99060 v1 Searching for the “Grail”: Can Uganda’s Land Support its Prosperity Drive? Uganda Economic Update | Sixth Edition, september 2015 | Report no. 99060 a b Searching for the “Grail”: Can Uganda’s Land Support its Prosperity Drive? Uganda Economic Update | Sixth Edition, september 2015 | Report no. 99060 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank 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 Group concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank Group encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Cover photos: Great Lakes Film Production Ltd and Digital Media Network Ltd Cover design : Artfield Graphics Ltd Design and Layout: Artfield Graphics Ltd. Printed in Uganda by Artfield Graphics Ltd, www.info@artifield.com Additional material relating to this report can be found on the World Bank Uganda website (www.worldbank.org/uganda). The material includes a fact sheet, documentary video and a number of blogs relating to issues in the report. © 2015 International Bank for Reconstruction and Development / International Development Association or The World Bank Group 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 www.worldbankgroup.org ii C ON TENTS Abbreviations and Acronyms........................................................................................ v Foreword................................................................................................................... vii Acknowledgements..................................................................................................... viii Key Messages.............................................................................................................. ix T h e Stat e o f t h e Ec o n o m y PART 1 1. RECENT ECONOMIC DEVELOPMENTS.......................................................................... 2 1.1 Modest recovery in economic growth ..................................................................................... 4 1.2 Before recent volatilities, inflation remained stable, allowing monetary policy to remain neutral, both of which stimulated private sector credit ............................................................... 6 1 1.3 A weak external position, provided ground for a depreciating local currency...................... 8 1.4 Slow pace of public investment results in lower fiscal deficit and a greater proportion of the budget being utilized for recurrent expenditure.................................................................... 10 2. ECONOMIC OUTLOOK............................................................................................... 13 2.1 Public investment to underpin economic growth in near term as uncertainties increase.. 14 2.2 Internal risks are the most significant, but external risks also exist..................................... 20 2.3 Accelerating growth requires drilling deeper for productivity improvements .................... 21 Proper l and admi ni s trati on and manag ement 3. FASTER ECONOMIC TRANSFORMATION CALLS FOR BETTER LAND MANAGEMENT?.......... 26 3.1 Rights to land ownership in Uganda remain insecure........................................................... 29 3.Faster economic transformation calls for better land management?...................................... 29 3.2 Land markets exist, but are still narrow, segmented, and inefficient .................................. 32 PART 2 3.3 What is the cost of land tenure insecurity and inefficient land markets? ............................ 36 27 4. WHAT SHOULD UGANDA DO TO ENSURE LAND CONTRIBUTES RATHER THAN CONSTRAINS PRODUCTIVITY IMPROVEMENTS?.................................................................................. 38 4.1 Accelerating the process of land registration.......................................................................... 42 4.2 Redesigning the Land Fund...................................................................................................... 46 4.3 Strengthening institutions for land administration............................................................... 49 4.4 Prioritizing and closing gaps in policy commitments for effective implementation ........... 52 LIST OF BOXES Box 1: China’s devaluation – Can Uganda’s fortunes offset the misfortunes? ............................. 15 Box 2: Strengthening Public Investment Management in Uganda for Improved Efficiency.......... 18 boxes Box 3: Uganda Public Financial Management (PFM) Act, 2015....................................................... 19 Box 4: Firms do not use bank credit to finance investments........................................................... 39 Box 5: Registering Land Rights fast and cheaply: Experience from Rwanda.................................. 43 Box 6: Land Rental Markets in Communally Owned Land: Experiences in Mexico, Fiji and Ghana..................................................................................................................................... 45 Box 7: State land inventories: Ghana’s experience......................................................................... 46 Box 8: Uganda Land Fund to address historical injustices and landlessness................................ 47 Box 9: Land acquisition and development for the poor: Experience from Malawi and Brazil...... 48 Box 10: How technology is improving land administration in Uganda - The Uganda Land Information System ............................................................................................................................................... 51 iii C ON TENTS tables LIST OF TABLES Table 1: Central Government Revenue and Expenditure Framework(% of GDP, unless otherwise specified)............................................................................................................................................ 12 Table 2: Summary Assumptions for the Medium Term Outlook, (groth rate % unless otherwise indicated) Baseline Scenario............................................................................................................. 16 Table 3: Improving land management can contribute to productivity growth.............................. 43 LIST OF FIGURES Figure 1: Gradual Recovery in Uganda’s Economy through FY 2014/15........................................... 4 Figure 2: Uganda’s Economic Growth is the lowest in the East African region................................ 4 Figure 3: Manufacturing recovered, but construction decelerated during FY 2014/15................... 5 figures Figure 4: Inflation remained low through FY 2014/15, but upward pressure started towards end of year.......................................................................................................................................... 6 Figure 5: Market rates were not as stable as the Central Bank Rate during FY 2014/15.................. 7 Figure 6: Domestic credit picked up strongly, led by government................................................... 8 Figure 7: Credit to agriculture and manufacturing picking, albeit from a small base..................... 8 Figure 8: The external position deteriorated as current account worsened.................................... 9 Figure 9: Foreign direct investment was for the mining and quarrying sector................................ 9 Figure 10: Uganda shilling depreciated more than regional currencies during FY 2014/15........... 10 Figure 11: Infrastructure sectors getting the largest allocation of the budget............................... 17 Figure 12: Uganda’s diverse systems of land tenure with that in the central region even more complex..................................................................................................................................... 30 Figure 13: Steady progress in improving land information system................................................. 49 iv A bb reviat ion s and Ac r onyms BoU Bank of Uganda MLHUD Ministry of Lands, Housing and Urban BOP Balance of Payments Development BRT Bus Rapid Transport MoLG Ministry of Local Government and Economic CBR Central Bank Rate Development CEDP Competiveness and Enterprise MZO Ministry Zonal Office Development Project NDP National Development Plan CLAs Community Land Associations NLP National Land Policy DSA Debt Sustainability Analysis NEER Nominal Effective Exchange Rate EAC East African Community ODA Official Development Assistance EU European Union OECD Organization of Economic FDI Foreign Direct Investment Cooperation and Development DRC Democratic Republic of Congo PIMS Public Investment Management GDP Gross Domestic Product System HIPC Highly Indebted Poor Countries REER Real Effective Exchange Rate ICT Information and Communications SMEs Small and Medium-sized Enterprises Technology SSA Sub-Saharan Africa 1DA International Development Association SSATP Sub-Saharan Africa Transport Policy IDP Internally Displaced People Program IFC International Finance Corporation UEU Uganda Economic Update IFPRI International Food Policy Research UGX Uganda Shillings Institute ULC Uganda Land Commission IMF International Monetary Fund UNHS Uganda National Household Survey KIIP Kampala Institutional and USA United States of America Infrastructure Project URA Uganda Revenue Authority LF Land Fund USMID Uganda Support to Municipal LIBOR London Interbank Offered Rate Infrastructure Development LIS Land Information System UWA Uganda Wildlife Authority MDRI Multilateral Debt Relief Initiative VAT Value Added Tax MFPED Ministry of Finance, Planning and WB World Bank Economic Development WDI World Development Indicators v Long stretches of land in Karamoja region, (Sheila Gashishiri, 2014) vi Fo r ew o rd I am pleased to introduce the sixth edition of the Uganda Economic Update series. Following the structure of earlier editions, the Sixth Economic Update discusses recent macroeconomic developments, as well as a special topic – “Can Uganda’s land support its prosperity drive?” Over the past year, Uganda grew above five percent, continuing the modest recovery started the previous year and benefitting from a stable macro environment characterized by low inflation and modest interest rates, as well as favorable weather. The authorities continue to pursue an ambitious public investment program meant to remove the country’s long standing deficiencies in physical infrastructure and to prepare for the long-awaited extraction of oil. Near term economic growth is glazed with many uncertainties, including from external shocks and from uncertainties and speculation related to upcoming national elections. Indeed, the Uganda shilling has recently depreciated heavily, helping the economy to adjust to the shocks, but also generating inflationary pressures that have to be managed. Beyond 2016, the Government will have to implement its ambitious investment program and raise more domestic revenues to ensure debt and fiscal sustainability, and to avoid crowding out the domestic private investment. From a longer term perspective, Uganda’s economic performance has been less stellar, compared to what the country was able to achieve in the 1990s and the first decade of the 2000s. Uganda’s deceleration in the rate of economic growth can primarily be explained by the failure to achieve productivity improvements. Productivity improvements would drive long-term growth and make the country more resilient to exogenous shocks. Uganda is already making the right choices to address the key binding constraints in infrastructure and to build human capital. Alongside this, another fundamental factor of production that must be managed appropriately to raise productivity and promote shared prosperity is land. Land is a finite asset and as population increases, land becomes scarcer and density increases. Yet, as demonstrated by many prospering countries around the world, land can be managed appropriately to generate rapid and sustainable growth, even in the context of high population densities. Good management of land use is fundamental to agricultural transformation and urbanization, two critical processes that could enable the country to raise its level of productivity Making Uganda’s land a more productive asset is a big challenge. The vested interests, suspicion, and fear of disruption to livelihoods, sensitivities related to the location of investment projects and the resulting perverse incentives to local governments, can fuel activism against any form of land reforms. But the land disputes and conflicts of today are clear indicators of the need for a better process. Ugandan policy makers must formulate and implement smart policies to ensure that land becomes a more productive asset that facilitates positive economic transformation and diversification. Such policies should aim to: (i) secure land tenure and reduce the rate of occurrence of conflicts and disputes caused by overlapping rights; (ii) promote the healthy development of rental markets for land; and (iii) strengthen the capacities of institutions responsible for land management administration. I hope that this update will inform the debate on land policy in Uganda, and motivate a comprehensive set of actions so that the country’s land will facilitate much needed positive transformation and diversification of the economic base. Diarietou Gaye Country Director Eritrea, Kenya, Rwanda and Uganda Africa Region vii A c k n ow ledg ements The sixth Edition of the Uganda Economic Update was prepared by Rachel Kaggwa Sebudde and Frank Byamugisha, with contributions from Martin Onyach-Olaa, Moses Kibirige and Gregory Wilson Myers. The team worked in collaboration with Makerere University School of Economics, and is also grateful to inputs and comments from Kevin Carey, Apurva Sanghi, Jacques Morisset, Jean-Pascal Nguessa Nganou, Constance Nekesa-Ouma, Mary Bitekerezo, Franklin Mutahakana, and Willy Kagarura. Damalie Nyanja and Gladys Alupo provided logistical support, while Sheila Gashishiri managed the communications and dissemination strategy. The Uganda country team provided useful feedback during the preparation of the report. Albert Zeufack (Practice Manager) and Christina Malmberg Calvo (Country Manager) provided overall guidance on the project. This work benefitted from insights of peer reviewers including Meskerem Brhane (Program Leader, Africa Region); and Hardwick Tchale (Senior Agricultural economist, GFADR). The report is a product of collaboration between the Global Practices of Macroeconomics and Fiscal Management; Urban, Rural and Social Development; and Trade and Competitiveness. Close collaboration with external stakeholders informed the content and ensured the relevance of the messages from practitioners’ views. These included the Private Sector Foundation; Ministry of Finance, Planning and Economic Development; and the Ministry of Lands, Housing and Urban Development. Irfan Kortschak provided professional editing services. viii K e y M es s ag es Over the past twenty years, Uganda’s population density has been increasing rapidly, placing significant pressure on the use of land. Uganda now has a population density of 194 persons per square kilometer of arable land, compared to 80 in Kenya and 116 in Ghana. At present, the majority of Uganda’s population still lives in rural areas, where the main source of livelihood is agriculture. However, the proportion of the population living in urban areas has increased significantly and will continue to increase into the future, with urban centers being the main driver of economic growth and transformation into higher value added activities. The highest rates of growth in population density are recorded in Uganda’s central region. Increasing population density can support accelerated economic growth, if appropriately managed through the implementation of systems to promote efficient land use. However, in Uganda, despite the increasing population density, it has remained difficult to facilitate the transformation of land use to enable the achievement of higher levels of productivity. One of the main causes of this is the difficulties involved in transferring ownership of land from one entity to another. On the one hand, the Government has failed to address the issue of overlapping and conflicting land rights mainly in the central region and the lack of effective institutions capable of managing land transactions. On the other hand, land markets are either weak, non-existent, or do not facilitate the transfer of land at the appropriate price. With these failures, land is failing to optimally support the transformation process in both rural and urban areas. Land transactions are often highly speculative, especially in urban areas and in areas with significant public infrastructure developments. In the rural areas, a large proportion of land transfers involve exploitative transactions, due to lack of information or unequal power relations between buyers and sellers, especially in post-conflict regions and in regions with significant oil or other mineral resources. Land rental markets have failed to develop in a healthy and constructive fashion due to tensions between landlords and tenants arising from overlapping rights and conflicting interests, especially on mailo land. All these factors have contributed to an increase in the rate of occurrence of conflicts and disputes. The result has been increased difficulty in transferring land from one owner to another or from one type of economic activity to another. increasing population It is essential that Uganda changes the manner in which it manages its land if the density can support majority of its population is to achieve a higher level of prosperity through the healthy accelerated economic transformation of the agricultural sector and a shift towards higher value, more productive economic activities more generally. In addition, more efficient land use will drive equitable growth, if appropriately economic growth, with the process of urbanization resulting in functionality in the form of managed through the descent housing for urban dwellers; connectivity without congestion; and an improvement in the quality of infrastructure. Development experiences across the world, especially in countries implementation of with significant densely populated areas, such as China and India, indicate that when land systems to promote rights became secure and more readily transferable, more flexible land use opened the gateway to positive economic transformation. More generally, transformation of land use is a efficient land use key characteristic of economic transformation, with a trend towards an increasing proportion of the land being used for higher productivity activities and towards an increasing proportion ix of the labor force moving away from low productivity activities in subsistence agriculture. Within rural areas, economic activity would remain fairly widely distributed, with productivity differences determined by soil fertility, climate and access to technology and market infrastructure. In urban areas, the level of economic development is determined by the extent to which land is adaptable to changing market demand. In this context, Uganda can learn from global patterns of development. Through the formulation and implementation of smart policies, Uganda can ensure that its land serves as a more productive asset that facilitates positive transformation and a diversification of the economic base. The achievement of these goals will require a comprehensive set of actions that will promote security of land tenure and reduce the rate of occurrence of conflicts and disputes caused by overlapping rights; promote the healthy development of rental markets for land; and strengthen the capacities of institutions responsible for the management of land administration. Failure to unlock the potential of land may result in a deceleration of growth and lack of progress towards prosperity. In addition, rather than driving equitable economic growth, the process of urbanization will result in dysfunctionality in the form of the proliferation of slums; increased congestion; and a deterioration in the quality of, or a failure to develop, infrastructure due to an escalation in the costs of construction and payment of compensation. Implementation of relevant up to date laws and policies has to be accelerated to make land in Uganda genuinely secure, transferable, marketable and supportive of economic development. Part 1: State of the Economy Since the national elections (including presidential and parliamentary) of 2011, the Ugandan economy has recovered to a significant extent, but has not been able to come close to realizing the high levels of growth that it had recorded over recent decades. During FY 2014/15, the Ugandan economy grew at the rate of five percent per annum, with this growth driven by an acceleration in public and private investments. During this year, the value of public investments reached the equivalent of 6.3 percent of GDP. While this was lower than the targeted level of 8.6 percent of GDP-, it was 0.7 percentage points higher than the figure of 5.6 percent recorded in FY 2013/14. The total value of private investments also increased significantly during FY 2014/15, largely due to the increased availability of credit. This also compensated for the declining contribution of net exports resulting from a combination of lower regional and global demand for Uganda’s products and the high level of demand for imports to support construction. However, for the fifth consecutive year, Uganda’s overall rate of growth remained below that achieved by Tanzania, Kenya and Rwanda, as the former decelerated. While the services sector continues to contribute the largest proportion to overall GDP growth, the recent recovery of the manufacturing and agriculture sectors was nonetheless impressive. The services sector grew at a rate of 4.6 percent, with the financial and insurance services sub-sector being the most significant contributor to this growth. Starting from a low base, the industrial sector made only a minimal contribution to overall GDP, despite the fact that it recorded an impressive rate of growth of 6.4 percent. This growth was supported by the strong recovery of the manufacturing sub-sector, following its contraction three years ago, when it was affected by power shortages and higher electricity prices; financing constraints resulting from tight liquidity; and decreases in demand from global markets. These factors recently improved with the commissioning of Bujagali power dam in 2012, allowing firms to access electricity with less disruptions, while the cost of credit gradually through the formulation and declined as banks gradually reduced their interest rates between FY implementation of smart 2012/13 and FY 2014/15. The rate of growth of the agricultural sector stood at 4.4 percent in FY 2014/15, significantly higher than the figure of policies, Uganda can ensure 1.5 percent recorded in the previous year, driven by strong recovery of that its land serves as a more cash crops and fish exports. Construction did not achieve the expected levels of performance, with this sector’s rate of growth declining to productive asset that facilitates 2.0 percent, from 5.7 percent in FY 2013/14, and from 10 percent in FY positive transformation and a 2012/13. diversification of the economic The low rate of inflation and neutral monetary policy made a positive contribution on economic activity during FY 2014/15. base The rate of inflation averaged 2.4 percent during FY 2014/15, with x this low rate partially resulting from increased domestic supply and reduced external shocks throughout most of the year. Food inflation was negative for most of the year, with agriculture output increasing as a result of good weather. Non-food inflation was also subdued on account of the decline in the cost of imports, particularly due to the decline in the global cost of oil, even though the spillover effect on domestic prices occurred only gradually. In response to the low rate of inflation, the Central Bank implemented a neutral monetary policy throughout most of the year. This resulted in an increase in the availability of credit to private sector, with the total value of this credit growing at an average rate of 15 percent per annum for the 10 months of FY 2014/15, compared to eight percent in the same period during FY 2013/14. However, the positive contribution to growth is likely to be negated as inflationary pressures increase and policy is tightened. Since April 2015, inflationary pressures have increased, with the most significant factor being the fast depreciation of the exchange rate. The Central Bank’s response was to raise its policy rate aggressively to the level of 16 percent per annum by August 2015 and to impede access to funds by commercial banks by increasing the margin between the Central Bank Rate and rediscount rate from three to four percentage points. This measure triggered an increase in interest rates on lending, which together with the strong growth of government borrowing, may curtail further growth in private sector credit. The external position weakened due to the combined impact of a deterioration in the values of flows into the current and financial accounts during the FY 2014/15. While the value of exports to regional markets grew at a slower rate than in previous years due to the decline in demand from South Sudan, the total value of all exports of goods increased by 3.1 percent, mainly as a result of a growth in the value of non-traditional exports, including metal and plastic products, bottled water, and rice. This could have been helped by the depreciating shilling. The traditional export commodities, such as coffee and tea, which still accounted for 30 percent of the total value of exported goods, did not perform well due to weak global demand resulting from the relapses in the global economy. However, with the total value of imports of merchandise goods declining to the equivalent of 18.4 percent of GDP, the trade balance improved to a value equivalent to 5.7 percent of GDP. The modest improvement to the trade account was more than fully offset by increases in net outflows for services and income and the decline in the value of transfers, all of which contributed to an increased deficit on the current account, from a value equivalent to 7.9 percent of GDP in FY 2013/14 to 8.8 percent in FY 2014/15. In the same period, the financial account deteriorated due to a decline in the value of foreign direct investment of 3.2 percent to US$ 1,186 million. Reserves declined too. In since April 2015, response to the weaker external position, the local currency has steadily depreciated in value inflationary since January 2014. Thus, in FY 2014/15, the value of the shilling declined by 24 percent relative to the dollar, and by 17 percent in real terms. Overall, this depreciation was faster than that of pressures have the Kenyan and Tanzanian currencies during this period. The depreciation continued into the increased, with the first two months of FY 2015/16, with the exchange rate standing at Shs 3500 to the dollar, which means that the currency has lost 35 percent of its value since August 2014. The shilling also most significant suffered due to increases in the value of the US dollar as the American economy strengthened factor being the fast and due to the uncertainties and speculative tendencies in anticipation of the forthcoming election activities. depreciation of the In FY 2014/15, the collection of domestic revenues was slightly above target, easing exchange rate pressure on fiscal operations. However, for the third consecutive year, the under-execution xi of the budget continued to undermine fiscal objectives. The Government estimated that during FY 2014/15, it had collected tax revenue to a value equivalent to 12.9 percent of GDP, which is slightly above the target of 12.7 percent for the year. In particular, good performance was recorded in the area of the collection of corporate and withholding taxes, which are direct domestic taxes. The Government’s total expenditures were lower than the budgeted target by the equivalent of 2.1 percentage points of GDP. A major factor in this was the slow progress in the construction of the Karuma dam, which accounted for 25 percent of the approved development budget (excluding donor projects), with negotiations for more than 80 percent of funding for the project not reaching a conclusion during the year. Consequently, the fiscal deficit reached a level equivalent to 4.5 percent of GDP, almost two percentage points lower than planned, but with more than 75 percent being financed through domestic borrowing. Establishment of supplementary budgets undermined the credibility of the budget in the past. However, during FY 2014/15, this instrument was mainly used to reallocate resources saved during a clean-up of the government pay and pension system to ensure the validity of the government payroll. The savings from this clean-up exercise enabled the Government to establish a supplementary budget amounting to a value of Shs 1,122.4 billion, and equivalent to about seven percent of the total value of the approved budget. The bulk of this supplementary budget was indeed a reallocation to pay pensions and gratuity arrears and to outstanding wages after the payroll clean-up. Uganda’s economic outlook continues to be characterized by a high level of uncertainty in the context of the upcoming elections in 2016 and with the pressure on the local currency that may be exacerbated by the devaluation of the Chinese currency in August. With little room to increase its level of revenue collection to offset increased expenditure, which is expected to increase beyond the 2010-11 levels, the authorities will have to overcome constraints to the management of public investments to ensure that the expansive fiscal policy adopted for FY 2015/16 stimulates growth rather than contributing to instability. The World Bank forecasts that during FY 2015/16, the Ugandan economy will grow at a rate between five and 5.5 percent, with uncertainties created by the upcoming elections; the need to tighten monetary policy in response to increasing inflationary pressures; and a weak external position acting as possible constraints on the growth momentum. The ongoing recovery will depend heavily on the achievement of macro-stability, with the most significant factor being the achievement of a lower, less volatile rate of inflation. With the increase in inflationary pressures recently, the tightening of monetary policy may inevitably need to be intensified, possibly resulting in a higher cost of credit and a decrease in the availability of credit to the private sector. Under these circumstances, sound fiscal policy will remain critical to attaining the growth forecast. With the bulk of the increase in expenditure during the year intended to finance huge investment projects that have been shifted from one year to the next over the past three years, both the conclusion of financing arrangements for these projects and their accelerated implementation will be critically important. Looking to the medium term future, investments intended to address constraints on growth, particularly constraints related to energy supply and transport infrastructure, should revive private investments; boost agricultural production; and energize the light manufacturing sector. The new oil economy will dramatically change Uganda’s economic outlook, enabling significantly increased investment in productive infrastructure. In future years, when production facilities become active, actual oil revenues could double the value of the country’s current level of fiscal revenues. The experience of other countries shows that the oil development preparation phase is often characterized by a high level of foreign investment that significantly impact economic performance, at least in the regions implementing those investments. This is another area where the implementation of the Public Finance Management Act 2015 will play a critically important role in developing the new oil economy will institutions that ensure transparency and the prudent management dramatically change Uganda’s of revenue to facilitate the optimal utilization of the country’s oil resources. The increase in expenditure required to finance investment economic outlook; when in infrastructure will result in an expansion of the fiscal deficit, which is production facilities become expected to decline by about 2020. active, actual oil revenues could The downside risks are significant, particularly in the area of fiscal double the value of the country’s management. Closely related to pressures resulting from the elections, parliament has been considering to create new administrative units current level of fiscal revenues including sub-counties, municipalities, and districts. In addition, poor xii performance in the area of domestic revenue mobilization; and the uncertainty regarding the date of commencement of oil production and the subsequent flow of revenues, there is a considerable degree of risk associated with the financing of investments in the country. These are exacerbated by a failure to release, sequence and plan infrastructure investments in accordance with absorptive capacity and the availability of financing. Furthermore, a more expansionary fiscal policy will also result in higher levels of debt, the sustainability of which largely depends on whether the public investment program generates a strong private sector response that in turn results in increased growth and increased domestic revenues. Without this response, higher deficits may raise the cost of borrowing for the private sector and increase the build-up of debt, exacerbating debt financing risk. In addition to these internal risks, Uganda faces a number of exogenous risks. While low oil prices are beneficial to Uganda’s balance of trade, it has