommunications Union’s (ITU) ICT Development Index (IDI) has improved from 158 to 152 between 2016 and 2017, the country’s competitiveness has, however, not kept the same pace on the World Economic Forum’s Network Readiness Index where it has slipped from 108 in 2010 to 110 in 2019. Digital solutions also play a key role in ensuring a sustainable recovery and addressing key economic and social challenges posed by COVID-19 and other pandemics. Uganda has already experienced firsthand the importance of digital technologies during the human immunodeficiency virus (HIV) crisis when mobile phones were instrumental in improving adherence to antiretroviral treatment, especially in underserved communities. Digital solutions can support delivery of essential services for firms (for example, utility and tax payments, access to markets via digital platforms and e-commerce, and digital small and medium enterprise [SME] finance); consumers (for example, mobile money, remittances, online education, and e-commerce); and the most vulnerable (for example, expanded and new short-term social safety nets). Scaling-up of digital health solutions offers the opportunity to undertake holistic disease surveillance and monitoring (for example, through geotracking applications), leverage data from public systems to strategically allocate resources and preempt outbreaks (for example, through community health data), reduce the burden on medical facilities by transitioning some activities to digital communications, disseminate public health messages and cautionary guidelines (for example , through SMSs in a low-tech environment such as Uganda), and improve inventory management of medical supplies. The latter is especially relevant as regional and global production and supply chains face sustained interruptions. Uganda’s ambitious digital transformation agenda requires a robust, ubiquitous, and affordable broadband infrastructure. A combination of factors has contributed to a notable population and geographic coverage by mobile infrastructure at 83 percent and 44 percent, respectively, in 2018. These include strong competition 1 Vision 2040 is aiming at “a transformed Ugandan society from a peasant to a modern and prosperous country within 30 years.” As part of this, the Ugandan Government identifies ICT as cutting across all sectors and a key enabler for social and economic development (http:// npa.ug/wp-content/themes/npatheme/documents/vision2040.pdf). 2 Digital Uganda Vision. THE WORLD BANK GROUP 15 in both national and international connectivity markets, increased investment by the government and private sector in fiber infrastructure, and improvements in the policy and regulatory environment, including on information security and data privacy. The use of digital technologies such as mobile phones, mobile internet, and social media has risen significantly in recent years and is driving the growth in ICT and related sectors. ICT contributed to 10.5 percent of overall revenue mobilization in 2019, and the country ranks among the top 10 low-income ICT services’ exporters. Despite the progress, Uganda has one of the lowest (14 percent) internet penetration rates among 10 African peer countries according to a recent survey,3 and internet costs are still high. Communications infrastructure is limited to key urban centers, while rural areas, particularly the northern region of the country, as well as the country’s 1 million or more refugees and host communities (RHCs) have limited or no connectivity. Ensuring universal and affordable broadband access to all Ugandans and RHCs will require improvements in the policy and regulatory environment to encourage investments in rural and underserved communities, including release of newly available spectrum, more efficient use of existing infrastructure through infrastructure sharing, and reduction in the cost of internet and digital devices. Digital skills are a critical component of the digital economy. While there is inadequate data on demand for digital skills, there is a broad body of knowledge confirming the need for basic and specialized digital skills as the internet becomes an integral part of current and future work, including in the informal sector. Recent surveys by the Ugandan Government and research organizations point to a general lack of basic digital literacy in the population, particularly within the public sector. Challenges include lack of a national digital skills framework that guides government policies, programs, curriculum and standards for digital skills, inadequate connectivity and equipment at schools, and strong leadership on digital skills development. Ensuring the requisite skills exist to power Uganda’s digital transformation requires approval of the draft ICT in Education Policy to guide investments in the formal education sector and development of a national digital skills framework. Uganda intends to build on its burgeoning startup and innovation culture to stimulate growth of its entrepreneurship ecosystem. Uganda’s path to middle- income status by 2040 and increased job creation relies on the country’s ability to realize the full potential of digital transformation. Significant efforts are being made to improve digital entrepreneurship, including a number of government initiatives such as the National ICT Initiatives Support Program (NIISP) which supports digital entrepreneurs through direct financial grants. But more should be done. Some estimates place employment demand at 700,000 jobs per year until 2030 after which an expected 1 million job seekers will enter the job market annually from 2030 to 2040.4 With Uganda’s informal sector estimated at 43 percent of gross 3 Survey by Research ICT Africa as part of a Global South After Access Survey conducted between 2017 and 2018. 4 Jobs Diagnostic, World Bank 2020, February. THE WORLD BANK GROUP 16 domestic product (GDP) and providing employment to at least 70 percent of the labor force,5 the potential benefits of adopting digital technologies are immense and structurally significant. To scale up use of digital technologies to create jobs and businesses, Uganda needs to support service providers (hubs) and mobilize private financing for early-stage enterprises, including facilitating entry of venture capital and private equity and investment readiness programs for growth-stage enterprises. Incentivizing integration of digital technologies in agriculture and manufacturing sectors would also be needed for productivity improvements in these sectors. Digital platforms are increasingly playing a key role in transforming the way people, governments, businesses, and civil society interact with each other. The use of digital public platforms in Uganda continues to grow as the country increases efforts to digitize public services. Uganda performed impressively on the 2018 UN e-Government Development Index, ranking 16 out of 54 African countries. Private sector platforms that offer services such as e-commerce, freelancing, rentals, ride- hailing, and courier services are also growing in Uganda, albeit at a substantially lower pace than in peer countries. Uganda ranks 105 out of 152 countries in the e-commerce index of the United Nations Conference on Trade and Development (UNCTAD) and is among the pioneers of mobile payments platforms in Africa. Uganda needs to build on this notable progress and increase the potential benefits of public and commercial platforms to expand access to digitized services and transactions. Key pieces of legislation and their implementation—especially on cybersecurity and cybercrime, data protection, and protection of critical information infrastructure (CII) —need to be strengthened to improve trust in the use of digital platforms. Developing a robust digital identification document (ID) platform can also help facilitate access to digitized services and transactions for citizens and cut down on resource leakage. Better utilization of shared digital infrastructure and services and adherence to common standards across government would allow for greater efficiency and interoperability of government platforms and ultimately a better user experience and stronger uptake among individuals and businesses accessing public services online. Digital financial services (DFS) have powered the rise of financial inclusion in Uganda. DFS offer great potential to meet the financial needs of Uganda’s poor and unbanked consumers such as women and rural dwellers. The GoU’s combined efforts to digitize government services and payments and improve the regulatory environment provide a unique opportunity for DFS development in Uganda. The percentage growth of digital payments in Uganda (2014–2017) is the highest in the region at 12 percent, followed by Kenya with 10 percent. Uganda could further improve its competitiveness at the regional and global levels by putting in place a time-bound action plan with a monitoring mechanism to implement the National Payments Bill and the various recommendations and action points outlined under the National Payments Policy framework. Moreover, the electronic-know your customer (e-KYC) facility launched in January 2020 should be made available to all payment service providers by the Bank of Uganda (BOU) in coordination with the 5 Uganda: The Role of the Informal Economy in City Growth, Lloyd-Jones et al. 2017. THE WORLD BANK GROUP 17 National Identification and Registration Authority (NIRA). Integration of the e-citizen portal and e-payments gateway is needed to provide a seamless one-stop solution for the public. The taxation policy for digital products and services, however, poses a constraint to growth of the digital economy. The social media tax, amounting to UGX 200 per day for access, has performed below expectations, at 17 percent of projected collections, according to the Uganda Revenue Authority (URA).6 The tax on mobile money withdrawals (initially levied at 1 percent of value and later reduced to 0.5 percent) also poses a challenge to market development and access to DFS and associated digital products and services, especially among the most price-sensitive consumers. It also creates an unlevel playing field since traditional financial services are not subject to such a tax. Increased taxation on access and services has a direct impact on the ability of startups to leverage and develop a consumer base. Reducing internet access taxes from 30 percent to 10 percent, by some estimates, could lead to a 7 percent increase in internet users and 30 percent increase in internet traffic.7 With market development currently stuck in a relatively low adoption equilibrium, a review of the taxation policy may be useful to balance the need to incentivize higher usage of digital services and to meet domestic resource mobilization priorities. Uganda is well positioned to capitalize on regional market opportunities for digital businesses. A handful of Ugandan tech companies are already putting Uganda on the global map by expanding into subregional and continental markets. Removing market barriers such as connectivity infrastructure as well as promoting single data and online markets could scale up these opportunities. A more deeply integrated digital market would also drive increased investment, competition, and performance of digital infrastructure while helping reduce consumer prices and extending the reach of digital services to underserved communities. A more integrated digital market in East Africa (a ‘single digital market’) has the potential to unleash critical gains through the creation of seamless connectivity, data, and online markets across the region. A more inclusive use of digital technologies to achieve Uganda’s Vision 2040 requires proactive policies to address the gender and geographical disparities in the country. Uganda ranks 83 out of 100 countries on the Inclusive Internet Index, and while 4 out of 5 people live within the range of a mobile broadband network, fixed internet connections stand at less than 1 percent. Moreover, refugee women in Uganda are less likely to own and use mobile phones than refugee men. The geographical and gender disparities in network coverage and uptake of broadband services in turn perpetuate economic inequalities in the country with the northern and western regions and large refugee communities lagging behind. 6 https://www.ura.go.ug/Resources/webuploads/GNRART/Revenue%20Performance%20 Report%20FY%202018-19.pdf 7 https://www.weforum.org/agenda/2018/12/lower-internet-access-taxes-would-get-more- people-online-and-generate-more-tax-revenues/ THE WORLD BANK GROUP 18 The potential gains of a robust digital economy are enormous and would allow Uganda to deliver services to a broad range of consumers, allow firms to adopt productivity-enhancing technologies, and allow policy makers to undertake data-based policy making. Although the ICT sector itself accounted for less than 2 percent of GDP in 2019, it has the potential to play a catalytic role in enhancing economy-wide productivity and growth. The internet has encouraged inclusion, efficiency, and innovation by lowering the cost of transactions, expanding markets and services to excluded communities, and making supply chains more efficient. Uganda can take full advantage of this unique opportunity by addressing remaining gaps that hinder use of digital technologies to transform the country. The medium- to long-term development of the digital economy in Uganda requires a combination of regulatory and market development activities. This should be underpinned by coordinated efforts by ministries, departments and agencies (MDAs) to enhance the policy and regulatory framework for the development of the digital economy and stronger coordination and resource management than has been the case to date. At the same time, it is important to note the need for inclusion of segments of the population with limited digital literacy and access and the need to embrace a wider range of products and services than are currently available in the market. Table 0-1: Key Recommendations by Pillar Key weaknesses Pillar Key strengths and roadblocks Opportunities Digital • Mature mobile • Stagnating mobile • Improved trust infrastructure telephony market telephony prices environment • Fast-growing • Mobile (Quality of through internet market Service (QoS) not implementation driven by 3G/4G fully satisfactory of data protection • Growing • High prices for policies countrywide fiber digital devices • Project to invest optic network and international in a national data • Dual access to access center to support international • Lack of policies digital services submarine cables and regulatory • Rural via Kenya and instruments Communication Tanzania • Low availability Development • Fast growing of skilled Fund (RCDF) to countrywide fiber professionals in help increase optic network Cybersecurity penetration of • Strong • Need to digital services in Cybersecurity strengthen rural areas implementation protection of • Regional program led by critical national integration and NITA-U information collaboration to infrastructures increase cross • Need to border fiber strengthen connectivity, interoperability bring down prices and information and increase sharing between competition national CERT and • Local sectoral CERTs Cybersecurity industry can be enabled to become a driver of economic growth. THE WORLD BANK GROUP 19 RECOMMENDATIONS Quick Wins (Short-term) Approve and implement pending policy and regulatory frameworks, including the following: • Law on cyber security to protect CII • National Roaming Guidelines • Spectrum framework • Strengthening cybersecurity and cybercrime legislation, among others, with Critical National Information Infrastructure (CNII) bill. Release spectrum to encourage rollout of high-speed broadband services. High Priority Integrate short-term activities that could contribute to the COVID-19 response into the ongoing Regional Communications Infrastructure Project (RCIP-5), including development and expansion of the following: • Digital connectivity of MDAs, prioritizing health centers • Messaging capabilities between government workers • E-signature capabilities • Tracking application to track arriving passengers in Uganda (and people with whom they have been in contact with) and their test status • Call center for the Ministry of Health to receive and process enquiries and calls related to COVID-19 • Digital communication for public health through SMS gateway. Long Term • Deploy strategies to lower costs of digital devices and services, including removal or reduction of sector-specific taxes to improve affordability and access and to stimulate demand. • Ensure the efficient use of public infrastructure and contribute to its maintenance, upgrade, and extension, potentially by extending the National Data Transmission Backbone Infrastructure (NBI) on an open access, wholesale basis to cover more underserved areas of the country so as to increase penetration of communication services. THE WORLD BANK GROUP 20 Key weaknesses Pillar Key strengths and roadblocks Opportunities Digital • Online • The low uptake • Back-end government communication of eservicesby e-government and digital the population, systems platforms collaboration despite their improvement to among availability; support full online government • Many e-services transaction bodies through cannot support full • Improve digital platforms online transactions cybersecurity and shared and require systems to systems; manual inputs improve trust • Increasing number • Low trust in online environment of eservices exchange of data Operationalization provided - cybersecurity of the by various remains a • data commissioner government stumbling block. office bodies over the • to improve data e-Citizen portal; privacy • Greater trust in online transactions following the national ID introduction. RECOMMENDATIONS Quick Wins • Improve trust environment and enable data-driven services through operationalization of the data protection and privacy law including enacting corresponding regulations that provide clear accountability and guidelines for the collection, processing, use, and sharing of data. • Continue rollout of digitized public services and focus on the user experience to boost uptake. Priority • Improve service delivery among MDA’s by enforcing the use of shared infrastructure to increase interoperability, integration, as well as shared infrastructure and services. • Expedite implementation of digital authentication and mobile ID solutions. • Address skills and capabilities gaps within the government. Introduce innovative initiatives to encourage digital skills development in ministries and continued hiring of top digital talent. Further reinforce existing capabilities by recruiting and retaining a team of highly competent and talented individuals to drive the transformation agenda within the government, with growth in line with expansion of digital services offerings and initiatives. THE WORLD BANK GROUP 21 Key weaknesses Pillar Key strengths and roadblocks Opportunities Digital • Upward trend in • Lack of a Payment • Enact Payment financial mobile money Systems law; Systems law; services accounts • No time bound • Expand and usage; action plan for capabilities of diversification and implementation of Government increase of use • National Payments e-payments cases; Policy (NPP); gateway and • Key elements of roadmap for integrate with national payment implementation of the e-payments system – Uganda relevant National gateway to digitize National Interbank Financial Inclusion government social Settlement System Strategy (NFIS) benefit transfers; (UNIS), Automated recommendations • Provide access to Clearing House in conjunction with electronic Know (ACH), Central NPP; Your Customer Securities • Lack of a policy (e-KYC) gateway Depository (CSDs); framework and digital 2 domestic on agent authentication to switches; interoperability; all entities in the • Shared agent • Need for digital financial banking level playing services (DFS) framework in field between space for customer operation; traditional verification and • Wide variety of financial services application of fintech entities in providers, mobile/ simplified due digital payments; digital financial diligence; services providers • Streamline and emerging regulatory FinTechs. framework for agents on eligibility criteria and interoperability; • Channelizing vibrant Fintech growth to increase digital payments and lessen use of cash; • Strengthen cyber resilience THE WORLD BANK GROUP 22 RECOMMENDATIONS Quick Wins (Short-term) • Avail the e-KYC facility launched in January 2020 to all payment service providers by Bank of Uganda (BOU) in coordination with National Identification and Registration Authority (NIRA), to maintain access to essential financial services during COVID-19. High Priority • Develop a time-bound action plan with a monitoring mechanism to implement the National Payments Bill and the various recommendations and action points outlined under the National Payments Policy framework. legislation, among others, with Critical National Information Infrastructure (CNII) bill. • Review taxes on mobile money transactions to ensure level playing field between DFs providers and traditional providers. • Accelerate integration of the e-citizen portal and e-payments gateway to provide a seamless one-stop solution for the public. Long Term • Undertake rationalization of agent eligibility criteria across all products and develop clear policy guidelines with regard to agent interoperability across agent banking as well as mobile money. THE WORLD BANK GROUP 23 Key weaknesses Pillar Key strengths and roadblocks Opportunities Digital entre- • Strong • Dominance • COVID-19 preneurship entrepreneurial of necessity response: culture entrepreneurship Leverage • Increasing Low uptake of digital health rate of digital digital products and education entrepreneurship and services in the solutions though market beyond • Growth of concentrated in payments and e-commerce and payments small addressable platform economy • Entry of regional market in COVID-19 players and • Limited venture response phase investors into funding especially • Integration with Uganda for startups agribusiness, • Developing policy • Limited regional manufacturing environment market integration and tourism for digital • Limited availability sectors through an entrepreneurship of advanced skills innovation voucher in the market program • Low integration • Increasing with traditional government sectors investments in • Service providers support services are not driven by for digital market demand entrepreneurs • Development of Single Digital Market to grow the addressable market for Ugandan digital firms RECOMMENDATIONS Quick Wins (Short-term) • Integrate existing market solutions in digital health as well as e-commerce and the platform economy for COVID-19 response programs. • Review taxation policies around digital technologies and services to support market development and greater uptake of digital products and services. High Priority • Enhance access to public procurement opportunities for digital businesses. • Incentivize integration of digital technologies in agriculture and manufacturing through innovation vouchers which offer subsidized access to technology for traditional businesses. Long Term • Create a digital innovation fund for early-stage enterprises (potentially leveraging public finance to mobilize private financing). • Develop investment readiness programs for digital enterprises at growth stage to support deal flow. THE WORLD BANK GROUP 24 Key weaknesses Pillar Key strengths and roadblocks Opportunities Digital skills • Digital Skills • Lacks a national • COVID-19 development is a digital skills response to priority in national framework to build long-term development define what skills resilience in plans (Vision 2040 and competencies education and and NDP) are required for employment • Investments in citizens, workers requires focus on Secondary school and students digital skills infrastructure by • Lacks an ICT in • Digital Uganda Universal Access Education Policy Vision under Fund to guide formal development • Strong agencies education could be catalyst such as National • Digital Skills to digital skills Curriculum related courses development Development are optional at across all sectors Center and secondary school • New secondary National • Outdated school curriculum Commission for curriculum, Higher Education equipment and to develop limited broadband curricular for in schools and formal education universities • Strong National • Little to no data Research and on demand by Education Network industry (RENU) which can provide connectivity to all education institutions • A leading center for Artificial Intelligence (AI) research in Africa RECOMMENDATIONS Quick Wins • Approve draft ICT in Education Policy to guide investments in the formal education sector. • Improve internet access to higher education institutions through RENU Priority • Commission demand studies and research at regular intervals to inform the digital skills and digital economy agenda. • Develop national digital skills framework by adapting or adopting existing international frameworks such as EU Digcomp 2.1 or UNESCO Digital Competency Framework and e-Competency Framework or SFIA Framework for advanced digital skills and professional ICT skills training. • Update the curriculum for advanced digital skills given the fast-changing nature of digital technologies and required skills and reskill teachers to enable them to teach advanced digital skills. Long Term • Invest in high-performance computing (HPC) facilities for data analytics and research for higher education. THE WORLD BANK GROUP 25 1.0 Introduction 1.1 Inclusive Growth and Digital Transformation in Uganda Table 1-1: Uganda at a Glance: Key Top-Level Figures and Map8 Population 44.3 million Gross domestic product 6.5% (GDP) (2019) Urban population 10.8 million Adult literacy rate 76.5% Employment to 69% population ratio (% ages 15 and older) Rural population with 38% access to electricity Life expectancy 63 years Gender Inequality Index 127 (GII) Rank (out of 162 countries) Mobile money account 51% penetration Information and 1.6% Communication Technology (ICT) contribution to GDP Uganda’s path to middle-income status by 2040 is underpinned by a strong focus on leveraging digital technologies. The Government of Uganda (GoU) has committed the country to developing a digital vision which aims to build a digitally enabled society that is secure, sustainable, innovative, transformative and which could have a positive social and economic impact through technology- based empowerment. In line with this vision, the government has put in place proactive policy and regulatory measures that encouraged private investment in connectivity infrastructure. The government has also partnered with the private sector to address some gaps in rural and remote communities. Early reforms and investments have registered some modest impact. GDP grew by 6.5 percent in 20199 and although the ICT sector itself accounted for under 2 percent of GDP, it was a key driver of growth across the wider economy through its role in financial inclusion, expansion of digital services and products, and access to productivity- enhancing technologies and platforms. In 2017 (latest available statistics from Uganda Bureau of Statistics [UBOS]), ICT contributed to 10.5 percent of overall revenue mobilization.10 The country also ranks among the top 10 low-income ICT services’ exporters.11 8 World Bank maps. 9 World Bank data. 10 World Bank. 2020. Uganda Economic Update: Digital Solutions in a Time of Crisis. 