Uganda’s economy will not be bogged down by global crisis
Jan 01, 2009
PRESIDENT Yoweri Museveni in the State of the Nation Address on New Year’s Day, assured Ugandans there is going to be better service delivery in 2009. He acknowledged there were challenges in 2008 but reaffirmed that the economy is doing well. Below is
PRESIDENT Yoweri Museveni in the State of the Nation Address on New Year’s Day, assured Ugandans there is going to be better service delivery in 2009. He acknowledged there were challenges in 2008 but reaffirmed that the economy is doing well. Below is his speech in full.
I congratulate you all upon the completion of the year 2008. I empathise with all who have had problems of one kind or another; especially those who have lost their loved ones. I congratulate you on every achievement you have had in 2008, individual or corporate, that leads our nation towards prosperity.
The National Resistance Movement Government has continued to serve under the theme of Prosperity for all; and, despite some challenges, there have been marked achievements in all sectors.
Economic performance and prospects
I want to congratulate Ugandans for successfully completing the year 2008, despite the recent adverse developments in the global economy.
The Uganda economy grew by 8.7% in real terms in the Financial Year 2007/08, which is slightly lower than the estimate I reported to you in June by 0.2% of GDP, following further validation of economic data by the Uganda Bureau of Statistics. This excellent economic performance was because of continued growth in the industry and services sectors which now account for 24% and 49% of our GDP, respectively.
In the Industry sector, the construction boom that started a few years ago is set to continue in the coming year; and investment in production of cement has increased substantially. In the services sector, tourism continues to do well, as arrivals at the airport which are an indicator of tourist visits, increased from 360, 000 arrivals in 2006/07 to 440,000 in Financial Year 2007/08. The boom in the tourism sector is also reflected in the increasing number of hotels, restaurants and other related facilities.
While growth in the agricultural sector is lower than in other sectors, I am convinced that the Bonna Bagaggawale programme that is aimed at increasing production and incomes of the vast majority of Ugandans will re-invigorate growth in this vital sector of the economy.
I will return later on to the details of how the NRM Government is decisively dealing with the matter of agricultural production, productivity, the addition of value to agricultural production and increasing access to markets to achieve the overall objective of increasing household incomes of Ugandans.
The strength of the Ugandan economy today is also partly reflected in performance of the external sector. The value of exports of merchandise goods and services increased from $2b in Financial Year 2006/07 to $2.4b in 2007/08. The value of merchandise exports in 2007/08 amounted to US$ 1.8 billion while export of services amounted to US$ 540million.
Following our revision in the method of calculation of FDI and remittances, the latter amounted to $476m in 2007/08 compared to $ 430m in 2006/07.
FDI increased to $946m in 2007/08, from $695 in 2006/07. Coffee exports increased from $229m in 2006/07 to $348m in 2007/08. Partly as a result of this good export performance, the level of Uganda’s international reserves increased to $2.7b in June 2008.
Domestic Prices
The regional and adverse global developments in calendar year 2008 have tested the strength of our economy. Once again it has been proved that the economic management policy framework put in place by the NRM Government is sound.
As an example, our economy quickly and fully recovered from the temporary disruption of our trade flows through Kenya at the beginning of last year, on account of the political upheavals there.
The temporary disruption of Uganda’s flow of trade through Kenya caused shortages of fuel and other merchandise during 2008.
The shortage of these commodities led to increased transport costs and a rise in prices of consumer goods. Although normal trade flow between Mombasa and Kampala was quickly restored and has since stabilised, the prices of consumer goods and inputs used in manufacturing have remained high. This is due to the rising prices in the economies of our trading partners and the effect of high oil prices on the international market earlier on in the year.
Even though prices of fuel are high today and some petroleum products, such as petrol, are in short supply, this has arisen out of bottlenecks pertaining to the oil pipeline and new axle road requirements, which place a limit on how much fuel trucks can carry.
I am sure that these issues will be resolved shortly and that Ugandans will benefit from lower international prices of oil. The international oil prices have declined from US$ 147 to US$ 40 per barrel.
With uninterrupted oil supplies from Mombasa, the price of petroleum will go down again unless something happens with the international prices. Another factor that led to increased domestic prices was the high regional demand for our farm produce which, as I have stated before, should not be viewed as a problem but an opportunity for Ugandan farmers to produce more and get more farm incomes. In this regard, the Government is focusing on improving agricultural production and productivity through fertiliser provision, provision of high yielding seeds, proper enterprise selection and improving farming methods. Government has also repackaged the NAADS programme to ensure that farmers get access to farm inputs.
In addition, Government is expanding the delivery mechanisms for rural finance through the establishment of Savings and Credit Cooperative Societies (SACCOs) to help farmers to access credit in order to increase production and to add value to farm produce through agro-processing. As I have emphasised before, therefore, the best way to deal with food prices is to produce more and increase supply on the market.