increased the risk to investment plans in the oil sector. If oil prices take longer to recover from the current levels of US $ 40 per barrel, compared to the estimated break-even price of US $ 60 per barrel for its production in Uganda, it may even require different choices with respect to the phasing of refinery and pipeline investments. A prolonged low economic activity in China will make Uganda’s imports from there cheaper, but its impact on global demand could increase volatility in global commodity prices, including oil prices, which may further reduce the value of the country’s exports; exacerbate pressure on the currency; and increase inflationary pressures. All of these factors may contribute to a slowdown in economic growth. The country’s trade prospects are also influenced by the security situation in neighboring countries, Burundi, the Democratic Republic of Congo (DRC), and South Sudan, although the recently signed peace accord between Government of South Sudan and the rebel factions, may reduce the threat of conflict in that part of the region. Beyond these risks, Uganda’s growth and development is constrained by the low levels of productivity of both agricultural and non-agricultural sectors; inappropriate urban development; the slow development of infrastructure; and the limited availability of credit. This type of growth can neither shield the economy from shocks nor accelerate its rate of economic growth to higher levels of prosperity. Secure property rights and better functioning land markets can generate productivity improvements in agriculture, allow better urban development and overall infrastructure investments, while improving access to finance and providing a platform for mobilizing more domestic revenues. The second section of this update addresses these issues in greater detail. Part 2: Proper land administration and management: A Key to productivity improvements, but how should it be done? while low oil prices are beneficial to Uganda’s Failure to register a greater proportion of Uganda’s land and the weak institutional capacities of land administration agencies have resulted in illiquid land markets and balance of trade, it has have acted as constraints on the development of the country’s financial systems, both increased the risk to of which factors are negatively affecting the country’s ability to transform its agricultural sector; to build efficient cities; and to achieve higher levels of productivity more generally. investment plans in the As can be seen from the experience of other countries, the ability of Uganda to leverage land oil sector. use to promote positive economic development will depend greatly on the level of security of land tenure and the ease with which land rights can be transferred between different entities, xiii including individuals, households and firms and government, with systems in place to ensure that government acquisitions are conducted in the public interest and with fair and full compensation. At present, approximately 20 percent of Uganda’s land is registered as mailo, freehold and leasehold tenure, which is higher than the average level of 10 percent for Sub-Saharan Africa as a whole. Despite these better than average figures, security of land tenure in Uganda remains weak due to unclear property rights and a high rate of occurrence of disputes and conflicts. A relatively small proportion of land in Uganda is marketable, which limits the flexibility of its usage. Even where they exist, land markets are highly segmented and inefficient. According to the Uganda National Household Survey of 2005/06, while approximately 60 percent of households own land, only 39 percent of individually-owned rural land was purchased. Because of the lack of clearly defined land rights, 37 percent of such land cannot be sold; 34 percent cannot be rented; and 44 percent of land cannot be used as security for a loan. With this state of affairs, both rural and urban transformation has been constrained. Land disputes are estimated to reduce the level of agricultural growth in Uganda by between 5 and 11 percentage points, with the availability of secure land being a significant factor in farmers’ decisions to move from subsistence into commercial agriculture. On the other hand, the limited fluidity of land markets, compounded by the lack of sufficient land for formal development projects and the lack of enabling site and building standards, has contributed to the low economic density of most urban centers in Uganda. At present, such centers are characterized by inefficient horizontal expansion, rather than more efficient vertical expansion achieved through the construction of high-rise, multipurpose buildings. Moreover, urban authorities do not have access to the land required for the necessary public works and social infrastructure and have to purchase it at exorbitant cost. This is a result of the high compensation rates involved in the acquisition of such land due to highly inflated land prices caused by the lack of available alternative investment opportunities and the need in many cases to pay compensation not only to registered land owners, but also to bona fide occupants. The government’s infrastructure program has also faced major challenges related to compensation and inflated costs on account of irregular transactions and land acquisition. Ugandan policy makers must formulate and implement smart policies that will ensure that land serves as a more productive asset that facilitates positive transformation and a diversification of the economic base. These policies should aim to: (i) promote the security of land tenure and reduce the rate of occurrence of conflicts and disputes caused by overlapping rights; (ii) promote the healthy development of rental markets for land; and (iii) strengthen the capacities of institutions responsible for management of land administration. Economically, such reforms would promote the development of a virtuous circle, as they would facilitate the achievement of higher levels of productivity, which in turn would enable the Government to increase the value of collected revenues, which in turn would provide it with the means to acquire additional land to promote further development and to compensate those who may have been negatively impacted by the process of economic transformation. However, vested interests, suspicion, fear of disruption to livelihoods, activism against any form of land reforms, sensitivities related to the location of investment projects and the resulting perverse incentives to local governments, all need to be taken into account if the tensions that may arise as a result of land reforms are to be managed appropriately. The Ugandan authorities have made important strides in creating a policy framework and devising initiatives geared towards achieving a smart policy framework for land management. In addition to the National Land Use Policy of 2007 and the National Land Policy of 2013, the Government of Uganda is in the advanced stages of developing the complementary National Resettlement Policy, National Urban Policy and a National Housing Policy. The Government has also embarked on a process of rehabilitating and modernizing land institutions, including through the computerization of the land information systems. Consistent with the Land Act 1998, the Uganda Land Commission the new oil economy will operates a Land Fund, the objective of which is to provide funds dramatically change Uganda’s to bona fide and lawful occupants to buy out land lords and also to finance resettlement of those made landless by disasters. There economic outlook; when are also initiatives to organize communal land owners in Northern production facilities become Uganda into legal entities and to register their land, while also accelerating the systematic registration of individual land rights. active, actual oil revenues could Implementation remains crucial in order to ensure that land in Uganda double the value of the country’s is secure, transferable, marketable, and plays a constructive role in the achievement of economic development. Drawing on global lessons, current level of fiscal revenues particularly from those countries in Africa that share many of the same xiv characteristics as Uganda, this report recommends four points of action to hasten the process of implementation. The first two of these actions build on initiatives that have already been commenced by the Government, while the other two are intended to bridge unaddressed gaps. The four points of action are: i. Accelerating the Systematic Registration of Land: The first point of action is to accelerate processes already in place to systematically register land to significantly increase the proportion of land that is registered, including land owned by individuals; communally-owned lands; and state-owned land. ii. Redesigning the Land Fund: The second point of action is to redesign the Land Fund to enhance its efficiency and equity. This will require the promotion of the principle and practice of land sharing between the mailo landlord and tenant (lawful and bona fide), with free negotiations between the two parties to enable one party to buy out the rights of the other. iii. Strengthening Institutions for Land Administration Management: The third point of action is to strengthen the institutions responsible for land administration management, including to: (i) improve dispute resolution systems to fill the institutional vacuum in areas where such capacities are particularly lacking, especially in northern Uganda and the Albertine region, by fully staffing zonal and district land offices; build competent formal institutions by providing adequate staff, budget and training to the judiciary throughout the country; and strengthen the Local Council Courts and their interface with traditional institutions; (ii) further strengthen land administration systems, including through the application of new technologies to improve documentation, information storage and retrieval, and valuation. The issue of valuation is particularly critical for urban areas, where a credible system for documenting and valuing land will go a long way towards streamlining transactions and eliminating speculation; and (iii) strengthen the management of local urban authorities’ finances to acquire land and pay for infrastructure improvements. iv. Reviewing Policy Commitments to Close Critical Gaps: The fourth point of action is to review and prioritize the many existing policy commitments to identify and close critical gaps. The key aim of this process should be to: (i) amend the laws to remove restrictions on rental markets on mailo and freehold land to improve landlord-tenant relations; (ii) create disincentives (including through the imposition of taxes) to discourage speculative holding of land unused for extended periods of time; (iii) clarify policies for increasing population the use of urban land, including through the provision of incentives to promote vertical expansion and multi-purpose usage of structures to promote density and sustainable density can support urban development; (iv) adopt innovative instruments for land pooling, financing and accelerated economic development to achieve economies of scale and equitable urban land development; and (v) address the issue of expropriation and compensation, to promote the principle growth, if appropriately of fairness and equity. The current market-based practice normally underestimates the managed through the value of future income from the investment for which the land is being acquired, and often does not provide payment for the movement of people into new areas of settlement and implementation of the restoration of livelihoods to at least the level that existed before the expropriation. systems to promote This action also requires for the policy framework to strengthen regulations and the enforcement of those that already exist. efficient land use xv xvi Part 1 Transporting goods and people in urban areas requires land for infrastructure development(Digital Media Network Ltd, 2015) The State of the Economy: Ugandan in modest recovery, faces new risks.. 1 Supported by moderate inflationary pressures and a subsequent strengthening of bank lending to the private sector, the Ugandan economy grew at the rate of 5.0 percent during FY 2014/15, continuing on the path of moderate recovery that began in the previous year. Like it succeeded to create space for faster private sector credit growth during FY 2014/15, monetary policy has recently adopted a tighter stance aimed at ensuring that the rapidly depreciating local currency, and any increased spending pressures during the election year does not fuel inflation further. Fiscal policy has remained almost blunt as tax revenues collected remain less than 13 percent of GDP and the public investment program is not significantly executed for three consecutive years. With the volatile external environment and uncertainties related to the upcoming national elections likely to constrain acceleration in private investments, the public sector will need to implement its investment program more effectively, in order for the country to sustain a positive economic growth trajectory in the near and medium term. This will involve fully implementing the Public Finance Management Act 2015 and to ‘invest in the capacity to invest’. During FY 2015/16, the Ugandan economy is forecasted to grow at a rate in the range of 5 - 5.5 percent, with uncertainties created by the upcoming elections; the need to tighten monetary policy in response to increasing inflationary pressures; and a weak external position acting as possible constraints on growth. However, growth is expected to increase into the medium term as the Government’s infrastructure program, including for oil production, materializes and eventually realizes economy-wide efficiency and productivity improvements. A number of downside risks, particularly those related to fiscal management and a volatile external environment threaten sustainability of high growth rates into the medium term. However, a more fundamental risk relates to inability of the Ugandan economy to raise productivity of both agricultural and non-agricultural sectors; and of rural and urban locations. Secure property rights and better functioning land markets and institutions can help land become a more productive factor of production and hence generate productivity improvements across the economy. It can also ensure that growth becomes more pro-poor as people currently with weak land rights benefit more from growth. 2 1. Recent Economic Developments At the end of FY 2014/15, Uganda completed its first five- year development plan and commenced on the second of such plans. A series of five-year plans are intended to facilitate the achievement of a vision for the economic and social transformation of the country by 2040. During the period of the recently completed plan, Uganda embarked on a number of projects intended both to address the infrastructure deficit and to prepare for the production of oil. The commencement of the second five-year plan is taking place in the context of the upcoming presidential and parliamentary elections, which are held every five years. According to this schedule, elections are planned to take place during the first quarter of 2016. During the previous elections, held in 2011, a number of tensions in the area of economic management arose. In the context of the upcoming elections, it is possible that similar tensions will recur. In this context and that of a volatile external environment, economic management will need to be delicately managed to sustain the efforts that have recently begun to be implemented to address longer term structural issues. Such efforts remain vital for the achievement of overall growth and economic development. Over the past five years, a series of internal and external shocks; slippages in fiscal and monetary policies; disruptions to aid flows due to corruption cases, and a volatile external environment, have affected Uganda’s macroeconomic performance. From a the acceleration peak of 9.8 percent in FY 2010/11, the rate of growth has declined steadily, reaching a low of 3.3 percent in FY 2012/13. However, as shocks abated and policy stabilized, the economy in the rate of begun to recover, growing by 4.6 percent during FY 2013/14. This acceleration in the rate of growth has been growth has been supported by a benign economic environment, characterized by low rates of inflation, good harvests, and favorable global commodity prices. However, the high level supported by a of volatility has negatively impacted living conditions of Ugandans. In addition, Uganda’s benign economic economic growth must be viewed in the context of the rapid expansion in the size of its environment, population. With a high rate of population growth, per capita income is estimated to have grown by only 2.4 percent over the past five years, which is much slower than the rate of 5.2 characterized percent achieved in the previous two decades. With these lower rates of growth, it may take at by low rates of least eight years for Uganda to achieve an increase in its average per capita income from the current level of US$ 660 to US$ 1000, thus fulfilling its goal of achieving middle income status. inflation, good As has been emphasized in our earlier economic updates, the passive acceptance of low harvests, and rates of growth is not an option for the country’s policymakers. Rather, policymakers need to actively address constraints on the achievement of higher rates of growth. favorable global commodity prices 3 1.1 M o de st r e c ov e ry i n e c on omi c g r owt h performance improved significantly during the subsequent quarters, largely due to the increased availability of private sector credit and Uganda’s economy is showing modest signs of recovery following positive business sentiments. By the end of the second quarter, the a slump that began in the 2011 post-election period (see Figure Business Tendency Indicators1 improved to 53.5; and the Fitch credit 1). In the early period of FY 2014/15, most of the country’s economic rating agency upgraded Uganda’s long term rating from B to B+. sectors contracted, with an overall decrease in the rate of economic Overall, the economy is estimated to have grown by 5.0 percent during growth of 1.4 percent during the first quarter of the year. However, FY 2014/15, a higher rate than achieved in the previous year, when the figure stood at 4.6 percent. Figure 1: Gradual Recovery in Uganda’s Economy through FY 2014/15 Source. Ministry of Finance With this modest recovery, Uganda’s rate of growth was still boom resulting from the large public sector infrastructure program lower than expected and considerably lower than that recorded and from investments made in preparation for the exploitation of the by neighboring EAC countries. Uganda’s economy had been country’s oil resources. Uganda also recorded lower rates of economic projected to grow at the rate of 6.1 percent during FY 2014/15, with growth than Kenya, Tanzania and Rwanda, recording the lowest rate this strong rate of growth expected to be driven by a construction of growth amongst these countries for the fifth year in a row. Figure 2: Uganda’s Economic Growth is the lowest in the East African region Source. IMF/World Bank database The Business Tendency Indicator (BTI) is published by Bank of Uganda. This index collects business community perceptions about the future of the Uganda 1 4 The recovery in the rate of growth achieved over the previous year in the availability of private credit. As a result, the total value of private was the result of both exogenous factors and domestic policy. In investments is estimated to have grown by two percentage points, line with the investment strategy that has been implemented over the reaching a level equivalent to 25 percent of GDP. This is a remarkable past three years, the value of the public sector’s capital investments improvement, with this increase sustaining the recovery that begun in continued to increase gradually. During FY 2014/15, the value of public FY 2013/14. investments reached the equivalent of 6.3 percent of GDP. While this was lower than the target of 8.6 percent of GDP, it was 0.7 percentage During the year, the services sector grew at a rate of 4.6 percent. points higher than the figure of 5.6 percent recorded in FY 2013/14. With this growth, the sector contributed 2.3 percentage points of the country’s total annual growth. Within the service sector, the The total value of private investments also increased significantly real estate, public administration and education sub-sectors grew during FY 2014/15, largely due to the increased availability particularly strongly, with each of these sub-sectors recording rates of credit and to the increased activities of the services and of growth in excess of five percent. Most significantly, the financial manufacturing sectors. The declining regional demand for and insurance services sub-sector grew at the rate of 14.5 percent, exports, combined with increases in the value of imports to support maintaining the high rate of growth achieved over recent years. In fact, construction, led to a decline in the contribution of net exports to GDP this sub-sector alone contributed to approximately 31 percent of the growth. However, this was partially compensated for by increased total growth of the services sector. domestic demand, with monetary conditions facilitating an increase Figure 3: Manufacturing recovered, but construction decelerated during FY 2014/15 Source. Ministry of Finance The industrial sector grew by 6.4 percent, a significant increase significantly lower than that of the figure of 10 percent recorded two over the figure of 4.3 percent recorded in the previous year. years ago. The manufacturing sub-sector grew by 9.7 percent in FY 2014/15, compared to the figure of 2.8 percent recorded in FY 2013/14. These The rate of growth of the agricultural sector stood at 4.4 percent figures indicate the ongoing recovery of this critical sector following a in FY 2014/15, significantly higher than the figure of 1.5 percent significant contraction three years ago, when this sector was affected recorded in the previous year. The performance of cash crops by power shortages and higher electricity prices; financing constraints recovered strongly, largely due to favorable commodity prices and resulting from tighter liquidity; and decreases in demand from overall terms of trade, and particularly strong performance in the global markets. Growth in this sector was largely driven by increased vanilla, cotton and flower sub-sectors. The strong performance of activities related to electricity generation and water supply, processing these sub-sectors helped offset the relatively weak performance of the and preservation; pharmaceutical production; and iron and steel coffee sub-sector, which suffered on account of unfavorable climatic production. As a result, the contribution of the manufacturing sub- conditions. With improved regulation and better supervision of Lake sector to GDP increased to approximately eight percent, up from the Victoria and other lakes, fish stocks have started to increase. As a figure of 7.6 percent recorded in the previous year. The rate of growth result of this and of increases in prices, the fishing sector recovered of the construction sector decreased to 2.0 percent, down from the strongly during FY 2014/15, with the volume of exports of fish and fish figure of 5.7 percent recorded in FY 2013/14. This rate of growth is products outside the region growing by close to 40 percent. 5 1 .2 B ef o r e r e c e n t volati l i ti e s, i nf l at io n r e ma ine d s ta bl e , a l l o wing mo ne ta ry policy to re m a i n n e ut ra l , b oth of w hi c h s ti mul at e d pr ivat e s e ct o r cr e d it The rate of inflation averaged 2.4 percent during FY 2014/15, with policy had to be adjusted to control inflation. The annual rate of food this low rate partially resulting from increased domestic supply crop inflation rose to 6.4 percent, from the negative rate of -0.1 percent and the reduced impact of external shocks throughout most of recorded in April. The core inflation rate also rose modestly, from 2.7 the year. However, towards the end of the year, the level of volatility percent at the beginning of the year to 4.8 percent in April. At the same began to increase, with this increased volatility continuing into the time, by May 2015, the value of the local currency relative to the dollar first quarter of FY 2015/16. With the level of agricultural production had declined by 21 percent compared to its position at the same point increasing dramatically on account of good weather, the price of in the previous year. Therefore, the rise in the core inflation rate was food declined to levels lower than recorded during the previous year. partially driven by the pass-through effects of the depreciation in the This implies a negative rate of annual food crops inflation through value of the shilling on the prices of imported goods. According to the first nine months of the year. At the same time, the decline in the Bank Uganda2, a one percent depreciation in the value of the shilling cost of imports, particularly due to the decline in the global cost of is expected to result in price increases of approximately 0.5 percent oil, mitigated the impacts of the inflationary pressures during that over the next three to six months. Therefore, the annual overall period, even though the spillover effect on domestic prices occurred (headline) inflation rate increased to 4.9 percent, from the average only gradually. However, starting in April, food prices started to rise annual rate of 3.3 percent that had been recorded through the year up gradually; the value of the shilling began to depreciate; and monetary until April (see Figure 4). Figure 4: Inflation remained low through FY 2014/15, but upward pressure started towards end of year Source: Uganda Bureau of Statistics Across the region, other countries also recorded low, stable The neutral monetary policy was not sufficient to create inflation rates during FY 2014/15, but similar upward trends confidence in the market during FY 2014/15. In spite of the have been recorded during early part of FY 2015/16. For example, fluctuating food prices, the sustained depreciation in the value of the Kenya recorded an average annual inflation rate of 6.6 percent during currency and the moderate increase of international oil prices, the FY 2014/15, with this being the highest recorded rate in the region. prospects for further increases in inflation were minimal during most Tanzania sustained a downward trend throughout most of the year, of FY 2014/15. In consideration of these factors, the Bank of Uganda as a result of which it recorded an average rate of 5.3 percent over the took the decision not to ease monetary policy to further stimulate year. Rwanda continued to record the lowest rate of inflation within the economy. By keeping the Central Bank Rate (CBR) at the same the EAC, with an average rate of 1.3 percent for FY 2014/15. level through the year, the Bank of Uganda maintained a neutral 2 Okello, A. J. and Brownbridge, M., (2013) Exchange Rate Pass-through and its Implications for Monetary Policy in Uganda. Bank of Uganda Working Paper No. 10/2013. 6 monetary policy stance throughout most of FY 2014/15. In spite of this national elections, with investors concerned regarding the possibility stance, market interest rates were quite volatile: following declines in of a surge in public expenditure, as was the case in the period the previous year, lending rates increased in the first quarter, before preceding the 2011 elections. The 91-day Treasury bill rate had risen to declining again later. The yield on government securities maintained 13.3 percent by April 2015, up from 9.1 percent at the beginning of the an upward trend throughout this period. This could have been on financial year. account of market uncertainty in the context of the forthcoming Figure 5: Market rates were not as stable as the Central Bank Rate during FY 2014/15 Source: Bank of Uganda With all factors pointing to further inflationary pressures, the Private sector credit grew at an average rate of 15 percent per annum Bank of Uganda tightened its monetary policy stance in April during the 10 months to April 2015, up from 8 percent in the same 2015, before implementing even more aggressive measures to period during FY 2013/14. This momentum is expected to have had tighten this policy in the first quarter of FY 2015/16. This led to a positive impact on growth and on the level of private investment, an increase in market interest rates and to the cost of credit. With as lending shifted away from personal and household consumption. additional indications of higher rates of inflation in the near future, The share of lending to the personal and household sector declined the Bank of Uganda raised the CBR to 12 percent in April 2015. By the to 16 percent of the total value of private sector credit, on account end of August 2015, the Bank of Uganda had raised the CBR three of a much slower increase of loans to this sector of only 17 percent times, to reach 16 percent. It also widened the band around the CBR during FY 2014/15, which was half the rate of growth recorded in the to 3 percentage points and the margin between the CBR and the previous year. The agricultural sector’s share stood at 10 percent, rediscount rate (the cost to commercial banks to access funding from with the volume of loans increasing by 37 percent. Lending to the the Central Bank by selling back their securities). Consequently, at manufacturing sector was characterized by low rates of growth for this point, holders of securities would rediscount them at a rate of 20 a large part of the year. However, these rates increased significantly percent, while the rate at which commercial banks could obtain credit during the second half of the year, with loans to the sector recording from the Central Bank (i.e. the Bank rate) had increased to 21 percent3. an average annual rate of growth of 33 percent by April 2015. Lending Commercial banks also raised their lending rates from the beginning to the trade sector declined throughout the year. Its year-on-year of April 2015, a departure from the trend towards a gradual decline growth, which peaked at an annual rate of 33 percent in December from the high point of 23.1 percent in August 2013 to 22.7 percent in 2014, was down to an annual rate of 3 percent by April 2015. This is May 2015. in line with the trend towards the depreciation in the value of the shilling, which makes imports more expensive and, more critically, The neutral monetary policy implemented throughout most of reflects on the impact of political instability in southern Sudan on the the year contributed to an increase in economic activity during Ugandan economy, as trade in that region comes to a standstill. FY 2014/15, as the cost of borrowing from banks declined slightly. 3 The Bank rate and Rediscount rate directly related to the Bank of Uganda’s key policy rate, the Central Bank rate. Until July 2015, the Bank and rediscount rates were automatically set at 3 and 4 percentage points higher than the Central Bank rate. Since then, this margin has been increased to 4 and 5 percentage points. 7 The share of shilling denominated loans continued to decline proportion of loans denominated in foreign currencies increased during FY 2014/15. By contrast, the proportion of loans denominated significantly in the building, mortgage, construction and real estate in foreign currencies has expanded at a steady rate since November sectors; the trade sector; and the manufacturing sector, with these 2012. In the 10 months up until April 2015, loans denominated in sectors together accounting for more than 69 percent of total credit foreign currencies averaged 41 percent of the total value of credit, denominated in foreign currency. compared to an average of 39 percent during FY 2013/14. The Figure 6: Domestic credit picked up strongly, led by government Source: Bank of Uganda The value of public sector credit continued to grow strongly the same period in FY 2013/14. The strong government demand for during FY 2014/15, albeit at a slower rate than the rate of growth credit, combined with relatively high yields for government paper, for private sector credit. As with the case of private sector credit, has led to banks holding a relatively higher proportion of assets growth in the value of Government credit was strong during FY in government paper, rather than developing long-term financing 2014/15, at the rate of 24 percent for the 10 months to April 2015. This options. This has contributed to the high cost of credit to private represents an increase from the figure of 22 percent recorded during sector. Figure 7: Credit to agriculture and manufacturing picking, albeit from a small base Source: Bank of Uganda 1.3 A weak external position, provided ground for a depreciating local currency Uganda’s overall external position deteriorated during FY The value of exports of goods increased by 3.1 percent, with this 2014/15 as a result of a decline in the value of transfers and FDI, increase being mainly due to a growth in the value of non-traditional despite modest improvements in the trade balance. According exports, including metal and plastic products, bottled water, and to IMF, the current account deficit increased from a value equivalent rice. However, the proportion of such exports to regional markets to 7.9 percent of GDP in FY 2013/14 to 8.8 percent in FY 2014/15. grew at a slower rate than in previous years, mainly because of 8 the decline in demand from South Sudan. Despite this increase, improvement to the trade balance by the equivalent to 5.7 percent of traditional commodities, including coffee and tea, are still Uganda’s GDP. In the area of services, there was a detrioration in the balance most significant exports, accounting for 30 percent of the total value of trade, with the value of net service imports doubling to reach the of export earnings during the fiscal year (see Figure 9). However, with equivalent of 1.8 percent of GDP. The income account also declined the slow growth of the global economy, the value of coffee exports by 13 percent due to higher income on equity payments, while the remained almost unchanged in FY 2014/15 compared to the previous value of current transfers declined by 5.7 percent. The increase in the year, with this value reaching US$ 402 million. The total value of value of service imports was a result of increased investments by the import of goods declined by one percentage point to reach the government in infrastructure, with these investments requiring the equivalent of 18.4 percent of GDP. These two factors resulted in an increased import of transport and insurance services. Figure 8: The external position deteriorated as current account worsened Source: IMF Estimates The financial account deteriorated by 10 percent in FY 2014/15 further increases in portfolio outflows, with the value of net outflows as the value of foreign direct investments (FDI) reduced. During standing at US$ 45 million in FY 2014/15, compared to a net inflow FY 2014/15, the value of FDI declined by 3.2 percent, declining from to a value of US$ 6 million in FY 2013/14. The increase in the value of the figure of US$ 1,225 million in FY 2013/14 to US$ 1,186 million in FY portfolio outflows, despite the relatively high yields on government 2014/15. With most FDI being allocated for investments in the mining securities, reflects the high level of uncertainty in currency markets, and quarrying sector, the low global price of oil could explain the 4 which in turn is partially driven by the depreciation in the value of the decline in the overall value of FDI. The situation was exacerbated by shilling. Figure 9: Foreign direct investment was for the mining and quarrying sector Source: Bank of Uganda 4 According to a private sector investment survey conducted by Bank of Uganda (2014), despite the declines in the value of FDI, these investments remain strong and are driven by investments in the mining, ICT, finance and insurance and manufacturing sectors, among others. 