11 https://set.odi.org/wp-content/uploads/2017/12/SET-WTO-Negotiations-E-Commerce.pdf THE WORLD BANK GROUP 27 Despite this notable progress, Uganda needs to do much more to realize the full potential of digital transformation. More than 80 percent of Ugandans still do not have access to internet in their homes, and the average cost of broadband is still high; Ugandans paid a little over 4 percent of their monthly income for 1 GB of mobile broadband in 2019.12 This is slightly better than Kenya but double the UN Broadband Commission’s recommended affordability target of 1 GB for 2 percent of monthly income. While 4 out of 5 people live within range of a mobile broadband network, fixed internet connections stand at less than 1 percent.13 A more affordable and ubiquitous internet could offer rich demographic dividends to Uganda’s fast growing, young population; some estimates place employment demand at 700,000 jobs per year until 2030 after which an expected 1 million job seekers will enter the job market annually from 2030 to 2040.14 Digital technologies can be leveraged to spur inclusive growth in Uganda. The digital economy’s role in enhancing productivity in the real sectors, matching buyers and sellers, matching jobs, and reducing information asymmetries offers key benefits to Uganda. Digital tools and channels can help link Uganda’s large informal sector with the formal sector which in turn can help connect informal workers to greater economic opportunities. To achieve this, adequate policies and safeguards are required to address gender and geographical disparities which influence the development of the digital economy in the country. Uganda ranks 83 out of 100 countries on the Inclusive Internet Index.15 The geographical disparities in network coverage and uptake of broadband services in turn perpetuate economic inequalities in the country with the northern and western regions lagging behind.16 The more than 1 million refugees in Uganda have limited access to digital technologies and refugee women are far less likely to own and use mobile phones (and mobile internet) than refugee men,17 which in turn constrains their ability to use digital technologies to access information, markets, and economic opportunities. The basic access and affordability challenges determine the extent to which the broader population can access and use digital products and services and participate in the digital economy. 12 A4A! Affordability Report 2019. 13 https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2019/03/GSMA_ Connected_Society_Uganda_Overview.pdf 14 World Bank 2020, February. 15 https://theinclusiveinternet.eiu.com/explore/countries/performance?category=overall 16 Ibid. 17 https://reliefweb.int/sites/reliefweb.int/files/resources/m4hgendergaprefugeecontexts.pdf THE WORLD BANK GROUP 28 Several other cross-cutting challenges also constrain the development of Uganda’s digital economy and require urgent attention from the government. For Uganda to achieve its vision of a digitally enabled economic transformation, a number of remaining gaps and challenges need to be addressed. Key areas for the government’s focus include the following: y Addressing growing market concentration. While competition in the telecom market has helped drive down prices, key market segments could benefit from greater competition, which would, among others, help boost access to connectivity and new DFS. The dominance of vertically integrated players in one market segment such as mobile money, mobile connectivity, content, or e-commerce can have spillover effects in other market segments as consumers become locked into a single network and smaller players have difficulty competing. This is challenging to long-term dynamism of Uganda’s digital economy and is a drag on investment, innovation, and consumer welfare. y Providing additional incentives for private sector investment in broadband infrastructure. Release of harmonized bands in the 700 MHz spectrum (freed up by migration from analogue to digital) and allocation in a transparent and fair manner could improve mobile broadband offerings for 4G. Opportunities exist in the longer term to use innovative spectrum bands (unlicensed) and new technologies (for example, dynamic spectrum allocation) to accommodate growing demand. y Deploying strategies to lower costs of digital devices and services. Sector- specific taxes should be removed or reviewed to improve affordability and access and to stimulate demand. Further, taxes on mobile money withdrawals, mobile data, and over-the-top (OTT) taxation should be reviewed to facilitate continued growth of consumer base and support development of digital solutions. y Improving trust environment and enabling data-driven services. This could be achieved through operationalization of the data protection and privacy law including enacting corresponding regulations that provide clear accountability and guidelines for the collection, processing, use, and sharing of data. Key regional frameworks and guidelines should be followed to ensure compatibility with aspirations for a single digital market in East Africa and across the continent, including tiered classification of data to allow for greater cross-border exchange of nonsensitive data to support commercial and public services. y Developing a national digital skills framework. This can be achieved by adapting or adopting existing international frameworks such as European Union (EU) Digcomp 2.1, United Nations Educational, Scientific and Cultural Organisation (UNESCO) Digital Competency Framework and e-Competency Framework, or SFIA Framework for advanced digital skills and professional ICT skills training. The private sector should be involved in defining the national framework and curriculum for digital skills across all levels. THE WORLD BANK GROUP 29 y Creating a digital innovation fund for early-stage enterprises (potentially leveraging public finance to mobilize private financing). Co-financing a digital innovation fund with the private sector would make seed and early- stage financing available to digital startups and expand the pool of available resources beyond Kampala. A public-private fund can provide some measure of reassurance to wary investors and bring in new investors who may not have the industry insight to identify viable deals in the digital sector. To address the gender gaps in the digital economy, funds can incentivize the greater participation of women through dedicated financing windows. y Improving e-money/mobile money services delivery by addressing challenges such as (a) the existing practice of levying charges on balances held in merchant accounts or online vendor accounts (OVAs) by the providers (akin to imposition of a merchant discount rate), (b) higher charges for wallet- to-wallet transfers within and across providers in comparison to other modes such as cash out, (c) provision for OVA-to-OVA transfers within and across providers, and (d) provision of open application program interfaces (APIs) by the mobile money service providers for fintechs to gain access to the payments ecosystem. Resolving the above issues in consultation with all the stakeholders will provide a greater impetus to the growth of DFS. The recent COVID-19 pandemic presents a challenge and an opportunity for Uganda to accelerate the pace of digital transformation. The COVID-19 pandemic has further demonstrated the critical need for more robust digital infrastructure to provide essential services as well as trace, monitor, and manage the spread of the disease. The crisis, with its social distancing requirements, offers unprecedented demand for digital technologies and new opportunities for developing innovation digital solutions for citizens’ use. Addressing these challenges would allow Uganda to deliver services to a broad range of consumers, allow firms to adopt productivity- enhancing technologies, and allow policy makers to undertake data-based policy making. 1.2 Uganda’s National Development Strategy and Digital Economy There is high-level policy recognition of the importance of the digital economy and the need to create a conducive enabling environment. Uganda’s Vision 2040, with the aim of reaching middle-income status by 2040, highlights the development of ICT and a national innovation system that would support uptake of new technologies.18 18 https://www.gou.go.ug/content/uganda-vision-2040 THE WORLD BANK GROUP 30 Going forward, the GoU has a renewed emphasis on digital transformation as a foundational pillar of Uganda’s development. The forthcoming National Development Plan III stresses the “use of ICT services for social and economic development” through commercialization and adoption of digital technologies, skills development, and wide uptake of e-governance. The Digital Uganda Vision 2019 likewise highlights the government’s commitment to “Transform Uganda into a digitally-enabled society that is innovative, productive and competitive.”19 The National Budget Framework Paper FY2019/20–FY2023/24 also envisages that ICT would contribute more than 10 percent of GDP going forward.20 Some key pieces of legislation have been passed to support the development of the digital ecosystem in Uganda, including the following: y National Information Technology Authority - Uganda (NITA-U) Act 2009 y Electronic Signatures Act 2011 y Electronic Transactions Act 2011 y Computer Misuse Act 2011 y Uganda Communications Act 2013 y Access to Information Act 2005 y Data Protection and Privacy Bill 2019 y National Payment Systems Bill 2020 y Approval of ‘communal access’ licensing category21 1.3 Regional Opportunities in the Digital Economy An integrated East African Digital Market would be the ninth largest in the world by population—with significant benefits for Uganda’s digital firms and consumers. A more deeply integrated and competitive regional market would provide a ‘friendly’ space for Uganda’s digital firms to scale and mature before launching into the continental and global markets. It would attract significant new investment in digital infrastructure, expand domestic and cross-border digitally enabled services and goods trade, stimulate development of locally relevant digital content, and inject greater competition across the region. Digital market integration would also help close the digital divide, with the biggest benefits accruing to those at the bottom of the pyramid who are able to participate in the digital economy for the first time due to falling costs of telecom services and availability of more locally relevant content and services in the larger market. 19 Digital Uganda Vision. 20 https://budget.go.ug/sites/default/files/National%20Budget%20docs/National%20 Budget%20Framework%20Paper%20FY%202019-20.pdf 21 https://uccinfo.blog/2020/01/27/approved-new-telecommunications-license-categories/ THE WORLD BANK GROUP 31 Figure 1-1: Population Size of the Largest Global Markets Source: World Bank. 2018. A Single Digital Market for East Africa. It is estimated that implementing a single digital market in East Africa would create an additional US$1 to US$2.6 billion boost in GDP and between 1.6 and 4.5 million new jobs across the region.22 Benefits of about US$632 million would accrue to existing mobile broadband subscribers in Uganda through lower prices and increased network effects. Ugandan digital businesses are already making strides in subregional and continental level expansion, demonstrating the potential of greater market access. SafeBoda launched in Kenya in 2017 and in Nigeria in March 2020, fintechs such as True African, and platforms such as M-farmer also run operations in neighboring countries. Creating a single digital market will require efforts to develop three interrelated submarkets: y A single connectivity market, which would remove barriers to regional telecom infrastructure and services deployment, encourage investment, improve performance, eliminate pricing and quality differentials between coastal and landlocked countries, and expand access to connectivity for all. y A single data market, which would enable secure exchange, storage, and processing of data across borders to support regional deployment and access to data-driven services and innovation. y A single online market, which would allow governments, firms, and citizens to deliver and access both public and private services online as well as make online purchases of goods and services seamlessly from anywhere in the region. 22 A Single Digital Market for East Africa, World Bank 2019a, May. THE WORLD BANK GROUP 32 1.4 Covid-19 and Digital Economy in Uganda In times of crisis, as demonstrated by the ongoing COVID-19 pandemic, digital technologies can play an important role in maintaining access to essential services and expanding the options to drive the recovery. The nature of the COVID-19 crisis and the need for physical social distancing makes the use of digital technologies even more relevant. The urgent need to manage demands on local health systems and allow local populations to maintain safe social distancing is for the large part being made possible through digital technologies. From the use of big data in developing effective epidemiological interventions to managing hospitals and health services and deploying tech-enabled contact tracing, digital technologies are playing an important role in crisis management in the short term. However, these technologies also raise pertinent questions for consumer privacy, safety, and data protection. The private sector can be a key contributor to the overall recovery and for building resilience of health systems by enhancing the integration of technologies in logistics and supply chain management, allocating and disbursing credit to firms, and scaling up the use of DFS for consumers. Digital technologies offer an opportunity for governments, individuals, and businesses to ensure business continuity, prevent service interruptions, allow for continuous education of children via distance learning, and help cope with social distancing. With the significant increase of data traffic, and voice calls during the pandemic, there is need for robust digital infrastructure and increased reliance on secure online services. 1.5 Rationale for Assessment Uganda’s Vision 2040 articulates the development of the digital economy as a top priority for Uganda and is key to Uganda’s engagement with the World Bank Group moving forward. The Digital Uganda Vision 2019 further highlights the government’s commitment to transform the country into a digitally enabled society that is innovative, productive, and competitive. The government has thus welcomed the support of the World Bank in helping identify opportunities and constraints that shape the prospects for accelerating development of Uganda’s digital economy. By taking a holistic and integrated view of Uganda’s digital economy, this assessment helps identify key constraints and cross-cutting issues pertaining to the five key pillars of Uganda’s digital economy. THE WORLD BANK GROUP 33 1.6 Structure of This Report The chapters that follow present a summary of key diagnostic findings and the current state of the five foundational pillars of Uganda’s digital economy. Chapter 2 discusses the current access, quality, and resilience of digital infrastructure, as well as the availability and affordability of connectivity. Chapter 3 looks at the current state of digital skills attainment and coverage, in relation to the basic, advanced, and e-business skills needed to support further uptake of digital services, and application of digitally enabled solutions. Chapter 4 assesses the digital entrepreneurship ecosystem. Chapter 5 analyzes the current applications as well as capacity to expand the use of digital platforms—both in public and private sectors. Chapter 6 examines the current state of DFS. Each chapter concludes with a summary of next steps. 1.7 Limitations and Data Gaps The analysis presented in this report is subject to the constraints posed by the current availability of data pertaining to the digital economy in Uganda. In undertaking this diagnostic, several data gaps and discrepancies were identified—notably in relation to digital platforms. Supply-side data also proved to be more readily available than demand-side data, particularly in relation to digital connectivity and services. These gaps highlight the need to improve related data collection, as a means to both improve policy making and track progress pertaining to digital economy development. Equally, further analytical efforts are needed to estimate the true contribution of ‘digital’ to overall economy growth and job creation, which was beyond the scope of this analytical exercise. THE WORLD BANK GROUP 34 2.0 Digital Infrastructure 2.1 Importance of Digital Infrastructure 2.1.1 Socioeconomic Rationale for Digital Infrastructure The potential economic and social dividends from a strong digital infrastructure foundation are immense. The links between broadband infrastructure and long-run rates of economic growth are well documented. The internet promotes inclusion, efficiency, and innovation by lowering the cost of transactions, expanding markets and services to excluded communities, and making supply chains more efficient resulting in greater inclusion, efficiency, and innovation. Digital infrastructure forms the bedrock of the digital economy—individuals, businesses, and governments must first be able to get online to engage in the digital world. As social distancing measures are imposed, closing the digital divide is of paramount importance to ensure economic interactions continue happening without physical interaction. Connecting government to citizens and equipping public, health, and academic facilities with the right digital infrastructure and solutions would enable remote work at scale and lay the foundations for digital service delivery (for example, e-learning). Digital technologies offer an opportunity for governments, individuals, and businesses to ensure business continuity, prevent service interruptions, allow for continuous education of children via distance learning, and help cope with social distancing. With the significant increase of data traffic and voice calls during the pandemic, there is need for robust digital infrastructure and increased reliance on secure online services. 2.1.2 Alignment with Country Development Strategy and Goals Digital infrastructure is identified as a fundamental enabler across a wide range of the government’s socioeconomic development strategies. The National Development Plan III has identified ICT infrastructure as one of the key priority areas of development with the potential to improve production of goods to boost the country’s exports and foreign exchange earnings in addition to employment and wealth creation.23 The Uganda Digital Vision focuses on building a digitally enabled society striving to achieve the goals of universal inclusion, sustainable development, economic progress, and poverty eradication. The government has identified the ICT sector as one of the fundamental opportunities to enable Uganda achieve its Vision 2040. The government’s five-year ICT Sector Strategic Investment Plan (ICT SIP) 2015/16–2019/20 aims to improve access to high-speed broadband services to facilitate communication, economic activities, and service delivery. The National Broadband Policy seeks to enhance access to broadband services across the country as a driver of socioeconomic transformation. From a 23 National Development Plan III. THE WORLD BANK GROUP 36 regional perspective, the Northern Corridor Integration Project (NCIP) partner states (Kenya, Rwanda, Uganda, and South Sudan) are committed to the transformation of their socioeconomic landscape through implementation of a regional broadband strategy which is aimed at ensuring that all partner state communities have access to broadband services based on a sustainable ICT infrastructure. 2.2 Diagnostic Findings 2.2.1 Current State of High-Speed Internet Development The Ugandan Government and private sector have taken significant steps to increase deployment of the country’s digital infrastructure. Uganda has 12,719 km of fiber shared between various providers including MTN, Airtel, UTL, Google, Facebook, Nomad (Tangerine), Liquid, the government-owned National Data Transmission Backbone Infrastructure (NBI) network, and the Uganda Electricity Transmission Company Limited (UETCL). The government’s National Data Transmission Backbone Infrastructure and e-Government Infrastructure Project (NBI/EGI) has deployed 3,184 km of national internet backbone covering 46 of the 129 districts and extended to 487 ministries, departments and agencies (MDAs) across the country.24 (UETCL has laid 496.9 km of fiber across the country along the electric grid. These public investments paired with the private sector backbone and last mile rollouts are expected to further open up the broadband market and reduce the cost of internet services in the country. 2.2.2 Availability and Access to Broadband The internet market is largely dominated by the mobile operators but is also characterized by a multiplicity of small internet service providers (ISPs). As shown in Figures 2-1 and 2-2, the internet market is mostly driven by mobile broadband (3rd Generation/4th Generation - 3G/ 4G) operators as well as other smaller operators such as Liquid Telecom (Worldwide Interoperability for Microwave Access - WIMAX), Nomad Communications (Fiber to the building/home - FTTB/ FTTH), Time Division - Long-Term Evolution (TD-LTE), Smile Communication (TD- LTE), Uganda Telcom (Digital Subscriber Line - DSL, WIMAX), and Zoom Wireless (Broadband fixed wireless access - BFWA). With the development of high-speed 4G mobile broadband offers (offering a user experience closer to traditional fixed broadband technologies), it is expected that very high-speed technologies such as FTTH will grow in the coming years and that the existing ISPs relying on technologies other than FTTH will face significant challenges to remain competitive. 