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How should Uganda grow?

Author

Listed:
  • Ricardo Hausmann
  • Brad Cunningham
  • John Matovu
  • Rosie Osire
  • Kelly Wyett

Abstract

Income per capita in Uganda has doubled in the last 20 years. This remarkable performance has been buoyed by significant aid flows and large external imbalances. Economic growth has been concentrated in non-tradable activities leading to growing external imbalances and a growing gap between rural and urban incomes. Future growth will depend on achieving sufficient export dynamism. In addition, growth faces a number of other challenges: low urbanisation rate, rapid rural population growth and high dependency ratios. However, both the dependency ratio and fertility rates have begun to decline recently. Rural areas are also severely overcrowded with low-productivity subsistence agriculture as a pervasive form of production. Commercial agriculture has great possibilities to increase output, but as the sector improves its access to capital, inputs and technology it will shed jobs rather than create them. These challenges combined tell us that future growth in Uganda will require a rapid rate of export growth and economic diversification. The country faces the prospect of an oil boom of uncertain size and timing. It could represent an important stepping stone to achieve external sustainability, expanded income and infrastructure and a greater internal market. However, as with all oil booms, the challenges include avoiding the Dutch disease, managing the inevitable volatility in oil incomes and avoiding inefficient specialisation in oil. Policies that set targets for the non-oil deficit could help manage some of these effects, but a conscious strategy to diversify would still be needed. The best strategy is therefore to use the additional oil revenue and accompanying investments to promote a diversification strategy that is sustainable. To determine how to encourage such a transformation, we draw on a new line of research that demonstrates how development seldom implies producing more of the same. Instead, as countries grow, they tend to move into new industries, while they also increase productivity in existing sectors. In this report, we analyse what those new industries might be for Uganda. To do so, we first look to those products which balance the desire to increase the diversification and complexity of production, while not over-stretching existing capabilities. These include mostly agricultural inputs, such as agrochemicals and food processing. In addition, Uganda should concurrently develop more complex industries, such as construction materials, that are reasonably within reach of current capabilities and will be in great demand in the context of an oil boom. Here, the fact that Uganda is landlocked and faces high import costs will provide natural protection to the expanding demand in Uganda and neighbouring countries. We conclude with a discussion of the government policies that will support Uganda in developing new tradable industries.

Suggested Citation

  • Ricardo Hausmann & Brad Cunningham & John Matovu & Rosie Osire & Kelly Wyett, 2014. "How should Uganda grow?," Global Development Institute Working Paper Series esid-030-14, GDI, The University of Manchester.
  • Handle: RePEc:bwp:bwppap:esid-030-14
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    References listed on IDEAS

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    Cited by:

    1. Joseph Mawejje & Ibrahim Mike Okumu, 2016. "Tax Evasion and the Business Environment in Uganda," South African Journal of Economics, Economic Society of South Africa, vol. 84(3), pages 440-460, September.
    2. Lofgren, Hans & Cicowiez, Martin, 2015. "Analyzing Country Strategies for Structural Transformation, Poverty Eradication and Shared Prosperity: Method and Application to an Archetype SSA Country," Conference papers 332592, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Jaime de Melo, 2020. "A Dashboard for Trade Policy Diagnostics," Working Papers hal-03004368, HAL.
    4. Pritish Behuria, 2019. "The comparative political economy of plastic bag bans in East Africa: why implementation has varied in Rwanda, Kenya and Uganda," Global Development Institute Working Paper Series 372019, GDI, The University of Manchester.
    5. Joseph Mawejje & Dorothy N. Mawejje, 2016. "Electricity consumption and sectoral output in Uganda: an empirical investigation," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 5(1), pages 1-16, December.
    6. Haroon Bhorat & Francois Steenkamp & Christopher Rooney, "undated". "Africa’s Manufacturing Malaise," UNDP Africa Policy Notes 2016-03, United Nations Development Programme, Regional Bureau for Africa.
    7. Christian Estmann & Bjørn Bo Sørensen & Benno Ndulu & John Rand, 2022. "Merchandise export diversification strategy for Tanzania: Promoting inclusive growth, economic complexity and structural change," The World Economy, Wiley Blackwell, vol. 45(8), pages 2649-2695, August.
    8. UNDP Regional Bureau for Africa & Haroon Bhorat & Francois Steenkamp & Christopher Rooney, "undated". "Understanding the Determinants of AfricaÕs Manufacturing Malaise," UNDP Africa Policy Notes 2017-06, United Nations Development Programme, Regional Bureau for Africa.
    9. El-Haddad, Amirah, 2018. "Exporting for growth: identifying leading sectors for Egypt and Tunisia using the Product Space Methodology," IDOS Discussion Papers 25/2018, German Institute of Development and Sustainability (IDOS).
    10. Thorvaldur Gylfason & Jean-Pascal Nguessa Nganou, 2014. "Diversification, Dutch Disease, and Economic Growth: Options for Uganda," CESifo Working Paper Series 5095, CESifo.
    11. Ben Saad, Myriam & Brahim, Mariem & Schaffar, Alexandra & Guesmi, Khaled & Ben Saad, Rym, 2023. "Economic complexity, diversification and economic development: The strategic factors," Research in International Business and Finance, Elsevier, vol. 64(C).
    12. Manaseh O. Oiro & Bernadette Wanjala & Rose Ngugi & Diana Lukalo Naudé, 2019. "An Export-led Growth for Kenya: Where is the niche?," Working Papers idrcdprukenya, University of Cape Town, Development Policy Research Unit.
    13. repec:rac:ecchap:2017-06 is not listed on IDEAS
    14. Janssen, Matthijs J., 2019. "What bangs for your buck? Assessing the design and impact of Dutch transformative policy," Technological Forecasting and Social Change, Elsevier, vol. 138(C), pages 78-94.
    15. El-Haddad Amirah, 2020. "Picking Winners: Identifying Leading Sectors for Egypt and Tunisia Using the Product Space Methodology," Review of Middle East Economics and Finance, De Gruyter, vol. 16(1), pages 1-80, April.
    16. Joseph Mawejje & Nicholas M. Odhiambo, 2021. "Uganda's fiscal policy reforms: What have we learned?," Public Budgeting & Finance, Wiley Blackwell, vol. 41(2), pages 89-107, June.
    17. Ahmadou Aly Mbaye & Stephen Golub & Anastasia Vasilyeva, 2019. "Senegal’s International Competitiveness and Employment Creation for Women and Youth. The Product Space Analysis and Fieldwork Findings," Working Papers idrcdprusenegal, University of Cape Town, Development Policy Research Unit.
    18. Matthijs Janssen, 2016. "What bangs for your bucks? Assessing the design and impact of transformative policy," Innovation Studies Utrecht (ISU) working paper series 16-05, Utrecht University, Department of Innovation Studies, revised Dec 2016.
    19. Bhorat, Haroon & Steenkamp, François & Rooney, Christopher, 2017. "Income Inequality Trends in sub-Saharan Africa: Divergence, determinants and consequences: Understanding the Determinants of Africa’s Manufacturing Malaise," UNDP Africa Reports 267644, United Nations Development Programme (UNDP).
    20. Sophie King & Sam Hickey, 2015. "Beyond elite bargains: building democracy from below in Uganda," Global Development Institute Working Paper Series esid-045-15, GDI, The University of Manchester.
    21. Elmira Janavi & Mohammad Javad Mansourzadeh & Mojgan Samandar Ali Eshtehardi, 2020. "A methodology for developing scientific diversification strategy of countries," Scientometrics, Springer;Akadémiai Kiadó, vol. 125(3), pages 2229-2264, December.
    22. Margarida Bandeira Morais & J. Swart & J.A. Jordaan, 2018. "Economic Complexity and Inequality: Does Productive Structure Affect Regional Wage Differentials in Brazil?," Working Papers 18-11, Utrecht School of Economics.

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    More about this item

    JEL classification:

    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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