9 The overall balance of payments was in deficit, with the value since January 2014. Over FY 2014/15, the value of the shilling relative of the deficit amounting to US$ 475 million. At the same time, the to the dollar declined by 24 percent. The real effective exchange value of international reserves declined from US$ 3,394 million to US$ rate also depreciated by 17 percent over the same period. Most of 2,912 million. However, this level of reserves is sufficient to provide for this depreciation occurred during the second half of the year, with four months of import cover, which is considered an adequate level to Uganda’s currency coming under additional pressure from a bullish provide a cushion against external shocks. US dollar as the USA economy strengthened. Other factors that contributed to the downward trend in the value of the shilling were In line with the weakened external position, the value of the the relatively high cost of imports to support the construction sector; shilling has depreciated strongly over the recent past. Even with dividend payments; and uncertainty in the context of the forthcoming the level of reserves declining in response to the deterioration in the election. Indeed, as a result of these factors, since January 2015, the balance of payments, there has been an even stronger impact on the Ugandan shilling has declined not only against the dollar, but against value of the local currency, the value of which has reduced steadily both the Kenyan and Tanzanian currencies. Figure 10: Uganda shilling depreciated more than regional currencies during FY 2014/15 1.4 Slow pace of public investment results in lower fiscal deficit and a greater proportion of the budget being utilized for recurrent expenditure Between FY 2011/12 and FY 2013/14, there has been a sustained increase in total expenditure of 25 percent in nominal terms. As a effort to increase the relative proportion of the budget allocated share of GDP, total expenditure was budgeted to increase from a for capital expenditures, with this increased capital expenditure value equivalent to 16.7 percent of GDP in FY 2013/14 to 21.5 percent being intended to address the infrastructure deficit. However, in FY 2014/15. Of this expenditure, 30 percent was to be allocated for this goal has not yet been fully achieved. The shortfall in expenditure the development of transport and energy infrastructure. Intended to during this period amounted to a value equivalent to three develop social and human capital, the allocation to the education and percentage points of GDP. This shortfall constrained an expansionist health sectors constituted a large share of Government expenditure, fiscal policy that had the potential to stimulate growth in the short at 15 percent and 9 percent respectively. Domestic revenues were term as construction related to the development of infrastructure projected to increase from a value equivalent to 11.9 percent of GDP commenced. to 13.3 percent, as a result of the implementation of a series of tax measures intended to simplify the tax regime; to remove distortions; Similarly, in line with a policy to address the infrastructure and to broaden the tax base. This increase in revenue would have deficit and to stimulate growth, the Parliament approved an been supplemented with a modest increase in the value of external expansionary budget for FY 2014/15. This budget projected an grants from a value equivalent to 1.0 percent of GDP to that of 1.5 10 percent anticipated in that year. Therefore, in the approved budget, At this level of performance, the value of collected revenues the overall fiscal deficit was projected to increase from a value would have increased to a level equivalent to 12.9 percent of equivalent to 3.8 percent of GDP in FY 2013/14 to 6.9 percent. This was GDP, which is slightly above the target of 12.7 percent for the year. expected to be partially funded by external loans to a value equivalent In particular, good performance was recorded in the area of the to 3.5 percent of GDP and by domestic loans to a value equivalent to collection of corporate and withholding taxes, which are direct 3.4 percentage points of GDP. domestic taxes, and of import duties. On the other hand, performance was less impressive in the area of the collection of indirect domestic With the value of collected revenues coming closer to targeted taxes, mainly due to short falls in the collection of excise duty on beer levels, the implementation of the FY 2014/15 budget was under and on international telephone calls, with the latter being caused by less pressure than in the previous two years. The collection of a reduction in taxes on regional international calls rates. This sluggish domestic revenues exceeded target, after overcoming several months collection of revenues leaves Uganda far worse off than neighbouring of shortfalls during the first half of the year. The Uganda Revenue countries within the EAC. 5 Authority collected revenues, which reached a value of Shs 9.7 trillion. Uganda shilling – medium of exchange for exchange of goods and services in the country (Sheila Gashishiri, 2015) In terms of expenditure, the under-execution of public oil refinery would commence during the year. However, decisions investments continued to undermine fiscal policy objectives. For related to the public component of the financing for this project the third consecutive year, the failure to achieve targets was mainly also failed to reach a conclusion. Other components of the budget due to delays in executing infrastructure projects (see Table 1). Total involving development expenditure performed well during FY 2014/15. expenditures were below the budgeted target by the equivalent of 2.1 In particular, the works and transport sector, which accounts for 33 percentage points of GDP. This was fully reflected in the development percent of the domestic development budget, had reached a level of budget, with the construction of the Karuma dam, which accounted execution of 55 percent of its planned expenditure by December 2014. for 25 percent of the approved development budget (excluding Overall, the development and investment and lending expenditure donor projects), reached a level of execution of only two percent as is expected to have reached a value equivalent to 7.9 percent of GDP, a result of delays in concluding the financing arrangements for this compared to 11.1 percent in the approved budget. The persistent project. The negotiations between the Exim Bank of China and the implementation challenges affecting public investment projects Government for loans to finance 80 percent of the project progressed, continue to indicate the need to ‘invest in the capacity to invest’ if but these negotiations did not reach a conclusion during the year. public expenditures are to have a positive impact on growth and Therefore, construction progressed only slowly, with financing from development.6 domestic funds. It was also expected that the development of an 5 In FY 2011/12 domestic revenue as a share of GDP stood at 23 percent in Kenya, 17.6 percent in Tanzania, 14.3 percent in Rwanda and 14.8 percent in Burundi. 6 A better PIM system increases productivity growth and thus should have a continuing impact on growth, in contrast to reforms that yield a one-off increase in the level of output (Brahmbhatt and Canuto, 2012). 11 Recurrent expenditure remained almost as budgeted, in spite requested parliamentary approval for a supplementary recurrent of a huge ‘supplementary’ budget and some pressure due to the budget to a value of Shs 1122.4 billion, equivalent to 5.6 percent of requirement to meet interest payments. At a value equivalent to the total value of the approved budget, to pay pensions and gratuity 19 percent of the total value of the budget, expenditure on wages arrears (68 percent of the total) and to pay outstanding wages after remains below the budgeted figure. This was a result of a clean-up the payroll clean-up. Therefore, rather than increase expenditure, the of the government pay and pension system to ensure the validity supplementary budget reallocated the savings to other areas within of the government payroll. The savings from this clean-up exercise the recurrent budget. allowed for additional expenditure. Hence, the Government had Table 1: Central Government Revenue and Expenditure Framework(% of GDP, unless otherwise specified) Outturn Outturn Outturn Outturn Approved Projected Projection Budget Outturn 2010/11 2011/12 2012/13 2013/14 2014/15 2014/15 2015/16 REVENUE & GRANTS 15.5 13.1 12.9 13.0 14.8 14.1 15.1 Domestic Revenue 13.6 11.2 11.4 11.9 13.3 13.0 13.6 o/w URA Revenue Collection 10.9 10.1 11.0 11.4 12.7 12.9 12.9 Grants 1.9 1.9 1.5 1.0 1.5 1.1 1.6 EXPENDITURE 19.1 15.6 16.5 16.7 21.7 18.6 22.1 Recurrent Expenditure 12.7 9.4 9.1 9.8 10.3 10.0 10.4 Development & Investment 6.1 5.8 6.6 7.0 11.1 7.9 11.3 External 3.1 2.9 3.4 2.4 3.6 2.2 4.0 Domestic 3.0 3.0 3.2 4.5 7.6 5.8 7.3 Arrears and contingencies 0.4 0.5 0.1 0.0 0.1 0.3 0.2 OVERALL DEFICIT Including grants -3.6 -2.5 -3.6 -3.8 -6.9 -4.5 -7.0 Excluding grants -5.5 -4.5 -5.0 -4.8 -8.4 -5.6 -8.6 FINANCING 3.9 2.0 3.3 3.6 6.9 4.5 7.0 External Financing (net) 1.5 2.0 2.2 1.3 3.5 1.1 5.0 Budget Support Loans 0.5 0.2 0.5 0.0 0.0 0.0 0.0 Project Loans (Concessional) 1.4 1.8 2.0 1.6 2.2 1.5 1.6 Project Loans (non-concess.) 0.0 0.3 0.0 0.0 1.5 0.0 3.9 Amortisation -0.3 -0.3 -0.3 -0.3 -0.2 -0.3 -0.4 Domestic financing (net) 2.3 0.0 1.0 2.3 3.4 3.4 2.0 Bank of Uganda -- -2.0 -0.1 -0.3 1.8 1.5 0.3 Domestic Borrowing -- 2.0 1.2 2.6 1.6 1.8 1.7 Errors and omissions 0.3 -0.5 -0.3 -0.2 0.0 0.0 0.0 MEMORANDA ITEMS: GDP at market prices (U Shs billions) 47,078 59,420 63,905 68,407 75,183 75,183 83,596 Public debt stock (% of GDP) 25.7 22.0 26.2 29.0 31.9 33.8 36.0 o/w External 11.4 8.8 11.0 12.9 13.7 14.9 14.2 Source: Ministry of Finance, Planning and Economic Development 12 As a result of under-execution in the public investment budget, to the financing arrangements, this resulted in targeted external the fiscal deficit was lower than budgeted by a value equivalent financing to a value equivalent to up to 1.5 percent of GDP not to almost two percentage points of GDP. The overall deficit is materializing. The value of loans from domestic sources amounted estimated to have reached a value equivalent to 4.5 percent of GDP. to Shs 2.7 billion, which is a value equivalent to 3.4 percent of GDP. This would be 1.9 percentage points lower than the approved budget Hence, the value of these loans remained within the limits established deficit of 6.4 percent of GDP. However, this level of deficit is still one of by the approved budget. However, this kind of financing maintained the largest fiscal deficits in more than a decade. the upward trend observed over the past three years. As would be expected with increasing reliance on this form of financing in a thin The fiscal deficit was mainly financed using resources drawn financial market, it comes at a significant cost. Since July 2014, yields from domestic sources. With a large component of the development on government paper have maintained an upwards trend, which budget failing to be implemented due to the delayed conclusion eventually has an impact on the cost of credit to the private sector. Road works, including in rural areas of Nkokonjeru, Mukono, central Uganda, can boost productivity ((Sheila Gashishiri, 2014) 13 2. Economic Outlook 2.1 Pu bl ic inv e s t me nt t o und e r pin e co no mic g r o w th in ne a r t e r m a s unce r ta int ie s incr e a s e Uganda’s economic outlook for the near future is characterized by a high level of uncertainty, particularly in the context of the upcoming national elections in 2016, low international oil prices, and increasing pressure on its currency. In this context, the World Bank forecasts that the rate of growth of the Ugandan economy in FY 2015/16 will be in the range of 5.0 to 5.5 percent. With contradictory developments during the first quarter of the year and anticipated election activity, a modest increase in the rate of growth of GDP should be expected to be achieved. The ongoing recovery will depend heavily on the achievement of macro-stability, with the most significant factor being the achievement of a lower, less volatile rate of inflation. With demonstrated limited success to increase its collection of revenue to offset increased expenditure, there is an urgent need for the authorities to address constraints to the management of public investments and thereby to ensure that the expansive fiscal policy adopted for FY 2015/16 stimulates growth rather than contributes to instability. The protracted depreciation in the value of the Ugandan shilling is consistent with the weak external position and should improve Uganda’s competitiveness. However, it has resulted in increased inflationary pressures. Even if international energy prices increase only gradually the protracted over the next two years, the pass-through effects may exacerbate these inflationary pressures. depreciation in These pressures may be further exacerbated by unfavorable climatic conditions, especially the value of the poor rainfalls that may affect the supply of food to domestic markets. However, the tightening of monetary policy by the Central Bank is expected to mitigate these inflationary pressures Ugandan shilling to some extent. At the same time, a tightening of the monetary stance will come at a cost, as is consistent shown by the impact of the increase in interest rates at the beginning of this year. with the weak Beyond the high interest rates, uncertainties on account of elections and a bumpy external position external environment, could constrain private sector investments. If intensified, tight money policies will continue to reduce the level of credit available to the private sector. The and should increase in expenditure on large infrastructure projects, such as the Karuma and Isimba dams, improve Uganda’s may also result in lower access to credit by the private sector, if delays in accessing external loans continue and if these delays necessitate further increases in the use of domestic competitiveness resources. The total value of government securities issued during FY 2014/15 amounted to Shs 1.4 trillion, which does not exceed targeted levels. However, the total value of credit 14 provided to the public sector is rising faster than that of the value of percent of GDP, from the figure of 8.8 percent recorded in FY 2014/15. credit provided to the private sector. If the Government maintains its In particular, the increase in the value of imports relative to exports commitment to reducing domestic debt to moderate upward pressure may be exacerbated unless the situation in South Sudan improves on the cost of credit, then the crowding out of private investment will following the signing of the peace accord in August 2015; and boosts be curbed. Such policies will need to be implemented in the context of the growth of exports. And while commodity prices are currently the upcoming 2016 elections. Experience in various parts of the world forecast to decline throughout much of 2016, which may lower the demonstrate that these electoral cycles have an impact on economic inflationary pressures, the overall deterioration of the global economy performance. Similarly, private investors may be reluctant to make may lower global demand and hence continue to exert negative firm commitments in the period prior to the 2016 election. pressure on the performance of Uganda’s export sector and on the value of remittances and income flows. Contrasting these will be the The contrasting developments on the global economy could impact of the devaluation of the Chinese Yuan, which could lower worsen the already weak external position, as the current Uganda’s import bill by some points, given that China accounts for 13 account is forecast to deteriorate, reaching a level equivalent to 11 percent of Uganda’s imports (see Box 1). Box 1: China’s devaluation – Can Uganda’s fortunes offset the misfortunes? The Chinese economy has significantly weakened over the past three years. This was a result of reduced industrial production, investment, retail sales and export growth. In line with the changed fundamentals, on August 11, 2015, China devalued its currency, the Yuan, by 2 percent. This decision by the Central Bank of China is expected to have some implications to other countries including those in Africa. For Uganda, there could be three main channels, including trade, investment and debt. The Trade channel: China has become an increasingly large source of imports of many consumer goods in Uganda. While only about 3 percent of its exports (including leather, coffee, fish and food products) go to China, Uganda’s imports from China have gradually increased representing about 13 percent of its total imports in the FY 2014/15. Products imported from China include among others light manufacturing products, farm tools, textiles, pharmaceutical products, garments, and ceramics. It is worth to note that an additional 39 percent of Uganda’s imports, are sourced from Asia, including India, Japan, and Indonesia. The immediate effect of the recent devaluation of the Yuan could be an improvement of the trade balance as the value of Uganda’s imports from China reduce as a results of lower price of these imports. Moreover, Uganda’s total import bill could eventually reduce further if other Asian countries directly or indirectly devalue their currencies in response to the China’s currency devaluation. However, later, the cheaper imports could in fact outcompete Uganda’s exports in other markets and offset the improvement in Uganda’s current account balance. Meanwhile, this current account deterioration could be offset by far reaching effects to Uganda’s economy through its impact on domestic activities, including retail trade, construction and other productive activities (manufacturing and agriculture), due to favorable input prices. The investment channel: While it does not appear among the top 10 sources of foreign direct investment in the country, China has gradually increased its investment in Uganda over the past three years. According to the Uganda Investment Authority data, in 2013 FDI inflows from advanced economies reached US$857.6 billion, accounting for 60.8 percent of global FDI outflows. This was mainly due to the growth in South- to-South FDI flows mainly on account of investments from China, Hong Kong, Republic of Korea, Singapore and India into mining, manufacturing and infrastructure development activities. A weaker Chinese economy and its neighbors, will mean that the recent impetus to South to South, and starting with China’s investment to Uganda will be dampened. Thus, compromising planned infrastructure development projects and therefore affecting growth. The debt channel: As Uganda diversifies sources of financing in recent years, to finance the country’s ambitious infrastructure program, the bulk of its non-concessional borrowing is coming from China. This has been financing the construction of the Kampala-Entebbe Highway, and two major power dams (Karuma and Isimba). In 2013, China’s lending to Uganda was estimated at $596 million including a loan of $350 million from Exim Bank China, repayable over 40 years at 2 percent to finance the Kampala-Entebbe Highway. The Government of Uganda also eyes China for the upgrade of its railways system into standard gauge and the construction of the 600MW Karuma dam for a loan estimated at $9.7 billion. The bulk of these loans, especially the recent large ones, are denominated in US $. However, about 50 percent of US $ 499 million worth of the outstanding debt as of end June 2015, was denominated in Chinese Yuan. A devalued Chinese currency will reduce the amount of US $ required to service the debt. More than a devalued Chinese currency, a weaker Chinese economy will have far more adverse effects on African economies including Uganda. Source: World Bank Staff 15 In these circumstances, private investment is not expected to has so far been dampened by the rapid depreciation in the value of grow to a value significantly in excess of 25 percent of GDP during the shilling. And yet more critically, low oil prices continue to delay FY 2015/16, almost the same level recorded during FY 2014/15. decisions related to investments to facilitate oil production. Thus, The potentially positive impact of low oil prices on economic activity public investments are expected to be the main driver of growth. Table 2: Summary Assumptions for the Medium Term Outlook, (groth rate % unless otherwise indicated) Baseline Scenario 2014 2015 2016f 2017f GDP, at constant market prices 4.5 5.0 5.4 6.2 Private Consumption 0.3 12.3 8.0 6.9 Government Consumption 13.9 16.3 15.1 10.0 Gross Fixed Capital Investment 3.5 0.0 8.5 12.5 Change in Inventories, % contribution 0.0 0.4 0.0 0.0 Exports, Goods and Services 5.6 -7.5 6.0 7.0 Imports, Goods and Services -3.8 15.5 18.1 14.5 GDP, at constant factor prices 4.5 5.0 5.4 6.2 Agriculture 1.5 4.4 4.0 4.0 Manufacturing 4.3 6.4 7.6 9.3 Services 4.4 4.6 7.2 8.7 Inflation (GDP Deflator) 2.4 4.4 5.1 4.7 Inflation (Consumer Price Index) 6.7 2.4 5.5 5.8 Current Account Balance,% of GDP -7.9 -8.9 -11.0 -12.4 Fiscal Balance, % of GDP -3.8 -4.5 -7.0 -6.5 Poverty rate ($1.25 a day, PPP terms) 28.2 27.6 27.0 .. Source: World Bank As has been the case over the past several years, the services FY 2014/15. The annual rate of growth of the agricultural sector is sector will continue to be a major driver of growth, with this expected to reach approximately 4 percent in FY13, with long-term sector growing by approximately 8 percent per annum. Within weather forecasts continuing to point to favorable climatic conditions, this sector, the information and communication sub-sector will similar to those experienced in FY 2014/15. continue to be the most significant driver of growth. The contribution of the tourism sub-sector will most likely increase, benefiting from Fiscal policy remains critically important for the achievement of the depreciation in the value of the shilling, which makes Uganda the growth forecast for FY 2015/16 and subsequent years. Total a cheaper, more attractive destination. However, this sub-sector expenditure is envisaged to increase from a value equivalent to 18.6 remains highly sensitive to security developments within the East percent of GDP in FY 2014/15 to 22.1 percent in FY 2015/16. This figure Africa and wider Great Lakes region. Within the industrial sector, the is consistent with the budget that was presented to parliament, but rate of growth of the construction sub-sector is projected to accelerate higher than the figure of Shs 18.34 trillion presented in the budget to approximately 10 percent per annum, as public investments take strategy, to Shs 24.5 trillion. This increase was a result of adjustments off and FDI in extractive industries boosts construction activities. to the budget to capture the planned roll-over of securities, the value The manufacturing sub-sector is expected to grow at an annual rate of which amounted to Shs 4.79 trillion, and of external grants, the of approximately 7.6 percent, an acceleration from that recorded in value of which amounted to Shs 1.5 trillion. 16 This increase will be the result of net lending and investments budget allocated for public sector management and for accountability in hydro projects yet again being shifted to the subsequent year, sectors has been reduced, with this proportion declining to 11.9 necessitating an increase in the allocation to capital expenditure percent, down from the figure of 13.3 percent that had been budgeted from 7.9 percent to 11.3 percent in FY 2015/16. According to the FY in FY 2013/14. The proportion of the budget allocated to the health 2015/16 National Budget, 30 percent of the budget will be allocated sector will be 8.4 percent. Even with new measures aimed at widening for the development of roads and energy structure (see Figure 11), the revenue base and at improving tax administration, only meager in line with the Government’s strategy to prioritize measures to improvements in collections have been recorded, with the total address Uganda’s infrastructure gap. The Government has increased domestic revenue forecast to reach a value equivalent to 13.6 percent the allocation to roads infrastructure by 39 percent and to energy of GDP. As a result, the fiscal deficit will widen from the equivalent of infrastructure by 55 percent. At the same time, the proportion of the 4.5 percent of GDP in FY 2014/15 to 7 percent in FY 2015/16. Figure 11: Infrastructure sectors getting the largest allocation of the budget Sectoral allocation (% of total budget) Sectoral growth rates (% per annum) Source. Ministry of Finance With the Government’s expressed resolve to use external “institutionalize a rigorous appraisal system” for screening investment resources to finance large infrastructure projects, more than projects to improve their implementation. However, in addition to 80 percent of the fiscal deficit will be funded through external building capacity in the area of project appraisal, it is also necessary borrowing. The value of net external financing is projected to reach to complete work to strengthen the entire public investment the equivalent of 5 percent of GDP. With the decline in the value of management system, with this work already having commenced with concessional donor inflows, the value of loans from commercial support from World Bank (see Box 2). sources (non-concessional loans) will reach the equivalent of 3.9 percentage points of GDP. Domestic financing is forecast to reduce to about 2 percent of GDP, but will be at relatively high cost as demonstrated by recent auctions the contribution of the tourism The increased emphasis on capital expenditure over the past sub-sector will most likely three years has been intended to address existing infrastructure deficits, which continue to be a major constraint to the increase, benefiting from the development of the private sector. Unfortunately, key public depreciation in the value of the investment projects have not been executed on time because of procedural and financial delays. The construction of two hydro power shilling, which makes Uganda projects (Karuma and Isimba) is two years behind schedule, while the a cheaper, more attractive construction of the infrastructure required to facilitate the production of oil is yet to commence, making the date for the commencement of destination oil production highly uncertain. The FY 2015/16 Budget Framework Paper acknowledges that project appraisal is weak and promises to 17 Box 2: Strengthening Public Investment Management in Uganda for Improved Efficiency Uganda ranks 46th out of 71 countries in the Public Investment Management Index (PIMI) IMF’s public investment efficiency index (PIMI). PIMI Appraisal Selection Implementation Evaluation Its scores are particularly poor with respect Uganda 0.36 0.20 0.70 0.38 0.18 to project appraisal, implementation and EAC 0.38 0.30 0.45 0.53 0.23 evaluation (Box 2). The Country Economic SSA 0.38 0.33 0.45 0.48 0.28 Memorandum (CEM 2015) argues that improved LIC 0.47 0.21 0.28 0.30 0.20 efficiency in public sector spending would lead MIC 0.57 0.21 0.30 0.28 0.22 to higher GDP growth rates. In other words, higher growth would be achieved using fewer resources. Public Investment Management (PIM) systems need to improve, in terms of strategic guidance for public projects (alignment to NDP priorities and adoption of minimum technical and financial standards), project selection, budgeting and implementation (integration into the budget cycle and medium-term expenditure frameworks), project audit and evaluation. Improving the efficiency of public investment management (PIM), in terms of project appraisal, selection, implementation and evaluation, would increase the fiscal space available to developing countries, like Uganda, to invest in vital infrastructure projects much needed for growth and development. The Government of Uganda has already taken steps to address the shortcomings in the area of PIM. The restructuring of the Ministry of Finance to create a department in charge of Project Analysis and PPP is already a positive step forward. The World Bank is providing a technical assistance for strengthening PIM to the Government of Uganda through a DfID trust fund. The aim of this technical assistance is threefold: (a) developing public investment guidelines and manuals; (b) capacity building; and (c) establishing an institutional organization, framework and arrangements to improve PIM System. The following activities are being prioritized in the context of the TA: (i) Simplified Manual for Public Investment Appraisal; (ii) PIM Framework with recommendations on how the Government can improve the public management process to select better projects; (iii) Training activities in Log Frame Approach, Cost Benefit Analysis and Cost Effectiveness for public officials; and (iv) Action Plan with recommendations to establish an institutional organization, framework and arrangements to improve PIM System. Source: World Bank, 2015. Uganda Country Economic Memorandum If implemented in accordance with its stated aims, the Public emergency spending, the need for which may emerge during the Financial Management (PFM) Act 2015 should result in significant course of year. Hence, it eliminates the need for supplementary improvements in the area of fiscal policy management. The PFM budgets and in-year budget shifts between sectors. This is a significant Act covers many aspects of fiscal policy management, ranging from measure, given that these two factors have negatively impacted the measures to improve transparency to the development of systems credibility of the budget in recent years. In addition, with the PFM Act for the management of petroleum revenues (See Box 3). Already, mandating measures to improve transparency, the budget approved the realignment of the budget timetable has enabled the budget to by the Parliament now has to include all securities and expenditures be passed by Parliament before the beginning of the financial year. related to external grants. This has removed uncertainties resulting from government entities spending on ‘vote on account’, an allowed spending of a portion of Over the medium term, if the public investment program takes off to the approved budget, before it is approved by parliament. For the FY remove constraints to growth; if the new Public Financial Management 2015/16 budget, the preparation, processing and approval processes Act is implemented in a manner that improves financial management need to be shifted forward. This enables budget implementation to systems; and if activities related to oil intensify to drive the level proceed immediately at the beginning of the financial year, one factor of private investment, Uganda’s rate of economic growth should that is expected to improve the absorption and implementation of the increase gradually, again reaching and perhaps even exceeding budget. For the first time, the budget has also included a contingency recent historical average rates of 7-8 percent. With domestic revenues allocation, with clear conditions on usage. This is meant to facilitate improving only marginally, the increases required for infrastructure 18 investments will result in an expanding fiscal deficit, which is