There have been calls by some individuals, including Members of Parliament, for the Government to control the prices of some commodities, particularly food and fuel, in response to the high prices. I share the concern of Ugandans; but we must act in an orderly and not in a panicky way; otherwise we may cause confusion which may not be good for business. When we assumed power in 1986, we found severe shortages of almost everything.
The NRM Government then knew that the only way forward was to rehabilitate the economy and increase production. We also liberalised the economy completely to eliminate bureaucratic red tape that constrained economic activity.
Production increased and the shortages of the 1970s and 1980s were eliminated. We have since lived in a situation of plenty where the producers have the right incentives to produce. I want to assure Ugandans that the current situation is only a temporary phenomenon and therefore, we should not dismantle our excellent economic policy framework to deal with temporary shocks. However, we will constantly review our policy tools to ensure increased productivity in the country.
The greater regional demand should be answered by greater agricultural and industrial production and not by attempting to ‘imprison’ producers with fixed prices. Prices cannot be fixed by the government; but by the market. Those who try that always fail.
Impact of the Global Financial Crisis
Ugandans are aware that the on-going global financial crisis has spread in other countries. This has sparked off an economic slowdown in the world economy.
This global crisis may somehow affect our economy given that we are a small economy that is peripherally integrated in the wider global economy, through reduced demand for our exports, a decline in remittances from Ugandans working abroad and sending money home, reduced private foreign direct investments and other financial flows. However, as our historical performance has proven, we are a resilient economy. Therefore, Ugandans should not be worried that our economy will be badly hurt. Our economy remains strong and the Government’s economic policy framework is sound.
As I have said before, the impact of the Global crisis on the Ugandan economy will be minimal. Part of the problem of the global economy is saturated consumption in the developed countries. In Africa, however, the problem is under-consumption of goods and services. It is now that Africans are beginning to increase consumption of goods and services.
That is why we are experiencing high consumer prices and increased sales. Over the Christmas period in the Western World, they had reduced sales. You all saw here that the situation for us was increased demand for transport and other services, not less.
This is because there is chronic under-consumption and, therefore, more room for expansion of consumption and, consequently, production. In fact, increased consumption in Africa may compensate for declining demand in the West.
I would like our economists to study this. You have all seen the fast growth in the demand for mobile phones. This was because there had been a chronic suppressed need for communication.
Uganda’s banking sector is sound, stable and solvent. This is mainly due to adequate regulation and vigorous supervision that has minimised risky credit behavior. It is also because our banks are well-capitalised. Although Uganda is home to subsidiaries of international banks, the local subsidiaries did not have exposures to the sub-prime mortgages that sparked off the global financial crisis.
Therefore, our banking sector is not exposed to the toxic debt that has caused havoc in the American and European financial markets.
Our domestic banks were not involved in the sub-prime because they have large reserves that have made our financial sector abundantly solvent. On account of this reason, banks in Uganda had no reason to borrow externally to finance domestic lending and to meet their operational costs.
This is not by accident. It is a consequence of the good economic policies of the NRM Government which have created a supportive business environment that has allowed private banks and other businesses to make profit despite the stiff competition.
I, therefore, want to reassure investors that the impact of the spillover effects of the global financial crisis on our financial sector will be minimal, contrary to those pessimists who profess doom.
2009 Economic Prospects
The economic outlook remains robust, with real economic growth for the financial year 2008/09 estimated in the range of 7% to 7.5% per annum. While this target may seem ambitious given the global financial crisis, Ugandans need to understand that it is lower than what we have achieved in recent years and is in line with average growth rates in the previous five years. The economic growth target of 7% - 7.5% is also based on the strong and sound policy framework that the NRM Government has worked hard to put in place over the last two decades. This has led to a diversified economy that is better cushioned against shocks. As an example, as a result of our export diversification, our export destinations have also been diversified, with a large proportion going to the regional markets.
The restoration of peace and security in Northern Uganda and the on-going efforts for the economic recovery of the region gives all Ugandans optimism for a brighter economic future in the year ahead. Also, the economy will continue to benefit from the continued regional demand for our manufactured goods and farm produce.
Let me assure Ugandans that outlook for our economy is favourable and the country’s economic fundamentals remain strong. This outlook is also reflected in the most recent sovereign rating for our country by Standard and Poor’s, which rated Uganda in the B+ category. The improvement in our international rating from the earlier ones signals increased confidence in our economic policies and investment climate.
This rating improves our attractiveness to foreign direct investment and our ability to access international private finance.
2009 Government priorities
Infrastructure development
These regional and global developments have also highlighted the need to be strategic in order to adequately cushion Uganda from such unanticipated events. The temporary disruption of trade flows between Mombasa and Kampala between January and March 2008 was made worse by over reliance on one major trade route which makes our economy vulnerable to such shocks, however small and temporary they may be.
The solution to this kind of problem is to have alternative means especially as regards infrastructure that is strategic to our economy. In this regard, the NRM Government beginning in Financial Year 2008/09 has allocated resources for the development and improvement of our major trade routes along the Northern corridor to Southern Sudan and the Southern corridor to Tanzania.