24 UCC. THE WORLD BANK GROUP 37 Figure 2-1: Market Shares in the Mobile Market (3G), December 2019 Source: Telegeography. Figure 2-2: Market Shares in the Mobile Internet Market (4G), December 2019 Source: Telegeography. Available data suggest that the population coverage by mobile infrastructure is quite extensive in Uganda for mobile telephony at around 83 percent of the population, while geographic coverage for mobile telephony is still low at 44 percent as of 2018.25 Most urban areas are now covered by a mobile broadband network. Rural areas, particularly the northern region of the country, have limited connectivity as lower income levels and sparsely populated communities make 25 Source: Global System for Mobile Communication Association (GSMA) THE WORLD BANK GROUP 38 the deployment of conventional network infrastructure more challenging. While the networks of the two main mobile operators do not fully overlap, it appears that many areas are covered by neither of the operators. Acknowledging these coverage gaps and the lack of an economic rationale for private operators to invest in remote and sparsely populated areas, the regulator has started to implement universal service funds projects through the Rural Communications Development Fund (RCDF). The RCDF has developed a five-year broadband plan aimed at addressing both the supply-side interventions, by reducing the cost of supply in economically unviable areas, and demand-side interventions. Figure 2-3: Population Coverage for 2G, 3G, and 4G across Uganda Source: ITU Database 2018. Broadband services are mostly provided by the mobile telecommunications operators using 3G and 4G technologies as fixed technologies (DSL, cable, FTTH) remain underdeveloped. UTL has been the main provider of Uganda’s wired internet services but has been undergoing financial troubles, hence hindering growth of affordable broadband services to the public. Most of the other operators have been reluctant to invest in fixed last mile infrastructure due to high deployment costs and limited potential for take-up of fixed last mile connections. Some operators have migrated from providing WIMAX service to other technologies such as LTE. Figure 2-4: Evolution of Mobile Broadband Subscribers by Technology Source: Telegeography. THE WORLD BANK GROUP 39 Figure 2-5: Evolution of Fixed Broadband Subscribers by Technology Source: Telegeography. 2.2.3 Analysis of Sector Structure, Market Structure, and Regulatory Environment Despite Uganda having a high number of licensed providers in the market, its telecommunications sector is highly concentrated, which has affected the level of competition of the telecom operators. The two main players, MTN Uganda and Airtel Uganda, have a market share of 44.1 and 38.2 percent, respectively, while the other three players—Africell, Uganda Telecom and Smile Communications—share the remaining, approximately, 17 percent of the market in the mobile telephony segment as of September 2019.26 The smaller players have no operations in the rural parts of the country, some having been forced to close down in 2018 due to consolidation and difficulty in competing with larger players. Looking ahead, issues of market dominance will need to be addressed to ensure adequate competition to maintain the pace of investment, innovation, and consumer cost reduction. 2.2.4 Constraints to High-Speed Internet Development Constraints to high-speed internet development are analyzed below, using a framework developed in the World Bank’s World Development Report 2016 - Digital Dividends, based on the four ‘miles’: y First Mile: how internet enters the country. Understanding how Uganda is connected to international and regional networks. y Middle Mile: how internet passes through the country. Looking at the national backbone, related regulation, and business practices as well as internet exchange points (IXPs), datacenters/hosting, and so on. y Last Mile: how internet reaches end users. Examining local access and mobile networks (2G, 3G, 4G) as well as related market dynamics and structures, regulation, and business practices. 26 Telegeography. THE WORLD BANK GROUP 40 y Invisible mile: state of hidden elements of the value chain. Exploring policy, legal, and regulatory aspects governing the market including those related to competition, cybersecurity, spectrum allocation, and data protection. 2.2.5 First Mile: International Connectivity Uganda is a landlocked country and connected to the global internet via overland links to undersea cables in Kenya and Tanzania. Uganda is connected to The East African Marine System (TEAMS), SEA Cable System (SEACOM), and Eastern Africa Submarine Cable System (EASSy) via Mombasa and Dar es Salaam.27 This dual access to submarine cables has increased competition, improved quality of service (QoS), and improved resilience of the digital infrastructure value chain. While prices have fallen significantly, it has not brought down the cost of internet in Uganda in comparison to international benchmarks. The high cost of internet can be attributed to limited backhaul competition and the limited internal networks to distribute connectivity within the country. Like other landlocked countries, Uganda does not have oversight on wholesale bandwidth rates at the coast; Ugandan players can only take the price of bandwidth offered to them by different bandwidth providers. It is recommended to develop a regional joint framework for pricing of commercial terrestrial backhaul services for transit bandwidth. Figure 2-6: Growth of International Bandwidth in Uganda Source: Telegeography. Uganda’s international bandwidth capacities are provided through redundant links via Kenya (123 Gbps), Rwanda (88 Gbps), South Africa (5 Gbps), and western Europe (8 Gbps). 27 Telegeography. THE WORLD BANK GROUP 41 2.2.6 Middle Mile: Backbone Networks The government’s investment in fiber infrastructure in the country is steadily enhancing internet connectivity to the citizens. UETCL plans its infrastructure based on its electricity grid and has laid 496.9 km of fiber across the country. Implementation of the NBI/EGI has enhanced availability of high-bandwidth data connections to MDAs in all major towns at reasonable prices. The government to date has invested over US$105 million in the NBI and is currently in its fourth phase and has connected over 321 MDAs and service centers such as hospitals and universities across the country. Through this project, National Information Technology Authority Uganda (NITA-U) has deployed 3,184 km of fiber covering 46 of the 129 districts and extended to 487 MDAs across the country.28 NITA offers bulk purchase of international bandwidth to MDAs which has helped reduce cost of internet services. Further price reduction is expected to be realized in the subsequent financial years as more MDA sites are connected to the NBI/EGI. NITA also offers free wireless internet and access to e-government services between 6:00 p.m. and 6:00 a.m. during weekdays and between 3 p.m. on Saturday and 6 a.m. on Monday. About 63 percent of the registered ISPs are using the backbone to carry backhaul traffic on a wholesale basis, helping lower their cost of deployment and operations. The operation of the ICT backbone/NBI has resulted in revenue generation for the government. Figure 2-7: National Backbone Infrastructure Source : UCC 28 UCC. THE WORLD BANK GROUP 42 Private sector investment in fiber infrastructure across the country plays a vital role in enhancing internet connectivity to the citizens. Liquid Telecom is investing UGX 2 billion (US$525 million) to roll out fiber infrastructure in Kampala through its local subsidiary Infocom. MTN has invested in 5,000 km of fiber network to enhance data transmission capacity to 3G and 4G sites around the country. CSquared is deploying metro fiber infrastructure to provide wholesale capacity to third-party data providers. Facebook is deploying 800 km fiber across North Western Uganda in collaboration with Bandwidth & Cloud Services (BCS) Group and Airtel.29 Table 2-1: Private Sector Fiber Infrastructure Company Fiber Footprint (km) Liquid Telecom Over 500 MTN Over 2,900 CSquared 890 Facebook 800 Despite the investments in inter-urban infrastructure, there is still limited or no fiber connectivity in many parts of the country. The rollout of the fiber optic network through the different entities—NBI, UETCL, and private telecom operators—has been done in an uncoordinated and unregulated manner.30 This has resulted in duplication of fiber in some areas while more than 60 districts have no fiber coverage. In contrast, Kampala’s metro fiber network is concentrated, with 282 km of fiber cable laid. There is currently around 12,719.285 km of fiber in the country; however, since most of the fiber routes are duplicated, this effectively reduces the net fiber coverage to less than 2,100 km as shown in Figure 2-9.31 Out of the 612 subcounties with 3G coverage, 384 of them do not have any fiber to support data backhaul, implying limited or constrained access speeds.32 29 https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2019/03/GSMA_ Connected_Society_Uganda_Overview.pdf 30 https://www.ucc.co.ug/wp-content/uploads/2017/09/National-Broadband-Policy-2018_ Final.pdf 31 National Broadband Policy. 32 National Broadband Policy. THE WORLD BANK GROUP 43 Figure 2-8: NBI Fiber Connectivity Map Source: NITA. Figure 2-9: Fiber Coverage in Uganda Source : National Broadband Policy. THE WORLD BANK GROUP 44 Network Owner Key Sections Uganda Telecom Kampala-Katuna, Kampala-Tororo, Kampala-Entebbe, and Kampala-Mpondwe Earth Station MTN Uganda Kampala-Katuna, Kampala-Malaba, Kampala-Arua, Masindi-Mbarara via Kamwege, Masindi-Tororo National Backbone Kampala-Katuna, Kampala-Busia/Malaba, Masaka- (GoU - NITA) Mutukula, Kampala-Nimule, Mbarara-Masindi, Karuma- Arua-Elegu, Kasese-Mpondwe, Soroti-Moroto, and Masindi-Tororo UETCL Optical Power Kampala-Malaba, Kampala-Mbarara, Mbarara- Ground Wire Kagitumba, Kabulasoke-Nkenda, Kasese, Nkenda-Kafu (Scoped), Kampala-Nimule (scoped), Karuma-Arua/ Ayago, Tororo-Lira, Lira-Gulu/Karuma Liquid Telecom Kampala-Malaba, Kampala-Katuna, Kampala-Nimule, and Masindi-Tororo Airtel Uganda Kampala-Fort Portal, Fort Portal-Masindi, Masindi-Mbale, Fort Portal-Mbarara BCS Uganda Masindi-Mbale, Fort Portal-Mbarara Africell Kampala-Kafu, Kampala-Masaka, Jinja-Malaba Infrastructure sharing is encouraged by the National Regulatory Authority; however, this has not been fully embraced by mobile operators nor between mobile operators and players in other sectors such as transport and water. There has been slight growth in infrastructure sharing with a number of operators embracing tower companies to build and maintain their infrastructure. American Tower Corporation (ATC) Uganda acquired a 51 percent stake in MTN in 2011 and currently manages 1,000 towers for MTN.33 A number of operators have continued to build individual infrastructure including ducts and fiber optic networks even along similar routes, hence missing out on opportunities to lower costs of deployment and maintenance. On the fiber front most of fiber routes are duplicated, thus effectively reducing the net fiber route to less than 20% of the total fiber connectivity in the country (Reference National Broadband Policy) An IXP is operational in Uganda, with sizable traffic exchanged but a large unexploited potential. The Uganda Internet Exchange Point (UIXP) allows local Internet service providers to directly interconnect thereby reducing the amount which must be delivered via costly intermediaries. This makes Internet faster. UIXP currently has 28 networks directly connected with a combined capacity of 8.9 Gbps which is comparable to Tanzania but much lower compared to more advanced IXPs in the region, for example, Kenya which exchanges about 26 Gbps of traffic. The National Regulatory Authority, Uganda Communications Commission (UCC) in July 2019 proposed a new IXP regulatory framework. This has been interpreted as an attempt by the government to have full control over the internet and interfere in the independence of the IXP. 33 Telegeography 2019. THE WORLD BANK GROUP 45 There are a couple of data centers in the country providing data storage and cloud computing services. The government has invested in a National Data Center to centralize disparate government data centers and minimize the cost of building various data centers in individual MDAs. The National Data Center, which hosts 101 government applications from 65 MDAs, is used for centralized hosting services, disaster recovery services, and other data center services for government applications and data. Raxio, a carrier-neutral privately owned tier III data center which is under development, is aimed at supporting the growth and digitization of the Ugandan economy and the goals set in the Ministry of Information and Communication Technology (MoICT) Data Strategy. Consultations revealed that most private businesses either store data on their own servers, which are difficult and costly to maintain, or use offshore centers, which results in slow access to the data due to latency. The new data centers will allow Ugandan businesses to rent space and host their applications locally. 2.2.7 Last Mile: Internet Services The last mile of digital infrastructure is where Uganda faces the most significant challenges. Although network investments have resulted in impressive signal coverage, internet usage and demand for high-speed internet remain low, which prevents the infrastructure from meeting the end user. Broadband services are mainly mobile, with 3G being the most common technology deployed. Even though the internet market is growing steadily, it is still underdeveloped with approximately 186,000 mobile broadband subscribers as of September 2019,34 an equivalent of 8 percent penetration, which is relatively lower than its peer countries. Low uptake of higher-speed technology is primarily due to affordability constraints—both for the services as well as the mobile broadband-enabled devices that are needed to connect. These constraints are compounded by lack of awareness of the benefits of broadband connectivity and the skills to use it as well as limited energy access in rural communities (the battery on a basic 2G mobile phone lasts longer than a smartphone). Affordability represents a significant barrier to the uptake of mobile services in Uganda, particularly for consumers at the bottom of the income pyramid. Relatively low-cost devices are still beyond the financial means of large numbers of citizens. Cost of smartphones has declined by 50 percent since 2012 to less than US$100; however, many Ugandans are still not able to afford a smartphone. The price of data, even though relatively low, is simply beyond the means of many people for meaningful use. The total cost of mobile ownership (TCMO), determined by the cost of service usage (voice, data, SMS), activation, and handset, in Uganda is one of the highest in Sub-Saharan Africa. The introduction of retrogressive social media and mobile money taxes has contributed to the high prices and low uptake. Mobile money users are charged 0.5 percent on the value of withdrawal transactions, in addition to excise tax levied on withdrawal fees. The social media 34 https://www.telegeography.com/products/globalcomms/data/country-profiles/af/uganda/ broadband.html THE WORLD BANK GROUP 46 tax of UGX 200 (US$0.05) per day was introduced on the use of 60 mobile apps, including Facebook, Instagram, Twitter, and WhatsApp. Shifting people from passive consumption of services to productive use also presents a significant challenge. This requires not only improving digital literacy to bring people online but also developing wider skillsets for the production of local content to stimulate demand, improving entrepreneurial application to create jobs, and increasing the consumptive capacity of the economy more broadly to drive growth.35 Availability of online content and services that are accessible and relevant to the local population remains a significant barrier to use of internet services in Uganda. Though English and Swahili are the official languages in Uganda, the majority of the 41 indigenous languages that are widely spoken by populations in the rural areas are not catered for by existing mobile content and services. Available content is also not relevant to stimulate internet usage which presents a significant opportunity for local content creation. Lack of digital skills and awareness is also affecting uptake. A lack of digital literacy and skills, especially among the elderly and rural dwellers, is one of the biggest barriers to mobile internet adoption in Uganda. Efforts to overcome the digital skills gap are ongoing through different stakeholders including RCDF and NITA who are investing in computers for public access in schools, libraries, and post offices. 2.2.8 Invisible Mile: Regulation, Policy, and Institutions Uganda has established strong and accountable policy and regulatory regimes and institutions governing the telecommunications sector. This has resulted in proactive efforts to bring down the costs of digital infrastructure deployment, attract investment, promote network security, and increase access in rural areas. While the current landscape is highly supportive, there will be a need to continually update the regulatory framework and policies in line with technology evolution and market maturity. Given the market concentration in the telecom space, a robust regulatory oversight will need to be maintained to avoid abuse of market power and promotion of competition. Recent developments in the sector and regulatory landscape in Uganda include the the new communications regulations, the National Development Plan III, the Digital Transformation programme, the National Broadband Policy and a draft Digital Uganda Vision which are the main drivers of increasing penetration and usage of ICT services for social and economic development in Uganda 35 https://researchictafrica.net/wp/wp-content/uploads/2019/05/2019_After-Access-The- State-of-ICT-in-Uganda.pdf THE WORLD BANK GROUP 47 The 2013 Communications Act (No. 4 Volume CVI of 18/01/2013) provides comprehensive coverage of a wide range of activities. The law covers telecommunications, broadcasting and postal services, and other related areas. Key subtopics covered include licensing, spectrum management, tariff regulation, consumer empowerment, rural communication, research and development, and cybersecurity. Uganda is in the process of implementing a new licensing framework. A new licensing framework, which came into effect in June 2020, introduced national and regional operators while separating permits for the DFS and revised license charges which will now be based on a percentage of the permit holder’s gross annual revenue. This change of licensing has brought uncertainty in the market due to fear of disruption of the sector that may result in overregulation. The license fee increment could also affect the cost of services to the consumer. Infrastructure sharing between operators, which reduces network deployment and maintenance costs, is limited despite this being encouraged by the regulator. The National Broadband Policy and the National Roaming Guidelines (2018) seek to ensure national roaming between the mobile operators in Uganda through various interventions including infrastructure sharing. Even though network sharing has increased with operators sharing base stations, more needs to be done to encourage sharing of infrastructure among service providers. It remains best practices for regulators to provide an appropriate regulatory framework for infrastructure sharing, but not to mandate such arrangements so as not to distort facility-based competition between market players. Uganda has also put in place initiatives to enhance information security and data privacy with the aim to increase confidence and trust among consumers and businesses. The Uganda Computer Emergency Response Team (UgCERT) was established in 2013 to monitor attacks and implement security solutions.36 In addition, the Data Protection Act 2019, which came into effect in May 2019, was aimed at building a trust environment for internet users through protection of individuals and their personal data. However, delays in formulating regulations and effective implementation of Uganda’s data protection law continue to expose millions of citizens to data exploitation. A series of institutions have been created to establish and implement the government’s vision for the telecommunications sector and wider digital economy transformation. These include (a) the Ministry of Information and Communication Technology and National Guidance and National Guidance (MOICT&NG) responsible for ICT (including broadcasting and postal services) policy and strategy, (b) UCC, responsible for regulating the ICT sector, and (c) NITA-U responsible for integration and operation of government ICT services. 36 https://www.ug-cert.ug/data/smenu/17/Roles-and-Functions.html THE WORLD BANK GROUP 48 2.3 Recommendations and Next Steps To achieve the goals of universal access and full utilization of existing digital infrastructure investments, further steps are needed to stimulate demand. R1. Approve pending policy and regulatory framework. Key policy, legislation, and regulation could improve the competitiveness and investments in the sector as well as promote consumer interests and foster trust, security, and privacy online. a. Data Protection Regulation. Following the enactment of the data protection act, there is need to operationalize the office of the data commission office to safeguard sensitive or personal information following increased uptake of digitized information systems in both the public and private sectors. b. Law on cyber security to protect CII. This would include protection of systems, data, and capabilities, based on international best practices. c. National Roaming Guidelines. This would provide for increased competition and innovation, ensure a level playing field, and maintain a technology neutral stance in extending the services across the country through effective infrastructure sharing. d. Spectrum framework. This aims to promote efficient and effective use of spectrum and enhance the management of spectrum to promote competition in the use of spectrum. R2. Release spectrum to encourage rollout of high-speed broadband services. Release of harmonized bands in the 700 MHz spectrum (freed up by migration from analogue to digital) and allocation in a transparent and fair manner could improve mobile broadband offerings for 4G. Opportunities exist in the longer term to use innovative spectrum bands (unlicensed) and new technologies (for example, dynamic spectrum allocation) to accommodate growing demand. R3. Deploy strategies to lower costs of digital devices and services. This could be through removing or reducing sector-specific taxes to improve affordability and access and to stimulate demand. Availability of low-cost loans to spread payments can help and could be offered in conjunction with other services. For those that cannot afford a device via loan repayment, support mechanisms such as third-party payment or partial voucher schemes could be explored. The government could also consider bulk negotiation/purchase schemes to bring down the unit costs of 4G devices. Regionally coordinated schemes would help increase bargaining power and reduce leakage of subsidized or tax-exempt units across borders. R4. Ensure the efficient use of public infrastructure and contribute to its maintenance, upgrade, and extension. This can be achieved by extending the NBI on an open access, wholesale basis to cover more underserved areas of the country so as to increase penetration of communication services. Care must be taken to not displace potential private investment and to maximize spillover benefits in private provision of last mile services relying on the NBI for backhaul. Regulatory guidelines for access by private operators to the public infrastructure are required to encourage infrastructure sharing with an aim of reducing cost of service to the consumer. THE WORLD BANK GROUP 49 R5. Strengthen cybersecurity and cybercrime legislation, among others, with the Critical National Information Infrastructure (CNII) bill by developing a stand- alone national cybersecurity agency to house the national Cyber Emergency Response Team (CERT) and supporting sectoral CERTs/Security Operations Centers (SOCs); strengthening threat intelligence, monitoring, prevention, and response by upgrading and scaling up the capacities and operations of the national CERT; preparing for recovery by regularly exercising cyber drills and testing business and disaster continuity plans; enforcing cybersecurity and prosecuting cybercrime by building the capacity of investigating, prosecuting, and judicial public officers; building cybersecurity capacity and digital skills by piloting a cybersecurity skills program in the educational system. R6. The ongoing Regional Communications Infrastructure Project (RCIP-5) is aimed at advancing some of the short-term activities that could contribute to the COVID-19 response. The following short-term (0–6 months) infrastructure interventions could be considered to aid the emergency response through ongoing projects in Uganda: y Digital connectivity of MDAs, prioritizing health centers. Improved connectivity will facilitate, among others, implementation of telehealth and collection of data on the pandemic. y Messaging capabilities between government workers. Procurement of additional licenses for Universal Messaging and Collaboration Service (UMCS, which is the primary office collaboration suite for government workers) to allow better and larger digital communication between government workers. y e-signature capabilities. Support procurement for the digital authentication and e-signature capability to facilitate the rapid adoption of e-signatures within the public sector. This is highly relevant today, as most government workers have been asked to work from home and would enable full digitization of services without requirement for physical signatures. y Tracking application. Rollout of applications to help the COVID-19 response teams track arriving passengers in Uganda (and people whom they have been in contact with) and their test status. y Support to the development of a call center for the Ministry of Health. This will support the Ministry of Health in receiving and processing enquiries and calls related to COVID-19 and any other health enquiries. y Digital communication for public health through SMS gateway used to send accurate and up-to-date information to citizens. THE WORLD BANK GROUP 50 3.0 Digital Skills 3.1 Importance of Digital Skills 3.1.1 Socioeconomic Rationale for Investing in Digital Skills Uganda would benefit from expanding its ‘digitally competent’ workforce and pool of digitally literate citizens to reap the benefits of a digital society. Digitally competent workers drive the development of vibrant digital economies. They can also raise labor productivity by enabling the application of digital tools and processes across diverse areas, including the informal service sector, agriculture, energy, transportation, health, education, and government services. Digitally literate citizens can better reap the benefits of a digital society by gaining access to more, better, and safer information and engaging with the wider community. The COVID-19 pandemic has exposed the critical role (and limitations) of digital technologies to come to the rescue—from video or audio conferencing for work and study to online learning and teaching to online or digital shopping (e-commerce). The ability to use these digital technologies is highly dependent on access to connectivity as well as skills and knowledge. As Uganda plans for recovery and reopening of the economy, it is clear that it will be important to build in greater resilience to better withstand future pandemics and shocks. Digital technologies are an important part of building resilience, and digital skills development is an integral part of this strategy to equip citizens with the skills and knowledge to keep working and studying even during times of pandemics or other natural calamities. 