expected will largely be driven by the exploitation of the country’s oil resources to decline by about 2020. The forecast also assumes that inflationary and associated activities. It may also be driven by the removal of pressures will be minimal beyond 2016 national elections and that the constraints affecting land markets to bolster access to credit; by the ongoing weakness of the global economy will have a disinflationary development of infrastructure, especially within urban centers; and by effect into the medium term. This increased rate of private investment more efficient and effective rural development. Box 3: Uganda Public Financial Management (PFM) Act, 2015 The PFM Act was enacted in March 2015. It is a major milestone that consolidates earlier existing laws on the management (collection, allocation and utilization) of public finances. It also updates existing PFM laws to accommodate emerging challenges. The PFM Act 2015 aims to streamline and ensure efficient management of public resources. The salient points of the PFM act include: • A Charter of Fiscal Responsibility that is aimed to ensure sound fiscal and macroeconomic management. This Charter requires that an elected government will, within three months following elections, be required to prepare and submit to Parliament a Charter of Fiscal Responsibility that will: (i) provide measureable objectives for the fiscal policy for the next 3 years; (ii) explain the methodology that will be used to measure government against set objectives; (iii) list sources of data; (iv) demonstrate how the fiscal objectives are consistent with prudent macroeconomic management; and (v) consistently provide an economic and fiscal update on the set objectives. • The Budget calendar should ensure that the budget for each financial year is effective as of the start of that financial year. This is aimed at ensuring predictability and timely availability of budget resources, thereby reducing budget implementation challenges. The budget for the subsequent year is required to be approved by Parliament on May 31, before the resumption of the fiscal year. This budget becomes effective on July 1, at the start of the fiscal year. This replaces the system where budget would be read to parliament in June and became effective on September 1, allowing spending agents to depend on ‘vote on account’ funding for the first quarter of the year. • Strict alignment of the budget with the National Development Plan. The annual budget shall be consistent with the NDP, the Charter of Fiscal Responsibility and the Budget Framework paper. As such, the annual budget shall be accompanied by a certificate of compliance with the annual budget of the previous financial year, with this certificate to be issued by the National Planning Authority. This is expected to limit in-year budget deviations that are inconsistent with approved budgets and NDP. • Strict reporting requirements in PFM and budget cycle. • The establishment of a contingency fund to accommodate unforeseen emerging budget priorities. This is intended to limit in year budget cuts for ‘weak’ sectors. • Removes flexibility of accounting officers to accumulate budget arrears. • A vote shall not take any credit from a local company or body unless it has unpaid domestic arrears from debt incurred in a previous financial year. In addition, it has capacity to pay for expenditure from the approved estimates as appropriated by Parliament for that financial year. • Provides legal and regulatory framework for the collection, allocation and management of petroleum revenue The PFM Act 2015 provides for the establishment of a Petroleum Fund in which all petroleum revenues that accrue to Government will be paid. Further, the Act provides for guidelines for collection, deposits, withdrawals, and transfers to the consolidated fund of petroleum revenues into and from the Fund; the reporting and accountability modes, including requiring that reports of the petroleum fund are presented to Parliament semi-annually by April 1 and December 31 every year. Amongst other matters, these reports should cover flows, volumes and sources of revenues in the fund. The Act also provides for the establishment of a Petroleum Revenue Investment Reserve under Parliamentary oversight, as well as guidelines and management for investments under the petroleum revenue investment reserve. Source: Ministry of Finance 19 2.2 I n t er n a l r i sks a re the mos t s i gni f ica nt, number of hydro projects, oil refineries, oil pipe lines and numerous b ut e x t er n a l r is ks a ls o e xi s t transport infrastructure projects, the total value of the required investments is significant. Thus, there is a significant potential for financing risks if these investments are not properly managed and The economic outlook faces a number of risks, with the majority sequenced 7. In the short to medium term, use of domestic resources of these risks relating to fiscal management. The immediate risk will be limited by the shallow capital market, as under subscription of relates to fiscal management in the context of pressures to increase auctions for government securities. spending during the election year. With inflationary pressures already threatening stability, any unwarranted increases in expenditure may A more expansionary fiscal policy will also result in higher levels result in increases to the rate of inflation and to lower than expected of debt, the sustainability of which largely depends on whether levels of economic activity. This occurred during the 2011 election the public investment program generates a strong private sector period, when inflationary pressures resulting from exogenous causes response that results in increased growth and increases to the were exacerbated by the excessive use of government savings to value of domestic revenues. Even with the anticipated investments, finance expenditures driven by electoral pressures, pushing the the risk of debt distress is still low for Uganda. The most recent Joint rate of inflation to double digit figures. This pressure can come in IMF-World Bank Debt Sustainability Analysis (DSA), conducted in different modes. For example, in complete disregard of a moratorium June 2015, indicates that Uganda remains at a low level of risk of on creation of districts which became effective three years ago, debt distress. The risk level remains low because the bulk of the parliament is considering to create four new districts. This move debt derives from loans made on concessional terms, meaning that will increase the public administration budget for FY 2016/17 by the debt will be paid back over a period of at least 30 years and Shs 236 billion, before consideration is made for the additional 22 at an interest rate not higher than three percent per annum. The districts planned to be created over the next five years, all of which Government’s ambitious plan to scale up public investment remains will increase the total number of districts from the current 111 to 137. consistent with the achievement of debt sustainability. Nonetheless, Yet creation of other administration units, including sub-counties, the debt service-to-revenue ratio is high owing to the relatively low constituencies, and municipalities, will expand the size of parliament, revenues and the short maturity of domestic debt. In addition, there and have major budgetary implications. In addition, the elections has been a recent shift towards increased domestic borrowing, with may result in increased anxiety and uncertainty, particularly if the the share of domestic loans increasing to 50 percent by FY 2014/15. political climate deteriorates and/or civil unrest occurs. This may have If this trend continues, it could crowd out private sector investments. a negative impact on business and economic activity, especially in While the period of maturity of government securities has been urban areas, thereby undermining the projected economic recovery. expanded to 15 years, with shallow capital markets, securities with maturity periods of less than one-year constitute 48 percent With poor performance in the area of domestic revenue of the total. This short term maturation period, together with the mobilization and considerable uncertainty regarding the Government’s low levels of domestic revenue collection, creates a commencement of oil production and the subsequent flow of significant financing risk. Another critical factor affecting sustainability revenues, there remains considerable risks to the financing of is the economic viability and appropriate cost recovery of the new investments in the country. With Government plans to invest in a projects, which will continue to require a careful sequencing of execution that would be compatible with the economy’s absorptive capacity and the Government’s implementation capacities. creation of other administration Uganda remains vulnerable to a number of external shocks, including shocks related to fluctuations in the prices of its main units, including sub-counties, exports and imports and to regional security. As has been clearly constituencies, and municipalities, demonstrated over the past few years, volatile commodity prices and financial distress in industrialized countries can affect Uganda’s will expand the size of parliament, economy to a significant degree. In particular, variations in world food and energy prices can have adverse effects on the country’s and have major budgetary external position, and cause or exacerbate domestic inflation, implications as occurred in early 2010. While low oil prices are beneficial to Uganda’s balance of trade, it has increased the risk to investment 7 See discussion in the Fifth World Bank Economic Update, February 2015 20 plans in the oil sector. If oil prices take longer to recover from the 2.3 A cce l e r at ing g r o wt h r e q uir e s drillin g current levels of US $ 40 per barrel, compared to the estimated d e e pe r f o r pr o d uct iv it y impr ov e men ts break-even price of US $ 60 per barrel for its production in Uganda, it may even require different choices with respect to the phasing of refinery and pipeline investments. A prolonged low economic Uganda’s economic performance in the period from 1992 to 2010 activity in China will make Uganda’s imports from there cheaper, was very impressive, with high rates of growth of income, poverty but its impact on global demand could increase volatility in global reduction and increased consumption levels for the poorest. commodity prices, including oil prices, may further reduce the value During those two decades, the annual rate of growth of GDP of the country’s exports; exacerbate pressure on the currency; and averaged 7.5 percent. The proportion of households living under the increased inflationary pressures, all of which may contribute to a national poverty line stood at 19.5 percent in 2013, from 52 percent slowdown in economic growth. It could also result in lower capital in 1992. Consumption by the bottom 40 percent grew at an average inflows, including inflows from remittances and in the form of aid. of around 3 percent over the twenty year period from 1993 to 2013, This might result in significant additional pressures on the balance which is higher than most countries in the region. Strong performance of payments, which would require the local currency to depreciate was driven first by the reconstruction effort, and then by the gradual further to maintain competitiveness, rather than a depletion of foreign build-up of human and physical capital, following the wide ranging currency reserves or reduction in the value of the local currency. While reforms starting in the 1990s. During that time, per capita income depreciation in the value of the shilling would ensure that exports grew at an average annual rate of 3.7 percent. Over the same period, remain competitive, it could also lead to increased inflationary the number of new jobs in the formal sector increased by an average pressures. The country’s trade prospects are also influenced by the annual rate of 6 percent. If Uganda had continued to grow at that security situation in neighboring countries, Burundi, the Democratic same rate, it would currently have a level of per capita income that is Republic of Congo (DRC), and South Sudan, although the recently 7.7 percent higher in real terms than its actual realized level. signed peace accord between Government of South Sudan and the rebel factions, may reduce the threat of conflict in that part of the region. Mukasa’s carpentry workshop in Gayaza, outskits of Kampala - keeping the informal sector growing (Sheila Gashishiri, 2014) 21 In the past five years, economic performance has deteriorated fundamentally robust enough to sustain long term economic growth. in terms of a number of indicators. The actual average rate of At the aggregate level, the changes to the structure of production from economic growth since 2010 has been two percentage points lower agriculture to services have not been matched by a corresponding than in the previous period, standing at 5.4 percent. Hence, with the change in the structure of the labor force. Consequently, while the population continuing to grow at a rate in excess of three percent, the relative contribution of agriculture to total output has more than average per capita income has grown by just 2.4 percent per annum. halved over the past two decades, sinking to around 25 percent of With significant FDI inflows; the confirmation of recoverable reserves GDP over the past five years, it continues to be the primary source of oil in 2006; and plans for its production announced soon after, of employment for more than 75 percent of the labor force. At the this period should have been associated with an increase in private micro level, growth has been underpinned by a proliferation of small investment, particularly in the period during which the infrastructure low productivity firms, both within agricultural and non-agricultural for the exploitation of oil resources should have been developed. sectors. Uganda’s business growth has primarily involved low value- Instead, the average annual rate of growth of private investment has added products, as households divest away from agriculture and declined from 11.2 percent in the two decades prior to 2010, to only small-scale entrepreneurs occupy themselves in low-value retail 4.7 percent over the past five years. Across sectors, while services services. With the bulk of new firms being established in sectors remained the largest contributor to GDP, the rate of growth for that characterized by low value production, the transformation of sector has decelerated from 7.8 percent to 6.3 percent. Over the same production into manufacturing and higher value-added products periods, the rate of growth of the manufacturing sector decelerated has been slow. Businesses that have recorded increased levels of from 9.8 percent to 3.0 percent. The rate of growth of the previously productivity have done so through the deployment of new technology booming construction sector also declined from 10.3 percent to which partially replaced labor, as has been the case in the financial below 8.4 percent between these two periods. Agriculture grew at the services sub-sector. As stated in the Second Uganda Economic slowest rate of 1.9 percent per annum over, which was also lower than Update, the overall shift in production and employment patterns has the average rate of growth of 3.1 percent reached in the earlier decade. not been growth enhancing because resources are shifting away from high productivity sectors to low productivity sectors. This could at In spite of the adverse impact of the successive exogenous shocks, least partially explain the overall slowdown in the rate of economic the deceleration in the rate of Uganda’s economic growth can growth. primarily be explained by the failure to achieve productivity improvements that sustain long term growth. These improvements For Uganda to sustain a high rate of economic growth, the country would not only drive long-term growth, they would also make the has to either raise the level of productivity in sectors where country more resilient to exogenous shocks. Successive shocks, the largest proportion of its labor force is employed; to move both internal and external, including a global economic slowdown, people out of low productivity sectors; or both. The approaches regional disturbances, macroeconomic instability characterized by adopted to identify the most binding constraints to the productivity double digit inflation, and disruption in aid due to corruption cases, improvements in both rural and urban areas, and to implement have all affected Uganda’s macroeconomic performance. These policies that can address these constraints, are commendable. shocks occurred in the context of the form of growth that is not Indeed, efforts to build both physical and human capital by investing in infrastructure and social services can yield impressive results, if appropriately implemented. However, if other fundamental factors of production, such as land, are not managed appropriately, increases while the period of maturity of to productivity either within agriculture or within the non-agricultural government securities has been sectors will be limited. Across space, this will apply to activities in rural areas, and within urban areas, which have and will continue to be the expanded to 15 years, shallow main platform for raising productivity across the country 8 . At present, current investments in infrastructure, particularly those involving road capital markets and securities with construction, face a number of challenges, including persistent delays maturity periods of less than one- and high costs resulting from issues related to land acquisition. year constitute 48 percent of the Land is a vitally important factor in any country’s production total functions. Land is a vital prerequisite for the implementation of almost all economic activities, except the most sophisticated of 8 World Bank 2015, Uganda Economic Update, 5th Edition. “The Growth Challenge: Can Ugandan Cities Get to Work?” Washington DC. 22 virtual services. In particular, land is required as the geographical in the central region, where the country’s major urban centers are base for agricultural and manufacturing activities. Land serves as one located. These areas have also been the sources of growth and off- of the most significant forms of collateral for access to finance. Land farm job creation. provides stability for its owners, who can leverage land ownership to facilitate involvement in productive economic activities. Combined As global experience demonstrates, Uganda can raise productivity with labor and capital, land forms one of the most significant factors even with rising densities if a significant proportion of the of production. Land usage determines how economic activities are increasingly large labor force is engaged in higher value economic re-structured as demographic patterns evolve; how urban areas activities. While countries such as Belgium, the United Kingdom, develop; how governments source revenues for their operations; and and Switzerland have population densities comparable to or indeed how people live and interact. With its fundamental importance in all far greater than those of Uganda, their economic output, both these areas, land use has a significant impact on a country’s economic in per capita and absolute terms, is many times greater. With its output; on its level of productivity; and on the degree of inclusiveness population density of 194 persons per square kilometer, the total of its growth processes. value of Uganda’s economic output in 2014 amounted to US $ 26 billion. By contrast, Belgium, with a population density of 371 persons Uganda’s rapidly expanding population is placing increasing per square kilometer, generated an economic output equivalent pressure on land usage. This has significant implications for to a value of US $ 533 billion of GDP in the same year. Similarly, the the country’s productivity. The Uganda Bureau of Statistics has United Kingdom, with a density of 267 persons per square kilometer, estimated that by August 2014, Uganda’s population had reached generated an economic output equivalent to a value of US $ 2,941 34.7 million, with an average annual rate of population growth of 3.0 billion of GDP. Similar experiences across the world demonstrate that percent. Based on these figures, Uganda has a population density of land can be managed appropriately to generate rapid and sustainable 194 persons per square kilometer. This compares to the figure of 80 growth, even in the context of high population densities. persons per square kilometer in Kenya, and 116 in Ghana. With the majority of the population still living in rural areas, where the main The Government’s focus on agricultural transformation is source of livelihood is agriculture, land has been absorbing the rapidly intended to raise productivity in rural areas. However, for this expanding labor force without corresponding increases to the level transformation to occur, land must be utilized appropriately. of productivity. As the population continues to increase, patterns of Currently, Uganda is a low income country whose labor force is land use and ownership are expected to change. If the appropriate predominantly employed in the agricultural sector. With the bulk policies are not implemented and the appropriate institutions are of those involved in agriculture operating in subsistence farming not developed, then these changes may result in a decline in the operations, the agricultural sector has not responded effectively overall productivity of the land, and possibly the increased occurrence to changes in the terms of trade. The persistently low rates of of social conflict. At the same time, a significant and increasing growth achieved by the agricultural sector are largely due to low proportion of the population now lives in urban areas. These areas productivity growth. With 58 percent of agricultural output being will continue to be the drivers of growth, facilitating economic derived from small farms of less than one hectare, and another 38 transformation through a shift towards higher value added activities. percent from farms of not more than five hectares, achievement of So far, the highest rates of growth in population density are recorded a structural transformation involving the smooth implementation of Organizing agricultural land in Mbarara, South west Uganda (Great Lakes Film Production Ltd, 2013) 23 smallholder agricultural commercialization makes good economic activities and the labor force moves away from low productivity sense. For these farms to thrive, land rights must be secure and activities in subsistence agriculture, the more rapid the rate of further fragmentation of farmland avoided to ascertain availability economic transformation. Within rural areas, economic activity of minimum sizes that can support commercialization 9, in addition will remain fairly widely distributed with productivity differences to provision of rural connectivity, rural finance accessibility, and determined by soil fertility, climate and access to technology agricultural services. Larger scale agricultural investments, on the and market infrastructure. In urban areas, the level of economic other hand, require access to a secure land market which can provide development is determined by the extent to which land is adaptable the land in appropriate size and no encumbrances. to changing market demand. This raises two questions: For the process of urbanization to take place rapidly and 1. Is the manner in which land is managed in Uganda promoting efficiently, proper land use is critically important to ensuring productivity improvement and supportive of the transformation that these areas drive growth in productivity and productive process? employment. The economic benefits of urban growth come from 2. What can Uganda do to ensure that this fundamental factor of exploiting economies of scale; from agglomeration effects; and from production supports economic transformation? effective substitution between land and non-land inputs. One of the most important pillars of an efficient city is appropriate land use, which in turn is determined by land policies and institutions that support urban efficiency. Increasing the density of economic activities is one of the key features of successful urbanization, enabled by using land for higher value activities over time. The Government’s ambitious program to develop infrastructure has faced major implementation challenges. The bulk of these challenges relate to lack of proper land use policy; weak land administration and management systems (including for valuation, information storage and retrieval); and corruption. In a country where most land is privately owned, public projects that require land face major costs related to compensation, especially where new roads are as can be seen from the experience being constructed or existing ones are extended. By June 2015, 18 major road upgrading projects, with a total budget of Shs 4.65 trillion, of other countries, the ability required payment of compensation for land estimated to reach a of Uganda to leverage land use value equivalent to between 3 to 24 percent of the budget, depending on the location of the road. In addition to the cost of compensation, to promote positive economic these projects face major delays caused by the need to resolve issues development will depend related to land acquisition, with these delays further increasing the cost of construction. As a result of these factors, all but one of the greatly on the level of security Government’s major road construction projects have been subject to of land tenure and the ease significant delays 10. with which land rights can be If land is used efficiently, it can support the processes of transferred between different agricultural transformation and urbanization, enabling the country to raise its level of productivity and achieve the economic entities, including individuals, transformation to which it aspires. As in many other successfully households and firms and developing regions around the world, transformation of land use is a key characteristic of economic transformation. As a general rule, government. the greater the extent to which land is used for higher productivity 9 World Bank 2012, Uganda Promoting Inclusive Growth: Transforming Farms, Human Capital and Economic Geography, Washington DC. 10 Uganda National Roads Authority, June 2015, Status report on Road Development Projects, Kampala, Uganda 24 Kampalas’ sprawling slums alongside skyscrapers due to unplanned urbanization Great Lakes Film Production Ltd, 2014) 25 26 Part 2 Simplifying registration with technology – Kampala’s aerial map of cadastral data to support land registration (Ministry of Lands, Housing and Urban Development, 2015) Proper land administration and management : A Key to productivity improvements, but how can it be done? 27 Uganda is characterized by a high level of land tenure insecurity, with weak institutions for land management and administration, which factors are constraining the country from exploiting land to accelerate the pace of agricultural transformation; to plan and build effective cities; and to generally shift the economy to higher productivity levels. The cost of insecurity is high. For instance, It is estimated that land related disputes result in a loss of agricultural productivity of at least 5 to 11 percent of the total value of agricultural output. In addition, failure to manage land appropriately means that urban areas are failing to reach the level of density necessary to exploit economies of agglomeration. Improving the land tenure security and developing land markets requires a multipronged approach. On one hand Government can adopt measures to accelerate the registration of individually owned land, including use of innovative, cost efficient technology such as that used in Rwanda. On the other the institutions responsible for land administration, including its valuation as well as dispute resolution, must be strengthened. Yet in spite of the many policies pertaining, there are critical policy gaps to close to promote security and marketability of land. Only 20 percent of land in Uganda is registered, the bulk of which under the mailo land tenure system. Special attention ought to be given to the remaining 80 percent which, apart from holding a huge potential, is also more complicated to register as it includes land in northern and north-eastern Uganda that is predominantly communally owned. In addition to establishing communal land owning groups as legal entities whose land can be registered, linkages between communally owned land groups and investors should be established to negotiate legally binding stakes in promising investments. Improving land use should not be restricted to private land, which could be taxed to discourage the practice of the acquisition of land as a non-productive investment, but also make better use of land owned by Government by registering the land and rectifying processes for its allocation. In addition, development of the National Urban Policy and National Housing Policy must be accelerated to guide the use of land in urban areas to promote more efficient and effective urbanization. 28 3.Faster economic transformation calls for better land management? The extent to which the use of land supports economic growth and overall development depends to a significant degree on the level of security of land rights. It also depends on the degree to which these rights can be transferred between individuals, households, and firms and/or acquired by government institutions acting in the public interest, with fair and full compensation paid to the owners of the land in such cases. While Sub-Saharan Africa is endowed with half of the world’s uncultivated usable land, it is vulnerable to land grabbing and expropriation without adequate compensation, as about 90 percent of its rural land is undocumented.11 In fact, in the last 10 years, investors have claimed millions of hectares of agricultural land in violation of the principles of responsible agro-investment in an environment that neither protects the land rights of local communities nor secures long term interests of investors.12 Thus, despite the extent of the land available for agriculture, a large proportion of Africa’s population is affected by food insecurity and productivity gaps;13 land degradation; and the proliferation of slums. It is no coincidence that much of the continent remains mired in poverty. Is Uganda much different from comparable countries on the continent? The next section attempts to address this question by exploring the state of tenure security and the state of land markets that enable or constrain the transfer of land rights from one entity or individual to another in Uganda. It then attempts to analyze how these factors affect productivity, investments and growth. the 1995 3.1 Rights to land ownership in Uganda remain insecure Constitution vests radical title, the The three most important factors determining the level of land tenure security are: (i) ultimate ownership the existence of legally binding rights to an area of land; (ii) the existence of a system of land, in the to document, store and retrieve information regarding this land and the nature of the rights to it; and (iii) the degree of efficiency and integrity of a system or mechanism people of Uganda, for resolving disputes related to those rights. In terms of the first of these factors, the enabling rights to a legal rights to an area of land are ordinarily established by a formal system of tenure, the nature of which is determined by the existing laws and regulations in the country. In terms particular piece of of the second and third of these factors, the management of information and the resolution land to be held in of disputes are determined by the existence of institutions with a legal mandate and the capacities to enable them to manage these issues. accordance with the freehold, leasehold, mailo land and customary land 11 Byamugisha, F. F. K. 2013. “Securing Africa’s Land for Shared Prosperity: A program to Scale up Reforms and Investments”. Africa Development Forum Series. Washington DC. World Bank. tenure system 12 Cotula, L. 2013. “The Great African Land Grab? Agricultural Investments and the Global Food System”. African Arguments. Deininger, K., D. Byerlee, J. Lindsay, A. Norton, H. Selod, and M. Stickler. 