By 2040, Uganda expects to have realized its vision of a transformed economy to a middle income status. The Government of Uganda is making major public investments to address the binding constraints to growth, particularly the huge deficit in infrastructure in the energy and transport sectors.

To accelerate the benefits and increase the returns from these investments, Uganda needs to improve its public infrastructure management capacity, including the ability to assess, and deliver projects on time and within budget, according to the latest economic update for the country.

The seventh edition of the Uganda Economic Update, titled: From smart budgets to smart returns: Unleashing the power of public investment management, discusses Uganda’s current strategy of building its capital stock in energy and transport infrastructure, highlighting how these investments can drive faster economic growth and improve people’s lives. It calls for sound public investment management systems capable of efficiently and effectively delivering critical infrastructure and tapping new opportunities to finance human capital development in order to facilitate delivery of public services, connect citizens and enterprises to economic opportunities, improve productivity, and create jobs for the country’s large and growing population.

“The success of the current strategy hinges on getting the anticipated dividends from these huge infrastructure investments so as to support a faster growth of incomes, and also raise the capacity of Government to invest in social services,” explained Rachel Sebudde, World Bank senior economist for Uganda and task team leader for the update.

“By managing public investments better, Government would spur economic growth, improve welfare and give Uganda’s taxpayers more value for money,” said Christina Malmberg-Calvo, World Bank Country Manager for Uganda. “It is therefore important to invest in the country’s ability to invest by transforming the public investment program into a system that better increases the value derived from public investments”.

The report notes that energy is one of the areas that would benefit from public investment. Uganda has one of the lowest electricity access rates for households in the world. About 14% nationally and 7% of homes in rural areas are connected to the grid, according to a 2012 Uganda Bureau of Statistics survey. Assuming a population of 56 million in 2030, the pace to reach universal energy access by 2030 will require an average 670,000 new connections per annum. This is a big challenge for Uganda given that the current rate of new connections to electricity is below 100,000 per year.

Uganda’s share of development expenditure – the bulk of which is allocated to infrastructure development – has increased from an average value of 4.3 percent of GDP during the period FY 2002/03 to FY 2007/08, to 7.6 percent in the period FY 2008/09 to FY 2014/15. Among others, new hydropower dams under development on the River Nile will ensure clean source of electricity to power the country’s economy, while improved transport infrastructure will facilitate faster movement of goods and people. These together, are expected to accelerate economic growth and poverty reduction.

However, the planned investments have not fully materialized; with the consequence that investment is not driving overall economic activity, and the economy is growing slowly, also due to a combination of a weak economic environment, which was further undermined by lower oil and commodity prices on the international markets. According to the Update, Uganda’s economy, which is growing within the range of 4.5 to 5 percent during the current financial year 2015/16 is much slower than the 5.4 percent anticipated in the previous Update. The country continues also to trail other East African countries, in particular, Rwanda and Tanzania who are growing at 7 percent, while Kenya is at 6 percent.

Consistent with the National Vision 2040 and National Development Plan (NDPII), Uganda’s fiscal policy prioritizes investments in capital development. However, the update says the returns on these investments often falls short of the expected returns.

“Uganda’s fiscal policy has not been so lucky yet as the good budget frameworks that aimed to remove key binding constraints to economic growth were under-executed, due to the way public investments are managed,” Sebudde said.

Converting investments into productive assets requires an effective management of public investments at all stages of the project cycle, from when a project idea begins, to the management of the completed asset, the update says.

“Experience shows that projects that are poorly designed often fail to produce strong and favourable results owing to poor costing, procurement delays, and capacity gaps,” said Sebudde. “This is where Uganda needs to put emphasis.”

Uganda’s Ministry of Finance, Planning and Economic Development, has initiated institutional reforms aimed at strengthening the independent review process by establishing a new department responsible for project appraisal and public partnership. Once fully operational, this department will formulate standards and criteria for project appraisals, which will be designed to ensure that any project that is submitted for public financing meets the minimum standards.

The Update offers a series of recommendations that would enable Uganda leverage its investments to deliver higher returns. These include a careful scrutiny of public investments to improve public welfare and ensure that these investments are managed effectively and on schedule. The report also suggests the promotion of a learning process to improve future project selection and implementation while addressing associated risks to ensure efficient and effective project implementation.

The Update recommends that the government should sustain the momentum of reforms to strengthen Public Investment Management. The focus of these reforms could include:

• Institutional strengthening – There is a need to build capacity of institutions across the entire project cycle to prepare quality projects, carry out rigorous appraisal, construct the assets efficiently and at minimum cost, and monitor and maintain these assets. This will require training to undertake appraisals and manage projects more effectively.

• Standardization – Harmonization of standards and guidelines is critical for quality control, greater tracking, and monitoring of results. A shared understanding is needed across institutions related to identification, appraisal, implementation, evaluation of projects. Developing manuals on various aspects of public investment management will be important in harmonising standards across all ministries as it would allow for more effective and continuous monitoring, data collection, and to be able to carry out evaluation.

• Strengthening the legal and regulatory framework – A robust legal and regulatory framework underpins an efficient and successful Public Investment because it strengthens mandates of various institutions involved, and creates incentives for agents to program. Gaps in the current legal framework would need to be addressed if the reform effort is to succeed.

» Download: Uganda Economic Update: From smart budgets to smart returns – Unleashing the power of public investment management (PDF, 6.01 MB)