On the Northern Corridor, the resealing of the road from Kampala to Kafu is nearly completed and preparatory work for turning the Busia/Malaba to Kabale/Katuna into a dual carriage highway will start in 2009.
On the Southern route, the Ferry services on Lake Victoria will soon be restored, with the rehabilitation of the MV Pamba.
In addition to these transport routes that are critical for regional integration and inter-regional trade, construction of the following major road projects is ongoing: Kabale-Kisoro-Bunagana; Kawempe-Luwero-Kafu; Soroti-Dokolo-Lira; Kampala-Gayaza-Zirobwe; Jinja-Bugiri (nearly completed); Kampala Northern Bypass; Matugga-Semuto-Kapeeka; and Kampala-Masaka-Mbarara.
Construction of the following road projects will start by FY 2009/10: Fort-Portal-Bundibugyo; Kampala-Mityana; Mbarara-Kikagati; Ntungamo-Mirama Hills; Rukungiri-Kihihi-Ishasha; Mbarara-Ntungamo-Katuna; Nyakahita-Kamwenge-Fort-Portal; Gulu-Atiak-Bibia; and Vurra-Arua-Koboko-Oraba.
The designs for the following road projects are going to be completed during the FY 2009/10 to enable future construction works to commence under the following works categories:
Dualling: Kampala–Jinja; Kampala–Entebbe; Kampala-Busega-Mpigi; and Kampala Northern Bypass;
Reconstruction: Kafu-Karuma; Mukono-Kayunga; Mukono-Jinja; Bugiri-Malaba/Busia; and Tororo-Mbale-Soroti;
Upgrading from gravel to tarmac: Muyembe-Moroto-Kotido; Kaiso-Tonya-Hoima; Mukono-Katosi; Nyendo-Sembabule; Mpigi-Maddu-Sembabule; Kapchorwa-Bukwo; Mbale-Bumbo-Magale-Lwakhakha; Kyenjojo-Hoima-Masindi; and Masaka-Bukakata.
The commitment of the NRM Government to the development of an efficient road infrastructure is also reflected in the Financial Year 2008/09 budget where Uganda Shillings 1.1 trillion was committed to the roads sector.
This is one of the biggest commitments of Government in a single sector, equivalent to about $700m in a single year.
Previously such large investment outlays were being provided by donors; but now the Government has demonstrated that it can take full charge of its investment projects/programmes. As far as our development partners are concerned, while I commend them for supporting us in the reconstruction of our economic infrastructure, they should feel happy that we are now graduating from dependency on aid.
Energy
In the energy sector, Ugandans need to recall that the NRM Government, with its own resources, kick-started the commencement of the 250 Megawatt Bujagali Hydropower Project even while private financiers were yet to conclude their financing arrangements.
I am pleased to report that the Bujagali Hydropower Project construction is progressing on schedule and will be complete in the estimated time-frame by January 2011. The NRM Government has also decided to commence construction of a larger-sized Karuma Hydropower Project which will create generation capacity of 700 Megawatts.
While commencement of this project may occur slightly later than earlier planned owing to further geotechnical and environmental studies, the site will generate over three times the amount of electricity originally envisaged.
The NRM Government is committed to also financing this project from resources generated from our own revenues that we are saving in the Energy Fund at the Bank of Uganda; and will amount to about US$ 200 million by the end of this Financial Year.
I am directing the Minister of Finance to ensure that more resources are budgeted so that we have sufficient resources to complete this dam.
The next stage of development in the energy sector that the NRM Government will implement will be the development of the necessary regional and national transmission and distribution systems, including nationwide rural electricification in order to utilise the increased electricity generation. This will also entail development of East African Regional-wide transmission infrastructure to export power to our neighbours in Kenya, Tanzania, Southern Sudan, Rwanda, DRC Congo and Burundi.
The strategic interventions I have outlined are, therefore, meant to ensure that the there are no shortages in infrastructure provision that will constrain the growth of the Uganda economy in the near future.
Interventions
Other interventions to ensure further modernisation of the Uganda economy include the national data transmission backbone which will make communications much more efficient and cheaper.
I am glad to report to Ugandans that phase one of this project is now complete having laid 170 kilometres of fibre optic cable to link the towns of Mukono, Bombo, Entebbe and Jinja to Kampala.
Phase two, whose construction will commence in 2009 and will involve the laying of over 1500 Kilometers of optical fibre cable to link the towns of Mayuge, Iganga, Bugiri, Busia, Mbale, Tororo, Luwero, Nakasongola, Masindi, Gulu, Mpigi, Masaka, Mbarara, Ntungamo, Kabale and Katuna. The third phase of the project will involve the laying of 400 Kilometers of optical fibre cable to connect the towns of Kumi, Soroti, Lira, Bushenyi and Kasese, while the rest of the districts will be connected by terrestrial links.
With the implementation of these critical infrastructure developments, Uganda will be certain of take-off into a modern and transformed social and economic nation state with guaranteed prosperity for future generations to come.