2011. “Rising global interest in farmland: 13 Can it yield sustainable and equitable benefits?” Washington, D.C.: World Bank. 29 The current land tenure system in Uganda has evolved over with evolving government policies, the Government may regulate a long period, with good progress being made in terms of the use of land in the public interest. Uganda’s land tenure system is formulating and promulgating legislation to form a basis for characterized by three positive aspects that conform to good practice. security of land tenure. However, additional progress needs Firstly, unlike in many other countries, where radical title is vested in to be made to improve this legislation and to ensure that it is the state, in Uganda, radical title is vested in the people. Secondly, actually implemented appropriately. A number of acts of legislation customary tenure is legally recognized. Thirdly, the residual interest were promulgated and implemented during the colonial period of the state to control land use in public interest is tightly defined in to establish the foundations for a system for the management of law to ensure that public interest does not include investment for land and land rights. However, in the postcolonial period, the most private gain. These characteristics give Uganda’s land tenure system significant act of legislation in these terms has been Uganda’s 1995 a solid legal foundation for the efficient and effective management of Constitution (see Annex 1). The 1995 Constitution vests radical title, land. However, its mailo land tenure system, which is a specific form the ultimate ownership of land, in the people of Uganda, enabling of freehold tenure with strong historical roots, results in overlapping rights to a particular piece of land to be held in accordance with the land rights between the landlord and the tenants of the land, with freehold, leasehold, mailo land and customary land tenure system. the latter being legally recognized as lawful or bona fide occupants It is estimated that 2 percent of land is held under freehold, 4 under with inheritable and transactable rights similar to those of landlords. leasehold, 14 percent under mailo, and 80 percent under customary In addition, while the legal framework for the management of land is ownership, and (see Figure 12). However, in all these cases, the relatively strong, its implementation has often been uneven. Government has residual authority to control land use in public interest. Thus, under laws enacted by parliament and in accordance Figure 12: Uganda’s diverse systems of land tenure with that in the central region even more complex Central region tenure system Source: Ministry of Lands, Housing and Urban Development At least until recently, Uganda’s system for the documentation of only approximately 20 percent of Uganda’s land is formally registered. land rights and the management of related information has been While this is in fact significantly higher than the average for Sub- extremely dysfunctional. This dysfunctionality often resulted in Saharan Africa, which stands at only around 10 percent, it still means inefficiencies and created opportunities for corruption, with the land that approximately 80 percent of Uganda’s land is undocumented rights of many landowners undocumented and access to information and informally administered. This compares poorly to Western even for the documented owners being severely constrained. In total, European countries, where on average more than 95 percent of land 30 is documented.14 With the limited extent of registration in Uganda, matters are taken into account.17 In Ethiopia, one-third to one-half a significant proportion of land remains vulnerable to land grabbing of all cases within the formal judicial system are related to land and expropriation without compensation. The recent initiatives 15 disputes,18 while in Uganda, the proportion reaches more than 50 to accelerate registration of land; to store related information in percent of cases. an easily accessible electronic format; and to improve access to this information, are highly commendable. These initiatives aim to Land disputes have historically been concentrated in the densely register one million rural land parcels (out of a total of approximately populated central region, an area which has been characterized 7 million rural parcels) within five years. If achieved, this will increase by relatively unclear land rights. However, increasingly, such the proportion of registered land to more than 30 percent. This will disputes are also taking place in areas experiencing speculative bring Uganda close to the level achieved by Kenya, where the figure economic booms and where institutions have been weakened stands at approximately 40 percent. However, even greater efforts by prolonged conflict. The hot spots for land-related disputes have will be needed if Uganda is to reach the level achieved by the top mainly been located in the central region and in Kibaale, with many performers within Sub-Saharan Africa. For example, in Ethiopia, more of these disputes involving mailo land.19 In recent years, the number than 50 percent of land is titled. Similarly, Rwanda has increased of disputes between investors and local communities in the Albertine the proportion of land with formal titles from less than 10 percent to region, West Nile, Acholi, Karamoja and other oil and mineral-rich more than 60 percent over a period of five years and fully digitalized regions has escalated due to frictions arising from conflict of interest information related to land records.16 and speculative land buying.20 In the northern region and Teso sub- region, where a significant proportion of land is communally owned, Given the overlapping land rights and the poor state of demand for land has increased dramatically as a large number of documentation related to these rights in Uganda, cases of conflict internally displaced people have returned to their natal districts at the related to land have been common, particularly in cases of land same time as investor interest has also increased significantly due to involving mailo tenure and in post-conflict and oil exploration the cessation of conflict.21 Similarly, in a number of areas in the Acholi, areas. The frequent occurrence of such conflicts has heightened the Elgon and Karamoja sub-regions, members of local communities state of insecurity of land tenure, with frequent illegal displacement of have contested the gazetting of land by the Uganda Wildlife Authority tenants and stalled investments, all of which have significant negative (UWA), especially where they have not been effectively engaged in the implications for the economy. According to the Uganda National policy change processes.22 Regions with a significant proportion of Household Survey of 2005/06, it is estimated that land disputes affect immigrants, especially in Bunyoro, have also faced conflicts as a result 6.5 percent of agricultural landholdings. It must be acknowledged of the influx of non-indigenous people, with this influx weakening and that this situation is not unique to Uganda, with a similar situation challenging traditional systems of land administration.23 prevailing in other countries in the region. While there are no accurate data to assess and compare the prevalence of land disputes in Africa, The lack of effective institutions and resolution mechanisms has anecdotal evidence from caseloads in judicial systems indicates that exacerbated land disputes, particularly in the areas where long land disputes are common throughout the region. For example, in periods of conflict have eroded or even erased the authority of Ghana, it is estimated that 50 percent of all new civil cases relate to the responsible institutions. Formal institutions with a mandate land disputes, with this proportion increasing if land-related criminal to resolve land disputes are supervised by the Land Division of the 14 BSchmid, H. C. U and C. Hertel, 2005. Real Property Law and Procedure in the European Union: General Report, Final Version. European University Institute Florence/European Private Law Forum Deutsches Notarinstitut Wurzburg. Byamugisha, F. F. K. 2013. Securing Africa’s Land for Shared Prosperity: A program to Scale up Reforms and Investments. Africa Development Forum Series. Washington DC. 15 World Bank. 16 World Bank 2015, Logistics Performance Index, Washington DC (forthcoming) 17 Ghana Judicial Service, 2010. “Impact analysis of the automated Land Courts in Accra.” Draft Working Paper 18 Deininger, Selod and Burns 2012. “The Land Governance Assessment Framework: Identifying and Monitoring Good Practice in the Land Sector.” World Bank, Washington, DC 19 Deininger, K and D. A. Ali, 2008. “Do Overlapping Land Rights Reduce Agricultural Investment? Evidence from Uganda”. American Journal of Agricultural Economics, Vol. 90, No. 4, pp. 869-882, November 2008 Otim and Mugisa 2014. “Beyond the Reach of the Hoe: The struggle for land and minerals in Northern Uganda”, A Report for Safer World, Preventing Violent Conflict, Building 20 Safer Lives, UK Aid, April 2014 Human Rights Focus 2013. “Land Conflict Monitoring and Mapping Tool for the Acholi Sub-Region”, Final Report, March 2013. Research conducted under the United Nations 21 Peacebuilding Programme in Uganda. World Bank 2009. Uganda: Post-Conflict Land Policy and Administration Options. The World Bank, AFTAR Report 46110-UG, Washington, D.C. Rugadya, Nsamba-Gayiiya and Kamusiime 2014. “Tenure in Mystery: The Status of Land under Wildlife, Forestry and Mining Concessions in Karamoja Region, Uganda”, Paper 22 prepared for presentation at the “2014 World Bank Conference on Land and Poverty”. The World Bank - Washington DC, March 24-27, 2014. Mwesigye and Matsumoto 2014. “Rural-rural Migration and Land Conflicts: Implications on Agricultural Productivity in Uganda”, Paper prepared for presentation at the “2014 23 World Bank Conference on Land and Poverty”. The World Bank - Washington DC, March 24-27, 2014. 31 High Court. As with many other areas of the judiciary, this division is land, and using that land to move out of poverty by achieving higher seriously understaffed and under-budgeted. Before 2006, the division levels of productivity and/or consumption. However, when credit was supported in the implementation of its duties by District Land markets are underdeveloped, the ability of the poor to access credit to Tribunals, which though recognized under the law, have ceased purchase land is limited. to exist. The system was also intended to incorporate sub-county land tribunals, which would have eased the pressure on higher To some extent, Uganda does have active land markets, with level entities by operating at the sub-county level. However, these these markets operating at various levels of efficiency and sub-county land tribunals were abolished by the Land Amendment effectiveness in different regions and serving different clientele Act of 2004, which aimed at among other things, to streamline the across the various sectors. However, as in the case of financial institutional arrangements for implementation of the Land Act. Their markets, the level of effectiveness of land markets in Uganda varies duties were assumed by the magistrates’ courts. The Local Council considerably both between rural and urban areas, and between Courts, at the bottom of the hierarchy, are the institutions with which different regions. In the central region, where a system of individual members of the public generally have the most frequent contact. land ownership predominates, land markets function very differently Given that they are supposed to handle cases without imposing costs from the north and north east, where a significant proportion of on litigants, they are the court of choice for most ordinary members of land is collectively owned. Indeed, with formal titles existing for the community. However, the very lack of formal remuneration which most land in central Uganda, this region is characterized by a is their main attraction creates perverse incentives and opportunities significantly more active market, without the constraints resulting for corruption. from overlapping rights on mailo land. According to the Uganda National Household survey for 2005/06, up to 59 percent of cases Thus, the formal institutions with a mandate for the resolution of of acquisition of agricultural land in the central region involved land disputes are generally weak, under-resourced, and lacking purchases through formal markets, compared to 47 percent in the in credibility. At the same time, traditional institutions, which used to western regions; 39 percent in the eastern region; and 6 percent in play a significant role in areas of northern and north eastern Uganda the northern regions. Except for the central region, where it accounts where communal land ownership systems dominate, have been for 40 percent of the land acquisitions, the most dominant mode weakened by many years of conflict, especially in the Acholi and of acquisition is inheritance, which accounts for 49 percent of the Lango sub-regions. Recent efforts by the Government to improve and acquisitions in western region; 60 percent in eastern region; and modernize both the formal institutions responsible for land dispute 91 percent in northern region. The low level of participation in the resolution and their interface with the informal customary institutions market in the Northern region is mainly because the majority of that administer undocumented land, are commended and should be land in this region is communally owned. The Human Rights Watch accelerated and expanded upon. Report of 2013 states that more than 90 percent of land in the Acholi sub-region is communally owned. There are considerable defects in the land markets in these regions. For example, according to the 3.2 Land markets exist, but are still narrow, National Household Survey of 2005/06, due to the lack of clear and secure rights to land, 37 percent of the land cannot be sold; 34 percent segmented, and inefficient cannot be rented; and 44 percent cannot be used as security for a loan. As is the case with all forms of assets, the market plays a Even when land markets exist, the acquisition of land for public significant role in facilitating the achievement of efficiency, investment has been problematic due to the weakness of enabling the transfer of land from less efficient users to more institutions involved in the valuation of land and to the related efficient users. In essence, the market provides a means to facilitate high levels of corruption. As most land used for such investments is a transformation from low to higher productivity activities and to privately owned, the public sector is normally required to compensate narrow the productivity gap between farms and among firms. To a land owners for the development of public projects such as the large extent, the level of access to land for households and investors construction of roads and other infrastructure. This requires an is determined by the existence and operations of land markets on assessment of the required compensation and the raising of funds the one hand, and that of credit markets to supply funds to facilitate for this compensation. Unless there is a strong capacity and clear land market transactions on the other. If financial markets are processes for land valuation to determine the appropriate level of developed and work efficiently, even residents of rural areas engaged compensation, it will not be possible to acquire land for public projects in agriculture will be able to access finance, using loans to buy or rent 32 in a timely manner, even if a budget for the payment of compensation with transferring land, measures to improve the functioning of land is available. The limited level of capacity to conduct assessments markets must include actions to reduce these costs. This is necessary of the value of land and the limited availability of funds to pay the to ensure that land transfers from less efficient producers to more appropriate level of compensation for the acquisition of this land have efficient producers take place fast and at minimum cost, thereby been major constraints to the implementation of public investments, enhancing productivity. as shown by the case of the construction of the Kampala-Entebbe Expressway.25 In addition to markets for the sale of land, Uganda has historically had rental markets, with these markets providing access to land Land markets in Uganda are also characterized by high transaction for those who cannot directly buy it. However, the efficiency and costs. For projects to be attractive or even feasible for investors, the effectiveness of these markets has been declining in recent times. process of acquiring and registering land must be cost efficient and Contrary to popular belief, Uganda has historically had active land time efficient. In Uganda, it takes an average of 43 days to facilitate the rental markets. In a cross-country comparative study30 of land markets transfer of land titles, with the average financial cost amounting to 2.6 in Sub-Saharan Africa, with a specific focus on Eastern and Southern percent of the value of the property. This is still better than some other Africa, it was found that land markets, particularly informal land rental countries in the region, with it taking an average of 190 days to facilitate markets, are more widely spread and active than had generally been the transfer of land titles in Angola and with the associated financial believed. The study found that land rental markets played a significant costs of facilitating such a transfer in Lagos, Nigeria, amounting to up to role in improving the level of access to land for the land poor and 21 percent of the value of the property. However, the figures in Uganda provided rent income for those with land that they could not use compare unfavorably to the average time for transferring property in productively. This finding mitigated fears raised earlier by a number OECD countries. 26 of researchers that the development of land markets could cause landlessness and an unhealthy concentration of land ownership.31 Costs associated with corruption also raise the overall transaction costs for the transfer of land in Uganda. In Uganda, the average recorded financial cost for transferring property is far lower than the average of 4 percent of the value of the property in OECD countries. However, in reality, in Uganda, the actual cost is far higher due to the requirement to pay bribes to land administration services to facilitate transactions. In some cases, these costs may be even higher than the formal costs. In fact, according to Transparency International’s 2013 Global Corruption report, land administration services were regarded as the third most corrupt public institution, after the police and the judiciary, with one in five people involved in transactions with Similarly, the East African Bribery institutions responsible for the provision of these services reporting that they had paid a bribe.27 Similarly, the East African Bribery Index Index states that in Uganda, in 2013, states that in Uganda, in 2013, the average value of a bribe paid the average value of a bribe paid by by households for land administration services was about US$ 90 (equivalent to UGX 218,722).28 The value of such bribes was the third households for land administration highest in a list of the average value of bribes paid to a total of 10 services was about US$ 90 (equivalent institutions, being slightly less than the value of similar bribes in Kenya, where the value stood at slightly more than US$100 in 2012, to UGX 218,722). or KShs 9,842.29 Given the high formal and hidden costs associated 25 Uganda Daily Monitor Newspaper, July 11, 2015. “Pending claims holding works on Entebbe Expressway – UNRA”. 26 World Bank 2014., Doing Business 2015: Going beyond efficiency. Washington, DC: World Bank. 27 Transparency International 2013. Global Corruption Barometer 2013 28 Transparency International 2013. Global Corruption Barometer 2013. 29 Transparency International Kenya 2012. East Africa Bribery Index 2012 Holden, S. T., K. Otsuka and F. Place (eds.). 2008. The emergence of land markets in Africa: Impacts on poverty, equity and efficiency. Resources for the Future Press, 30 Washington DC. 31 Sjaastad, E. 2003. “Trends in the emergence of agricultural land markets in Sub-Saharan Africa”. Forum Development Studies 30 (1), 5-28. 33 The benefits that could accrue from the efficient functioning of markets to facilitate the transfer of land from less efficient producers rental markets have been corroborated by experiences in other to more efficient producers was higher in land scarce Malawi than in countries. The ability of such markets to enhance efficiency and land abundant Zambia, despite the significant transaction costs which equity has also been noted in West Africa, where land rental markets may hamper efficiency gains from the transactions.35 have a long history and often provide a means to facilitate access to land for commercial crop production, such as for cocoa farming Despite the benefits derived from efficient rental markets, in Ghana,32 and to provide improved opportunities and better recent acts of legislation intended to streamline the relationship access to resources for farming activities across gender and level of between landlords and tenants under the mailo land system education.33 Evidence from the Republic of Sudan indicates that land may have adversely affected these markets. The 1998 Land Act rental markets facilitate the transfer of land to smaller producers, and its amendment in 2010 introduced legislation that aimed to thereby promoting a more equitable distribution of land.34 In Malawi protect tenants from the obligation to pay excessive rent for the land and Zambia, participation in the rural land rental market is strongly and from eviction. This legislation granted tenants fully transactable conditioned by the degree of land scarcity. Thus, the ability of rental and inheritable land use rights while maintaining nominal rents at 32 Sjaastad, E. 2003. “Trends in the emergence of agricultural land markets in Sub-Saharan Africa”. Forum Development Studies 30 (1), 5-28. Amanor, K. S., and M. K. Diderutuah. 2001. “Share contracts in the oil palm and citrus Belt of Ghana.” London: International Institute for Environment and Development Estudillo, J. P., A. R. Quisumbing, and K. Otsuka. 2001. “Gender differences in land inheritance and schooling investments in the rural Philippines.” London Economics 33 77 (1): 130-43. 34 Kevane, M. 1996. “Agrarian structure and agricultural practice: Typology and application to Western Sudan.” American Journal of Agricultural Economics 78 (1): 236-45. Chamberlin, J. and J. Ricker-Gilbert. 2014. “Rural land rental markets in Southern Africa: trends, drivers, and impacts on household welfare in Malawi and Zambia”. 35 Selected paper for presentation at the Agricultural and Applied Economics Association 2014 Annual Meeting in Minneapolis, Minnesota, July 27-29, 2014. 34 Terraced hills of Kisoro sustain agricultural production (Sheila Gashishiri, 2015) abnormally low levels and protecting tenants from eviction except they operate within the terms defined by the legal framework. Thus, in with a court order. This development generated conflicts and acted addition to developing this legal framework, the state must develop as a strong disincentive for landlords to participate in land rental the institutional infrastructure, systems and personnel for registering, markets. While the proportion of agricultural households renting land valuing and taxing land transactions and for regulating land use.38 In had increased from 13 percent in 1992 to 36 percent in 1999,36 this Uganda, such interventions are administered through the Ministry of figure declined to 17 percent by 2007 following the implementation of Lands, Housing and Urban Development and its associated agencies. this legislation.37 The share is estimated to have declined even further These land-related agencies register land transactions such as sales, following the promulgation of amendments to the Land Act (1998) in mortgages and inheritances. They also directly conduct or facilitate 2010 to check the rapid eviction of tenants by landlords. the valuation of land and facilitate state acquisition and taxation activities and other land-related transactions. Furthermore, they Historically, land markets in Uganda have operated without a are mandated with the responsibility for establishing standards for strong institutional framework to monitor and regulate their and regulating the activities of real estate professionals, including operations. Land markets require the presence of the state to ensure surveyors, valuers, physical planners and real estate agents. Deininger, K. and P. Mpuga, 2003. “Land markets in Uganda: Incidence, impact and evolution over time”. Discussion Paper. World Bank, Washington DC. Working Paper 36 No. 4454. Baland, J. M., F. Gaspart, J.M. Platteau, and F. Place. 2007. “The distributive impact of land markets in Uganda.” Economic Development and Cultural Change 55(2): 37 283-311. Williamson, I., S. Enemark, J. Wallace, and A. Rajabffard. 2010. Land Administration for Sustainable Development. ESRI Press Academic, Redlands, California 38 35 In the context of the issues addressed in this section, it is clear (a) Slow transformation of agriculture that in Uganda, the role of the formal land markets is still limited, particularly in areas where a large proportion of land Uganda has failed to facilitate a transformation of the is communally owned, where such markets are often almost agricultural sector, with this sector growing at a much slower non-existent. Without proper markets to facilitate the reallocation rate than that of the overall economy. This has been largely of this vitally important production asset, it is unlikely that an the result of the low rate of productivity growth, with poor efficient distribution of land will be achieved. Unless this issue is land management being a major contributing factor. In spite addressed, it will continue to serve as a significant constraint on of its huge potential, agriculture in Uganda has been growing the achievement of higher levels of productivity in both rural and at an average rate of less than two percent per annum over the urban areas. past decade, recording one of the lowest rates of productivity improvement in the world. Various interventions have been 3.3 What is the cost of land tenure insecurity implemented to eliminate credit market failures; to address and inefficient land markets? information related failures, particularly related to inputs and advisory services; and to rectify goods market failures to ensure farmers produce gets to the market. However, the failure of these Around the world, it has been increasingly recognized that interventions to achieve their intended outcomes may be due to a failure to manage and utilize land well can act as a major the fact that they have not effectively supported the adoption of obstacle on the achievement of economic growth and on innovative technology and the intended development of markets. poverty reduction. Land plays a critically important role in the social, political and economic life of Uganda. In the rural context, In Uganda, as a result of fragmentation and prevailing land land is a key determinant of livelihoods, with access to land management practices, most agricultural activities are facilitating residents of rural areas’ ability to engage in agriculture conducted on small farms. This acts as a constraint on the and to exploit natural resources, with these activities providing sector, preventing it from adopting technological innovations the main means of achieving food security and generating that may result in improved productivity. In fact, the evidence incomes and employment. For many Ugandans, land also has shows that in Uganda, farms of a size of less than five hectares use major cultural and spiritual significance. In urban areas, good resources more efficiently and hence are more productive, with land management plays a vital role in the achievement of efficient these farms contributing to more than 94 percent of agricultural urban development, with a significant effect on building densities, output.40 However, smallholder farming is characterized by mobility, and the provision of decent housing to the urban inherent personalization and informality. This acts as a constraint population. As De Soto states, without secure rights, land is dead against economies of scale in skills and technology; finance and capital. 39 access to capital; and the organization and logistics of trading.41 Small farms do not have the potential to internalize the costs of Economic development in Uganda has been constrained by a technological innovation adoption and adaptation, which would lack of tenure security and by the inefficient operation of land enable them to achieve higher levels of productivity as well as to markets, both in rural and in urban areas. Many activities that internalize institutional costs. could facilitate accelerated economic development, including the commercialization of agriculture; the production of higher value However, larger farms in Uganda also record relatively low products; the construction of vitally necessary infrastructure; levels of productivity. On the one hand, farmers who already and the implementation of measures to improve connectivity have land have not used it effectively, while those who would and mobility within and between cities and to improve housing, like to access land for large scale farming have faced challenges, require secure land rights and fluid land markets to ensure efficient especially if their targeted investments is in the land abundant exchanges between those who own land and those who need to north, where at the same time markets are not functioning acquire it for these purposes. properly, yet. Therefore, the country has ended up with large scale farmers operating like “big peasants” because they are 39 De Soto, Hernando, 2000, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (New York: Basic Books). 40 World Bank 2012, Uganda Promoting Inclusive Growth: Transforming Farms, Human Capital and Economic Geography, Washington DC. 41 Collier and Dercon (2014), African Agriculture in 50 years: Smallholders in a Rapidly Changing World? 36 cultivating 20 acres of a particular crop with family labor and (b) Constraining business development, particularly producing a yield of five bags per acre. The term ‘big’ is being in the industrial sector used relative to the larger number of farmers who may be cultivating one acre using modern technology and generating Except in cases involving the provision of the most a yield of 20 bags per acre. These co-exist with a number sophisticated of virtual services (such as ship registration of promising commercialization and agro-industry sectors in Panama, the provision of domain names in Tuvalu, and failing to expand due to a number of major challenges, a large similar services building on virtual networks), establishing proportion of which relate to availability of land. The sugar 42 or expanding a business requires physical space. In some sector, for instance, is the largest organized agriculture sector in cases, it is theoretically possible to reduce the requirement for the country, which is also based on sustainable development such space through vertical expansion, such as through the use activities. However, expansion of this industry has been of multistoried buildings. However, many activities, particularly constrained by land availability. Other examples include the those in the manufacturing, mining and other industrial sectors, flowers industries, whose investors would be interested in require land both as a base for activities and for the production acquiring unencumbered land on leasehold terms. Upland rice and extraction of raw materials. The bulk of Ugandan on the other hand requires land consolidation to support a businesses continue to operate in the informal sector. Of those more sustainable production process. in the formal sector, more than 90 percent of those established in the first decade of the 21st century were small businesses Insecurity of land rights has acted as a constraint against with not more than five employees, with the vast majority of investments in agriculture, irrespective of the size of the these businesses engaged in the services sector. Attempts to farm. In areas such as the northern and north-eastern regions establish larger businesses have met with numerous challenges, of Uganda, where the system of communal land ownership with the difficulties involved in the acquisition of land being predominates and where land administration institutions are one of these. In fact this could be the reason why economic particularly weak, investors have faced major challenges to transformation in Uganda has involved the movement of buy or rent land and invest on a large scale. Such areas also economic activity away from agriculture towards services. have a large potential for large scale farming, but because the communal land owning groups are not legal entities and Activities such as industrial operations that require therefore can neither register their land nor enter into contracts large pieces of land are still few, but will increase as with investors, this potential has not been realized. transformation continues. Currently such operations face enormous challenges acquiring land. With respect to the The impact of land disputes on the growth and development of the extractives industry, the private sector has transformation of the agricultural sector has been already urged Government to urgently address the issue of significant, with an estimated 5-11 percent of agricultural land especially for upstream development of oil and mining production being lost due to land conflicts.43 The impact activities. They note that a robust legislative framework is even larger in areas where the system of mailo land tenure needs to be established which secures land for upstream oil predominates, such as in the central region and in Kibaale development , a refinery and pipelines in an efficient manner district. In these areas, it has been estimated that losses due but also minimizes land take and accounts for community to land conflicts increase to up to 25 percent of agricultural needs.47 Although Uganda Investment Authority has programs production. Similarly, yields are on average 20 percent lower 44 to allocate land to investors, there are still difficulties with in conflict areas.45 According to the private sector analysts, respect to industries that do not meet the criteria set for the new land policy still does not satisfactorily address the accessing this land. As discussed in previous sections, many longstanding issues of land conflicts and land fragmentation.46 of these difficulties relate to issues such as overlapping rights Private Sector Foundation Uganda, 2012 “Private Sector Plan for Action – A Synopsis of Private Sector Growth Challenges and Proposals for Policy Reform”. 