3.1.2 Alignment with Country Development Strategy The GoU recognizes the importance and need to develop ICT skills for development. Various government strategies and plans call for the development of ICT skills. At the highest level, the Uganda Government’s Vision 2040 acknowledges the potential of ICT to accelerate development, create jobs, and increase productivity. The vision calls for a comprehensive skills development plan (in addition to investment in ICT infrastructure and innovation) by highlighting the need to “develop, improve and retool its ICT talent building mechanism by adopting globally-benchmarked, industry-rated skills assessment, and training and certification standards”.37 The National Development Plan III38 further calls for enhancement of ICT skills development if the country is to maximize the benefits of ICT. In the ICT sector, the National Development Plan III acknowledges the inadequate and unskilled professional ICT-centric human resources in both public and private sectors and the generally low ICT literacy among the population. To this end, the ICT Policy proposes a number of strategies in line with Vision 2040 that 37 Uganda Vision 2040 accessed at https://www.greengrowthknowledge.org/sites/default/ files/downloads/policy-database/UGANDA%29%20Vision%202040.pdf 38 National Development Plan III THE WORLD BANK GROUP 52 include, among others, developing curriculum for all levels of education, developing a scheme for equipping education institutions, training civil servants, strengthening the National Research and Education Network, and developing and implementing a certification framework.39 The education and sports sector strategic plan 2017/18–2019/20 further calls for the promotion of e-learning and computer skills in secondary and tertiary institutions. 3.2 Diagnostic Findings 3.2.1 Current Level of Digital Skills in the Population Digital skills represent a continuum of diverse skills which can be fostered through formal education and training as well as informal learning. Digital competence is often understood in simplistic terms (for instance, the ability to use a mobile phone for simple transactions or accessing and surfing the internet), or, at the other end, the ability to undertake coding and software programming. The concept of digital literacy is deeper and broader, encompassing several competencies to access, use, manage, and create digital information and digital tools. Individuals may differ in their level of proficiency in these different competences. At the higher end of the digital skills continuum, individuals will have the ability to deploy digital technologies, develop new applications, and come up with solutions to new problems. It is important to highlight that access to digital devices does not necessarily translate into acquiring digital skills, even at the foundational level, although they are an essential precondition for them. The kind of digital skills required for a digital economy need to be acquired through education and training, both formal and informal. The quality and appropriateness of digital skills programs matter. While there are no formal skills assessments that have been done, recent surveys by the government and research organizations point to a general lack of basic digital literacy in the population. NITA’s 2018 National Information Technology Survey40 revealed that more than 50 percent of households and individuals do not use the internet because they “lack knowledge, confidence or skills.” The use of the internet is a good proxy for digital skills availability in the general population. 39 https://ict.go.ug/wp-content/uploads/2018/11/ICT_Policy_2014.pdf 40 https://www.nita.go.ug/sites/default/files/publications/National%20IT%20Survey%20 April%2010th.pdf THE WORLD BANK GROUP 53 Figure 3-1: Reasons Why Households and Individuals Do Not Use Internet Source: NITA IT report 2018. The NITA ICT survey also provides good insights into the level of ICT use and therefore of digital skills in the public sector. Figure 3-2: Barriers to Use of Internet in MDAs and Local Governments in Uganda Source: NITA IT Survey 2018. These findings are consistent with other surveys conducted by institutions such as Research ICT Africa’s ‘2017–2018 After Access Survey’ which showed that Uganda, at 14 percent, has one of lowest internet user rates in the region with lack of knowledge and skills and affordability of devices and internet as key drivers for low usage.41 Lack of skills is even more of a challenge at the local government level. 41 https://afteraccess.net/wp-content/uploads/After-Access-Website-layout-r1.pdf 42 https://www.ubos.org/wp-content/uploads/publications/03_2018Education_Monograph_ Report_Final_08-12-2017.pdf THE WORLD BANK GROUP 54 Uganda has a large out-of-school youth population necessitating strategies that go beyond formal education for digital skills development. Low levels of completion at primary and secondary school means that there is a large group of youth who do not complete basic schooling. According to the Uganda Bureau of Statistics (UBOS) report on education,42 the percentage of population ages 13+ who complete primary school is about 60 percent, 9 percent complete O level, and only 4 percent complete A level. Further, the report shows that “13% of the population aged 10 years and above had never been to school in Uganda.” Uganda is also the biggest refugee-hosting country in Africa which creates special challenges for the refugee and host communities (RHCs). There is a strong policy interest in catering to this group both within and outside of Uganda. Fostering digital skills of children/youth in RHCs is likely critical to improve their employability and livelihood. 3.2.2 Market Analysis of Digital Skills Demand and Availability There is limited data on the demand for digital skills in Uganda. In the absence of this data, we can draw some inferences from indirect measures such as ‘the number of users of certain digital technologies (for example, e-government services)’ or ‘the number of jobs that exist in a particular sector (ICT services)’. In Uganda, the majority of the population is working in agriculture and in the informal sector (for example, transport and retail) and assessing the growth of digital technologies in these sectors will help assess the overall demand. A UBOS manpower survey 2016/1743 reveals that about 5.8 percent of future formal jobs require IT skills but this is likely to be low given the increasing use of digital technologies for work. The manpower survey reveals that the demand for IT skills is most pronounced in the public administration (8.2 percent) and finance and insurance sectors (6.2 percent). However, other key skills such as technical skills, creativity, and communication skills increasingly rely on IT skills so the demand may be much higher. Almost half of all jobs in Africa already require some level of digital skills and there is a gap between demand and supply. An IFC study focusing on Ghana found that “over 230 million jobs in Sub-Saharan Africa will require digital skills by 2030”44 and that “Ghana alone will offer 9 million digital jobs and nearly $4 billion in revenue potential through 2030.” A modelling of demand and supply of digital skills also shows a likely gap (Figure 3-3). The report further estimates (from survey respondents) that almost half of all jobs in Africa already require some level of digital skills. 43 https://www.ubos.org/wp-content/uploads/publications/08_20182018_Uganda_ Manpower_Survey_Report.pdf 44 https://www.ifc.org/wps/wcm/connect/ed6362b3-aa34-42ac-ae9f-c739904951b1/ Digital+Skills_Final_WEB_5-7-19.pdf?MOD=AJPERES THE WORLD BANK GROUP 55 Figure 3-3: Supply and Demand of Most Important Workforce Skills - Source IFC Citizens need digital skills not only to work but also to live in a digital economy. As Uganda adopts and implements e-government services and as the use of mobile money grows, all citizens will need at least basic digital skills to be able to use the services. According to NITA-U, the proportion of the population using e-government services was 62.6 percent45 and this is likely to increase as more services are rolled out. Moreover, the number of mobile money subscriptions now stands at 25 million with over 15 million monthly active subscribers.46 Basic digital skills are therefore likely to be critical for further financial services deepening. 3.2.3 Market Analysis of Digital Skills Supply This section assesses the supply of digital skills through formal education and other training initiatives run by the private sector or nongovernmental organizations. In a well-equipped and modern education system, basic digital skills can be provided in school education (up to high school level); intermediate level skills at the upper secondary level, in technical and vocational education and training (TVET) institutions, and technology programs in short-cycle tertiary institutions; advanced digital skills for the ICT professions in university undergraduate programs in engineering, sciences, mathematics, and related fields; and highly specialized digital skills for the ICT professions in university postgraduate programs in the same fields. 45 https://www.nita.go.ug/sites/default/files/publications/NITA-U%20Statistical%20 Abstract%202018%20Final-website.pdf 46 https://www.ucc.co.ug/wp-content/uploads/2017/09/Communication-sector-performance- Report-for-the-quarter-ending-September-2019.pdf THE WORLD BANK GROUP 56 Digital skills development is mainly at secondary schools and tertiary-level institutions. The education system is divided into preprimary, primary (7 years), secondary (6 years), and tertiary (3+ years) levels. Gross enrolment at preprimary is low at 29.2 percent ,47 at primary is >100 percent ,48 at secondary is 40 percent,49 and at the tertiary level is 5 percent.50 Survival rate to the last grade of primary is 35.5 percent and transition to secondary school is 59 percent.51 There is no digital skills development at the primary level and digital skills courses at the secondary level are optional. At the secondary school level, computer studies (recently rebranded as ICT) is one of the courses offered at lower secondary (O Level) and ICT as a subsidiary course at upper secondary (A Level). These courses offer basic and intermediate-level skills. However, none of these courses are compulsory for all students. A review of the new syllabus for the ICT subject for lower secondary (O Level) shows a heavy tilt toward ‘computer applications’. Comparing it to international competency frameworks such as the UNESCO Digital Skills Competency Frameworks also shows that the new lower secondary syllabus is light on topics such as privacy and identity protection (vital in today’s digital economy) as well as programming or computational thinking. On a positive note, the new lower secondary curriculum calls for the integration of ICTs across the entire curriculum which could develop digital skills for all students. At the secondary school level, the main provider of ICT equipment and connectivity has been UCC through the RCDF in partnership with the Ministry of Education. Almost all government-owned schools and all national teacher training colleges were equipped with ICT labs between 2008 and 2014, a tremendous achievement that made possible the delivery of digital skills training at nearly every government secondary school. Stakeholder feedback, however, points out that most of the equipment is due for replacement. An observation made by stakeholders is that the school labs that were delivered are based on a ‘thin client’52 technology where simple terminals run applications from a central server while the Uganda National Examinations Board requires ‘thick client’53 computers where most applications run from individual desktops for computer studies and ICT subsidiary. Another issue pointed out is the sustainability of the connectivity as schools lacked funds to continue paying for connectivity after RCDF support ended. Stakeholders observe that the lack of an ICT in Education Policy may be hindering continuous and sustained investments in the ICT infrastructure and connectivity by the Ministry of Education and its partners. 47 Education Statistical Abstract - http://www.education.go.ug/wp-content/uploads/2019/08/ Abstract-2017.pdf 48 UIS - http://uis.unesco.org/en/country/ug 49 UBOS - https://www.ubos.org/wp-content/uploads/publications/03_2018Education_ Monograph_Report_Final_08-12-2017.pdf 50 World Bank - http://datatopics.worldbank.org/education/country/uganda, UIS- http://uis. unesco.org/en/country/ug 51 UIS - http://uis.unesco.org/en/country/ug 52 A thin client is a lightweight computer that has been optimized for establishing a remote connection with a server-based computing environment. 53 A thick client is a computer that will perform the bulk of the processing in client/server applications. THE WORLD BANK GROUP 57 The tertiary education sector is typically responsible for developing advanced digital skills through science, technology, engineering, and mathematics (STEM) courses and specifically at faculties, colleges, or departments of engineering and computer science. The tertiary education level in Uganda is quite small. As noted in the latest available State of Higher Education Report 2017/18,54 the gross enrolment ratio of 6.85 percent in 2017/18 is “far below the world average of 24% and the preferred 40% needed for economic take off.” Of the total student population of 261,087 in 2017/18, only 96,602 (37 percent) were enrolled in STEM courses. The low gross enrolment ratio is likely to lead to reduced supply of highly skilled ICT professions. Girls’ enrolment in STEM is quite low. At Makerere University, the largest university in the country, women enrolment in STEM courses is about 30 percent according to data from the 2016 Report of the Visitation Committee on Makerere University.55 The government is, however, aware of this situation and is taking steps to address low levels of female participation in STEM. The Makerere University Council recently passed an affirmative action policy to provide a 40 percent enrolment quota for female students in STEM56. The tertiary level lacks adequate infrastructure for both intermediate and advanced digital skills. The stakeholders interviewed during this assessment all pointed out to low levels of computing equipment and internet access at higher education institutions in Uganda. This is borne out by the State of Higher Education Report 2017/18 which notes that the computer to student ratio at higher education institutions is still low at 1:16. However, even the low computer to student ratio masks deeper challenges. As the report notes, the “majority of these computers are old with a limited life span and cannot support modern software programmes.” Industry collaboration and link in developing digital skills appears to be weak. There is little evidence that industry has been involved in providing input into digital skills curricula at any level of the education system. To ensure that the digital skills being developed are aligned with current and future needs, close engagement of industry is required. Innovation hubs such as Innovation Village also play a key role in developing professional ICT skills and promoting ICT innovations. 54 https://www.unche.or.ug/webpages/publications.aspx 55 http://www.education.go.ug/wp-content/uploads/2020/01/The-Report-of-the-Visitation- Committee-on-Makererere-University-2016-compressed.pdf 56 https://news.mak.ac.ug/2019/08/mak-council-approves-stem-affirmative-action-policy THE WORLD BANK GROUP 58 3.2.4 Constraints to Foster Digital Skills and Implications for Policies and Practices While the national policies and plans clearly identify the need to develop digital skills across the country, there is a big gap toward implementation. The following are key constraints at the policy level. y There is no entity or group of entities focused on driving the development of digital skills policies and programs. Because digital skills development happens both inside and outside formal education and touches on jobs and labor, a cross-ministerial steering committee is often required to drive the digital skills agenda. This appears to be lacking in Uganda. Ideally, such a committee should be led or co-led by the Ministries of Education and ICT but also involve other key stakeholders inside and outside government including the private sector and donor agencies. y Uganda lacks a national digital skills framework that guides government policies, programs, curriculum, and standards for digital skills. Even more critical, Uganda lacks an approved ICT in Education Policy making it difficult to adopt standards to be met in the formal education sector. The lack of a national or education sector-specific framework has likely hindered the systematic development of digital skills in both the formal and informal sectors as well as the provision of adequate funding to develop digital skills. The development of the national digital skills framework could be captured as a priority activity under the forthcoming national strategies. Digital skills development is hampered by lack of adequate equipment, software, and connectivity at all levels of the education system. The general feedback is that schools and tertiary-level institutions lack adequate equipment such as computers, software, and content and connectivity to adequately develop the digital skills of students. At the university level, stakeholders indicate that there is a need to improve the ICT infrastructure and increase and reskill the human resources at all institutions, to upgrade the teaching and learning ICT labs, to provision ICT research infrastructure such as high-performance computing (HPC), and to strengthen the Research and Education Network of Uganda (RENU) to support the development of intermediate and advanced digital skills that incorporate new ICT areas such as data science, artificial intelligence, and internet of things (IoT). A quick review of the new lower secondary curriculum, current minimum standards for IT-related degree programs, and feedback from stakeholders all indicate that there is a need to revisit and update the curricula at all levels. However, this should be preceded by developing a national digital skills framework. THE WORLD BANK GROUP 59 There is limited data on overall digital skills supply and demand as well as skill needs for each competency area by industry. Uganda has not undertaken a national or large representative ICT skills assessment to determine the demand for skills, the level and type of ICT skills available, and the gaps that need to be filled. The development of a national digital skills framework should include digital skills assessment at basic, intermediate and advance levels. Demand studies and research should be commissioned at regular intervals to inform the digital skills and digital economy agenda. The high population of out-of-school youth, low learning outcomes in foundational literacy and numeracy at the primary level, and relatively high adult illiteracy rate could hinder the wide development of basic and intermediate digital skills necessary for almost every citizen in the digital economy. THE WORLD BANK GROUP 60 3.3 Recommendations and Next Steps R1. Government should commission demand-side data on digital skills as part of the Digital Strategy. As a priority, demand studies and research should be commissioned at regular intervals to inform the digital skills and digital economy agenda. R2. The draft ICT in Education Policy should be approved to guide investments in the formal education sector. R3. Government should develop a national digital skills framework by adapting or adopting existing international frameworks such as EU Digcomp 2.1 or UNESCO Digital Competency Framework and e-Competency Framework or SFIA Framework for advanced digital skills and professional ICT skills training. There is a need to bring together all relevant stakeholders to: (a) conduct a comprehensive national digital skills gap analysis, and (b) develop the national digital skills framework and strategy. The private sector should be involved in defining the national framework and curriculum for digital skills across all levels. Incentives should be provided for the private sector to offer internship opportunities for tertiary-level students. R4. Government needs to update the curriculum for advanced digital skills. The National Council for Higher Education (NCHE), which is the accrediting and quality assurance body for the tertiary sector, developed minimum standards for undergraduate courses at universities covering, among others, computer science, information systems, and software engineering in 2014.57 These standards are now due for an update given the fast-changing nature of digital technologies and required skills. For example, the 2014 standards barely mention artificial intelligence and virtual reality and do not cover IoT or data analytics which are now hot topics in the digital economy. The need to update the curriculum for STEM courses at the tertiary level to bring it in line with digital advances was highlighted by stakeholders interviewed for this assessment. Stakeholders also called for the need to reskill teachers to enable them to teach advanced digital skills. R5. Government needs to improve internet access to higher education institutions through RENU. While this is active and has connected over 150 institutions across the country, the State of Higher Education report and stakeholder interviews pointed out that limited internet access remains a challenge. There might be a need to increase capacity of RENU to provide additional bandwidth to higher education institutions. It should, however, be noted that RENU is one of the more advanced NRENs in Africa and has done a commendable job so far. The government should prioritize support to grow and strengthen RENU. R6. Government needs to invest in HPC facilities for data analytics and research for higher education. The lack of HPC facilities hinders the development of skilled data analysts and skills such as machine learning and artificial intelligence. Despite this challenge, it is important to note that Makerere University hosts one of the few artificial intelligence and data science research hubs in Africa. It would be important to support the activities of this research hub as its research is practical and oriented toward using artificial intelligence to solve Uganda’s and Africa’s challenges. THE WORLD BANK GROUP 61 57 https://www.unche.or.ug/webpages/publications.aspx 4.0 Digital Entrepreneurship 4.1 Importance of Digital Entrepreneurship Services 4.1.1 Socioeconomic Rationale for Digital Entrepreneurship Development The digital economy, and especially digital entrepreneurship, can spur inclusive growth. The ICT sector as a whole is a growing forex contributor and Uganda ranks among the top 10 low-income ICT services’ exporters.58 This highlights the importance of ICT as a direct contributor to economic growth in general and as an important cross-sector enabler of productivity enhancement at the firm level and in facilitating market links. The government’s ambitious development and economic targets are, however, far from being met.59 Investing in digital technology for entrepreneurship promotion is a challenge and an opportunity for Uganda to focus on diversification of its economic base, productivity enhancements, and preparation toward the economy of the future. Digital entrepreneurship offers a viable avenue for the testing of new-to-market innovations and scaling-up of solutions for Ugandan enterprises to pursue growth. 