The low infrastructure base coupled with high tariffs charged by telecommunications companies is responsible for the low access and use of data video and multimedia services.
The installation of the national fibre network will improve access and lead to a substantial reduction in prices by about 40% for data and 15% for voice services over the first seven years of the project.
Increasing production and incomes
Let me turn to how the NRM Government is addressing the critical area of agricultural and rural development.
Firstly, without increasing agricultural production, there cannot be sufficient produce to sustain agro-processing industries that enable addition of value to agricultural produce.
Therefore, the NRM Government has restructured the NAADS programme to ensure that they focus on provision of researched varieties of plants and better breeds of livestock to farmer groups organised into model, nucleus, lead and other farmers.
NAADS must also ensure that they are more inclusive than exclusive. It is not the intention of NRM to serve only a few but the majority of farming households.
We must ensure that while the innovation of serving model and lead farmers continues as a means of commercialising agriculture, we must also provide advisory services and inputs to the millions of smallholder farmers through their farmer groups.
This seems not to be the direction that NAADS is taking; and I am directing them forthwith to ensure that all categories of farmers must be reached by the programme. I am also directing NAADS, starting in this year, to be responsible for increasing productivity through implementing a tractor scheme across the country; and to ensure provision of fertiliser to improve crop yields. The Minister of Finance must ensure that resources are set aside to implement these measures in order to realise the goal of increasing agricultural production and productivity.
The second intervention for Agriculture and Rural Development pertains to adding value to agricultural produce. A few years ago, Cabinet passed an agricultural zoning policy that designates the types of products to be produced in respective regions in Uganda.
This is necessary to ensure that farmers in a given zone grow enough of a given product to allow sustained addition of value by primary and secondary agro-processors in that region, who then link to secondary processors anywhere in the country.
I am, therefore, directing the Ministers of Agriculture and that of Finance, NAADs and all stakeholders in the agricultural sector, that all interventions for supporting increased production and value addition must be linked to our Agricultural zoning policy forthwith.
The third issue I want to address on agricultural and rural development pertains to Micro-Finance. I fully agree that Savings and Credit Cooperatives (SACCOs ) need to be helped build the necessary capacity to manage savings and micro-finance that may come from other sources. However, we must also remember that the purpose for which the NRM Government is providing micro-finance is to increase agricultural production.
Micro-finance must, therefore, be made available to both SACCOs that qualify, but also to individual farmers and agro-processors who have been appraised to be able to repay. Micro-finance must be provided to SACCOs, individual commercial farmers with adequate and fully appraised business development plans and to agro-processing with viable ventures. The Minister of Finance is hereby directed to ensure that these changes to micro-finance policy are effected forthwith.
These measures will go along way towards resolving the weaknesses in the agriculture sector that make it lag behind the rest of the economy in terms of growth.
Together with the infrastructure developments that I have outlined, market access of increased agricultural production will be assured and, consequently, incomes of households will be increased.
Social service delivery
The NRM Government has made strategic interventions in the development of the Education and Health Sectors that will enable better quality of life and ensure that Ugandans are skilled and healthy.
In Education the Universal Primary and Secondary Education programmes are aimed at achieving the NRM goals of increasing access to quality primary and secondary education and I am pleased with progress so far.
However, while we continue implementation of both these very useful programmes, the Minister of Education must cause building of inspection capacity at both primary and secondary levels to ensure that teachers are in school; and that they use proper teaching methods.
The Minister of Education also needs to create further partnerships with the private sector especially in secondary schools to ensure that where there are no Government secondary schools but there are private ones instead, we utilize the private schools until we build the Government ones.
I am glad that in a bid to ensure standards, the Ministry of Education made the following moves:
Closure of schools that were licensed or registered schools but fell below the Basic Requirements and Minimum Standards set by the Ministry, as well as licensing those that met basic requirements but had not been granted permission to operate.
The closure of those schools that were operating without valid licenses and operated below the Basic Requirements and Minimum Standards and were not compliant with Chapter 281 of the Public Health Act, 1935. In a letter to the Minister of Education I, nevertheless, advised her to give such schools time-bound ultimatum to fulfil the conditions or be closed.
In the Health Sector, I am concerned that many health centres are not fully functional, with the necessary drugs, health workers in place and the basic equipment to run a health facility. I am directing the Minister of Health to ensure that there is greater responsiveness of the Health sector to the needs of Ugandans.
There is no reason why health centers must not be manned by health workers at all times, when we have resources available for recruiting many more and salaries have been increased substantially.
I am also disturbed that the labeling of drugs that I directed to happen at the beginning of last year has not been done as of now. Yet patients continue reporting failure of health centers to provide drugs when resources have been budgeted for and provided. In some Health Centres staff are selling Government drugs to patients. This is unacceptable.
I will dismiss any Gombolola chief and CAO who fail to detect this theft. The public should be informed that Government drugs are not for sale; they are free. Also the so-called ‘consultation fees’ are illegal and must stop except in Grade A sections where they exist.