42 Kampala. Uganda Deininger, K. and R. Castagnini, 2004. “Incidence and impact of land conflict in Uganda”. Policy Research Working Paper. World Bank, Washington DC. Working 43 Paper No.3248. Deininger, K and D. A. Ali, 2008. “Do Overlapping Land Rights Reduce Agricultural Investment? Evidence from Uganda”. American Journal of Agricultural 44 Economics, Vol. 90, No. 4, pp. 869-882, November 2008. 45 Mwesigye, F. and T. Matsumoto, 2014. “Rural-rural Migration and Land Conflicts: Implications on Agricultural Productivity in Uganda”, Paper prepared for presentation at the “2014 World Bank Conference on Land and Poverty”. The World Bank - Washington DC, March 24-27, 2014. Private Sector Foundation, 2015 E-Newsletter July 2015 46 37 and to disputes regarding compensation claims. In terms of which now provide a basis for a significant proportion of overall ease of doing business, in the area of the challenges involved lending.51 By contrast, in Uganda, a large proportion of the in the transfer of property rights, Uganda ranks 125th out of population remains excluded from accessing credit due to the lack 189 countries.48 And in the enterprise survey49 the difficulty of of such collateral. At present, the total value of credit provided to accessing land ranked among the six most significant constraints the private sector in Uganda is equivalent to 13.5 percent of GDP. on facilitating the growth of enterprises. This is less than half the value in neighboring Kenya, where the figure stands at 32 percent. In more developed markets, such as in (d) Constraining access of financial services South Africa, the figure is in excess of 100 percent. The limited extent to which land is formally registered and the lack of security of tenure also acts as a constraint against accessing finance and to the overall development of financial services. The ability to use land as collateral enables The sugar sector, for instance, is the mobilization of capital embedded in land, thereby expanding the largest organized agriculture the deposit base and reducing the level of risk faced by lending institutions.50 The existence of easily transferable land titles sector in the country, which is also facilitates the use of these titles as collateral, reducing the cost based on sustainable development of accessing credit. In developed countries, on average, more than two thirds of small business loans are secured on the basis activities. However, expansion of this of collateral in the form of land and real estate. In Eastern and industry has been constrained by land Central Europe, the establishment of a comprehensive formal availability. land titling system, especially in urban and peri-urban areas, played a significant role in the development of mortgage markets, Land and such developed real estate industry form the collateral for finance, But those without land collateral remain unbanked (Digital Media Network Ltd, 2015) Private Sector Foundation Uganda, 2012 “Private Sector Plan for Action – A Synopsis of Private Sector Growth Challenges and Proposals for Policy Reform”. 47 Kampala. Uganda 48 World Bank. 2014. Doing Business 2015: Going beyond efficiency. Washington, DC: World Bank 49 World Bank. 2014. Uganda - Enterprise Survey 2013. Washington, DC: World Bank Byamugisha, FFK. 1999. The effects of land registration on financial development and economic growth: A theoretical and conceptual framework. Policy Research 50 Working Paper 2240. Washington DC: The World Bank. Satana, S., M. P. Torhonen, A. Anand and G. Adlington. 2014. “Economic impact of ECA land registration projects”. Paper prepared for the presentation at the Annual 51 World Bank Conference on Land and Poverty, March 24-27, 2014. Washington DC: World Bank. 38 Box 4: Firms do not use bank credit to finance investments In line with Uganda’s regulatory requirements for firm registration, up to 87 percent of firms hold bank accounts. This level is similar to the average for Sub-Saharan Africa, and only slightly lower than the World Average of 88 percent (Table B1). The value of collateral required to secure a loan also falls below the world average. However, firms in Uganda do not use bank credit to a significant extent, either for investments or for working capital. According to the 2013 enterprise survey, only 8 percent of Ugandan firms financed their investments with bank loans, compared to the global average of 27 percent. The majority of firms (80 percent) still financed their investments using internal sources, compared to the global average of 69 percent across the world, with some 13 percent securing financing through equity or stocks. To secure working capital, and even smaller proportion of firms use bank credit as the source of financing, with only 7 percent of businesses doing so, compared to the average of 10 percent across SSA. Indicator Uganda SSA World Percent of firms with a checking or savings account 86.7 88.1 88.2 Percent of firms with a bank loan/line of credit 9.8 23.8 36.5 Proportion of loans requiring collateral (%) 86.4 79.7 77.3 Value of collateral needed for a loan (% of the loan amount) 159.4 175.2 182.2 Percent of firms not needing a loan 41.9 34.1 40.9 Percent of firms whose recent loan application was rejected 7.7 15.3 14.5 Percent of firms using banks to finance investments 8.2 18.0 27.3 Proportion of investments financed internally (%) 79.5 78.3 69.2 Proportion of investments financed by banks (%) 3.3 9.9 16.3 Source. World Bank, Uganda-Review of Financial Sector, 2015 Financial institutions in Uganda generally insist that growth, with these potential benefits including economies borrowers provide some form of collateral in order to mitigate of scale; agglomeration; and the effective substitution the high risk of lending in an environment where information of land with non-land inputs. The development of efficient is scarce and unreliable. Uganda’s financial infrastructure cities is predicated upon an efficient system of land use, which remains underdeveloped, with one of the characteristics of this in turn is determined by the promulgation of the appropriate underdevelopment being a high level of risk aversion on the part policies and the development of the appropriate institutions to of lending institutions. Uganda ranks relatively lowly in terms of ensure their effective implementation. An increased density of the credit indicator of the Ease of Doing Business index. In terms of economic activities is one of the key characteristics of successful the depth of credit information, Uganda scores 0 points on a scale urbanization, with this increased density being achieved through of 0 to 6. In terms of the strength of the legal rights of creditors, the use of a greater proportion of land for higher value activities. Uganda also ranks relatively lowly (6 points out of 12), primarily At present, land-related constraints create significant entry because there is no collateral registry and secured creditors are costs for businesses in urban areas. For instance, despite recent not paid first. An increase in the extent of easily transferable legal restructuring, it still takes an average of 154 days and costs the titles would unleash this “dead capital” so that it could be used equivalent of 11 percent of the value of a warehouse for a business as collateral to secure loans to fund new businesses or for other to obtain a construction permit in Kampala, while registering purposes. property takes 43 days. (e) Constraining efficient urbanization Planning for urban infrastructure has also been difficult given the current state of land management. Following the Lack of land tenure security and undeveloped land markets promulgation of the 1995 constitution, which created private land have also prevented Uganda from fully benefiting from ownership and either converted to freehold land leases vested the economic benefits that could be derived from urban with urban local bodies or transferred their management to the 39 Uganda Land Commission or district land boards, fragmentation public use. Specifically, urban councils, responsible for controlling of land parcels and rapid suburbanization has ensued, with fiscally land use in a given administrative unit, have practically failed to starved local governments unable to acquire land and protect override private interests. They have no leverage of power to control rights-of-way for infrastructure improvements. On the other hand, access and ownership of urban land. Three, the existing policy lays unhealthy rural-urban migration could be exacerbated by the much emphasis onto tenure security rather than development. unclear property rights and related conflicts that adversely affect For instance, 7 percent of Kampala’s land area is associated with agriculture and have created disincentives for investment and are Kabaka‘s unplanned settlements while 75 percent belongs to estimated to have reduced agricultural productivity by up to 25 private mailo. It is mainly because of this type of land ownership percent. Yet customary tenure systems in the East and North restrict structure that development control has not been affected in the city the sale and rent of land. as expected. It also perpetuates land speculation which withdraws land from the market thereby causing artificial shortage which The lack of fluidity of land as an asset acts as a constraint increases the cost of land. Four, multiple land tenure systems exist against the achievement of higher levels of productivity and in Kampala which constrain the preparation and implementation economic integration as urbanization progresses. For example, of agreed physical plans. For example, transport and school the existence of efficient land rental markets, made possible by development plans initiated by the central government or city secure land tenure, can facilitate the process of rural to urban councils are not being implemented because most of the schools migration, enabling residents of rural areas to participate in more and urban councils do not have land title. Especially revealing is the rewarding off farm activities. The existence of such markets enables case of Makindye Division, where there are contradictions in land farmers to sell or lease out their land to secure the funds necessary ownership policies between Mengo and KCCA because 60 percent of to facilitate the migration process, with the possibility of their land is owned by the Kingdom (Ministry of Land Housing and Urban reacquiring their land if they later return to rural areas. A phenomena Development, 2013). In sum, Kampala’s land policy should focus on of this sort occurred in Thailand during the boom-bust period in the the establishment of a special land tenure regime for an orderly and period from 1997 to 1999, when farmers sold or rented out their land sustainable urban development and service delivery.54 to facilitate migration to urban areas to engage in non-agricultural activities, before returning to rural areas to again buy or receive back (f) Constraining infrastructure development their rented land when non-agricultural opportunities diminished following the economic downturn.52 In rural China, when the security The lack of fluidity in land markets has also constrained the of land tenure was strengthened through the elimination of the development of public infrastructure and other services, system of the administrative reallocation of agricultural land and both for central government and local urban authorities. The through the introduction of long term land leases, landowners were public sector needs to acquire land to implement investments in able to rent out their land to migrate to the booming coastal areas infrastructure, including roads, highways and railways. This requires and cities, where they were able to engage in more remunerative the expropriation of land and the payment of compensation, both activities.53 The degree of market fluidity depends on numerous of which require sound institutional capacities and effective systems factors, the most important factor being the level of land tenure to accurately identify the owners of the land; to conduct valuations; security. As the previous section of this report has made clear, and to allocate funds for the payment of compensation from sources Uganda’s land is still marred by insecurity of tenure, perpetuated by such as land taxes. unclear property rights, disputes, and conflicts. With economic development, increased demand for land, In Kampala for instance, there are a number of problems with together with public investment in infrastructure and roads respect to urban land policy. One, urban land in Uganda, and tends to increase land values. In many cases, however, lack of particularly so in Kampala, is characterized by ineffective and well-functioning mechanisms to tax land implies that the potential inadequate management systems. For instance, Kampala has for society, especially local governments, to benefit from these multiple land administration organizations, such as, Kampala increases is limited. Instead much of the gains fuel speculation Capital Council Land Board, Uganda Land Commission, Buganda or end up as bribes. Colombia illustrates the potential for quick Land Board and so on, each pursuing its own interests irrespective increases in land taxes that can contribute significantly to local of the urban development standards. Two, ineffective regulation of government revenue, thus helping to match decentralization of urban land has deterred access to land especially for investment and responsibilities for service delivery with the needed resources. Brits, A.M., C. Grant, and T. Burns. 2002. “Comparative study of land administration systems with special reference to Thailand, Indonesia and Karnataka (India).” Paper 52 presented at the World Bank Regional Land Workshop, June 4-6, Phnom Penh, Cambodia. Deininger, K. and S. Jin, 2007. “Land rental markets in the process of rural structural transformation: Productivity and equity impacts in China”, a World Bank Policy 53 Research Working Paper No. 4454. 54 Goswami A. G. and S. Lall, 2015 “Jobs in the City: Explaining Urban Spatial Structure in Kampala”, forthcoming 40 4. What should Uganda do to ensure land contributes rather than con- strains productivity improvements? The discussion in the previous section shows that in Uganda, the limited ability to transfer land may be acting as a binding constraint on endeavors to improve productivity in both rural and urban areas. The increasing population density in urban areas has been accompanied by increased difficulty in utilizing land for new purposes and for transferring ownership from one entity to another. In turn, this has acted as a constraint on investment and on the achievement of a transformation characterized by an increase in higher productivity activities. This situation is at least partly the result of a failure by the Government to address bad laws that have created overlapping rights and conflicting interests. The Government has also inadequately facilitated the development of institutions that can manage land transactions appropriately. In addition, in many regions, land markets are either non-existent or are dysfunctional, being characterized by a high rate of speculative transactions, especially in urban areas and in areas in which significant public infrastructure development projects are being implemented. In rural areas, these dysfunctional markets enable exploitative transactions, which result from a lack of information and/or unequal power relations between buyers and sellers. This dysfunctionality has resulted in an increased rate of occurrence of conflicts and disputes. If current patterns of land management continue, a significant proportion of Uganda’s population will remain poor due to the failure to transform the If current patterns agricultural sector and to facilitate a shift towards an increased emphasis on higher value production. In addition, this dysfunctionality means that, rather than driving equitable of land management economic growth, the process of urbanization will exacerbate the proliferation of slums on the continue, a significant peripheries of cities; increased congestion; and a decline in the quality of infrastructure as the costs of construction and compensation escalate. proportion of Uganda’s population Ugandan policy makers must adopt and implement smart policies that will ensure that land becomes a more productive asset that contributes to a more rapid positive will remain poor transformation and diversification of the economic base. These policies should aim to: due to the failure (i) promote security of land tenure and reduce conflicts and disputes caused by overlapping to transform the rights; (ii) promote the marketization of land, including through rental markets; and (iii) strengthen institutions for the appropriate management of land. The implementation of these agricultural sector policies would facilitate the achievement of higher levels of productivity and hence generate and to facilitate a shift a large surplus, enabling the Government to benefit from increased revenues, a portion of which could be used to compensate those who may lose out in the process of economic towards an increased transformation. However, vested interests, suspicion, fear of disruption to livelihoods, activism emphasis on higher against any form of land reforms, sensitivities around the location of investment projects, all need to be taken into account to manage the tensions that may arise through the process value production. of land reforms. In particular, in certain areas, there are numerous cultural and political sensitivities, with historical conflicts that have resulted in serious conflict and animosity 41 between landlords and tenants. These animosities are exacerbated by and conflict. To prevent this, a wide range of stakeholders should be weaknesses within formal land administration institutions, which in involved in the process of reform. turn are exacerbated by in-fighting over mandates for the adjudication of land cases and by the lack of funding for key institutions. Drawing on lessons from global experience, particularly from countries in Africa that share many similar characteristics The Government must strive to sustain the progress made with Uganda, this report recommends four points of action to in formulating policies related to land management and address critical issues related to land use and the transferability administration to close gaps and accelerate the achievement of of land assets and to strengthen institutions responsible for its goals. The Ugandan authorities have made important strides in the administration of land and land tenure. The first two of the establishment of a smart policy framework for land management these actions build on the Government’s prior achievements and and administration. In addition to the National Land Use Policy involve: (i) accelerating the process of land registration; and (ii) of 2007 and the National Land Policy of 2013, the Government is redesigning the Land Fund to ensure that it operates more efficiently currently in the advanced stages of developing a complementary and equitably. The second two actions are intended to accelerate National Resettlement Policy, National Urban Policy and a National the implementation of land reforms and involve: (iii) strengthening Housing Policy. It has also embarked on the process of rehabilitating institutions responsible for land management and administration; and modernizing institutions with a mandate for the management and (iv) strengthening systems for the valuation of land. of land administration, including through the computerization of land information systems. According to the 1995 Constitution and the terms of the Land Act 1998, the Uganda Land Commission 4.1 Accelerating the process of land registration operates a Land Fund, the objective of which is to fund the purchase of land by lawful and bona fide occupants from landlords and to finance the resettlement of those made landless by disasters. There Increasing the overall proportion of land in Uganda that is are also initiatives to establish communal land owners in Northern formally registered would ultimately result in significant Uganda as legal entities for the purposes of land management and improvements to productivity. Thus, the Government should registration, while at the same time accelerating the systematic take steps to develop and implement systems that accelerate the registration of individual land rights more generally. These policies achievement of this goal. The Government has already implemented should be informed by and be consistent with regional and global a number of measures to systematically register land, with various initiatives for land reform to which Uganda is a party, including the measures intended to ensure registration of individually, communally African Union’s Framework and Guidelines on Land Policy in Africa, and state owned land. The proper demarcation and registration of the Voluntary Guidelines on the Responsible Governance of Tenure of land is a first step towards improving the security of land tenure and Land, Fisheries and Forests in the Context of National Food Security raising the productivity of land. Global evidence suggests that land and the Principles for Responsible Investment in Agriculture and Food tenure security has a positive and significant impact on investment Systems. and productivity.55 In China, the break-up of collective farming in 1978; the adoption of individual rights to use land in the 1980s; However, while the establishment of the appropriate legal and the issuance to households long term leases even without framework is critically important, ensuring the appropriate registration, nearly tripled the rate of growth of the agricultural implementation and enforcement of this framework is just sector, from an average annual rate of 2.7 percent in the period from as crucial in order to ensure that land in Uganda is secure, 1970 to 1978 to 7.4 percent in the period from 1979 to 1984. These transferable, marketable, and thereby plays a significant positive reforms had considerable impact on China’s agricultural production role in the achievement of economic development. Land policy is a notwithstanding the weaknesses including a ban on land sales and highly political issue. It is not possible to disentangle its determinants mortgages, and inadequate compensation for land acquisition by and impacts from the material and political interests of the individuals local governments56 . More recently, in the 2000s, the implementation and groups involved. However, despite the political challenges of systems to facilitate the registration of land rights has resulted involved, the cost of inaction may cripple Uganda’s economy. While it in improved land tenure security and increases in the value of is impossible to avoid politically difficult actions, it is vitally important investments in Ethiopia57 and Rwanda.58 to develop a clear and transparent framework to avoid controversy 55 Lawry, S., C. Samii, R. Hall, A. Leopold, D. Hornby and F. Mtero. 2014. “The impact of land property rights interventions on investment and agricultural productivity in developing countries: A systematic review”. Campbell Systematic Review 2014:1 56 Byamugisha, F. F. K. 2014. “Land reform and investments in agriculture for socio-economic transformation of Uganda”, Paper presented at the National Development Policy Forum, Kampala, Uganda. July 2014. 57 Deininger, K., D. A. Ali, and T. Alemu. 2011. “Productivity effects of land rental markets in Ethiopia: Evidence from a matched tenant-landlord sample.” Policy Research Working Paper 5727, World Bank, Washington, DC. 58 Ali, D., K. Deininger, and M. Goldstein. 2011. “Environmental and Gender Impacts of Land Tenure Regularization in Africa: Pilot Evidence from Rwanda.” World Bank Policy Research Working Paper No. 5765, World Bank, Washington, DC. 42 Table 3: Improving land management can contribute to productivity growth Land Reform Type Growth in the Agriculture sector Japan (1954-68) Redistribution & registration 4.0 S. Korea (1954-63) Redistribution & registration 4.0 Taiwan (1953-64) Redistribution & registration 4.6 China (1979-84) Decollectivization & long term leases 7.4 Viet Nam (1991-95) Decollectivization & long term leases 4.1 Source : Byamugisha, F. F. K. 2014. “Land reform and investments in agriculture for socio-economic transformation of Uganda”, Paper presented at the National Development Policy Forum, Kampala, Uganda. July 2014. The Government must accelerate its land registration of land on the basis of a detailed survey of boundaries in program to increase the proportion of formally registered peri-urban areas and in areas with high value rural land. The land to exceed that of the targeted level of 30 percent in the Government expects to issue one million new land titles in the next five years. The systematic land titling program that the next five years, mostly in rural areas. This process will involve Government has initiated must be supported with an extensive the use of low cost technology and will build on experiences sensitization and information campaign on the benefits and from Rwanda (see box) and Ethiopia. The program is intended challenges of registering land in the country. This initiative to increase the proportion of titled land in Uganda to 30 should build on the lessons and experiences of the pilot phase percent. However, this is still very low compared to the rates of the program, which was undertaken in the period from 2005 achieved by neighboring countries such as Rwanda, which has to 2007 and which covered the three districts of Ntungamo, achieved the rate of at least 60 percent, and Ethiopia, which has Iganga and Mbale. The pilot involved the systematic registration achieved the rate of about 50 percent. Box 5: Registering Land Rights fast and cheaply: Experience from Rwanda Rwanda first embarked on a systematic land tenure regularization program with the implementation of a pilot program in the period from 2008 to 2009, following which the program was scaled up in the period from 2010 to 2013. This program utilized a systematic community-by-community participatory approach implemented in cooperation with local land committees. Low technology “general boundaries” rules and simple methods of boundary demarcation were utilized by locally trained para-surveyors, who used aerial photography and/or satellite imagery to conduct mapping. By March 2015, virtually all land parcels in Rwanda, a total of 11.3 million, had been demarcated, with 8.3 million land titles having been approved and printed for issuance. However, only 7.2 million land titles, representing about 64 percent of the total number of demarcated plots, had been collected by owners. The gap (36 percent) between the number of demarcated land parcels and the collected titles may be attributed to a number of factors, including the absence of owners, with some being located outside the country. Another factor may have been the inability of some owners to pay for the land titles, despite the low fees charged. The total cost of the land title regularization program was about US $ 60 million, of which 25 percent was funded by the Government of Rwanda and the rest by development partners, including DFID. Of the total cost of US $ 60 million, approximately US $ 7 million (about 12%) was recovered through fees charged for the collection of titles, with these fees amounting to an average of approximately US $ 1.6 per parcel, except in Kigali (the capital), where the fee imposed averaged at approximately US $ 8.3. The average cost of demarcating a parcel and issuing the associated title deed was approximately US $ 8. On average, the cost recovery for the program was 12 percent, implying a total subsidy of 88 percent. However, land owners in the capital paid the full cost, while the owners outside the capital received a subsidy of about 80 percent. It should be noted that the average cost per title of US $ 8 is low, given that the average cost of similar exercises globally is in the range of US $ 20. Despite the low cost, the program significantly improved tenure security and women’s access to land and it also increased land rental market activities (Ali, Deininger and Goldstein 2011). Source: Sagashya, D. G. 2014. “Land tenure reform in developing countries: What can we learn from Rwanda?” World Bank Land and Poverty Conference. Wash- ington DC; Ali, D. A., K. Deininger, and M. Duponchel. 2015. “Sustainability of the LTR program: Preliminary results from the 2015 household survey round in rural Rwanda.” Kigali, May 5, 2015. MINERENA. 43 It will be possible to accelerate the process of land no constraints to registering subsequent transactions unlike in registration through the use of low cost, efficient technology, Rwanda where only 30 percent of such rural land transactions as has been demonstrated by the experience of a number of are being registered (after completion of the systematic land other countries, including several African countries. Thailand regularization program in 2013) partly due to the high transaction employed a low cost remote sensing and satellite technology costs and fees of registration faced by clients.59 Given the to produce orthophotos using ground survey methods to potential benefits from scaling up this program, it is important implement its 20 year land titling program. Using a similar that implementation of this reform program remains a top methodology, but based on cheap labor and less expensive priority. For optimal results to be achieved, the Government and more efficient technology , which also uses remote sensing must commit to extending its efforts beyond the project currently and satellite imagery, Rwanda was able to undertake a country- being funded by the World Bank.60 wide land registration program by utilizing an advanced spatial framework entirely based on photo maps, which enabled the To accelerate the process of land registration, it will process to be completed rapidly and at low-cost. Within a period also be necessary to move forward with the registration of about five years, ending March 2015, Rwanda demarcated of communally owned land, including through the 11.3 million land parcels across the entire country and issued formalization of landowning groups. More than 50 land owning land titles for 7.1 million of these parcels at an average cost groups have already been organized, out of which ten have of US$ 8 per parcel. Almost 100 percent of Rwanda’s land is been registered as Communal Land Associations (CLAs). The now demarcated, with 64 percent of the demarcated parcels Government should build on this initial process to scale up the having their titles collected by land owners (see Box 4). Many registration of land-owning groups as CLAs and to register their other countries have implemented fast, effective and low cost land in line with the 1998 Land Act. Under the current program, approaches to registering land. In Ethiopia, certificates for 20 at least 600 CLAs could be organized, with their land rights being million parcels were issued at an average cost of less than US $ adjudicated, demarcated, and registered. However, as incidences 1 per parcel. The completion of this program has incentivized of resistance to the titling program have demonstrated in the landowners to rent land. Although government policy still limits past, some communities are still suspicious of government these transactions, placing restrictions on how much land can intentions and resistant to engaging in land market transactions be rented and for how long, as the system evolves, markets are with non-community members. This resistance must be expected to become more active, leading to increased land overcome through measures to win their acceptance. Linking concentration and higher rates of migration from rural to urban these communities to investors, with a legally binding stake in areas. Ethiopia is piloting the method used by Rwanda, which the new investments, could help. Moreover, organizations in relies on low cost cadastral index maps to demarcate and register these areas would likely be more receptive to engaging in land land. The Ugandan Government is in the process of adopting markets if they were able to rent out their land, rather than selling similar technologies to scale up its own land registration program it. Therefore, the current program to formalize groups and to but is preceding the program with design of a GIS software and register their land needs to be accompanied by the promulgation with other necessary preparations to ensure that the captured of the necessary regulations and guidelines for long term leasing, land titling data integrates smoothly in the business processes as was successfully implemented with the Ejidos in Mexico; with and workflows of the land information system and that there are native lands in Fiji; and with allodial lands in Ghana (see Box 6). Banana plantation in Masaka, South east Uganda, have to thrive to feed the urbanites (Great Lakes Film Production Ltd, 2014) 59 Ali, D. A., K. Deininger, and M. Duponchel. 2015. “Sustainability of the LTR program: Preliminary results from the 2015 household survey round in rural Rwanda.” Kigali, May 5, 2015. MINERENA. 