4.1.2 Alignment with Country Development Strategy Development of ICT and digital economy is high on the GoU’s priorities. Uganda’s Vision 2040 highlights the development of ICT and a national innovation system that would support uptake of new technologies.60 The National Development Plan III includes increasing ICT penetration, reducing cost of ICT devices and services, job creation and provision of government services online.61 The digital economy in general, and entrepreneurship in particular, is expected to play an essential role in achieving intermediate and broader development goals. 58 https://set.odi.org/wp-content/uploads/2017/12/SET-WTO-Negotiations-E-Commerce.pdf 59 https://www.worldbank.org/en/news/factsheet/2020/02/13/14th-uganda-economic- update-strengthening-social-protection 60 https://www.gou.go.ug/content/uganda-vision-2040 61 National Development Plan III THE WORLD BANK GROUP 63 4.2 Diagnostic Findings 4.2.1 Current State of Entrepreneurship and Innovation Ecosystem Digital entrepreneurship in Uganda is growing but the ecosystem is nascent. Even as the culture of entrepreneurship gains acceptance, the emergence of growth-oriented new firms is limited. There has been a recent uptick in the number of service providers such as entrepreneurship hubs that offer subsidized office space and internet, capacity building, and links to investors with the ICT and tech sectors as key areas of focus. These services, however, are concentrated in Kampala and the capacity to deliver to scale is not available. The number of digital firms in Uganda is limited and on average the proportion of digitally enabled firms is also low. NITA-U has certified 309 firms in the IT sector; the list is dominated by IT services providers but it is not exhaustive. According to ecosystem stakeholders, a significant majority of digital firms are concentrated in the payments segment which leverage and contribute to the rapid growth of DFS in the country. There are no comprehensive data on ICT-enabled and/or digital firms in Uganda which in turn makes it difficult to ascertain the size and scope of a high-potential sector. An online survey of Ugandan ICT companies reports a predominance of small companies with less than 50 employees and of firms providing software development services; about 46 percent of the companies surveyed were women-owned/managed.62 According to the Enterprise Survey, less than 20 percent of firms have their own website and less than 36 percent use technology licensed from foreign companies. Slightly more than 11 percent of women-led firms have their own websites compared to nearly 22 percent of male- led firms. Growth for digital firms is constrained due to limited links with traditional sectors such as agriculture and manufacturing. Agriculture remains the dominant sector in Uganda, employing 73 percent of the labor force. The agri value chains offer rich ground for value-added digital solutions but there are few examples of successful platforms that are attempting to scale solutions. For example, farmers require low-tech provision of timely information. M-farmer and Yo! Uganda are some examples of digitization in the agri value chain. The data accumulated through farmers’ activities on the platforms can be leveraged to create dynamic profiles that can support data-based decision-making. Applications such as E-lunda focus on information management for the dairy value chain and have developed a freemium version with add-on premium services which can provide a monetization channel. There are also some emerging applications that leverage the agriculture extension model to develop an analogous e-extension model that operates via the agent network to provide financial services and input distribution (government’s e-voucher program). 62 International Trade Center. 2019. “Firms Characteristics and Obstacles to ICT Services Trade.” THE WORLD BANK GROUP 64 There are multiple government initiatives aimed at supporting the development of digital entrepreneurship. Established in 2018 as a five-year initiative, the National ICT Initiatives Support Program (NIISP) supports digital entrepreneurs through direct financial grants (amounting to approximately US$6 million over two years), training and mentoring (delivered in partnership with hubs and services providers), and access to markets. The program has supported an estimated 450 digital enterprises. A dedicated hub has been established in Nakawa, Kampala and four more are planned. An evaluation of the program has not yet been undertaken so it is challenging to ascertain the impact so far. Regulations, Policies, and Institutions The regulatory framework for digital enterprises requires further development. Development of the digital entrepreneurship space is hampered by limited implementation of the laws on the books, limited scope of venture capital (for example, with the Companies Act 2012 not allowing for compulsorily convertible preferred shares), and delayed implementation of the data protection law. The National Payments Bill was passed by Parliament in May 2020 and is awaiting Presidential assent; a time-bound implementation plan is yet to be developed. Some cyber laws and regulations have been developed under the Uganda Communications Act and a National Computer Emergency Response Team/ Coordination Center (CERT) has also been assembled. Moreover, for digital enterprises that seek to integrate devices and digital applications, there is limited information on standards and certification. Stakeholders have pointed to gaps in the innovation system broadly. Uganda ranks 102 out of 129 countries on the GII, with ICT-enabled new business models ranking particularly low. There is no discernable innovation policy framework and it can be challenging for new innovations to obtain the institutional support needed to go to market. For example, a digital startup that integrated low-cost ultrasound machines with digital applications for frontline health workers in remote areas found that it was challenging to obtain certification for the new integrated device; at present, the firm has a contract with a Chinese manufacturer to import certified devices. Cybercrime in Uganda undermines trust in digital activities. In 2017, about US$67 million was lost to cybercrime in Uganda and though anti-cybercrime laws exist, only 4 percent of the cases were successfully prosecuted.63 The country only has 350 certified professionals64 and implementation of existing laws is limited. 63 SerianU Africa Cybersecurity Report 2017 (https://www.serianu.com/downloads/ AfricaCyberSecurityReport2017.pdf) 64 Certified professionals have CISA, CISM, GIAC, SANS, CISSP, CEH, ISO 27001, PCI DSS QA, and other relevant qualifications (source: SerianU Africa Cybersecurity Report 2017). THE WORLD BANK GROUP 65 Markets and Culture Necessity entrepreneurship continues to dominate the entrepreneurship ecosystem in Uganda and the culture of pursuing high-growth digital businesses is still evolving. The low uptake of digital products and services in the market beyond payments and a small addressable market constrains the ability of digital businesses to grow and introduce new-to-market products and services. The low level of trust in digital transactions, especially e-commerce, further raises the costs of going to market for digital businesses. Combined with the low level of integration with traditional sectors that offer scale, digital businesses face an uphill task in creating minimum viable products that may attract investors. Limited regional market integration means that businesses cannot easily expand and seek other markets. Uganda is, however, increasingly seen as a viable market by regional players seeking entry, and some Ugandan firms are also seeking regional markets, and the development of a single digital market would be key in advancing their ambitions. Fintechs such as Shutterwave and e-commerce firms such as Jumia have expanded into the country to tap into the growing domestic market. According to companies that have entered the market, the government is seen as supportive in facilitating the entry of foreign companies into Uganda. Similarly, Ugandan digital businesses are also seeking to expand into the region. There are several successful examples of Ugandan enterprises that have expanded into the Democratic Republic of Congo, Rwanda, and Kenya, mainly in the payments arena. SafeBoda launched in Kenya in 2017 and in Nigeria in March 2020.65 Firms face obstacles in exporting, including requirements for local presence, withholding taxation regulations on international payments, certifications required for operations, and limited market information.66 The platform economy also offers an opportunity for Uganda. Earlier this year, the Mauritius-based travel company Timbu announced its entry into the Ugandan market to support travel startups with a focus on curated travel products.67 The jobs matching platform, Fuzu, based in Kenya also entered the Ugandan market in 2018 and has expanded its core menu of services to include jobs matching for refugees. 65 https://disrupt-africa.com/2020/03/ugandan-moto-taxi-startup-safeboda-expands-to- nigeria-with-ibadan-launch/ 66 International Trade Center. 2019. “Firms Characteristics and Obstacles to ICT Services Trade.” 67 https://pctechmag.com/2020/02/timbu-investing-in-travel-startups/ THE WORLD BANK GROUP 66 Ecosystem System Support and Infrastructure Though the ecosystem is nascent, there is an emerging sense of sector-level organization. There is a growing number of hubs and service providers—though quality is uneven and financial sustainability of the hubs highly dependent on donor resources. A selection of the largest hubs has recently organized themselves into an association, Startup Uganda, to provide a platform for entrepreneurs to engage more effectively and leverage global partnerships. A recent survey of members found that most of them identify as having a focus on pre-ideation and ideation stages with no support for acceleration; fundraising and financial sustainability are identified as key gaps for hubs. The Kampala Innovation Week, which has been running for the past three years, is another step toward bringing the nascent ecosystem together to share knowledge and pursue scale-up of activities. Support hubs for digital enterprises are concentrated in Kampala and offer primarily incubation services. There are a number of hubs in Uganda that are sector agnostic in their approach; few innovation hubs, including Outbox, Innovation Village, and Hive Colab, cater exclusively to technology-enabled businesses. Some hubs are seeking to expand beyond Kampala, with a new creative industry hub launched in Gulu. Stanbic Bank is planning a network of incubators, expanding from its Kampala base into Gulu, Mbale, Hioma (agribusiness-focused incubator), and Mbarara. However, these are not enough and more needs to be done to ensure inclusive development. Geographically, Kampala is the hub of digital entrepreneurship activity and a member of the Africa Smart Towns Network (ASToN).68 The Kampala Smart City Project aims to create a more connected city that can facilitate the development of a digital ecosystem69 but implementation of the project appears to be stalled. For the most part though, hubs provide affordable space and internet which are key for startups and growth enterprises that may not need dedicated office space.70 Scalable ideas are seen to be missing, according to market players, and market-driven digital solutions are limited. Accelerators can support getting to scale and catalyze success for emerging digital enterprises.71 However, there is a broader menu of services, some quite specialized, that are needed for the development of digital enterprises, including advanced technology support, links with specialized investment firms, and intellectual property rights protection. Large companies can support the ecosystem by funding hubs and by investing in startups and service provision. MTN Uganda for example runs a startup competition (MTN Startup Program) aimed at supporting digital startups, through pre-seed funding (UGX 9 million).72 68 https://www.kcca.go.ug/about-aston 69 https://www.kcca.go.ug/uploads/KCCA_STRATEGI_PLAN_2015-2016.pdf 70 Uganda ranks 168 out of 190 countries on the getting electricity pillar of Doing Business and according to NITA-U hubs are provided with subsidized internet at US$35 per 1 Mbps. 71 https://www.galidata.org/assets/report/pdf/ES_Accelerating%20Startups%20in%20 Emerging%20Markets.pdf 72 https://digestafrica.com/mtn-uganda-startup-fund-open-mobile-money-api THE WORLD BANK GROUP 67 Development partners are key players in the ecosystem and run programs aimed primarily at solving development challenges. The UpAccelerate program of the United Nations Population Fund (UNFPA) focused on solutions for sexual and reproductive health challenges through a combination of seed funding (US$10,000) and training and mentoring; two of the seven enterprises that were financed have gone to market. Enterprises such as Teheca (portable ultrasounds), Digihealth (health data collection), and Drugdash—another digital enterprise developed with the support of UpAccelerate and is an inventory management system developed for drug supply chain control officers in the field—have benefited from donor support and are addressing key market gaps. The program is seeking to expand beyond Kampala though it has been challenging to bring a similar level of services in the more underdeveloped regions. Mastercard Foundation is also seeking to support the local ecosystem through collaboration with hubs.73 The Gates Foundation has collaborated with some fintechs on digitizing the agri value chains in Uganda. Entrepreneur networks are a key component of the ecosystem and are growing in Uganda. These serve to connect peers, investors, hubs, and other stakeholders, while facilitating the dissemination of information and ideas. Uganda is home to about four Google Developer Groups (in Entebbe, Jinja, Mblae, and Soroti) and StartUp Grind Kampala.74 Fintechs have come together in a professional association, Financial Technology Service Providers Association (FITSPA) of Uganda, to undertake industry advocacy. The relatively small size of the ecosystem has so far meant that most players know each other informally and share knowledge on that basis, but for the ecosystem to expand and thrive, there is a need to broaden the channels of interaction. Access to Finance Sources of finance for digital enterprises are limited at the ideation and seed stages. The limited sources of finance available in Uganda combined with the risk averseness of local financial institutions severely constrains the pool of funds available to enterprises at all stages of the digital entrepreneurship cycle. This is especially true of entrepreneurs at ideation and seed stages. For the most part, digital businesses report access to finance to be one of the main challenges. Startup (seed) capital, as in most other places, is sourced from personal savings and informal loans from family and friends. 73 Stakeholder interviews revealed ongoing discussions which have not yet been made public. 74 https://www.meetup.com/topics/entrepreneurship/ug/ THE WORLD BANK GROUP 68 However, there are some emerging sources of private equity and venture capital. Uganda accounts for 21 percent of the volume of private equity deals in East Africa.75 On the domestic front, the National Social Security Fund (NSSF) in 2017 launched an impact equity fund in collaboration with the EU and the International Fund for Agricultural Development (IFAD); the fund is aimed at financing agribusinesses.76 So far, the €20 million fund has invested in three businesses in product testing, agro-processing, and processing sub-sectors,77 which is highly relevant given the importance of agribusiness in Uganda’s economy. There are about 15 licensed investment advisers and fund managers in Uganda.78 According to the Partech Ventures 2019 report,79 Uganda is an emerging tech venture capital funding destination with US$38 million in funding for four deals; investors are mostly international firms. A few examples stand out, such as Done Deal, an e-commerce platform incubated in Hive Colab, was bought out by the Kenyan company Eat Out in 2017.80 The Kampala Angel Investment Network (KAIN) was created in 2018 and is aimed at identifying viable startup deals for investors.81 The network has invested in four startups in the fintech, skills development, and platforms spaces. Some regional and international investors have entered the Ugandan market through individual transactions. The Global Innovation Fund (GIF), for example, invested US$230,000 in SafeBoda, a ride-hailing company, via a convertible note and the company has also received series A82 and series B83 funding from a number of regional and international investors.84 4.2.2 Constraints to Digital Entrepreneurship and Innovation Government initiatives to support digital entrepreneurship are somewhat segmented and uncoordinated. Coordination within government and with the private sector is limited, which gives rise to duplication of efforts. The Ministry of Trade (external trade department) has been working with Trademark East Africa, the United Nations Conference on Trade and Development (UNCTAD), and United States Agency for International Development (USAID) to digitize some key services but there appears to be little to no coordination with NITA-U which is separately working on digitizing government services. Moreover, while traditional public- 75 African Private Equity and Venture Capital Association. 2019. “Annual African Private Equity Data Tracker.” 76 https://www.nssfug.org/243/New_46_billion_Agro_Equity_Impact_Fund_for_Uganda_ launched 77 https://pearlcapital.net/documents/Brochure%20Design_new2.pdf 78 https://cmauganda.co.ug/ug/smenu/24/Licensed-Firms-.html 79 https://partechpartners.com/documents/12/2020.01_Partech_Africa_-_2019_Africa_Tech_ VC_Report_FINAL.pdf 80 https://disrupt-africa.com/2019/11/successful-ugandan-founders-plot-e-commerce- revolution-with-toogood/ 81 https://kain.co.ug/about-page-one/ 82 Series A: first stage of venture financing, following the seed stage, and comprising in general of equity shares for investors. 83 Series B: later stage of venture funding, usually at the growth stage of a company. 84 https://www.crunchbase.com/organization/safeboda#section-investors THE WORLD BANK GROUP 69 private dialogue mechanisms (for example, through the Private Sector Foundation Uganda - PSFU) do sometimes integrate digital businesses in their outreach, it is still somewhat limited. There is also a perception in the private sector that government initiatives, such as the creation of digital hubs, may be duplicating (and competing with) private sector service providers. Underserved segments such as women, youth, and refugees face greater constraints in participating and benefitting from the digital economy as entrepreneurs. Women in Uganda are active economic participants but the female share in management is less than 34 percent.85 Refugees in Uganda are a likely consumer segment for digital products and services and potential source of talent that can support Uganda’s digital economy. At present, some financial institutions and digital businesses are engaged in providing services to select refugee communities. However, refugee women are far less likely to own and use mobile phones (and mobile internet) than refugee men,86 which in turn constrains their ability to use digital technologies to access information, markets, and economic opportunities. Limited availability of high-quality, medium-to-advanced tech talent is a major constraint cited by digital enterprises. For larger market players such as SafeBoda, financial institutions, and telecommunications companies, it is relatively easier to attract and retain talent and many talented workers are poached, leading to relatively high turnover in the sector. The key gap lies in the ability of the ecosystem to develop talent to meet regional and global standards. Access to finance is particularly challenging for women-led enterprises in the digital entrepreneurship segment, according to stakeholders. At present, the legal code does not explicitly prohibit gender-based discrimination in credit decisions and inheritance laws for women and men do not provide for equal rights.87 According to some estimates, women own less than 20 percent of the land in Uganda,88 which is the most common form of collateral. However, there are no data on gender disaggregation of current credit allocation statistics, so it is difficult to ascertain the current proportion of credit for women-led enterprises. There is a gap in access to finance initiatives aimed at supporting women-led enterprises in the digital space. For startups, the pandemic poses an existential crisis as cash flows dry up and it becomes increasingly harder to scale up prototypes. For new businesses at ideation stage, grant funds (often used by startups) are likely to dry up. On the flip side, there may be additional talent available in the market due to layoffs, some of whom may be interested in starting their own businesses. This offers an opportunity for digital ecosystems and service providers to invest in supporting startups to survive through the pandemic and continue to build viable businesses during the economic recovery. 85 ILO data - female share of employment in managerial positions. 