At the regional and national levels, National and Regional Referral Hospitals need to be rehabilitated and equipped urgently and must now start performing their true function of dealing with referrals from lower units. I will not accept any further excuses with regard to the state of regional referral hospitals, such as Mbarara Teaching Hospital and Mubende Hospital among others which are in a sorry state; whereas resources are available for rehabilitation and re-equipping them.
The Minister of Finance is negotiating with the World Bank for a credit that will rehabilitate the hospitals and build more secondary schools.
Implementation of government programmes
The NRM Government has, therefore, put in place all the necessary strategic imperatives that will drive the future successful growth and transformation of the social economic fabric of Uganda. In line with the NRM Manifesto, our target is to increase the population’s access to quality services including education, roads, health care, water and sanitation, agricultural advisory services and energy, among others.
During this financial year, we prioritised and provided sufficient resources to key ministries and local government to ensure that they are able to implement scaled-up programmes and projects. Although some Government programmes and projects have been implemented satisfactorily, I am greatly disappointed that resources are not being used efficiently and the quality of services is poor, which is totally unacceptable. On the part of Government, this means that all Ministers and Public Servants must implement the policies, programs and projects that the NRM Government has spelt out in its Election Manifesto and other policy pronouncements.
In order to implement Government programmes on time, Permanent Secretaries and CAOs must ensure that there is adequate preparation and planning. To take the example of the roads sector, while the Government provided UShs 1.1 trillion in this year’s budget for road construction and maintenance, progress has been slow because of lack of adequate preparatory work and procurement plans.
I am told that the funds provided cannot be disbursed because there are no procurement plans and in some cases the necessary studies and designs are not ready! This method of work is not acceptable. I am, therefore, directing all Government agencies to prepare work and procurement plans which will be the basis for any further allocation of resources by the Ministry of Finance.
In addition, all Permanent Secretaries will now be appointed only if they are performing well in the achievement of results. This method of work will ensure accountability for achieving results in the implementation of Government programs and will ensure value for money.
Public finances and corruption
Discipline in public financial management is a critical element in ensuring that adequate resources are channeled to the priority sectors, as well as ensuring value for money. In this regard, I am directing that emphasis on value-for-money must be strengthened, to ensure that available resources are spent well and high return public investments are given high priority.
In this regard, the Office of the Auditor General has been strengthened to ensure that it undertakes all the necessary audit of all public departments and those private companies receiving funds from Government to ensure there is value-for money.
In the forthcoming year, the Minister of Finance must ensure that the Auditor General has the resources to conduct special value for money audits in the following sectors: - roads, health, agriculture, education, water and all public universities. I expect that immediate action will be taken within these institutions where there has been found to be abuse of public resources.
The Inspector General of Government must also be provided resources to follow-up cases which require investigation and prosecution for corruption.
I am also concerned about the level of corruption and ineffectiveness at land registries across the country. I understand that it is now very difficult to transfer titles or that transfers of titles are being made illegally.
I am directing the Minister of Lands and Housing and the Inspector Generals of Government and Police to deal with the matter urgently, including causing criminal investigation with a view to prosecute the officials who are involved in fraudulent activities.
The Ministry of Lands must also prepare the necessary legal framework to separate land registries from the regular civil service like we did with the Uganda Revenue Authority (URA) in the early 1990s; and hold officials in the new agency responsible for all their activities.
Public-private partnerships
Finally, as a measure to increase the effectiveness of government implementation and improved service delivery, I am directing the Minister of Finance to finalize the framework for Public-Private Partnership in 2009. This will allow government agencies to concentrate on their core business while the private sector perform other services that they are better at. For instance, the management of non-clinical facilities such as management of buildings at Mulago hospital can be done by the private sector while our doctors concentrate on providing clinical services to patients.
Similarly, the management of halls of residence and faculty buildings at Makerere University can also be done by the private sector while our lecturers and professors concentrate on teaching and research.
The Minister of Finance must expedite the legal and institutional framework for the efficient management measures including the transformation of the privatisation unit into a public-private partnership unit to build the necessary capacity to implement this initiative throughout Government.
I thank all of you and I wish you a prosperous 2009.
I congratulate you all upon the completion of the year 2008. I empathise with all who have had problems of one kind or another; especially those who have lost their loved ones. I congratulate you on every achievement you have had in 2008, individual or corporate, that leads our nation towards prosperity.
The National Resistance Movement Government has continued to serve under the theme of Prosperity for all; and, despite some challenges, there have been marked achievements in all sectors.
Economic performance and prospects
I want to congratulate Ugandans for successfully completing the year 2008, despite the recent adverse developments in the global economy.
The Uganda economy grew by 8.7% in real terms in the Financial Year 2007/08, which is slightly lower than the estimate I reported to you in June by 0.2% of GDP, following further validation of economic data by the Uganda Bureau of Statistics. This excellent economic performance was because of continued growth in the industry and services sectors which now account for 24% and 49% of our GDP, respectively.