60 The LIS program is being supported by a World Bank- supported GOU project “Competitiveness and Enterprise Development Project” 44 Box 6: Land Rental Markets in Communally Owned Land: Experiences in Mexico, Fiji and Ghana Mexico: Ejidos are communal settlements owned by beneficiaries of land reform processes in Mexico. These settlements were subject to an accelerated land reform process in the period from 1992 to 1999, with this process involving the formalization of community groups as land owners; the establishment of community self-governance institutions; and the registration of communal land rights. Within a five year period, 57.2 million hectares of land were measured and mapped, with 2.9 million households receiving certificates to individual, common, and housing land. The program increased security of land access for approximately 1 million households who previously had few or no land rights. It also improved governance: more than 18,000 Ejidos formalized internal bylaws through the assembly, with 90 percent electing representatives through a democratic process. The program provided a strong legal basis for numerous contracts and joint ventures between Ejidos and entities from outside the communities. Ghana: About 80 percent of Ghana’s land is held under customary tenure. This land is administered by traditional authorities (chiefs) who are recognized by Ghana’s Constitution as trustees with the authority to allocate land to their subjects for use. The traditional authorities are also empowered to endorse individual allocations of land for registration. As legal trustees, traditional authorities are also empowered to enter into long term leases with investors. In fact, they are the main source of land for commercial investments in agriculture in Ghana. Fiji: About 87 percent of land in Fiji is held under customary title (native land). This land is owned communally by indigenous Fijians, who make about half of Fiji’s population. Fijians of Indian origin make up about 45 percent of the population but do not own land. However, the Fijians of Indian origin are the key planters of sugar cane, with this planting being conducted on native land leased from indigenous Fijians on 30-year renewable leases, with lease arrangements managed by an autonomous entity called iTaukei Land Trust Board (TLTB). TLTB manages land transactions involving other entities, including local and foreign investors. Source: Byamugisha, F. F. K. 2013. Securing Africa’s Land for Shared Prosperity: A program to Scale up Reforms and Investments. Africa Development Forum Series. Washington DC. World Bank; Dodd, M. J. K., 2012. Reform of leasing regimes for customary land in Fiji, A dissertation for a Bachelor of law, University of Otago; and World Bank. 2011. “Ghana Second Land Administration Project. Project appraisal document. World Bank, Washington, DC. Government-owned land should also be demarcated and shown. For example, in Ghana, a similar process enabled the registered to promote the achievement of higher levels of Government to start managing state land assets more effectively productivity. The Government still owns large amounts of land and productively. The Government of Ghana is in the process of either directly or indirectly, including land declared as public land preparing a comprehensive policy for the management of public during the colonial period. Much of this land is either unused land (see Box 7). or underused. For this type of land, the most urgent action is to undertake an inventory to establish the status of occupation and To promote its efficient use, all land, including that owned the purpose for which the land is used. Once this process has by religious and cultural institutions, should be clearly been completed, the land could then be allocated to the land demarcated and registered. Cultural and religious institutions poor and to investors on the basis of transparent and competitive have large holdings of unused and underutilized land, both processes, as advocated by the National Land Policy 2013, while in rural and urban areas. As in the case of government owned resisting pressures from business entities that wish to obtain land, much of this land is not properly demarcated. Often, government land without going through competitive processes its occupation status and the purpose for which it is used is . There is no doubt that there will be some obstacles to the not clearly defined. Hence, there is a need for an inventory to implementation of this plan, as it may involve the displacement demarcate and identify the status of occupation and use. While of entities currently utilizing the land. However, the benefits recognizing that this is private land administered by cultural could be significant, as experiences in other countries have and religious authorities as trustees, the Government has an 45 interest in ensuring that the land is used efficiently to benefit (i) take inventory and register their lands; and (ii) to improve not only the land owners and tenants, but the nation as a management of their lands, in a similar way as the Government whole. To promote the efficient use of these lands, one option of Ghana has supported traditional authorities to establish is for government to provide subsidies by way of grants and Customary Land Secretariats for land administration and to technical assistance to religious and cultural authorities to: demarcate allodial boundaries. Box 7: State land inventories: Ghana’s experience Ghana has a large stock of government-owned land, most of which was accumulated during the 1950s under the radical land policies of Kwame Nkrumah. In 2001, it was estimated that the Ghanaian government owned 40 percent of all urban and peri-urban land (Kasanga and Kotey 2001). To improve the management of state-owned land, in the period from 2003 to 2010, the Ghanaian Government worked to establish a national inventory of these lands, with the objective of establishing accurate information as a basis for decisions related to the management of public land. The process involved the collection of information on the location, size, ownership, and the boundary measurements of land, as well as current land use and encumbrances, including the presence of squatters. Ten consulting firms implemented pilot inventory exercises in three regions of the country, through which 1,144 sites were identified, significantly greater than the 288 sites compiled from public land sector agencies’ records. The exercise provided a clearer picture of the composition of government land and of the principal sources of tension in communities impacted by government land acquisitions. For example, of the 722 sites inventoried, only 58 (less than 10 percent) were formally acquired, compensated for, and fully used for their intended purpose; 198 sites (27 percent) were occupied and used by state agencies without any formal acquisition process; the acquisition status could not be established for 377 (52 percent) sites; and 6 sites reserved by the state were never formally acquired and were not being used for the intended purpose. Source: Ahene, R. and F. F. K. Byamugisha. 2014. “Inventory of government land: Lessons from Ghana and Uganda.” Chapter 6 in Byamugisha, F. F. K (ed.). Agricul- tural Land Redistribution and Land Administration in Sub-Saharan Africa: Case Studies of Recent Reforms. Directions in Development. World Bank: Washington DC 4.2 Redesigning the Land Fund and with technical assistance and for improved funding provided to enable bona fide and lawful occupants to buy the The Ugandan government should redesign the Land residual land rights of landlords. Additional steps are required Fund to achieve higher levels of efficiency and equity. to ensure that the Land Fund provides an effective means to This will require the Government to promote the sharing and disentangle the overlapping land rights and to make the land redistribution of land between mailo landlords and tenants more productive. First, the operational priorities of the Land through free negotiations between the two parties to enable Fund should be revised from the single political objective of one party to buy out the rights of the other, followed by support restitution to that of a multi-objective operation that not only to improve productivity on the land. Current operations of addresses restitution, but also poverty reduction. This should the Land Fund are not efficient and equitable (see Box 8). The be achieved by prioritizing the provision of support to poor National Land Policy of 2013 provides a basis for changes to tenants, agricultural workers and displaced citizens, and other the Land Fund to include land sharing, facilitated by mediators land poor and landless Ugandans in the agricultural sector. 61 “Ministers gave me Namulonge Land – Sudhir”, Daily Monitor Newspaper, Thursday August 27, 2015 62 World Bank. 2011. “Ghana Second Land Administration Project. Project appraisal document. World Bank, Washington, DC. 46 Traditional livestock farming still dependent on extensive land for pasture (Great Lakes Film Production Ltd, 2014. Box 8: Uganda Land Fund to address historical injustices and landlessness The Land Fund (LF) was created under the Land Act of 1998, to be managed by the Uganda Land Commission (ULC) to primarily (a) give loans to lawful and bona fide occupants to buy out and register residual interests of landlords or to buy on their behalf those residual interests to settle injustices caused during the colonial era; and (b) resettle people rendered landless by Government action, natural disaster or any other cause. Since FY 2002/03 when it started its operations, the LF received funding of UShs 31.1 billion and acquired 62,279.74 hectares of land with bona fide occupants on it in Kibaale district, thereby buying out the interests of landlords. However, the ULC has not taken any further action on the land: it has neither transferred the ownership interests to the bona fide occupants nor evicted them. Furthermore, since its establishment, the LF has not undertaken any actions to improve the productivity of the land it purchased partly because productivity improvement is not part of its mandate. Based on the amount of land purchased and the money put into the LF, the approximate cost is nearly UShs 500,000 per hectare. In the meantime, the design of the fund also led to distortion of prices on account of the land lords’ expectation that their land was to be bought off by the fund. For Kibaale district, it was found that by 2004, just one year after the setup of the fund, prices for mailo land had increased to levels higher than the expected future income stream from agricultural production on that land, and also higher than prices for freehold and customary land, despite the encumbrances on mailo land (Deininger, Ayalew and Yamano 2006). Source: Based on information from MLHUD; Deininger, K., D. Ayalew and T. Yamano, 2006. Legal knowledge and economic development: The case of land rights in Uganda, World Bank Research Working Paper No. 3868, Washington DC: World Bank 47 Second, the operations of the Land Fund should be which successfully incorporated measures to achieve improved made more efficient by: (i) involving beneficiaries (bona efficiency and poverty reduction (see Box 9). Based on the fide occupants) in negotiating the price of residual rights of Regulations for the Land Fund gazetted in March 2014, the landlords to avoid the imposition of exorbitant prices; and Uganda Land Commission should urgently issue Guidelines for (ii) incorporating in the operations of the Land Fund the the Land Fund, taking into account the guidance provided in the necessary technical services and agricultural inputs to raise 2013 National Land Policy and the experience of land reforms the productivity of land. The Government can learn from the elsewhere, such as in Malawi and Brazil. experiences of Brazil and Malawi’s land reform programs, Box 9: Land acquisition and development for the poor: Experience from Malawi and Brazil To address the highly unequal distribution of overcrowded arable land, which coexists with underused large-scale farms, Malawi piloted a land reform program with funding from the World Bank (World Bank 2004). The pilot project aimed to increase the income of about 15,000 rural poor families using a decentralized, community-based, and voluntary approach in four districts. Modeled on Brazil’s market-based approach to land reform (under implementation since the mid-1990s), the pilot had three key elements: (a) voluntary acquisition by communities of land sold by willing estate owners; (b) resettlement and on-farm development, including transportation of settlers, establishment of shelter, and purchase of basic inputs and advisory services; and (c) survey and registration of redistributed land. Land reform beneficiaries, organized in voluntary groups, were self-selected on the basis of predefined eligibility criteria. Each family received a grant of US$1,050, managed directly by beneficiaries, with up to 30 percent for land acquisition and the rest for transportation, water, shelter, and farm development. Land for the project was acquired from willing sellers, the government, or private donations and was registered initially under group title; it is expected that individual titles will be provided to beneficiaries upon demand in the future. Implementation was decentralized through District Assembly institutions and required capacity enhancement, especially for surveying and registration. According to the impact evaluation, the project achieved even better results than the Brazilian model on which it was based (World Bank 2009): more than 1.5 hectares of land were distributed, on average, to each of 15,142 rural households (40,102 households in Brazil); agricultural incomes increased an average of 40 percent per year for beneficiaries (compared to non-beneficiaries) between 2005–06 and 2008–09 (6 percent in Brazil); the economic rate of return was 20 percent (13 percent in Brazil); and impacts on the livelihoods of beneficiaries and surrounding communities were positive, with improvements in landholdings, land tenure security, crop production, productivity, income, and food security (similar results in Brazil). Source: Byamugisha, F. F. K. 2013. Securing Africa’s Land for Shared Prosperity: A program to Scale up Reforms and Investments. Africa Development Forum Series. Washington DC. World Bank 48 4.3 Strengthening institutions for land records, especially maps and registration documents; (ii) wide administration spread corruption; (iii) fraudulent title certificates; (iv) fraud in the administration of land rights; (v) chronic understaffing and The third measure that the Ugandan government should underfunding; and (vi) cumbersome and long procedures to implement is to strengthen the institutions responsible for register land and land transactions. In 2005, the Government the management of land, including the administration and started rehabilitating and modernizing institutions responsible management of land transactions and the resolution of related for the management of the administration of land through disputes. interventions built around the development of computerized land information systems. At the central government level, a) Accelerating progress on land administration and these institutions are managed under the Ministry of Lands, management Housing and Urban Development (MLHUD) with its 21 zonal offices, and is decentralized to 111 districts as of June 2015. The most critical institutions in the management of land The Uganda Land Commission and the Institute of Survey and administration are those involved in the documentation; Land Management also operate under the auspices of MLHUD. information storage, analysis and retrieval; and valuation Progress In addition to the rehabilitation and modernization processes. Prior to recent initiatives, after more than three of land institutions, the Government has also piloted key decades of poor land governance, Uganda’s land administration reform initiatives, including: (i) the organization of communal systems had become virtually dysfunctional. Services had land owners into legal entities and the registration of their almost ground to a halt, with the dysfunctionality taking the communal land rights; and (ii) the acceleration of the systematic form of: (i) disorganized and physically worn out manual land registration of individual land rights. Figure 13: Steady progress in improving land information system Location of Ministry Zonal Offices (MZO) to spread across Uganda The six Zonal Offices already operational leading the way. - MZO Offices operational - pilot stage (6) - MZO Offices ready - 2nd stage (7) - MZO Offices to build - 3rd stage (8) - MZO areas Offices operational (pilot stage) (6) - MZO areas with offices ready - 2nd stage (7) - MZO areas to build the offices - 3rd stage (8) Source: Ministry of Lands, Housing and Urban Development 49 The implementation of the Land Information System (LIS) mortgage transactions were completed within the three-days program has already demonstrated the benefits to be service standards set in the Client Charter. Similarly, only 21 derived from an efficient land management system. The percent of total searches (verification of landownership and development of the computerized LIS began with the re- any encumbrances on the title) were completed within the engineering and computerization of processes and workflows three-days stipulated in the Clients Charter, although this is of the land registration function and the associated cadastral much better than the average period of 50 days prior to the mapping. The process is now being scaled up to cover other implementation of the system. The impact on land-related land administration functions, including physical planning, revenue has been considerable. The value of the average valuation, and topographic mapping. It is also being extended monthly revenue from transaction taxes increased from US from six zonal centers to all 21 of these centers across the $ 0.7 million in 2013/14 to US $ 3.6 million in FY 2014/15. country. So far, the impact on land transactions and on the With intensified training and closer supervision of staff, the collection of land-related revenue has been impressive (see Government expects actual performance to be very close to the Box 10). The average time taken to facilitate the transfer service standards defined in the Client Charter by mid-2016. of property titles has been reduced from 227 days in 2007 It is envisaged that by its completion in 2018, the LIS program to 43 days in 2014. This is lower than the average for Sub- will be able to support all functions of land administration. Saharan Africa, which according to the Doing Business Survey Because it will be fully computerized, this program is expected is 57 days. However, the performance is still short of the 64 to facilitate the achievement of dramatically improved levels of service standards set in the Government’s Client Charter and efficiency, enabling land transactions to be completed within therefore requires further improvement. For example, during a single day. In addition, the system will facilitate electronic FY 2014/15, in Uganda, only 22 percent of all transfers were linkages with strategic clients, including banks (to facilitate completed in the 10 days service standard stipulated in the mortgage transactions); the chief government valuer’s office Client Charter.65 For mortgage transactions, while the average (to facilitate valuation); and local urban authorities (to facilitate time to facilitate a mortgage declined from a period of 3 to 4 compliance with land use regulations, including the issuance of weeks before the implementation of LIS, only 10 percent of the construction permits). Transforming Kampala Central Registry – From stacks of old papers during the old registry to organized filing under the new registry, (Ministry of Lands Housing and Urban Development, 2015) Old system of records New system of records 64 World Bank. 2014. Doing Business 2015: Going Beyond Efficiency. Washington, DC: World Bank 65 Uganda Ministry of Lands, Housing and Urban Development (MLHUD), 2014. Lis Review Report, March 2013- December 2014; also supplemental progress Notes provided by MLHUD 50 Box 10: How technology is improving land administration in Uganda - The Uganda Land Information System In 2005, Uganda embarked on a program to rehabilitate and modernize its land administration system. A core component of this program is its computerized Land Information System (LIS). Following the implementation of a baseline study and a conceptual design in the period from 2007 to 2008, the development of LIS was planned for implementation in two phases. First, in the period from 2010 to 2013, a three-year pilot was implemented in six zonal offices, with these six offices together holding approximately 70 percent of all registered land titles in Uganda. The LIS was implemented along with a legal review and a program to rehabilitate land offices; to re-engineer business processes and work flows; and to build institutional capacities. This pilot phase became fully operational in March 2013. What has been the impact? While it is still too early to draw comprehensive conclusions regarding the long-term impacts of the program, in the short term, LIS has achieved the following: (a) a decrease in the average time to transfer property: In the Masaka zonal office, for example, the average time taken to facilitate the transfer of property titles decreased from 227 days in 2007 to an average of 26 days in 2014. While it still takes about two months to implement such transfers in the less successful zonal offices, such as the one in Wakiso, the average time is now significantly lower than 57 days, which is the average time for such transfers in the sub-Saharan African region; (b) decreases in the time to conduct searches: The average time taken to complete a search (verification of land ownership and encumbrances on the title) declined from 50 days to 8 days in Masaka, and to 32 days in the worst performing zonal office, in Wakiso; and (c) decreases in the time taken to facilitate bank mortgages: The time taken to process a bank mortgage has been reduced from more than 50 days to 7 days in Mbarara, and to 48 days in the worst performing zonal office of Wakiso. The potential to improve performance in all these areas is high, given that the high service standards defined by the Client Charter have been achieved for a significant proportion of land related transactions, with 22 percent of the land transfers being completed in 10 days, 12 percent of mortgages being registered in three days and 21 percent of searches also being completed in 3 days. In addition to efficiency gains in land transactions, there has been an impressive increase in the value of monthly land-related revenues, from US$ 0.7 million in 2012/13 to US$ 3.5 million in 2013/14, representing a fivefold increase. The roll-out phase, which commenced in 2015, is expected to extend the LIS from six to 21 zonal offices. In this phase, the functional coverage of the program will be extended to physical planning and valuation. It will also facilitate the establishment of electronic linkages between land administration services and strategic clients and partners, including banks and real estate agents. During the roll out phase, it is expected that the time taken complete land and mortgage registration and searches will be reduced to a single day. This will result in an additional boost to land-related revenue, since the valuation function will be fully computerized. Source: Uganda Ministry of Lands, Housing and Urban Development (MLHUD), 2014. LIS Review Report, March 2013-December 2014; also supplemental progress Notes provided by MLHUD. b) Strengthening systems for valuation of land In addition, government valuers, under the leadership of the Chief Government Valuer, are responsible for the The ability of government institutions to accurately and establishment of standards and regulations to guide the efficiently conduct land valuations plays a vital role in a valuation of land by private sector entities and to facilitate number of processes, including the following: (i) Expropriation the development of valuation data bases that can be used and compensation: Accurate valuations are required in order to by all valuers in the public and private sectors to undertake ensure that fair compensation is paid to the original owners of the their work. This process is particularly critical in urban areas, land; (ii) Revenue collections: Accurate valuations facilitate the where a credible system for documenting and valuing land collection of revenue by enabling an accurate assessment of the will go a long way towards streamlining transactions and value of stamp duties to be charged on land transfers and of the eliminating speculation. However, the existing system needs property rates to be collected by municipal authorities. to be strengthened and improved into an efficient valuation 51 system. This would require passing legislation to promote mass d) Institutions for dispute resolution valuation across the country; developing valuation standards; institutionalizing periodical property re-valuations in the country As a matter of urgency, the Government should strive to improve including the LGs through the District land boards; setting quality its systems for the resolution of land-related disputes and to control guidelines; undertaking periodic audits; publishing fill institutional vacuums in land administration while also results of all process to empower the population and improve strengthening the judiciary and the local council courts and their accountability; improving governance in the valuation units interface with traditional institutions. including fighting corruption; and strengthening human and financial resources. Under a World Bank supported project,66 the Of course, measures to accelerate the land registration process Government is developing systems and capacities to conduct and to disentangle land rights under the mailo tenure system will valuations in the public sector and to establish valuation in themselves have a significant positive impact in reducing land- databases and standards and regulations that can improve the related disputes. However, there will still be a need to establish performance of private sector valuers. Implementation of this effective systems and to provide necessary resources to resolve process should be accelerated to ensure that valuation services emerging land disputes quickly and at low-cost. As already and standards are improved rapidly. alluded to, this would require filling the institutional vacuum in land administration in the hotspots of land disputes, especially c) Institutions for managing local urban authorities finances in northern Uganda and the Albertine region, by ensuring that and land zonal and district land offices are adequately staffed. In addition, and for the whole country, it would also require building The capacities of urban institutions responsible for financial competent formal institutions for dispute resolution by providing management need to be strengthened in order to enable adequate staff, budget and training to judges, magistrates, Local them to effectively collect the revenue necessary to acquire Area Committees, and Local Council Courts, and to strengthen land and to pay for infrastructure improvements. At present, alternative dispute resolution (ADR) mechanisms as well as the institutional arrangements in this area are poorly coordinated the interface between formal and traditional institutions, by and badly managed. These institutions need to be equipped with empowering the latter. the necessary management systems and tools and with adequate human resources to plan and manage urban affairs, including the collection and management of public urban finances. While 4.4 Prioritizing and closing gaps in policy the on-going government projects 67 have excellent potential commitments for effective implementation to develop and strengthen institutional capacity in Kampala and the chosen municipal towns, implementation needs to be The Government should review the many existing policy accelerated and extended to other urban authorities. commitments related to the administration of land and to prioritize measures to close critical gaps when these At present, urban public finances are derived from two primary are identified. In recent years, the Government has strived to sources: (i) own source revenues; and (ii) transfers from the develop a land policy framework to underpin essential reforms central government. With the exception of Kampala City, which related to the system of land administration. In addition to raises about 50 percent of its budget from its own source the Constitution of Uganda of 1995, significant instruments for revenues, all other urban authorities in Uganda depend heavily this purpose include the 1998 Land Law (and its subsequent on central government transfers to fund their development amendments) and at least five different national policies (the programs. The value of the Government transfers is very limited, National Land Policy; the National Land Use Policy; the National with urban authorities receiving only 6 percent of the total value Resettlement Policy; the National Urban Policy; and the National of transfers to LGs, with this value amounting to UGX 1.2 trillion Housing Policy). If not properly coordinated, these various to LGs in FY 2004/05 – 2009/1068 It is critical that the urban instruments could be a source of confusion. In fact, the confusion authorities develop the capacities to increase revenue derived resulting from the multiple and inadequately coordinated policies from their own sources and to manage this revenue prudently. 66 World Bank 2013. Project Appraisal Document for The Competitiveness and Enterprise Development Project 67 World Bank supported projects, ‘Uganda Support to Municipal Infrastructure Development Program’ and ‘Kampala Institutional Strengthening and Infrastructure Project’. 68 Ministry of Local Government, 2015. Local Government Profile. Republic of Uganda 52 and their instruments has already been the source of some These initiatives involved measures to improve land tenure conflict in various parts of the country, especially in relation security and to remove restrictions on the rental of land as part of to resolving land disputes. To prevent further occurrences of a broader agrarian reform process. Impact evaluations indicate this sort, it is vitally essential that a thorough review of these that these reforms played a vital role in improving access to instruments be conducted to ensure consistency. land by the land-poor and in increasing overall productivity. In China, these measures are estimated to have increased Despite – or perhaps partly because of – the existence of this agricultural productivity by approximately 60 percent.69 In wide range of land-related laws and policies, there are still Vietnam, participation in rental markets grew from 3.8 percent critical gaps in the policy framework. To support the effective in 1993 to 15.8 percent in 1998, with the development of both implementation of land reforms, it is vital that these gaps be rental and sales markets being found to have an unambiguously addressed. Critical gaps identified in this update include the positive impact on productivity.70 In addition, the reforms in following: (i) the need to amend laws to remove restrictions on China reduced population pressures in the densely populated rental markets to improve landlord-tenant relations on both agricultural areas by facilitating out-migration, with this process mailo and freehold land; (ii) the establishment of disincentives to resulting in an increase in the share of migrants to China’s discourage the speculative holding of unused land for extended urban labor force from 5 percent in 1988 to 17 percent in 2000, periods of time; (iii) the need to clarify policies governing the use representing a total of 124.6 million people.71,72 In Vietnam, the of urban land, including the provision of incentives to encourage reform process increased the rate of migration by households vertical expansion and multi-purpose usage of structures as from 29 percent in 1993 to 64 percent in 1998.73 a means to promote increased density and sustainable urban development; (iv) the adoption of innovative instruments for land There are two critical factors that enable land rental markets pooling, financing and development to achieve economies of to operate efficiently, these being land tenure security and scale and equitable urban land development; and (v) measures the elimination of restrictions on land rental markets. While to address the issue of expropriation and compensation and registration of land is critical, it must be supported by a legal thereby to promote the principle of fairness and equity. The framework that does not overly constrain landlords and tenants current market-based practice often underestimates the value from negotiating freely the terms and conditions of the rental or of future income from the investment for which the land is being lease of land. Thus, in the Ugandan context, existing restrictions acquired, and often does not factor in the cost of moving people on land rental markets, especially the fixing of nominal rents at into a new area of settlement and the restoration of livelihoods uneconomic levels, as under the Land (Amendments) Act 2010, to at least the level that existed before the expropriation. To need to be eliminated, as advocated by the 2013 National Land achieve this goal, it is vital that the authorities not merely Policy. These restrictions have driven landlords out of rental strengthen regulations, but ensure that existing regulations are markets and made tenants more vulnerable to eviction, which is appropriately enforced. the exact opposite of the intended purpose of the Act. a) Removing restrictions on rental markets b) Optimizing usage of land to promote markets To ensure the development of more effective land rental In Uganda, much land remains idle and functions merely as markets and thereby to facilitate increased access to land, a highly illiquid form of savings. Uganda could learn from the the Government could learn from the experiences of China experiences of other countries, where measures have been and Vietnam, but keeping in mind that the land reform implemented to promote land markets as a means of optimizing agenda in China has some way to go especially to lift a ban the use of land and ensuring that it serves as a productive asset. on rural land sales and mortgages, and to pay adequate With the limited availability of savings instruments in Uganda, compensation for expropriated land. These countries many Ugandans use land as an investment vehicle for their implemented measures to develop land rental markets with savings. This has led to speculative buying and the accumulation initiatives first implemented during the 1970s, 1980s and 1990s. of unused land in both rural and urban areas. To discourage this Deininger, K, and S. Jin, 2009. “securing property rights in transition: Lessons from implementation of China’s rural land contracting law”. Journal of Economic 69 Behavior and Organization, 70 (1-2). 