86 https://reliefweb.int/sites/reliefweb.int/files/resources/m4hgendergaprefugeecontexts.pdf 87 Women, Business and the Law, World Bank 88 https://www.globalpolicy.org/world-hunger/land-ownership-and-hunger/52091-uganda- the-fight-for-womens-land-rights.html THE WORLD BANK GROUP 70 4.3 Recommendations and Next Steps The recommendations below focus on key issues that need to be addressed to strengthen the digital entrepreneurship ecosystem. R1. Support market development for digital enterprises through a review of the taxation policies around digital technologies and services. It would be useful to review taxes on mobile money withdrawals, mobile data, and OTT taxation to facilitate continued growth of consumer base and support development of digital solutions. In other countries, taxes are not sector specific but are levied on end-services provided to consumers and the revenues generated thereby. This approach facilitates affordability of digital services which in turn contributes to the expansion of the addressable market. Given the need to invest in market development of digital products and services in Uganda, it would be advisable to review the tax regime with regard to digital technologies, including social media and mobile money. R2. Incentivize integration of digital technologies in agriculture and manufacturing through innovation vouchers which offer subsidized access to technology for traditional businesses. Uganda’s economy is based primarily on agriculture and manufacturing and digitizing those value chains would yield tremendous benefits to the broader economy and to the supply chains (including smallholders, microentrepreneurs, and the informal sector). There is already some measure of digitization ongoing in the more organized value chains of coffee, tea, and cocoa. The challenge is to leverage digital technologies to organize underserved value chains, for example, that of the livestock sector. Medium- to long-term investments in enhancing the innovation and technological capacity of the firms (through innovation vouchers for example) can also be deployed to enhance the digital integration of firms. R3. Facilitate access to public procurement opportunities for digital businesses. Public procurement is an important pathway for Ugandan businesses to access markets. At present, most digital solutions are sourced internationally even in instances where appropriate solutions are available locally. According to some businesses that have attempted to bid on public contracts, the entry thresholds are too high for most local businesses to meet. There may be opportunities to broaden the criteria for participation while maintaining quality standards and enhancing transparency in the public procurement processes. R4. Create a digital innovation fund for early-stage enterprises (potentially leveraging public finance to mobilize private financing). Co-financing a digital innovation fund with the private sector would make seed and early-stage financing available to digital startups and expand the pool of available resources beyond Kampala. A public-private fund can provide some measure of reassurance to wary investors and bring in new investors who may not have the industry insight to identify viable deals in the digital sector. To address the gender gaps in the digital economy, funds can incentivize the greater participation of women through dedicated financing windows. THE WORLD BANK GROUP 71 R5. Investment readiness programs for digital enterprises at growth stage would support deal flow development. Venture and private equity investors have entered the Ugandan market though the number and volume of deals remains limited. Part of the reason is that viable deals require support at the pipeline development stage (that is, pre-investment stage) but the services needed to do that are not always available. A dedicated investment readiness program could be co-created with the private sector and housed in hubs; made available to viable, growth-stage enterprises; and include access to investors. R6. The COVID-19 response offers a unique opportunity to leverage existing market solutions in digital health as well as e-commerce and the platform economy. There are existing solutions in the market that can address the short-term needs of the health sector especially in inventory management, natal and maternal health, and hospital management, while resources are deployed to COVID-19 response. Similarly, as social distancing and other preventive measures gain traction, e-commerce and the platform economy offer solutions for online shopping that can mitigate the dangers of crowded retail spaces. For laid-off workers, the platform economy offers an opportunity to engage in short- to medium-term economic activities while micro, small and medium enterprises (MSMEs) can leverage platforms to reach customers as nonessential businesses are shutdown. Even as the lockdowns ease temporarily, there is an expectation that the crisis will be ongoing and will necessitate multiple rounds of shutdowns and reopenings and e-commerce will continue to offer a viable alternative. There is significant scope to expand private sector mobile health and digital solutions to track cases, preempt outbreaks, and manage public health resources (Table 4-1). Scaling up commercially available digital solutions for pharmaceutical and inventory management, health records management, and telehealth can allow for a more strategic approach toward COVID-19 mitigation. THE WORLD BANK GROUP 72 Table 4-1: Digital Technologies and Public Health89 Digital technology examples Public-health IoT Big data AI Blockchain measures Monitoring, 1. Real time tracking 1. Modeling of 1. Detection of 1. Manufacturing surveillance, and live updates in disease activity, COVID-19 from and distribution of detection and various databases potential growth chest imaging COVID-19 vaccines prevention in US, UK and and spread (X-ray) (Beijing once they’re of COVID-19 China 2. Modeling of the Hospital) available (directly related 2. Live tracking preparedness 2. Prognostication 2. Insurance claims to COVID-19) of the at-risk and vulnerability of disease from COVID- vicinity in Korea of countries in progression via related illness and (Coronamap.live; fighting a disease clinical data, death wuhanvirus.kr) outbreak imaging and AI Mitigation of 1. Virtual clinics 1. Business modeling 1. AI to automatically 1. Distribution of impact (indirectly (Pingan, China on pharmaceutical diagnose medical patients’ regular related to 2. Public information supplies conditions medication to the Covid-19) dissemination for vairous unrelated to local pharmacy or via WhatsApp in medications COVID-19 patients’ doorstep Singapore 2. Modeling of (Zhongshan the utility of Opthalmic Eye operating theatres Center, China) and clinics with 2. Medical ‘chatbots’ manpower to address public projections inquiries on COVID-19 For firms, survival during the crisis and post-crisis recovery depends on adequate finance and positioning to grow during recovery. For example, liquidity support for firms can be delivered through digital platforms, reducing the need and demand for extended paperwork and in-person interactions. Simplified loan application processes for MSMEs, leveraging alternative credit scoring models, can allow for reduced transaction costs to channel finance to the private sector. Medium- to long- term investments in enhancing the innovation and technological capacity of the firms (through innovation vouchers for example) can also be deployed to enhance the digital integration of firms. The ability to use these digital technologies is highly dependent on access as well as skills and knowledge. As countries plan for recovery and reopening of their economies, it is also clear that the world needs to build resilience into the economy to better withstand future pandemics and shocks. Digital technologies are an important part of building resilience and digital skills development policies should be accelerated so that citizens have the skills and knowledge to keep working and studying even during times of pandemics or other natural calamities. The government investment in COVID-19 response should be extended to build long resilience in education and employment which requires focus on digital skills. 89 Ting, D. S. W., L. Carin, and V. Dzau. 2020. “Digital Technology and COVID-19.” Nat Med 26: 459–461. https://doi.org/10.1038/s41591-020-0824-5 (https://www.nature.com/articles/ s41591-020-0824-5/tables/1) THE WORLD BANK GROUP 73 5.0 Digital Government Platforms 5.1 Importance of Digital Government Platforms 5.1.1 Socioeconomic Rationale for Digital Platform Development Digital platforms have the potential to transform the way people, governments, businesses, and civil society interact with each other. They virtually connect people, institutions, and things and facilitate digital transactions, including the exchange of information, goods, and services. Digital platforms can increase operational and economic efficiency of institutions and enterprises, improve service delivery, and facilitate innovation and economic development. Two main categories of platforms relevant to Uganda’s digital development are explored in this report: (a) digital public platforms and (b) digital commercial platforms. Digital public platforms have the potential to provide new and more efficient channels for public service delivery, improve civic engagement, and enhance transparency and accountability. For example, a robust digital ID platform can help facilitate access to digitized services and transactions for citizens and cut down on resource leakage by eliminating payments to ‘ghost’ beneficiaries. Digital public platforms also benefit private companies that can leverage them as a base upon which to build new digital services and applications or to enhance the efficiency of their operations. Examples include banks using digital ID systems to verify their customers and build alternative credit scoring systems, transport and logistics companies leveraging public geographic information platforms/digital maps to improve their analytics and route planning, or businesses filing taxes and licensing requirements through online portals. Figure 5-1: Digital Public Platforms - Benefits and Requirements THE WORLD BANK GROUP 75 Digital commercial platforms generate efficiency gains, foster competition, and improve market intermediation. Such platforms can remove costly intermediaries, take advantage of economies of scale and network effects, and utilize economic resources more effectively. Commercial platforms can build two-sided trust by removing informational asymmetries and can reduce moral hazard problems in the provision of services. In addition, they can create new and more inclusive markets by aggregating supply and demand as well as match job seekers with employers. E-commerce platforms add to the convenience and effectiveness of both consumers and businesses and have the potential to connect MSMEs and disadvantaged groups to new markets and suppliers, including subsistence farmers, rural households, and women. 5.1.2 Alignment with Country Development Strategy and Goals The GoU is promoting greater use of ICT services in the public sector to improve public sector management, service delivery, operational efficiency, and customer satisfaction.90 Related policies and implementation efforts have already enabled the growth of Uganda’s ICT sector and stimulated the use of mobile devices, computer applications, information processing, data storage, mobile finance, and online trade. Current implementation challenges include low levels of digital literacy and general mistrust of ICT among the general population, often inadequate complementary infrastructure within MDAs, widespread vandalism of ICT infrastructure, and fragmented ICT initiatives across MDAs.91 90 Policies: National ICT Policy, Telecommunications Policy, National Broadband Strategy, IPv6 Transition Policy, E-Waste Management Policy; Laws: Uganda Communications Act 2013, the NITA-U Act 2009, the Computer Misuse Act 2011, Electronic Transactions Act 2011, and the Electronic Signatures Act 2011. 91 As reported by interviewed Ugandan government officials. THE WORLD BANK GROUP 76 5.2 Diagnostic Findings 5.2.1 Current State of Digital Government Platforms The use of digital public platforms in Uganda continues to grow. This is evidenced by Uganda’s rank on the 2018 UN e-Government Development Index which stood at 16 out of 54 African countries. The GOU has been focused on simplifying and improving the implementation of sector-specific e-services to be provided by various MDAs through targeted investments in shared IT facilities and service delivery platforms, government data centers, and provision of government cloud services. The development of Uganda’s digital public platforms ecosystem benefits from a robust and centralized institutional framework, which has helped situate e-government initiatives within a broader digital development agenda. Overall leadership is provided by the Ministry of Information and Communication Technology and National Guidance (MoICT&NG), which also leads policy development. Implementation, coordination, and services delivery are facilitated by the NITA-U. The National Identification and Registration Authority (NIRA), which resides under the Ministry of Internal Affairs (MOIA), provides leadership on ID- related issues but works in close coordination with both the MoICT&NG and NITA-U. 5.2.2 Interoperability, Shared Infrastructure, and Services Consolidation and integration of the government’s IT infrastructure, databases, systems, and services are essential to improve the efficiency of government internal operations and to improve the quality and user experience of online public services. MDAs in Uganda have started implementing their own IT initiatives and developing and hosting their own services in silos, which has resulted in a high degree of fragmentation, duplication, lack of interoperability, and ultimately mixed quality of systems and services. These challenges are compounded by deficits of IT skills, particularly in less well-funded MDAs and uneven enforcement of IT architecture and standards and cyber security rules and procedures. To address these challenges, NITA-U has focused its efforts on consolidating IT systems and solutions in line with the masterplan, enforcing harmonization and common standards and rollout of shared digital infrastructure and services across government including an integration layer for ICT systems to exchange information, a common payment gateway, and a user authentication platform. The GoU has invested in a Tier 3 National Data Center to provide a more cost- effective, energy-efficient, and secure central hosting solution. The National Data Center has allowed expansion of cloud-based services to centralize government data hosting needs rather than each MDA purchasing its own services or building independent data centers. The government is utilizing this infrastructure to provide shared services to all MDAs such as Platform As A Service (PAAS), Infrastructure As THE WORLD BANK GROUP 77 A Service (IAAS), Software As A Service (SAAS), Disaster Recovery As A Service and Backup As A Service (BAAS). This investment has contributed to cost efficiencies and technical expertise and supports the development of e-government services and the digital economy overall. Protection of critical communication infrastructure and cyber security are a big challenge in Uganda, as in most developing and developed countries around the world. A number of laws, policies, and institutions have been put in following the adoption of Uganda’s National Information Security Strategy (NISS), including establishment of the National Information Security Framework (NISF) and the Communications Sector CERT. These efforts have helped strengthen cyber awareness and threat detection and response capacity, but efforts and implementation are still somewhat fragmented, with both pockets of excellence and significant weaknesses across individual MDAs, systems, and sectors.92 A clear, modernized institutional and regulatory framework to deal with issues of cybersecurity as well as data privacy and protection is needed to create a trusted environment to bring citizens safely online and to protect critical information and infrastructure. 5.2.3 Digital Identification and E-signatures The establishment of a national ID system has contributed to greater trust in online transactions and provided more information and security about the persons involved in digital transaction. The national ID system is a critical asset for improving digital service delivery in key sectors such as agriculture, health, finance, and social protection. Significant progress has been made since the GoU launched a ‘National Security Information System’ (NSIS) in 2014 and established NIRA in 2015, which resulted in about 66 percent of the population over 16 years of age being registered. However, much remains to be done to reap the full benefits that come from a seamless ability to verify identity digitally. There is demand from multiple stakeholders to provide access to the national ID register through third- party interfaces with the aim to authenticate identities in the context of service delivery, but implementation has proven challenging. There have been some recent gains within the banking sector, through an electronic-know your customer (e-KYC) facility, but in other sectors and applications, challenges of coordination, implementation, and capacity remain. Work is needed to increase the coverage of national IDs and to address significant gaps in civil registration. Making the national ID system and the civil 92 Information security has increased in importance to help protect MDA networks from cyberattacks and security breaches. More than a quarter of the MDAs (77.3 percent) have developed an information security policy, but it is unclear how many of them have fully implemented their security policies and monitor compliance on a regular basis. A majority of MDAs (71.4 percent) experienced a security incident in 2017 but only about half of them (50.9 percent) reported an incident. On a positive note, many MDAs have implemented security measures within their networks to minimize the impact of security incidents. THE WORLD BANK GROUP 78 registration system interoperable is critical for a dynamic, sustainable, and accurate National Identification Register, which has the ability to account for every birth and death. Special attention is needed to improve low birth and death registration rates. Death registration, for example, is estimated at 24 percent, while only about 7 percent of children below 1 year of age are registered in the civil registration system. Most birth records are notified through the mobile vital registration system but are not officially registered, which presents challenges to keep NIRA’s database up to date. Without near real-time updates to birth and death registration, stakeholders’ trust in NIRA’s ability to effectively verify/authenticate identities is low and the veracity of the system may be compromised if this continues.93 NITA-U is planning to introduce digital authentication and e-signature capability for Uganda, expected to be launched by end of 2020. The ability to securely identify and authenticate a person or entity virtually, as a means to link the user of an online transaction with his or her ‘real world’ identity, would allow the government to provide more services remotely, without requiring physical presence. These efforts should provide a foundation for effective delivery of e-government services in an entirely paperless manner, which is critical for responding to COVID-19 and for achieving larger digital service delivery and digital commerce aspirations. 5.2.4 Applications for Core Government Functions and Digital Service Delivery The GoU has also deployed a wide range of digital services aimed at citizens, mostly offered through an e-citizen portal. Currently, the GOU has 268 web portals and provides access to over 80 citizen-facing e-services94 provided by various MDAs through the e-citizen portal: www.ecitizen.go.ug. Many of these e-services are not fully transactional online and require in-person interactions to complete a transaction. The GOU is aware of challenges and is in the process of addressing these by introducing an interoperability layer platform to enhance information sharing among MDAs, as well as an e-payments gateway that would ensure seamless modes of payment and digital authentication and e-signature capability to increase the reliability and traceability of online transactions. Mobile payment for utility bills is the most used e-government service (62.6 percent), followed by online registration for the tax identification number (TIN). Among the GoU’s e-governance achievements is the electronic voucher (e-voucher), which enables the government to effectively extend subsidized farm inputs to farmers. 93 NIRA undertook changes in its business process to facilitate registration of some of these events to ensure it has all the required information and is following up on those with missing information. Under the Uganda Reproductive Maternal and Child Health Services Improvement Project, the World Bank is investing US$10 million to improve both birth and death registration. 94 E-government services are considered government services offered to citizens and other MDAs using digital platforms. Many of these platforms are not capable of supporting full online transactions; often MDA platforms serve as a repository of information on the service and the MDA and at times as a register under development. THE WORLD BANK GROUP 79 Despite the GOU’s efforts to provide more e-services and improve access, many citizens are unaware of them. In 2018, only 17.4 percent of citizens that had an interaction with an MDA were aware of public services available online, while only 5.0 percent have actually used any online service for non-work-related purposes. Awareness of online government services is higher among citizens in urban areas (22.8 percent) compared to those living in rural areas (13.0 percent);95 26 percent of men are aware of online government services compared to only 10.4 percent of women. In terms of using e-services, the figures are low—only 7.7 percent of men and only 2.8 percent of women in Uganda have actually used government online services. The vast majority of citizen interactions with MDAs are still face to face (96.0 percent), followed by telephone (16.6 percent), institutional website (2.3 percent), and SMS (2.2 percent).96 The GoU has implemented a number of back-office digital platforms. ICT solutions associated with the provision of government e-services are implemented by private sector firms, which in addition to developing and integrating services provide IT systems maintenance and upgrades.97 There are shared systems or services to offer digital government platforms across government agencies, including a human resource management information system (HRMIS) and integrated financial management information system (IFMIS). The government also partners with the private sector in managing or offering shared systems, for example, the Mobile Money MTN National Payment Infrastructure.98 5.2.5 State of Digital Commercial Platforms Private sector platforms are growing in Uganda, although usage is substantially less than in peer countries. According to one estimate,99 there are about 35 (mainly international) platforms currently active in the transportation, retail, and accommodation sectors compared to 62 platforms in Kenya, 87 in Nigeria, and 38 in Tanzania. The platforms in Uganda offer e-commerce, freelancing, rentals, ride hailing, and courier services. About 44 percent of the platforms accept mobile money payments, 41 percent accept cash, and nearly 80 percent take debit and credit cards. While growth of mobile money in Uganda bodes well for greater uptake of platforms, the larger challenge of mainstreaming digital platform use and boosting consumer digital literacy remains barrier to uptake. 95 National IT Survey Report, NITA-U, March 2018. 96 National IT Survey Report, NITA-U, March 2018. 97 The Business Registration System under (Uganda Registration Services Bureau) URSB was developed by an external vendor with budget funds; the Electronic Document Management System was developed by an external vendor with support from the World bank under the Competitive Enterprise Development Project (CEDP); the Industrial Property Automation System (for intellectual property rights registration was provided by (World Intellectual Property Organization) WIPO; Security Interest in Moveable Property Registry System is funded by the budget and implemented by an external vendor (under procurement). 98 An example of partnership with the private sector is the collaboration on mobile money with MTN. NITA-U’s National IT Survey 2018 found that mobile money payment of utility bills is the most used e-government service, accounting for 63 percent of total transactions. 