In the Industry sector, the construction boom that started a few years ago is set to continue in the coming year; and investment in production of cement has increased substantially. In the services sector, tourism continues to do well, as arrivals at the airport which are an indicator of tourist visits, increased from 360, 000 arrivals in 2006/07 to 440,000 in Financial Year 2007/08. The boom in the tourism sector is also reflected in the increasing number of hotels, restaurants and other related facilities.
While growth in the agricultural sector is lower than in other sectors, I am convinced that the Bonna Bagaggawale programme that is aimed at increasing production and incomes of the vast majority of Ugandans will re-invigorate growth in this vital sector of the economy.
I will return later on to the details of how the NRM Government is decisively dealing with the matter of agricultural production, productivity, the addition of value to agricultural production and increasing access to markets to achieve the overall objective of increasing household incomes of Ugandans.
The strength of the Ugandan economy today is also partly reflected in performance of the external sector. The value of exports of merchandise goods and services increased from $2b in Financial Year 2006/07 to $2.4b in 2007/08. The value of merchandise exports in 2007/08 amounted to US$ 1.8 billion while export of services amounted to US$ 540million.
Following our revision in the method of calculation of FDI and remittances, the latter amounted to $476m in 2007/08 compared to $ 430m in 2006/07.
FDI increased to $946m in 2007/08, from $695 in 2006/07. Coffee exports increased from $229m in 2006/07 to $348m in 2007/08. Partly as a result of this good export performance, the level of Uganda’s international reserves increased to $2.7b in June 2008.
Domestic Prices
The regional and adverse global developments in calendar year 2008 have tested the strength of our economy. Once again it has been proved that the economic management policy framework put in place by the NRM Government is sound.
As an example, our economy quickly and fully recovered from the temporary disruption of our trade flows through Kenya at the beginning of last year, on account of the political upheavals there.
The temporary disruption of Uganda’s flow of trade through Kenya caused shortages of fuel and other merchandise during 2008.
The shortage of these commodities led to increased transport costs and a rise in prices of consumer goods. Although normal trade flow between Mombasa and Kampala was quickly restored and has since stabilised, the prices of consumer goods and inputs used in manufacturing have remained high. This is due to the rising prices in the economies of our trading partners and the effect of high oil prices on the international market earlier on in the year.
Even though prices of fuel are high today and some petroleum products, such as petrol, are in short supply, this has arisen out of bottlenecks pertaining to the oil pipeline and new axle road requirements, which place a limit on how much fuel trucks can carry.
I am sure that these issues will be resolved shortly and that Ugandans will benefit from lower international prices of oil. The international oil prices have declined from US$ 147 to US$ 40 per barrel.
With uninterrupted oil supplies from Mombasa, the price of petroleum will go down again unless something happens with the international prices. Another factor that led to increased domestic prices was the high regional demand for our farm produce which, as I have stated before, should not be viewed as a problem but an opportunity for Ugandan farmers to produce more and get more farm incomes. In this regard, the Government is focusing on improving agricultural production and productivity through fertiliser provision, provision of high yielding seeds, proper enterprise selection and improving farming methods. Government has also repackaged the NAADS programme to ensure that farmers get access to farm inputs.
In addition, Government is expanding the delivery mechanisms for rural finance through the establishment of Savings and Credit Cooperative Societies (SACCOs) to help farmers to access credit in order to increase production and to add value to farm produce through agro-processing. As I have emphasised before, therefore, the best way to deal with food prices is to produce more and increase supply on the market.
There have been calls by some individuals, including Members of Parliament, for the Government to control the prices of some commodities, particularly food and fuel, in response to the high prices. I share the concern of Ugandans; but we must act in an orderly and not in a panicky way; otherwise we may cause confusion which may not be good for business. When we assumed power in 1986, we found severe shortages of almost everything.
The NRM Government then knew that the only way forward was to rehabilitate the economy and increase production. We also liberalised the economy completely to eliminate bureaucratic red tape that constrained economic activity.
Production increased and the shortages of the 1970s and 1980s were eliminated. We have since lived in a situation of plenty where the producers have the right incentives to produce. I want to assure Ugandans that the current situation is only a temporary phenomenon and therefore, we should not dismantle our excellent economic policy framework to deal with temporary shocks. However, we will constantly review our policy tools to ensure increased productivity in the country.
The greater regional demand should be answered by greater agricultural and industrial production and not by attempting to ‘imprison’ producers with fixed prices. Prices cannot be fixed by the government; but by the market. Those who try that always fail.
Impact of the Global Financial Crisis
Ugandans are aware that the on-going global financial crisis has spread in other countries. This has sparked off an economic slowdown in the world economy.
This global crisis may somehow affect our economy given that we are a small economy that is peripherally integrated in the wider global economy, through reduced demand for our exports, a decline in remittances from Ugandans working abroad and sending money home, reduced private foreign direct investments and other financial flows. However, as our historical performance has proven, we are a resilient economy. Therefore, Ugandans should not be worried that our economy will be badly hurt. Our economy remains strong and the Government’s economic policy framework is sound.