70 Deininger, K. and S. Jin. 2003. “Land sales and rental markets in transition: Evidence from rural Viet Nam”, World Bank Policy Research Working Paper No. 3013. 71 Zhai, F., T. Hertel, and Z. Wang. 2003. “Labor market distortions, rural-urban inequality and the opening of China’s economy.” Working Paper No. 27, GTAP Deininger, K. and S. Jin. 2007. “Land rental markets in the process of rural structural transformation: Productivity and equity impacts in China”, a World Bank Policy 72 Research Working Paper No. 4454. 73 Deininger, K. and S. Jin. 2003. “Land sales and rental markets in transition: Evidence from rural Viet Nam”, World Bank Policy Research Working Paper No. 3013 53 practice, Ugandan policy makers should consider the introduction land being exempt. Other urban authorities hardly bother with the of a punitive tax to act as a disincentive. A number of countries collection of such rates. Overall, the collected property rate tax is have imposed taxes on agricultural land to encourage landowners estimated to be around 1 percent of the property value. to use it productively. Countries that impose taxes on agricultural land include Rwanda, South Africa, Namibia, Jamaica, Colombia, In addition, a number of other taxes are imposed on landowners, Brazil, St. Lucia, Japan and the USA.74 Rwanda imposes a property including taxes on rental incomes (30%); capital gains tax (15%); tax on freehold land, while annual lease fees are paid on leasehold and Value Added Tax (18%). However, to increase the value of land with a certificate of registration, except for agricultural land of collected revenues and to promote efficient land markets, it is less than two hectares. Property taxes are paid at the simple rate most important that at least the two main land-related taxes, of one thousandth of the taxable value of the land each year. The namely the stamp duty and property rate tax, be effectively and fee structure for land lease fees is complex, with rates set within efficiently administered, with the collection of these taxes being minimum and maximum thresholds and related to market value extended to all eligible tax payers. To achieve this, the following of land, with the level of the fee depending on the use to which the steps should be implemented: (i) a more intensive utilization of land is put and its size, with these levels being determined by each the LIS in the six zonal centers, which cover approximately 70 district.75 percent of land transactions; (ii) an intensification over the next five years of the use of the cadastral and registration data and of An additional measure to avoid keeping land idle and to free the improved valuation system and its links with the scaled up it up for more productive use is to reduce the duration of LIS covering the rest of the country to extend revenue collection statutory leases, in the way of leasehold, from the current efforts to cover the whole country; (iii) reductions in exemptions 99 years to a more realistic duration of up to 49 years that is from tax through an extension of the tax system to include closer to the period required by an investor to recover the residential property and undeveloped property, although at lower money invested in land. This would put Uganda on the same rates than for commercial and industrial property; and (iv) an footing as some other developing countries in the continent and extension of the property rate tax system to registered rural land beyond including Rwanda, Ethiopia, Tanzania, Mozambique, after five years, at a point when the proportion of registered land is Viet Nam and China, and these countries have moreover been expected to have increased from 20 percent to 30 percent. doing well in attracting both local and foreign investment into agriculture. The reduction in leasehold from 99 years to a c) Improving urban land management maximum of 49 years should initially be done for foreign investors and then gradually extended to Ugandan citizens. With the rapid process of urbanization in Uganda, it is vitally important that systems are implemented to ensure that urban Ugandan policies should strive to implement an efficient land is allocated optimally. The allocation of this land should be framework to tax land to promote efficient land markets. Land consistent with land use planning regulations and designed to is lightly taxed in Uganda. The most significant tax is imposed on promote efficient usage. The actions to streamline the current land sales, with a stamp duty of 1 percent of the value of land. system of land rights and to strengthen land administration Even this stamp duty is under-collected due to a proliferation institutions highlighted above are critically important measures for of informal land sales and under declarations of the sale price. the foundation of an efficient system for urban land management. For example, when the LIS became fully operational in February It will also be necessary to implement specific actions to improve 2013, resulting in a consequent improvement to the integrity of the efficiency of these systems in urban areas, where there is land records, the value of revenues collected from stamp duty a higher population density and hence a requirement for land increased dramatically, with this value increasing fivefold in the to be used even more efficiently. Such reforms should focus on period from 2012/13 to 2013/14. In addition to stamp duties, measures to ensure that the urban land tenure system supports municipal authorities also impose property rates. In Kampala City, investments and service delivery, as well as facilitating the healthy these rates are set at the equivalent of 6 percent of the ratable development of satellite towns. As an estimated 70 percent of land property value, although this is imposed only on commercial and in Kampala is either public or private mailo land, with overlapping industrial properties, with residential properties and undeveloped rights and conflicting interests between landlords and bona Childress, M. D., A. Hilton, D. Solomon and van den Brink, R. 2009. Agricultural land tax, land-use intensification, local development, and land market reform”, chapter 74 12 in Binswanger-Mkhize, H. P., C. Bourguignon, and van den Brink, eds. Agricultural Land Redistribution: Toward Greater Consensus. Washington, DC: World Bank 75 Childress, M. D., A. Hilton, D. Solomon and van den Brink, R. 2009. Agricultural land tax, land-use intensification, local development, and land market reform”, chapter 12 in Binswanger-Mkhize, H. P., C. Bourguignon, and van den Brink, eds. Agricultural Land Redistribution: Toward Greater Consensus. Washington, DC: World Bank. Masengo, F., T.H. Ngoga and E. Ingabire, 2014. Land Tenure Reform and Local government revenues in Rwanda. Land Project Policy Research Brief No. 3, Kigali, Rwanda: USAID Land Project. 54 fide and lawful occupants, it is important to reform the legal In addition, Ugandan policy makers should give consideration framework to promote the practices of land sharing, pooling and to measures to improve urban planning and zoning; to readjustment as a means to support the development of vertical facilitate downtown improvements and readjustments; and multi-family and multi-purpose buildings that promote the to reform systems of agricultural land management. There is efficient use of land. In addition, laws to improve the regulation also a clear and vital need to strengthen the capacities of land of the land market needs to be formulated and implemented administration institutions. In the medium to longer term, such to improve the management of land. This will involve both measures will play a significant role in preparing Uganda to the imposition of taxes and the provision of incentives, and implement a land valuation system (including an integrated the promotion of both conventional and innovative financing land management and registration system); to manage land instruments to facilitate the development of both private and transactions (including the setting of levels of compensation public infrastructure in urban areas. The current development for land acquisitions); to settle land-related disputes; and to of the new National Housing Policy should be seized as an review regulations that govern land transactions. Uganda should opportunity both to introduce policies to strengthen policies learn from the experience of other countries, with the evidence related to land administration and financing and to compensate showing that highly urbanized countries such as South Korea for market failures that have excluded low income earners from established the institutional foundations for fluidity in land the housing market. Housing policies need to be reviewed transformation at incipient stages of urbanization. to address market failures that prevent low income earners from accessing housing. Policymakers should consider the It is also vitally necessary that Ugandan policy makers implementation of a number of measures to address the implement measures to achieve improved compliance with challenges faced by urban local governments, including the land use regulations. In addition to a land tax to encourage following: (i) accelerating the formulation of a clear national efficient land use, efficient and sustainable urbanization policy for urban development, including urban land use; (ii) the requires effective planning of physical development, including enforcement of urban development regulations; and (iii) the compliance with land use regulations. In its 2007 National establishment of a framework to promote the development of Land Use Policy, the Government committed to promoting high rise buildings with multipurpose usages. effective physical development planning, a commitment that was further manifested by the promulgation of the Physical The top priority for the promotion of effective land reform is Planning Law in 2010. The law requires that, before land title the development of an effective system for the documentation, and construction permits are issued for land development, registration and valuation of land. This should be accompanied the relevant authorities should ensure compliance with local by specific measures to support the development of a more development plans and regulations. At present, due to low levels fluid land market in Uganda, as described in the previous of institutional capacity and the lack of effective coordination, chapter. Such reforms should be designed to reduce land- compliance with land use regulations remains problematic. related conflicts and overlapping land rights; to reactivate land With funding available to strengthen physical development rental markets; to encourage the emergence of rental markets planning under CEDP, the Government should seize the in areas where the system of communal land ownership opportunity to strengthen institutional capacities for physical predominates and where changes to the tenure system are planning, including through the provision of training and the not likely to be realized soon; and to strengthen the capacity further development of the computerized LIS to strengthen the of land administration institutions. Furthermore, measures coordination of land registration and physical development should be implemented to improve the finances of local urban planning. authorities to develop their capacities to acquire land and to fund the development of infrastructure. Measures to achieve this d) Balancing expropriation with commensurate should include improving the coverage and level of compliance compensation with property taxes; a review of the system of transfers from the central government; and a thorough assessment of the manner In Uganda, three main issues negatively affect systems in which future oil revenues will be shared. for the assessment and payment of compensation for the expropriation of land and the implementation of these 55 systems, with these three issues also affecting a number of both of which are advocated by the 2013 NLP. These involve the other countries in the region.76 Firstly, the legal framework for formulation of a new marriage law that promotes co-ownership of the payment of compensation for expropriations is outdated. land for married and cohabiting couples; and an overhaul to the While the 1995 Constitution and the 1998 Land Act to some succession law to protect the rights of women following divorce or extent attempted to address this issue, the primary instrument the death of their spouse. in this area is the Land Acquisition Act 1965, which is outdated and inadequate for handling new developments in land policy, Since the existing legal framework for land does not encourage such as legal recognition of customary tenure (much of which joint titling and registration of land, as advocated for by the 2013 is undocumented) or secondary and tertiary rights, such as NLP, the Government is formulating a new marriage law (Marriage rights of access to pastoral and forestry resources. Secondly, and Divorce Bill 2013; and Administration of Muslim Personal current valuation practices tend to result in the undervaluation Bill 2013) to provide for joint registration and co-ownership of of land, as systems for the valuation of rights that are not easily land not only for married women, but also for women in de facto monetized, such as pastures and access to forest resources, relationships. It is particularly important that the implementation are poorly developed. These systems prioritize the payment of this law proceeds rapidly, so that its provisions can be applied of compensation in cash, rather than facilitating land-for-land in the systematic scaling up of land registration, which will result compensation and resettlement, both of which may serve as a in the issuance of 1 million new titles by 2019. better means of ensuring that the livelihoods of those affected would be protected from the negative impacts of expropriation. Ugandan policy makers should also give serious consideration to In addition, with most land being held under customary tenure a thorough revision and reform of the Succession Law to protect being unregistered, under-compensation is particularly common the rights to inheritance by women upon divorce or upon the in cases involving land of this type. Thirdly, weaknesses in systems death of their spouses. Given that inheritance is the most common of governance and corruption often lead to underpayment means by which land is acquired in Uganda, this is particularly and/or prolonged delays in the payment of compensation. significant. The greatest discrimination against women in property In consideration of these weaknesses, there is a need to: (i) rights is at the point of inheritance. To promote women’s access accelerate the process of updating the 1965 Land Acquisition to land and their security of tenure, it is therefore important to Act; (ii) implement measures to avoid the undervaluation of land overhaul the current Succession Law to provide for a fair share in (see above section on valuation) and the use of poorly conceived inheritance for women. forms of compensation; and (iii) improve systems of governance as a means to reduce and eliminate corruption to ensure that fair and full compensation is paid. e) Promoting the rights of women In the area of land ownership, Ugandan women continue to face significant institutionalized and informal discrimination. The sugar sector, for instance, is the This discrimination is not only unjust, it also acts as a significant largest organized agriculture sector constraint on economic growth. Increasing women’s access to land and improving their security of tenure would be in the country, which is also based on significant measures towards eliminating the gender gap in sustainable development activities. agricultural productivity, with this gap currently standing at However, expansion of this industry 19 percent.79 Eliminating this gap would provide a significant boost to agricultural production, given that over 50 percent of has been constrained by land agricultural work in East Africa is done by women.78 To increase availability. women’s access to land and to improve their security of tenure, Ugandan policy makers should implement at least two actions, Byamugisha, F. F. K. 2013. Securing Africa’s Land for Shared Prosperity: A program to Scale up Reforms and Investments. Africa Development Forum Series. Washington 76 DC. World Bank Ali, D., D. Bowen, K. Deininger and M. Duponchel, 2015. Investigating gender gap in agricultural productivity: Evidence from Uganda. Policy Research Working Paper 77 No. 7262. Washington DC: World Bank SOFA Team and Cheryl Doss, 2011. “The role of women in agriculture”. Background paper for FAO’s The State of Food and Agriculture 2010-2011: Women and 78 Agriculture: Closing the Gender Gap for Development 56 Zooming in on Kampala – Central Division of Kampala cadastral map (Ministry of Lands, Housing and Urban Development, 2015 AnnexES 57 58 A nn e x 1 : H o w h i st o ry h a s st ru c tur ed th e l a n d te n u re sys te m in Ugan da Period & Event Changes in land administration system Impact on land tenure system Pre- independence During the British colonial period, land reforms mainly in the central (Buganda, Created freehold system of land ownership in the central region, thereby Ankole and Toro), gave large tracts of land to the political elite but turned most of the starting off a market, but also created a grossly unequal land tenure system, people of Buganda into tenant farmers. of tenant farmers. These had customary unwritten right to use the land for grazing and farming renting on the landlords mailos of land. 1900 Agreement Divided land in Buganda into Mailo land and Crown land. Mailo land was doled out Customary unwritten right to use the land for grazing and farming were to the Kingship, the chiefs and some notables while Crown land was held for govern- terminated ment purposes. 1927 Busuulu and Envujjo Regulated the rent that peasants in Buganda were supposed to the holders of Access to land was increased through direct purchase and through official law certificates if they wished to use the land (‘Busuulu’ and ‘Envujjo’) they hitherto used alienation of hitherto communal land, the customary tenure remained very by right of history and custom. This turned the bona fide occupants into tenants. dominant with its demerits. Landlords were hiking the ‘Busuulu’ and ‘Envujjo’ rates haphazardly. Allocation of land to absentee landlords saw the evolution of squatters -- people who settled, farmed and grazed animals on the undeveloped land of 1937 Toro Landlord and an absentee landlord but who could later be evicted by the landowners. Set up for the same reason in Ankole Tenant Law 1969 Public Land Act Provided for the protection of customary land rights. Legalized the rights of holding land under customary ownership 1975 Land reform decree Declared all land in Uganda public land and title to it was vested in the Uganda Land Reduced the authority of landlords and attempted to develop rental market Commission. All free land, including Mailo, was converted into leaseholds. Custom- for land. At the same time, created more uncertainty in rights to holders of ary occupants were deemed to hold the parcels of land at sufferance, which could be land terminated any time without notice. Rent payment by tenants was also removed. 1995 Uganda constitution Land is vested in the citizens of Uganda in four land tenure systems: Customary, Free- Returned land to citizens of Uganda. Created more certainty about rights to hold, Mailo and Leasehold. holders of land. 1998 Land Act Provided for a certificate of occupancy to be issued to the occupant on application to Strengthened the rights of the occupants of land, especially the tenants on the registered owner mailo land 2005 Constitutional “the entire property in, and the control of, all minerals or petroleum in, on or under, Strengthened government’s authority over the extractive riches under the amendments any lands or waters of Uganda are vested in the Government on behalf of the Repub- land by making it a public good. lic of Uganda”. 2010 Land Act Amend- Tenants who have lived unchallenged on registered land for 12 years or more, or who Strengthened the tenant’s rights to land, hence creating overlapping rights to ment are settled on the land by the Government, cannot be evicted for any reason other the same piece of land than non-payment of a nominal ground rent. A n n ex 2: s tati stic al tables Table A1: Key Macroeconomic Indicators Indicator Unit measure 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Population Millions 31.0 31.9 32.9 33.9 34.9 35.9 GDP USD millions 20,181.4 20,262.5 23,237.3 24,624.3 26,953.1 27,121.3 Per capita GDP USD 578.9 562.4 652.0 670.0 709.0 754.8 GDP growth % 5.2 9.7 4.4 3.3 4.6 5.0 Gross Domestic Savings as % of GDP 19.7 19.5 17..7 21.6 20.7 22.1 Gross Investments as % of GDP 12.5 12.3 28.2 29.5 28.9 31.4 Inflation (period average) % 9.4 6.5 23.4 5.8 6.9 2.4 Exchange Rate (end-year) UGX/USD 2,283.3 2,623.2 2,484.4 2,630.6 2,599.7 2,918.8 External Sector Exports - Goods and Services Million USD 3,470.1 3,827.9 4,672.0 4,992.3 5,317.6 5,342.9 Imports - Goods and Services Million USD -5,757.2 -6,828.5 -7,665.3 -7,530.1 -7,868.7 -8,082.2 Current Account Balance Million USD -1,631.0 -1,984.0 -2,218.0 -1,879.0 -2,133.0 -2,385.0 Balance of Payments (overall Million USD 235.0 -597.0 759.0 337.0 377.0 -475.0 balance) Gross Foreign Reserves Million USD 2,384.7 2,044.0 2,643.8 2,912.3 3,394.0 2,912.0 External Debt Million USD 2,343.4 2,904.9 3,067.3 3,742.9 4,339.5 4,877.2 Foreign Direct Investment Million USD 693.0 719.0 1,244.0 940.0 1,225.0 1,186.0 Monetary Sector Average Deposit Rate % 2.0 2.1 3.2 3.0 3.1 2.9 Average Lending Rate % 20.7 19.8 24.6 24.8 22.1 21.3 Growth in Money Supply (M3) % 15.9 17.1 13.0 14.0 14.9 15.1 Government Finance Total Domestic Revenue as % of GDP 10.5 13.6 11.2 11.4 11.9 13.0 Tax Revenue as % of GDP 10.3 10.9 10.1 11.0 11.4 12.5 Non Tax Revenue as % of GDP 0.3 0.2 0.4 0.5 0.5 0.5 Grants as % of GDP 2.1 1.9 1.9 1.5 1.0 1.1 Total Expenditure and net lending as % of GDP 16.7 19.1 15.6 16.5 16.7 18.6 Recurrent Expenditure as % of GDP 10.5 12.7 9.4 9.1 9.8 10.0 Development Expenditure as % of GDP 6.1 6.1 5.8 6.6 7.0 7.9 Fiscal Balance (overall) as % of GDP -4.0 -3.6 -2.5 -3.6 -3.8 -4.5 59 Table A2: Growth and Structure of the Economy Economic Activity 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Real GDP Growth Rates (%) 5.2 9.7 4.4 3.3 4.6 5.0 Agriculture 3.2 2.9 1.1 1.8 1.5 4.4 Industry 7.8 11.4 3.1 4.3 4.3 6.4 o/w manufacturing 8.3 29.3 -5.6 11.3 5.6 10.8 o/w construction 12.6 15.0 3.9 10.8 5.7 2.0 Services 5.9 12.4 4.9 4.0 4.2 4.6 GDP Shares (% of constant GDP) Agriculture 26.2 24.6 23.8 23.5 22.8 22.7 Industry 18.1 18.4 18.2 18.4 18.3 18.6 o/w manufacturing 8.5 8.4 8.2 7.8 7.6 8.0 o/w construction Services 48.5 49.7 49.9 50.3 50.2 50.0 FISM and net taxes 7.2 7.3 8.1 7.9 8.7 9.2 GDP Shares by expenditure type (% of nominal GDP) Final Consumption Expenditure 83.2 84.2 86.6 84.8 80.7 86.1 Households 73.8 74.6 73.9 76.6 72.8 74.9 Government 9.4 9.6 12.7 8.2 8.0 9.6 Gross Capital Formation 26.9 26.8 28.5 28.2 29.5 26.8 Gross fixed capital formation 26.6 26.5 28.1 27.9 29.1 26.5 Charges in inventories 0.4 0.3 0.3 0.4 0.4 0.4 Net exports -10.1 -11.0 -15.1 -13.0 -10.3 -13.0 Gross domestic saving (% of GDP) 12.5 12.3 17.7 21.6 20.7 22.1 Public 2.9 3.3 2.4 3.1 1.5 1.4 Private 9.6 9.0 15.3 18.5 19.2 20.7 60 Table A3: Fiscal framework(% of GDP) Approved Projected Outturn Outturn Outturn Outturn Outturn Outturn Projection as % of GDP Budget Outturn 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2015/16 2014/15 2014/15 Total revenue and grants 13.5 12.7 15.5 13.1 12.9 13.0 14.8 14.1 15.1 Revenue 11.0 10.5 13.6 11.2 11.4 11.9 13.3 13.0 13.6 Tax 10.6 10.3 10.9 10.1 11.0 11.4 12.7 12.5 12.9 Nontax 0.4 0.3 0.2 0.4 0.5 0.5 0.6 0.5 0.6 Grants 2.6 2.1 1.9 1.9 1.5 1.0 1.5 1.1 1.6 Budget support 1.5 1.1 1.1 1.0 0.3 0.3 0.1 0.3 0.3 Project grants 1.0 1.0 0.8 0.9 1.2 0.7 1.4 0.7 1.3 Total Expenditure 15.0 16.7 19.1 15.6 16.5 16.7 21.7 18.6 22.1 Recurrent 9.5 10.5 12.7 9.4 9.1 9.8 10.3 10.0 10.4 Development 4.8 6.1 6.1 5.8 6.6 6.9 8.0 6.5 8.6 Overall balance Including grants -1.5 -4.0 -3.6 -2.5 -3.6 -3.8 -6.9 -4.5 -7.0 Excluding grants -4.0 -6.1 -5.5 -4.5 -5.0 -4.8 -8.4 -5.6 -8.6 Financing 1.5 4.0 3.9 2.0 3.3 3.6 6.9 4.5 7.0 External financing (net) 1.6 1.9 1.5 2.0 2.2 1.3 3.5 1.1 5.0 o/w Budget support 0.7 0.6 0.5 0.2 0.5 0.0 0.0 0.0 0.0 Domestic financing (net) 0.0 1.7 2.3 0.0 1.0 2.3 3.4 3.4 2.0 61 Table A4: Value added (seasonally adjusted) by activity, at constant 2010 prices, percentage change, 2009/10-2014/15 Trade Accommo- Manufac- Construc- Year Quarter Agric Livestock Fishing Industry Electricity Services and dation and turing tion Repairs food 2008/9 2.9 3.0 -7.0 5.8 10.0 10.6 3.7 8.8 9.7 4.5 2009/10 0.3 0.3 4.5 2.0 3.2 -0.4 1.6 4.6 2.6 11.0 2010/11 7.9 2.4 4.0 9.9 9.9 1.2 14.6 3.0 9.1 8.1 2011/12 4.5 10.3 2.3 3.8 4.0 17.0 2.4 4.1 3.2 4.4 2012/13 0.0 1.0 5.3 3.1 3.6 0.2 4.0 2.7 2.1 5.4 2013/14 1.8 -0.2 1.3 1.4 -1.0 1.0 4.2 1.8 -1.4 4.3 2007/8 Q4 1.0 4.5 -14.3 3.0 -1.8 5.1 5.5 4.7 4.8 7.3 2008/9 Q1 2.3 5.8 -11.9 3.1 7.0 4.1 0.8 6.5 8.2 5.3 Q2 1.6 8.3 -9.3 2.1 3.1 10.1 1.6 5.5 4.1 4.3 Q3 1.9 -1.7 -4.2 5.0 6.4 5.5 5.0 8.4 4.0 2.5 Q4 5.8 0.2 -2.0 13.7 26.3 21.5 7.7 15.2 25.1 5.7 2009/10 Q1 7.0 5.9 6.4 5.6 0.8 3.5 7.5 7.0 3.4 34.9 Q2 0.3 -3.5 1.9 0.4 1.8 -1.3 1.2 0.2 -1.9 3.0 Q3 -0.5 1.6 5.9 7.1 12.3 -7.4 8.9 6.7 5.4 -3.9 Q4 -5.8 -3.0 3.7 -5.0 -2.0 3.6 -11.4 4.6 3.6 9.9 2010/11 Q1 -0.4 7.5 8.8 12.1 15.7 1.9 10.1 2.6 -0.3 17.2 Q2 7.2 0.0 17.8 7.9 9.6 1.8 9.1 -0.2 17.9 -5.3 Q3 13.3 5.1 5.1 16.0 11.0 1.7 31.6 5.4 11.9 11.1 Q4 11.3 -2.9 2.7 3.7 3.3 -0.6 7.7 4.1 6.8 9.4 2011/12 Q1 10.0 13.9 4.1 19.1 31.2 -3.1 7.7 9.6 15.9 14.0 Q2 5.7 21.7 12.2 -0.6 -2.6 -4.9 2.9 2.4 0.1 -7.4 Q3 -5.4 5.5 -3.5 -0.1 -7.8 76.2 0.1 2.2 -3.0 3.3 Q4 7.6 0.0 -3.6 -3.1 -4.9 -0.1 -1.0 2.3 -0.1 7.8 2012/13 Q1 -2.6 -0.2 -3.4 2.0 1.8 1.2 1.4 3.5 0.1 17.1 Q2 0.0 2.2 0.2 2.2 4.4 -0.3 3.2 2.4 0.6 -13.4 Q3 3.9 1.5 9.2 1.7 1.5 -3.9 5.3 2.3 3.9 13.9 Q4 -1.3 0.5 15.3 6.6 6.8 3.7 6.2 2.6 3.6 3.9 2013/14 Q1 2.1 4.7 1.9 -1.7 -6.6 0.8 2.0 1.6 -7.4 15.0 Q2 1.9 -7.3 4.6 0.5 -3.3 -1.3 5.2 1.2 1.3 -9.3 Q3 5.4 3.5 -2.3 2.2 4.8 0.9 0.0 2.4 0.9 15.3 Q4 -2.4 -1.6 1.0 4.7 1.0 3.7 9.6 2.0 -0.5 -3.7 2014/15 Q1 -3.5 0.8 1.5 1.7 6.6 2.7 -3.6 -1.2 -2.4 4.0 Q2 9.1 0.6 1.8 0.7 0.6 -2.1 1.5 1.2 2.9 -7.5 62 Public Human Transport & Financial Real estate Other Other Taxes on administra- Education Health & FISIM Storage services activities business services products tion social work 14.3 25.4 5.7 12.4 5.5 4.3 -3.2 12.3 21.7 11.8 1.5 3.5 12.6 7.5 3.2 2.0 3.8 3.5 4.3 9.7 -3.8 5.3 3.5 2.3 3.9 4.2 5.9 4.2 4.2 4.0 5.5 4.5 7.8 3.7 4.1 0.7 4.7 1.3 3.6 5.5 4.2 4.3 0.2 7.7 3.1 3.0 4.6 5.0 2.2 2.4 28.6 -5.2 -0.7 7.0 8.8 -8.1 -12.3 8.1 -5.1 15.3 21.2 -9.3 -2.1 12.2 7.6 1.3 -5.0 12.3 -11.5 9.9 14.0 17.8 -0.6 9.7 2.5 2.9 -3.3 13.5 4.2 14.9 11.3 46.4 11.9 12.8 4.6 5.9 -7.7 13.2 54.6 12.4 11.3 50.5 12.4 14.8 7.5 7.4 3.7 10.0 68.5 9.8 2.8 1.5 39.9 16.7 19.6 -0.7 2.5 12.3 111.2 7.7 -0.4 -5.0 3.2 9.8 -1.0 3.6 1.4 -0.6 100.6 -2.6 4.3 10.8 5.1 15.2 5.1 6.6 0.9 5.0 52.7 5.4 -0.7 6.5 2.3 18.4 6.2 3.3 3.0 -1.5 37.7 3.6 0.8 10.0 -23.6 14.8 17.9 4.7 3.2 1.9 28.5 5.2 4.9 7.0 2.8 15.3 0.2 1.1 3.0 4.9 34.8 1.6 3.0 8.7 1.8 6.2 0.6 4.8 2.2 2.7 21.3 4.1 8.3 12.9 3.7 -0.8 2.5 3.3 0.7 6.2 30.3 5.8 7.5 6.3 2.8 1.7 5.0 4.4 1.4 17.1 1.1 6.5 5.8 11.4 5.1 1.4 8.2 0.2 -0.9 8.4 -14.6 2.1 6.9 4.2 4.1 0.3 -2.0 9.4 9.4 4.0 -11.8 6.6 3.5 -5.1 4.7 6.3 4.9 8.1 8.2 1.8 -12.3 -0.3 3.5 2.1 3.9 13.2 -0.9 8.4 6.7 5.7 -7.2 0.2 8.8 0.5 2.8 13.3 1.5 3.4 6.3 4.2 -5.8 4.2 -1.3 2.9 6.4 3.7 0.9 5.3 3.2 10.6 5.4 -2.6 5.6 0.8 1.7 3.5 3.7 2.0 1.6 1.6 2.1 2.8 10.2 2.1 0.9 1.0 2.4 0.5 2.0 3.7 2.8 2.2 3.8 -1.3 2.3 -0.3 4.2 5.3 2.7 9.2 3.3 6.4 -5.5 28.8 4.1 0.0 2.7 6.4 0.6 3.3 -0.4 5.3 1.4 11.5 3.8 0.4 2.4 -2.4 0.9 13.9 1.7 4.1 3.3 1.1 -0.3 7.7 63 64 Table A5: Balance of Payments (percent of GDP unless otherwise stated) VARIABLE 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Current Account (incl transfers) -8.1 -9.8 -9.5 -7.6 -7.9 -8.9 Exports of goods 11.5 11.3 11.4 11.8 10.1 10.4 Imports of goods -20.4 -23.1 -22.6 -20.4 -18.7 -18.6 Services (net) -2.1 -3.4 -1.7 -1.7 -0.9 -1.8 Trade balance -8.9 -11.8 -11.1 -8.6 -8.6 -8.2 Income (net) -1.7 -1.7 -2.0 -2.2 -2.4 -2.7 Current transfers (net) 4.6 7.1 5.3 4.9 4.0 3.8 Capital and Financial Account 8.8 5.3 10.1 7.3 7.9 7.1 Capital account 1.0 0.8 0.8 1.2 0.8 0.7 Financial account 7.9 4.5 9.3 6.1 7.1 6.4 o/w direct investment 3.4 3.5 5.4 3.8 4.5 4.4 Overall Balance 1.2 -2.9 3.3 1.4 1.4 -1.8 Gross International Reserves (million USD) 2,384.67 2,043.98 2,643.77 2,912.34 3,394.0 2,912.0 Gross international reserves in months of imports 4.4 3.2 4.3 4.5 5.0 4.0 Table A6. Inflation Rates PERCENTAGE CHANGES 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 FY FY FY FY FY FY FY CPI (average) 14.2 9.4 6.5 23.7 5.8 6.7 2.4 CPI (end of period) 12.3 4.2 15.7 18.0 3.7 5.0 6.0 Food (end of period) 27.9 16.5 9.3 12.8 -1.4 7.2 -1.9 Core Inflation (end of period) 8.9 6.7 5.7 19.5 5.8 2.9 2.7 Table A7: Exchange rates and Interate rates (2011-2015 Deposit Lending Treasury bill Central Bank Deposit (Local Lending (Local Nominal NEER REER (Foreign (Foreign Year Month rate(91-days) Rate* Currency) Currency) UGX/USD Index Index Currency) Currency) % % % % % % 2011 Jun 2,461 131.1 114.6 12.1 16.7 2.6 1.3 19.9 9.4 Jul 2,587 137.8 118.4 13.1 13.0 2.8 1.3 21.7 9.7 Aug 2,753 146 123 14.5 14.0 4.3 1.2 21.3 9.8 Sep 2,814 145.9 115.4 15.6 16.0 2.5 1.1 23.3 9.7 Oct 2,805 143.3 112.2 18.8 20.0 2.4 1.1 23.6 9.5 Nov 2,582 132.5 104.1 19.6 23.0 3.1 1.6 26 10.3 Dec 2,447 126.1 99.7 20.1 23.0 3.3 1.3 26.7 10.1 2012 Jan 2,414 124.3 99.4 20.3 23.0 3.4 1.3 27.3 10.3 Feb 2,328 122 96.1 17.6 22.0 3.3 1.3 26.8 10.4 Mar 2,485 129.7 102.6 15.7 21.0 3.4 1.3 27.6 10 Apr 2,506 130.4 101.7 16.3 21.0 3.7 1.2 26.1 8.2 May 2,479 127.4 99.8 16.4 21.0 3.5 1.4 26.7 9.3 Jun 2,484 124.9 98.6 16.7 20.0 3.5 1.6 27.0 8.4 Jul 2,474 120.7 110.4 16.7 19.0 3.6 1.2 26.9 9 Aug 2,600 121.8 111.7 12.7 17.0 3.6 1.3 26.4 9.1 Sep 2,593 123.8 112.8 10.7 15.0 3.1 1.2 25.7 8.7 Oct 2,621 127.1 115.7 9.1 13.0 3.0 1.2 24.9 10.7 Nov 2,625 128.2 116.3 9.3 12.5 2.9 1.2 23.7 10.4 Dec 2,614 130.7 118.8 9.4 12.0 2.6 1.2 24.8 8.7 65 66 2013 Jan 2,684 130.9 119.8 9.2 12.0 2.8 1.4 24.2 9.8 Feb 2,658 129 118.3 9.1 12.0 2.6 1.2 24.3 9.3 Mar 2,637 127.4 116.1 8.8 12.0 2.8 1.4 24.0 9.9 Apr 2,578 125 112.7 9.5 12.0 2.8 1.5 24.6 10.3 May 2,586 124.8 112.3 9.4 12.0 2.9 1.5 23.5 9.7 Jun 2,593 124.1 112.5 9.5 11.0 2.6 1.4 22.7 10.1 Jul 2,589 122.9 111.7 9.4 11.0 2.9 1.3 23.1 9.2 Aug 2,579 121.8 108.4 9.2 11.0 2.9 1.3 23.1 9.6 Sep 2,569 120.7 106.4 9.4 12.0 3.0 1.3 22.5 9.7 Oct 2,534 118.5 105.4 9.7 12.0 2.6 1.4 22.2 9.6 Nov 2,523 117.1 105.2 10.2 12.0 2.9 1.3 22.7 11.4 Dec 2,513 116.6 105.4 8.8 11.5 3.4 1.54 22.0 9.9 2014 Jan 2,450 115.5 104.6 8.4 11.5 3.3 1.46 21.8 9.4 Feb 2,472 114.3 103.4 8.9 11.5 3.1 1.32 20.7 9.7 Mar 2,534 117.7 105.8 9.4 11.5 3.1 1.34 21.9 9.4 Apr 2,529.79 117.7 93.5 9.9 11.5 3.8 1.42 21.7 9.0 May 2,532.39 118 95.1 9.5 11.5 3.0 1.53 22.0 9.7 Jun 2,580.86 119.7 97.8 8.9 11.0 2.4 1.55 21.4 9.0 Jul 2,633.52 122.1 100.4 9.1 11.0 2.8 1.34 21.5 8.1 Aug 2,612.50 120.5 98.3 10.1 11.0 2.5 1.20 21.7 8.8 Sep 2,618.80 119.6 97.2 10.0 11.0 2.6 1.37 21.1 9.7 Oct 2,680.51 121.6 98.1 10.3 11.0 2.5 1.39 21.9 10.8 Nov 2,734.22 122.9 100.4 10.4 11.0 2.8 1.33 22.1 9.3 Dec 2768.8 123.2 100.5 10.6 11.0 3.0 1.44 19.9 10.8 2015 Jan 2,860.71 130.8 102.7 11.0 11 2.89 1.33 21.69 9.67 Feb 2,868.80 130.6 102 11.4 11 3.38 1.37 20.82 8.35 Mar 2,951.70 132.7 102.7 12.3 11 2.66 1.47 20.08 10.44 Apr 2,995.60 134.4 102 13.1 12 3.51 1.34 22.1 10.25 May 3,054.29 12.9 12 Source:Bank of Uganda Table A8. Monetary indicators 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 proj Monetary Aggregates M3 as % of GDP 18.3 20.5 22.4 19.0 18.9 20.7 21.5 M2 as % of GDP 14.3 15.9 17.1 13.0 14.0 14.9 15.1 M3 growth rate (%) 25.0 33.2 25.7 7.2 6.6 17.4 14.2 M2 growth rate (%) 26.3 32.1 23.9 -4.2 15.7 14.1 11.3 Domestic Credit Total domestic credit (% of GDP) 9.2 11.9 16.0 11.8 12.5 14.2 16.9 Private sector credit (% of GDP) 10.4 11.5 14.4 12.7 12.5 13.3 14.0 Total domestic credit growth (%) 64.1 54.7 54.1 -6.5 13.6 21.9 30.5 Private sector credit growth (%) 31.3 30.6 43.6 11.5 6.4 13.9 15.7 Interest Rates Structure Average TB rate (period average, %) 8.4 5.3 7.6 17.2 10.3 9.3 11.0 Average lending rate (%) 20.9 20.7 19.8 24.6 24.8 22.1 21.3 Average deposit rate (%) 2.1 2.0 2.1 3.2 3.0 3.1 2.9 Source: IMF, BoU 67 68 For more information, please visit: www.worldbank.org/uganda Join the discussion on: http://www.facebook.com/worldbankafrica http://www.twitter.com/worldbankafrica http://www.youtube.com/worldbank 70