99 Africa’s digital platforms and financial services: An eight-country overview, Insight2impact, 2019. THE WORLD BANK GROUP 80 5.2.6 Domestic and Foreign E-commerce MSMEs as well as consumers have been slow in adopting e-commerce practices. Lack of awareness about the benefits of e-commerce and the regulatory framework in place related to the ICT sector and e-commerce has slowed the development of online businesses in Uganda. Uganda ranks 105 out of 152 countries in UNCTAD’s e-commerce index.100 While only 23 percent of internet users currently shop online, this is roughly equivalent or even more widespread relative to Zambia (21 percent), Kenya (24 percent), and South Africa (13 percent).101 As social media usage grows, especially among rural communities and women, it opens a range of entrepreneurship opportunities—for example, Instagram reports a reach of about 420,000 people in Uganda.102 This highlights the opportunity for market development by developing digital products and services that can leverage social media platforms. However, access and affordability challenges will need to be addressed, otherwise e-commerce platforms such as Jumia will remain limited in scope and reach. The e-commerce transactions that do take place are mainly via m-commerce applications. Uganda is among the pioneers of mobile payments in Africa, and many e-commerce transactions are in fact m-commerce transactions. However, perceived risks related to the use of mobile payment solutions still create uncertainty and mistrust among the population when it comes to online shopping, particularly for local products. The upcoming law on the National Payment System will increase financial inclusion and help support e-commerce growth. 100 UNCTAD 2019. “The E-commerce Index Measures an Economy’s Preparedness to Support Online Shopping”. 101 Ibid. 102 Kemp 2019 THE WORLD BANK GROUP 81 5.2.7 Constraints to Digital Platform Development Limited usage of internet and access to digital devices is a clear constraint to further development and uptake of digital platforms. As indicated in the digital infrastructure pillar discussions, low internet usage coupled with affordability of devices and data and knowledge gaps concerning the benefit and value of internet access may hamper further uptake of e-services and in some cases make e-commerce a more expensive or less convenient alternative to in-person transactions. The introduction of taxes on social media greatly affected the players in e-markets as these are critical avenues for advertising and placing digital orders. At the same time, large segments of the rural populations remain excluded from not only the internet but also electricity (a key enabler of ICT services and e-commerce). Furthermore, the rural-urban gap in connectivity and digital literacy is reflected in corresponding access and uptake of digital platforms and services. Despite some advancements, Ugandan firms are not yet fully equipped with the skills necessary to take advantage of e-commerce. The ICT and e-commerce literacy skills such as online content management, digital marketing, e-commerce platform requirements, packaging still need to be encouraged to realize full potential of domestic e-commerce. This has resulted in the country’s dependence on foreign e-commerce firms such as Alibaba and AliExpress while local companies struggle to develop their own digital content and online services. There are a number of constraints to digital commercial platform development that relate to distribution, transport, and logistics. Expensive and unreliable transport infrastructure hampers last mile delivery, particularly damaging the expansion of e-commerce. As a landlocked country, Uganda faces inherent geographical constraints and depends on the efficiency of transport networks in neighboring countries for its access to the major ports in East Africa.103 Uganda and its neighbors have taken significant steps toward promoting the free movement of goods within the region, but more remains to be done to improve cross-border logistics. The 2010 Common Market Protocol (CMP) seeks to eliminate tariff and non-tariff barriers (NTBs) to trade between member of the East African Community.104 However, a number of NTBs remain including a time- consuming and administratively burdensome processes for clearing customs, unharmonized procedures, and lack of interconnected information systems within Uganda and with neighboring countries. 103 UNCTAD. 104 East African Community, Common Market. THE WORLD BANK GROUP 82 5.3 Recommendations and Next Steps R1. Increase interoperability, integration, as well as shared infrastructure and services. This can be done by enforcing the use of shared infrastructure among MDAs, increasing use of cloud-based ICT infrastructure to improve service delivery among MDAs, including migration of existing systems to shared infrastructure once they are in need of a refresh. This can be achieved by increased use of the government data center infrastructure. R2. Expedite implementation of digital authentication and mobile ID solutions. This would involve scaling up efforts in integration of civil registration and national ID; expanding identity verification services to more agencies; developing appropriate technical architecture and upgrading hardware and software capability needed for the new generation digital ID, which could also be recognized across borders; fast-tracking seamless e-signature capability; and introducing mobile ID in collaboration with the private sector. R3. Improve trust environment and enable data-driven services. This could be achieved through operationalization of the data protection and privacy law including enacting corresponding regulations that provide clear accountability and guidelines for the collection, processing, use, and sharing of data. Key regional frameworks and guidelines should be followed to ensure compatibility with aspirations for a single digital market in East Africa and across the continent, including tiered classification of data to allow for greater cross-border exchange of nonsensitive data to support commercial and public services. R4. Continue rollout of digitized public services and focus on the user experience to boost uptake. End-to-end digitization, ‘ask once’ data collection practices, mobile authentication and payment solutions, and user-centric design techniques can be used to enhance user experience and expand usage. R5. Address skills and capabilities gaps within the government. Introduce innovative initiatives to encourage digital skills development in ministries and continued hiring of top digital talent. Further reinforce existing capabilities by recruiting and retaining a team of highly competent and talented individuals to drive the transformation agenda within the government, with growth in line with expansion of digital services offerings and initiatives. THE WORLD BANK GROUP 83 6.0 Digital Financial Services 6.1 Importance of Digital Financial Services 6.1.1 Socioeconomic Rationale for Digital Financial Services DFS have powered the rise of financial inclusion in Uganda. DFS offer great potential to meet the financial needs of Uganda’s poor and unbanked consumers such as women and rural dwellers. The percentage growth of digital payments in Uganda (2014–2017) is the highest in the region at 12 percent, followed by Kenya with 10 percent.105 Table 6-1: Mobile Money Account Ownership and Percentage Increase in Digital Payments Made and Received Made or Received Digital Payments in Financial Institution Mobile Money the Past Year (% age Country Account (% age 15+) Account (% age 15+) 15+) 2014 2017 2014 2017 2014 2017 Kenya 55 56 58 73 69 79 Nigeria 44 39 2 6 37 30 Rwanda 38 37 18 31 27 39 Tanzania 19 21 32 39 35 43 Uganda 28 33 35 51 40 55 Source: Findex 2017. The COVID-19 pandemic has highlighted the importance of leveraging DFS to allow access to essential financial services even as physical access points face closure or restrictions. DFS enable customers to transact with limited physical interaction which can help reduce the spread of COVID-19. Accelerating the acceptance of digital payments is particularly important for entities that offer essential services. Fintech services have been particularly beneficial to refugee populations in Uganda.106 Uganda hosts more than 1 million refugees and offers them valuable economic opportunities through its progressive refugee-hosting framework. Refugee households are provided with bank accounts into which food assistance amounts are credited and with biometric-enabled cards for use at agent outlets and bank branches. 105 Note that Kenya’s growth rate of 10 percent is coming on top of a larger base of users as compared to that of Uganda. 106 https://reliefweb.int/sites/reliefweb.int/files/resources/1527168302.DFS%20 Ecosystems%20in%20Bidibidi%20refugee%20settlement_Uganda%20_DCA%20%26%20 UNCDF_May2018.pdf THE WORLD BANK GROUP 85 6.1.2 Alignment with Country’s Development Strategy Financial inclusion efforts are in line with Uganda’s blueprint for development, Vision 2040, which seeks to transform the Ugandan society from a peasant to a modern and prosperous country. They are also in line with the National Financial Inclusion Strategy (NFIS) which seeks to reduce financial exclusion to 5 percent and achieve a higher customer base of mobile money users in Uganda, up to 60 percent by 2022, through (a) reducing financial exclusion and access barriers to financial services; (b) developing credit infrastructure for growth; (c) building digital infrastructure for improving efficiency; (d) deepening and broadening formal savings, investment, and insurance usage; and (e) empowering and protecting individuals with enhanced financial capability. 6.2 Diagnostic Findings 6.2.1 Current State of Digital Financial Services Uganda has a relatively well-developed national payments infrastructure. The DFS landscape in Uganda is quite diverse and comprises systems operated by the Bank of Uganda (BOU) and the private sector. The landscape includes 27 Tier I and Tier II financial institutions and microfinance deposit taking institutions classified as Tier III entities. Other financial institutions such as savings and credit cooperatives (SACCOs) are classified as Tier IV entities. BOU owns and operates the Uganda national interbank settlement system (UNIS - the Real-time gross settlement [RTGS] system), the automated clearing house (ACH - retail payment system), and the central securities depository (CSD) for government securities. Fintech solutions for digital payments include mobile money services (offered in partnership with Mobile Network Operators - MNOs) and payment aggregators/integrators. International money transfer operators provide their remittance services through commercial banks acting as their agents in Uganda. There are 84 fintech firms that provide a suite of payments and transaction services including remittances, bulk payments, cross-border payments, digital banking (mobile wallets), telecom interoperability enabling cross-network money transfer, digital micro-lending, insurance and micro- insurance, mobile banking, aggregation services, bill payments, value added services, data analytics, wealth management, cross-border payments, e-commerce, and online payments. There are two privately managed payment card switches in operation in Uganda. THE WORLD BANK GROUP 86 Table 6-2: Use of Digital Payments 2017 Made Digital Payments in the Past Year (percentages) Growth perentage Country Adults Women Rural (2014-2017) Kenya 76 73 76 10 Nigeria 24 17 17 5 Rwanda 32 26 30 9 Tanzania 40 35 38 6 Uganda 51 44 51 12 6.2.2 Payment Instruments Cash is widely used in Uganda. Popular noncash payment instruments in Uganda include cheques, electronic funds transfers (EFTs), cards, and e-money. Cheques are used by all segments of society as are EFTs with bulk credit EFTs being used for salary payments. EFT debits are not very popular. Anecdotal evidence suggests that debit cards are more widely used than credit cards in Uganda, with the debit card largely being used for cash withdrawal from ATMs. The number and usage of credit cards appears to be rather low. 6.2.3 Cards and Card Infrastructure Debit and credit cards are prevalent in Uganda, with debit cards having the largest share in the card market. The dominant brand is Visa though Mastercard branded cards are also being issued by banks. It is understood that Visa dominates the card market in Uganda with a market share of 98 percent. It is estimated that there are 3.5 million Eruopay Mastercard Visa (EMV) Visa cards (largely debit cards). Some banks also issue a domestic EMV-compliant debit card under the brand name Verve, which can be used at ATMs only and is not yet enabled for point-of-sale (POS) transactions. ATM and POS infrastructure exhibits a skewed distribution in Uganda with around 80 percent of them being located in Kampala and the central region of the country. There are around 700 ATMs and around 7,000 POS terminals in Uganda. ATMs are largely used for cash withdrawals though other transactions107 are also gaining traction at ATMs. 107 Other ATM transactions include mobile money withdrawals, bill payments, intra and inter bank account transfers, cash deposits, balance inquiry, bank statements. THE WORLD BANK GROUP 87 6.2.4 Card Switches There are two domestic card switches in the market—Interswitch and Agent Banking Company (ABC) switch. Interswitch. A total of 15 commercial banks (out of 26) and 6 Tier II and III financial institutions (microfinance deposit taking institutions) are currently connected to Interswitch for routing their ATM Verve debit card transactions. Interswitch estimates that it handles approximately 20 percent of overall card transaction volumes. The ABC switch. There are currently 14 banks connected to the switch with other banks set to join in the near future. It is understood that some banks use the ABC switch for routing ATM debit card transactions (Visa cards). Details of volume and value of such transactions are not readily available. The ABC switch also has an instant funds transfer capability. 6.2.5 E-money Usage of e-money or mobile money is gaining traction among various segments of the population in Uganda. There is a growth momentum in terms of the number of transactions, number of registered users, and the value of transactions. While the predominant use case of mobile money continues to be person-to-person transfers, other use cases such as utility bill payments, school fees, airtime top-ups are also seen to be gaining momentum. There is a widespread nonexclusive mobile money agent network which caters to the needs of the users for both cash-in and cash-out purposes. The details of the volume, value of mobile money transactions, and the number of registered users over a five-year period are given in Table 6-3 and are also depicted graphically (over a longer time horizon) in Figures 6-1 to 6-3. Table 6-3: Mobile Money Usage Year 2015 2016 2017 2018 2019 Number of transactions 694 975 1,207 1,879 2,841 (millions) Value of transactions (UGX, 32.8 43.8 63.1 71.1 73.1 billions) Number of registered 21.11 21.6 23.3 24.5 27.1 customers (millions) THE WORLD BANK GROUP 88 Figure 6-1: Value of E-Money Transactions (UGX) Source: BOU. Figure 6-2: Volume of E-Money Transactions Source: BOU. Figure 6-3: Number of E-Money Customers THE WORLD BANK GROUP 89 6.2.6 Fintechs Fintechs abound in Uganda, focusing on developing and providing digital solutions for payments integration and aggregation. These include fintech entities engaged in agent management such as ABC with its Shared Agent Banking System (SABS). The SABS provides its 14 member financial institutions with a shared agent network of 7,200 agents. These agents provide services to customers of different banks on a single technology platform with the clearing and settlement of these transactions taking place at the back-end. Other nonbank payment service providers provide either a single payment service or a host of functionalities for various bill payments. Another fintech provides a core banking solution on the cloud for Savings and Credit Cooperative Organizations (SACCOs), along with a mobile banking switch, Mobile Banking for SACCOs (MSACCO) which is interconnected to the major mobile money issuers (MTN money and Airtel money) and to Interswitch to facilitate digital transactions of SACOs and their members. A bike ride sharing service also issues e-money (in partnership with a licensed entity) with different wallets for customers and drivers which can be used for paying fares and fuel payments. 6.2.7 Remittance Service Providers Cross-border inward international remittance are channeled through remittance service providers (RSPs), which disburse these remittances through local agents. Banks, Microfinance Development Finance Institutions (MDFIs), and forex bureaus act as nonexclusive agents to the international RSPs. There is, however, no agent interoperability for remittances. Depending on the entity engaged as an agent, both prefunding (largely in the case of MDFIs and forex bureaus where the RSP prefunds its account) and postfunding models (banks where RSP reimburses) for remittance flows are prevalent in the market. A large percentage of the inward remittances are disbursed in cash to the beneficiaries in Uganda. Transfers to bank accounts and mobile wallets of beneficiaries are also facilitated. Transfers to beneficiary mobile wallets are significantly higher when compared to beneficiary bank account transfers largely due to bank transfers taking more time (usually 1 to 2 days) to credit beneficiary accounts. The average value of an inward remittance is estimated to be US$160. Inter-continental remittance corridors comprise inward remittances from the United States, the United Kingdom, Australia, Canada, and Germany which have significant Ugandan diaspora and constitute the most important corridors for remittance flows. It is understood that Uganda also attracts intra-continent remittances. However, in terms of value it is understood that these remittance flows are lower compared to the inter-continental remittances. THE WORLD BANK GROUP 90 6.2.8 Enabling Environment for Digital Financial Services An improved regulatory environment is increasing investor confidence in the DFS market. Agency Banking Regulations (ABR) were issued in July 2017 by BOU following amendments to the Financial Institutions Act (2004) in 2016. The ABR lays down the principal-agent obligations outlining the duties and responsibilities of the financial institution and the agent entity and makes the principal liable for all acts of the agent. Permissible and prohibited list of activities for agents is indicated in the regulations along with the obligation of both the principal and the agent to adhere to Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) laws and regulations. The regulations also include consumer protection measures. The GOU’s ongoing efforts to digitize government services and payments provide a unique opportunity for DFS development in Uganda. An e-citizen portal set up by NITA-U hosts a lot of government services online and allows access to services such as e-tax, business registration, trading license registration, and social security statements. NITA-U is also involved in setting up a government e-payment gateway to facilitate electronic payments for government services: person-to- government and business-to-government as well as for government-to-person payments. The government intends to digitize all government payments to improve efficiency in revenues and reduce cost of operations. Improved KYC initiatives are improving trust in DFS transactions. An e-KYC facility was launched in January 2020 to aid and improve upon the process of verification and authentication of customers’ KYC data with the database of the government’s NIRA. The system is a combined initiative of BOU, NIRA, and Uganda Bankers Association (UBA) and is envisioned to function as a shared e-gateway for all financial service providers, including Tier III and IV institutions. Development of an operational code of conduct is further strengthening the fintech industry. FITSPA has recently adopted a mandatory code of conduct for its members. The code covers the provision of financial technology services including but not limited to digital and mobile payment providers, payment gateways, e-money, cross-border payment providers, digital credit or savings, and so on. The principal aim of the code of conduct is to support sustainable and responsible fintech market development through gaining trust among all stakeholders in Uganda. The MOICT has set up a fund to support innovation in fintech development. The GOU recently announced the Fourth Industrial Revolution Initiative (4IR) which underscores the role of fintech. Use of emerging technologies in the agricultural sector in Uganda, such as IoT, big data, drones, and remote sensors for precision agriculture; blockchain for land registration/management; and real-time weather forecasting using aerial images from drones and/or satellites have been identified as business cases for 4IR support in Uganda.108 108 https://4irpotential.africa/wp-content/uploads/2019/10/Uganda-country-case-Temp.pdf THE WORLD BANK GROUP 91 6.2.9 Constraints to Digital Financial Services Development Laws, Policies, and Regulations The framework legislation governing the regulation of payment and settlement systems in Uganda is extensive and spreads across several statutes. These include the Bank of Uganda Act, the Financial Institutions Act (2016), the Electronic Transactions Act (2011), the Computer Misuse Act (2011), the Contracts Act (2010), the Electronic Signatures Act (2011), Anti-Money Laundering Act (2013), and the Data Protection and Privacy Act (2019). There is need for better coordination among all the entities responsible for implementing these regulations. A dedicated National Payment Systems Bill has recently been passed by the Parliament and is awaiting assent; but no associated implementation plan has been developed. The National Payment Systems Bill seeks to grant BOU the legal mandate to operate, supervise, regulate, and oversee the various payments systems in Uganda. In the absence of a National Payment Systems Act, BOU has used its powers under the extant framework legislation and adopted a soft touch regulatory approach by issuing the Mobile Money Guidelines (MMG) in 2013. The MMG is, however, unclear on a number of key issues including higher charges for wallet-to-wallet transfers and provision of open APIs by the mobile money service providers for fintechs. Retail payment transactions are subjected to taxes (sales/value added tax [VAT]) in countries across the region. Nigeria and Kenya subject the following transactions to tax: (a) transfer from bank account, (b) e-money account to e-money account funds transfer, (c) cash withdrawal from bank account, (d) e-money cash out, and (e) sending international remittances. Rwanda in addition to these transactions taxes e-money cash in and receiving international remittance transactions. The GoU currently has a 0.5 percent tax on mobile money withdrawals only and a 15 percent excise duty on mobile money and 18 percent VAT. Though mobile money transactions fell in the immediate aftermath of the withdrawal tax, transactions have since then recovered and continued to grow. There is also a broader question of leveling the playing field between mobile money agents where transactions are subject to withdrawal taxes and traditional bank agents where transactions are not subject to such taxes. The indirect impact on utility payments (60 percent of which are made using mobile money), ability of nonbank financial institutions to serve clients (often in remote areas), and access to digital credit has yet to be fully studied. Though the tax was reduced, the challenge it poses THE WORLD BANK GROUP 92 for the development of DFS and the spillover effects on wider digital service and e-commerce adoption remain. Mobile money often serves as a gateway digital service that affords the versatility of digital products and services to the average consumer, which in turn can facilitate the use of other digital products and services and ultimately broaden the tax base as the digital economy expands. Therefore, taxation policies that constrain the growth of mobile money are likely to have spillover effects on the extent to which consumers use other digital products and services. DFS Infrastructure The NFIS identifies a number of key infrastructure challenges including the need to (a) increase interoperability in the financial sector, (b) improve competition and lower customer fees, (c) improve IT security and mitigate cyber risk, and (d) put in place an appropriate policy and regulatory framework for mobile money. 