As I have said before, the impact of the Global crisis on the Ugandan economy will be minimal. Part of the problem of the global economy is saturated consumption in the developed countries. In Africa, however, the problem is under-consumption of goods and services. It is now that Africans are beginning to increase consumption of goods and services.
That is why we are experiencing high consumer prices and increased sales. Over the Christmas period in the Western World, they had reduced sales. You all saw here that the situation for us was increased demand for transport and other services, not less.
This is because there is chronic under-consumption and, therefore, more room for expansion of consumption and, consequently, production. In fact, increased consumption in Africa may compensate for declining demand in the West.
I would like our economists to study this. You have all seen the fast growth in the demand for mobile phones. This was because there had been a chronic suppressed need for communication.
Uganda’s banking sector is sound, stable and solvent. This is mainly due to adequate regulation and vigorous supervision that has minimised risky credit behavior. It is also because our banks are well-capitalised. Although Uganda is home to subsidiaries of international banks, the local subsidiaries did not have exposures to the sub-prime mortgages that sparked off the global financial crisis.
Therefore, our banking sector is not exposed to the toxic debt that has caused havoc in the American and European financial markets.
Our domestic banks were not involved in the sub-prime because they have large reserves that have made our financial sector abundantly solvent. On account of this reason, banks in Uganda had no reason to borrow externally to finance domestic lending and to meet their operational costs.
This is not by accident. It is a consequence of the good economic policies of the NRM Government which have created a supportive business environment that has allowed private banks and other businesses to make profit despite the stiff competition.
I, therefore, want to reassure investors that the impact of the spillover effects of the global financial crisis on our financial sector will be minimal, contrary to those pessimists who profess doom.
2009 Economic Prospects
The economic outlook remains robust, with real economic growth for the financial year 2008/09 estimated in the range of 7% to 7.5% per annum. While this target may seem ambitious given the global financial crisis, Ugandans need to understand that it is lower than what we have achieved in recent years and is in line with average growth rates in the previous five years. The economic growth target of 7% - 7.5% is also based on the strong and sound policy framework that the NRM Government has worked hard to put in place over the last two decades. This has led to a diversified economy that is better cushioned against shocks. As an example, as a result of our export diversification, our export destinations have also been diversified, with a large proportion going to the regional markets.
The restoration of peace and security in Northern Uganda and the on-going efforts for the economic recovery of the region gives all Ugandans optimism for a brighter economic future in the year ahead. Also, the economy will continue to benefit from the continued regional demand for our manufactured goods and farm produce.
Let me assure Ugandans that outlook for our economy is favourable and the country’s economic fundamentals remain strong. This outlook is also reflected in the most recent sovereign rating for our country by Standard and Poor’s, which rated Uganda in the B+ category. The improvement in our international rating from the earlier ones signals increased confidence in our economic policies and investment climate.
This rating improves our attractiveness to foreign direct investment and our ability to access international private finance.
2009 Government priorities
Infrastructure development
These regional and global developments have also highlighted the need to be strategic in order to adequately cushion Uganda from such unanticipated events. The temporary disruption of trade flows between Mombasa and Kampala between January and March 2008 was made worse by over reliance on one major trade route which makes our economy vulnerable to such shocks, however small and temporary they may be.
The solution to this kind of problem is to have alternative means especially as regards infrastructure that is strategic to our economy. In this regard, the NRM Government beginning in Financial Year 2008/09 has allocated resources for the development and improvement of our major trade routes along the Northern corridor to Southern Sudan and the Southern corridor to Tanzania.
On the Northern Corridor, the resealing of the road from Kampala to Kafu is nearly completed and preparatory work for turning the Busia/Malaba to Kabale/Katuna into a dual carriage highway will start in 2009.
On the Southern route, the Ferry services on Lake Victoria will soon be restored, with the rehabilitation of the MV Pamba.
In addition to these transport routes that are critical for regional integration and inter-regional trade, construction of the following major road projects is ongoing: Kabale-Kisoro-Bunagana; Kawempe-Luwero-Kafu; Soroti-Dokolo-Lira; Kampala-Gayaza-Zirobwe; Jinja-Bugiri (nearly completed); Kampala Northern Bypass; Matugga-Semuto-Kapeeka; and Kampala-Masaka-Mbarara.
Construction of the following road projects will start by FY 2009/10: Fort-Portal-Bundibugyo; Kampala-Mityana; Mbarara-Kikagati; Ntungamo-Mirama Hills; Rukungiri-Kihihi-Ishasha; Mbarara-Ntungamo-Katuna; Nyakahita-Kamwenge-Fort-Portal; Gulu-Atiak-Bibia; and Vurra-Arua-Koboko-Oraba.
The designs for the following road projects are going to be completed during the FY 2009/10 to enable future construction works to commence under the following works categories:
The commitment of the NRM Government to the development of an efficient road infrastructure is also reflected in the Financial Year 2008/09 budget where Uganda Shillings 1.1 trillion was committed to the roads sector.