6.3 Recommendations and Next Steps R1. A time-bound action plan with a monitoring mechanism should be put in place to implement the National Payments Bill and the various recommendations and action points outlined under the National Payments Policy framework. While the National Payment Systems Bill has been passed by Parliament and awaits Presidential assent, information on the action taken on the other recommendations of the National Payments Policy framework is not available. It is suggested that an inter-departmental group of the relevant departments in BOU be set up and tasked with carrying out the implementation of the National Payments Policy milestones. R2. BOU should rationalize agent eligibility criteria across all products and lay down clear policy guidelines with regard to agent interoperability across agent banking as well as mobile money. Different eligibility criteria are being used by agents appointed by banks and those engaged by mobile money providers. The reasons for this distinction are not clear as both categories are supervised by BOU. A harmonized policy framework addressing principal-agent relationship, liquidity management, and consumer grievance redressal mechanisms in the context of interoperability (between agents working for different providers) will support further market development. R3. BOU should engage with e-money/mobile money service providers to resolve issues such as (a) the existing practice of levying charges on balances held in merchant accounts or OVAs by the providers (akin to imposition of a merchant discount rate), (b) higher charges for wallet-to-wallet transfers within and across providers in comparison to other modes such as cash out, (c) providing for OVA- to-OVA transfers within and across providers, and (d) provision of open APIs by the mobile money service providers for fintechs to gain access to the payments ecosystem . Resolving the above issues in consultation with all the stakeholders will provide a greater impetus to the growth of DFS. THE WORLD BANK GROUP 93 R4. The imposition of taxes on mobile money transactions should be revisited and reexamined by the government. Mobile money service is provided by a licensed institution (bank) in partnership with an MNO. While one product/service provided by the bank (agent withdrawals) is not taxed, another product service provided through a technical solution (mobile phone) is currently being taxed. This is an anomalous situation and could adversely impact achievement of the twin goals of greater financial inclusion and promotion and adoption of digital payments and reducing the use of cash. R5. The e-KYC facility launched in January 2020 should be made available to all payment service providers by BOU in coordination with NIRA, to maintain access to essential financial services during COVID-19. BOU should take steps in coordination with the relevant government entities such as NIRA to provide access to the e-KYC109 facility for customer verification to all fintech players in the payments space with the licensed institutions acting as the conduit for the same. This would simplify the KYC procedure, make it transparent and seamless, and reduce costs of conducting KYC physically to the fintechs and payment service providers. R6. Efforts should be undertaken timely to integrate the e-citizen portal and e-payments gateway to provide a seamless one-stop solution for the public. More payment options should be provided to users and more financial institutions should be added both on the disbursement and payments collection side to provide greater customer choice and mitigate concentration risk. Currently only one commercial bank is linked to the e-payments gateway under the Ministry of Agriculture e-voucher program. 109 https://www.bou.or.ug/bou/bouwebsite/RelatedPages/Publications/article-v2/Launch- of-BoU-NIRA-e-KYC-project/ THE WORLD BANK GROUP 94 7.0 Conclusions As a cross-cutting enabler, digital technologies affect the entire economy, connecting farmers with markets, facilitating consumer access to a broader range of goods and services, and driving innovations in manufacturing. The digital economy is also proving important for job creation. In Africa, the arrival of faster internet has been linked to increased employment and job creation, including for women. Moreover, GDP per capita and productivity are also seen to increase with the increased penetration of digital technologies. Uganda has made strides in the expanded availability of digital technologies and services for consumers but challenges in access and affordability remain. Though more people than ever are connected in Uganda, there are geographical and gender disparities in access. Refugees also face additional barriers to access, though increased access to digital technologies can support increased access to education and economic opportunities, including integration with host communities, to the mutual benefit of all. Response to COVID-19 and economic recovery would need to scale up use of digital technologies. In the health sector, m-health solutions can reduce burden on the health system and digital solutions offer innovative approaches for disease surveillance and monitoring. For economic recovery, increased adoption of digital technologies can increase the ability of the workforce to work from home, increase supply chain resilience through better inventory and logistics management, allow small businesses to reach a wider consumer base through digital platforms, and provide uninterrupted education through virtual platforms. The GoU has set out on an ambitious agenda for digital transformation, and key legislative steps have been taken to implement it. However, gaps remain in developing a cohesive regulatory framework. Implementation of existing regulations is also delayed which in turn constrains private sector growth. In the medium to long term, a combination of public and private sector-led initiatives offers Uganda a pathway to leveraging digital technologies for inclusive economic growth. Continued investment in expanding the infrastructure, reduction in tax burden on consumers to stimulate greater uptake of digital products and services, and incentivizing digitalization of real sectors can make Uganda’s digital vision a reality. THE WORLD BANK GROUP 96 Table 7-1: Recommendations by Pillar Pillar Recommendations Digital R1. Approve pending policy and regulatory framework. infrastructure Key policy, legislation, and regulation could improve the competitiveness and investments in the sector as well as promote consumer interests and foster trust, security, and privacy online. • Data Protection Regulation. Following the enactment of the data protection act, there is need to operationalize the office of the data commission office to safeguard sensitive or personal information following increased uptake of digitized information systems in both the public and private sectors. • Law on cyber security to protect CII. This would include protection of systems, data, and capabilities, based on international best practices. • National Roaming Guidelines. This would provide for increased competition and innovation, ensure a level playing field, and maintain a technology neutral stance in extending the services across the country through effective infrastructure sharing. • Spectrum framework. This aims to promote efficient and effective use of spectrum and enhance the management of spectrum to promote competition in the use of spectrum. R2. Release spectrum to encourage rollout of high-speed broadband services. Release of harmonized bands in the 700 MHz spectrum (freed up by migration from analogue to digital) and allocation in a transparent and fair manner could improve mobile broadband offerings for 4G. Opportunities exist in the longer term to use innovative spectrum bands (unlicensed) and new technologies (for example, dynamic spectrum allocation) to accommodate growing demand. R3. Deploy strategies to lower costs of digital devices and services. Remove or reduce sector-specific taxes to improve affordability and access and to stimulate demand. Availability of low-cost loans to spread payments can help and could be offered in conjunction with other services. For those that cannot afford a device via loan repayment, support mechanisms such as third-party payment or partial voucher schemes could be explored. The government could also consider bulk negotiation/purchase schemes to bring down the unit costs of 4G devices. Regionally coordinated schemes would help increase bargaining power and reduce leakage of subsidized or tax-exempt units across borders. R4. Ensure the efficient use of public infrastructure and contribute to its maintenance, upgrade, and extension. This can be achieved by extending the NBI on an open access, wholesale basis to cover more underserved areas of the country so as to increase penetration of communication services. Care must be taken to not displace potential private investment and to maximize spillover benefits in private provision of last mile services relying on the NBI for backhaul. Regulatory guidelines for access by private operators to the public infrastructure are required to encourage infrastructure sharing with an aim of reducing cost of service to the consumer. THE WORLD BANK GROUP 97 Pillar Recommendations Digital R5. Strengthen cybersecurity and cybercrime legislation, infrastructure among others, with the CNII bill by developing a stand- alone national cybersecurity agency to house the national CERT and supporting sectoral CERTs/SOCs; strengthen threat intelligence, monitoring, prevention, and response by upgrading and scaling up the capacities and operations of the national CERT; prepare for recovery by regularly exercising cyber drills and testing business and disaster continuity plans; enforce cybersecurity and prosecute cybercrime by building the capacity of investigating, prosecuting, and judicial public officers; build cybersecurity capacity and digital skills by piloting a cybersecurity skills program in the educational system. R6. The ongoing RCIP-5 is aimed at advancing some of the short-term activities that could contribute to the COVID-19 response. The following short-term (0–6 months) infrastructure interventions could be considered to aid the emergency response through ongoing projects in Uganda: • Digital connectivity of MDAs, prioritizing health centers. Improved connectivity will facilitate, among others, implementation of telehealth and collection of data on the pandemic. • Messaging capabilities between government workers. Procurement of additional licenses for UMCS, which is the primary office collaboration suite for government workers, to allow better and larger digital communication between government workers. • e-signature capabilities. Support procurement for the digital authentication and e-signature capability to facilitate the rapid adoption of e-signatures within the public sector. This is highly relevant today, as most government workers have been asked to work from home and would enable full digitization of services without requirement for physical signatures. • Tracking application. Rollout of applications to help the COVID-19 response teams track arriving passengers in Uganda (and people whom they have been in contact with) and their test status. • Support to the development of a call center for the Ministry of Health. This will support the Ministry of Health in receiving and processing enquiries and calls related to COVID-19 and any other health enquiries. • Digital communication for public health through SMS gateway used to send accurate and up-to-date information to citizens. Digital skills R1. Government should commission demand-side data on digital skills as part of the Digital Strategy. As a priority, demand studies and research should be commissioned at regular intervals to inform the digital skills and digital economy agenda. R2. The draft ICT in Education Policy should be approved to guide investments in the formal education sector. THE WORLD BANK GROUP 98 Pillar Recommendations Digital skills R3. Government should develop a national digital skills framework by adapting or adopting existing international frameworks such as EU Digcomp 2.1 or UNESCO Digital Competency Framework and e-Competency Framework or SFIA Framework for advanced digital skills and professional ICT skills training. The private sector should be involved in defining the national framework and curriculum for digital skills across all levels. Incentives should be provided for the private sector to offer internship opportunities for tertiary-level students. R4. Government needs to update the curriculum for advanced digital skills. The NCHE, which is the accrediting and quality assurance body for the tertiary sector, developed minimum standards for undergraduate courses at universities covering, among others, computer science, information systems, and software engineering in 2014. These standards are now due for an update given the fast-changing nature of digital technologies and required skills. For example, the 2014 standards barely mention artificial intelligence and virtual reality and do not cover IoT or data analytics which are now hot topics in the digital economy. R5. Government needs to improve internet access to higher education institutions through RENU. While this is active and has connected over 150 institutions across the country, the State of Higher Education report and stakeholder interviews pointed out that limited internet access remains a challenge. There might be a need to increase capacity of RENU to provide additional bandwidth to higher education institutions. It should, however, be noted that RENU is one of the more advanced NRENs in Africa and has done a commendable job so far. The government should prioritize support to grow and strengthen RENU. R6. Government needs to invest in HPC facilities for data analytics and research for higher education. The lack of HPC facilities hinders the development of skilled data analysts and skills such as machine learning and artificial intelligence. Despite this challenge, it is important to note that Makerere University hosts one of the few artificial intelligence and data science research hubs in Africa. It would be important to support the activities of this research hub as its research is practical and oriented toward using artificial intelligence to solve Uganda’s and Africa’s challenges. THE WORLD BANK GROUP 99 Pillar Recommendations Digital R1. Support market development for digital enterprises entrepreneurship through a review of the taxation policies around digital technologies and services. It would be useful to review taxes on mobile money withdrawals, mobile data, and OTT taxation to facilitate continued growth of consumer base and support development of digital solutions. In other countries, taxes are not sector specific but are levied on end-services provided to consumers and the revenues generated thereby. This approach facilitates affordability of digital services which in turn contributes to the expansion of the addressable market. Given the need to invest in market development of digital products and services in Uganda, it would be advisable to review the tax regime with regard to digital technologies, including social media and mobile money. R2. Incentivize integration of digital technologies in agriculture and manufacturing through innovation vouchers which offer subsidized access to technology for traditional businesses. Uganda’s economy is based primarily on agriculture and manufacturing and digitizing those value chains would yield tremendous benefits to the broader economy and to the supply chains (including smallholders, microentrepreneurs, and the informal sector). There is already some measure of digitization ongoing in the more organized value chains of coffee, tea, and cocoa. The challenge is to leverage digital technologies to organize underserved value chains, for example, that of the livestock sector. Medium- to long-term investments in enhancing the innovation and technological capacity of the firms (through innovation vouchers for example) can also be deployed to enhance the digital integration of firms. R3. Facilitate access to public procurement opportunities for digital businesses. Public procurement is an important pathway for Ugandan businesses to access markets. At present, most digital solutions are sourced internationally even in instances where appropriate solutions are available locally. According to some businesses that have attempted to bid on public contracts, the entry thresholds are too high for most local businesses to meet. There may be opportunities to broaden the criteria for participation while maintaining quality standards and enhancing transparency in the public procurement processes. R4. Create a digital innovation fund for early-stage enterprises (potentially leveraging public finance to mobilize private financing). Co-financing a digital innovation fund with the private sector would make seed and early-stage financing available to digital startups and expand the pool of available resources beyond Kampala. A public-private fund can provide some measure of reassurance to wary investors and bring in new investors who may not have the industry insight to identify viable deals in the digital sector. To address the gender gaps in the digital economy, funds can incentivize the greater participation of women through dedicated financing windows. THE WORLD BANK GROUP 100 Pillar Recommendations Digital R5. Investment readiness programs for digital enterprises at entrepreneurship growth stage would support deal flow development. Venture and private equity investors have entered the Ugandan market though the number and volume of deals remains limited. Part of the reason is that viable deals require support at the pipeline development stage (that is, pre-investment stage) but the services needed to do that are not always available. A dedicated investment readiness program could be co-created with the private sector and housed in hubs; made available to viable, growth-stage enterprises; and include access to investors. R6. The COVID-19 response offers a unique opportunity to leverage existing market solutions in digital health as well as e-commerce and the platform economy. There are existing solutions in the market that can address the short-term needs of the health sector especially in inventory management, natal and maternal health, and hospital management, while resources are deployed to COVID-19 response. Similarly, as social distancing and other preventive measures gain traction, e-commerce and the platform economy offer solutions for online shopping that can mitigate the dangers of crowded retail spaces. For laid-off workers, the platform economy offers an opportunity to engage in short- to medium-term economic activities while MSMEs can leverage platforms to reach customers as nonessential businesses are shutdown. Even as the lockdowns ease temporarily, there is an expectation that the crisis will be ongoing and will necessitate multiple rounds of shutdowns and reopenings and e-commerce will continue to offer a viable alternative. There is significant scope to expand private sector mobile health and digital solutions to track cases, preempt outbreaks, and manage public health resources. Scaling up commercially available digital solutions for pharmaceutical and inventory management, health records management, and telehealth can allow for a more strategic approach toward COVID-19 mitigation. Digital platforms R1. Increase interoperability, integration, as well as shared infrastructure and services. This can be done by enforcing the use of shared infrastructure among MDAs, increasing use of cloud-based ICT infrastructure to improve service delivery among MDAs, including migration of existing systems to shared infrastructure once they are in need of a refresh. This can be achieved by increased use of the government data center infrastructure. R2. Expedite implementation of digital authentication and mobile ID solutions. This would involve scaling up efforts in integration of civil registration and national ID; expanding identity verification services to more agencies; developing appropriate technical architecture and upgrading hardware and software capability needed for the new generation digital ID, which could also be recognized across borders; fast-tracking seamless e-signature capability; and introducing mobile ID in collaboration with the private sector. THE WORLD BANK GROUP 101 Pillar Recommendations Digital platforms R3. Improve trust environment and enable data-driven services. This could be achieved through operationalization of the data protection and privacy law including enacting corresponding regulations that provide clear accountability and guidelines for the collection, processing, use, and sharing of data. Key regional frameworks and guidelines should be followed to ensure compatibility with aspirations for a single digital market in East Africa and across the continent, including tiered classification of data to allow for greater cross-border exchange of nonsensitive data to support commercial and public services. R4. Continue rollout of digitized public services and focus on the user experience to boost uptake. End-to-end digitization, ‘ask once’ data collection practices, mobile authentication and payment solutions, and user-centric design techniques can be used to enhance user experience and expand usage. R5. Address skills and capabilities gaps within the government. Introduce innovative initiatives to encourage digital skills development in ministries and continued hiring of top digital talent. Further reinforce existing capabilities by recruiting and retaining a team of highly competent and talented individuals to drive the transformation agenda within the government, with growth in line with expansion of digital services offerings and initiatives. Digital financial R1. A time-bound action plan with a monitoring mechanism services should be put in place to implement the National Payments Bill and the various recommendations and action points outlined under the National Payments Policy framework. While the National Payment Systems Bill has been passed by Parliament and awaits Presidential assent, information on the action taken on the other recommendations of the National Payments Policy framework is not available. It is suggested that an inter-departmental group of the relevant departments in BOU be set up and tasked with carrying out the implementation of the National Payments Policy milestones. R2. BOU should rationalize agent eligibility criteria across all products and lay down clear policy guidelines with regard to agent interoperability across agent banking as well as mobile money. Different eligibility criteria are being used by agents appointed by banks and those engaged by mobile money providers. The reasons for this distinction are not clear as both categories are supervised by BOU. A harmonized policy framework addressing principal-agent relationship, liquidity management, and consumer grievance redressal mechanisms in the context of interoperability (between agents working for different providers) will support further market development. THE WORLD BANK GROUP 102 Pillar Recommendations Digital financial R3. BOU should engage with e-money/mobile money service services providers to resolve issues such as (a) the existing practice of levying charges on balances held in merchant accounts or OVAs by the providers (akin to imposition of a merchant discount rate), (b) higher charges for wallet-to-wallet transfers within and across providers in comparison to other modes such as cash out, (c) providing for OVA-to-OVA transfers within and across providers, and (d) provision of open APIs by the mobile money service providers for fintechs to gain access to the payments ecosystem . Resolving the above issues in consultation with all the stakeholders will provide a greater impetus to the growth of DFS. R4. The imposition of taxes on mobile money transactions should be revisited and reexamined by the government. Mobile money service is provided by a licensed institution (bank) in partnership with an MNO. While one product/service provided by the bank (agent withdrawals) is not taxed, another product service provided through a technical solution (mobile phone) is currently being taxed. This is an anomalous situation and could adversely impact achievement of the twin goals of greater financial inclusion and promotion and adoption of digital payments and reducing the use of cash. R5. The e-KYC facility launched in January 2020 should be made available to all payment service providers by BOU in coordination with NIRA, to maintain access to essential financial services during COVID-19. BOU should take steps in coordination with the relevant government entities such as NIRA to provide access to the e-KYC facility for customer verification to all fintech players in the payments space with the licensed institutions acting as the conduit for the same. This would simplify the KYC procedure, make it transparent and seamless, and reduce costs of conducting KYC physically to the fintechs and payment service providers. R6. Efforts should be undertaken timely to integrate the e-citizen portal and e-payments gateway to provide a seamless one-stop solution for the public. More payment options should be provided to users and more financial institutions should be added both on the disbursement and payments collection side to provide greater customer choice and mitigate concentration risk. Currently only one commercial bank is linked to the e-payments gateway under the Ministry of Agriculture e-voucher program. THE WORLD BANK GROUP 103