This is one of the biggest commitments of Government in a single sector, equivalent to about $700m in a single year.
Previously such large investment outlays were being provided by donors; but now the Government has demonstrated that it can take full charge of its investment projects/programmes. As far as our development partners are concerned, while I commend them for supporting us in the reconstruction of our economic infrastructure, they should feel happy that we are now graduating from dependency on aid.
Energy
In the energy sector, Ugandans need to recall that the NRM Government, with its own resources, kick-started the commencement of the 250 Megawatt Bujagali Hydropower Project even while private financiers were yet to conclude their financing arrangements.
I am pleased to report that the Bujagali Hydropower Project construction is progressing on schedule and will be complete in the estimated time-frame by January 2011. The NRM Government has also decided to commence construction of a larger-sized Karuma Hydropower Project which will create generation capacity of 700 Megawatts.
While commencement of this project may occur slightly later than earlier planned owing to further geotechnical and environmental studies, the site will generate over three times the amount of electricity originally envisaged.
The NRM Government is committed to also financing this project from resources generated from our own revenues that we are saving in the Energy Fund at the Bank of Uganda; and will amount to about US$ 200 million by the end of this Financial Year.
I am directing the Minister of Finance to ensure that more resources are budgeted so that we have sufficient resources to complete this dam.
The next stage of development in the energy sector that the NRM Government will implement will be the development of the necessary regional and national transmission and distribution systems, including nationwide rural electricification in order to utilise the increased electricity generation. This will also entail development of East African Regional-wide transmission infrastructure to export power to our neighbours in Kenya, Tanzania, Southern Sudan, Rwanda, DRC Congo and Burundi.
The strategic interventions I have outlined are, therefore, meant to ensure that the there are no shortages in infrastructure provision that will constrain the growth of the Uganda economy in the near future.
Interventions
Other interventions to ensure further modernisation of the Uganda economy include the national data transmission backbone which will make communications much more efficient and cheaper.
I am glad to report to Ugandans that phase one of this project is now complete having laid 170 kilometres of fibre optic cable to link the towns of Mukono, Bombo, Entebbe and Jinja to Kampala.
Phase two, whose construction will commence in 2009 and will involve the laying of over 1500 Kilometers of optical fibre cable to link the towns of Mayuge, Iganga, Bugiri, Busia, Mbale, Tororo, Luwero, Nakasongola, Masindi, Gulu, Mpigi, Masaka, Mbarara, Ntungamo, Kabale and Katuna. The third phase of the project will involve the laying of 400 Kilometers of optical fibre cable to connect the towns of Kumi, Soroti, Lira, Bushenyi and Kasese, while the rest of the districts will be connected by terrestrial links.
With the implementation of these critical infrastructure developments, Uganda will be certain of take-off into a modern and transformed social and economic nation state with guaranteed prosperity for future generations to come.
The low infrastructure base coupled with high tariffs charged by telecommunications companies is responsible for the low access and use of data video and multimedia services.
The installation of the national fibre network will improve access and lead to a substantial reduction in prices by about 40% for data and 15% for voice services over the first seven years of the project.
Increasing production and incomes
Let me turn to how the NRM Government is addressing the critical area of agricultural and rural development.
Firstly, without increasing agricultural production, there cannot be sufficient produce to sustain agro-processing industries that enable addition of value to agricultural produce.
Therefore, the NRM Government has restructured the NAADS programme to ensure that they focus on provision of researched varieties of plants and better breeds of livestock to farmer groups organised into model, nucleus, lead and other farmers.
NAADS must also ensure that they are more inclusive than exclusive. It is not the intention of NRM to serve only a few but the majority of farming households.
We must ensure that while the innovation of serving model and lead farmers continues as a means of commercialising agriculture, we must also provide advisory services and inputs to the millions of smallholder farmers through their farmer groups.
This seems not to be the direction that NAADS is taking; and I am directing them forthwith to ensure that all categories of farmers must be reached by the programme. I am also directing NAADS, starting in this year, to be responsible for increasing productivity through implementing a tractor scheme across the country; and to ensure provision of fertiliser to improve crop yields. The Minister of Finance must ensure that resources are set aside to implement these measures in order to realise the goal of increasing agricultural production and productivity.
The second intervention for Agriculture and Rural Development pertains to adding value to agricultural produce. A few years ago, Cabinet passed an agricultural zoning policy that designates the types of products to be produced in respective regions in Uganda.
This is necessary to ensure that farmers in a given zone grow enough of a given product to allow sustained addition of value by primary and secondary agro-processors in that region, who then link to secondary processors anywhere in the country.
I am, therefore, directing the Ministers of Agriculture and that of Finance, NAADs and all stakeholders in the agricultural sector, that all interventions for supporting increased production and value addition must be linked to our Agricultural zoning policy forthwith.
The third issue I want to address on agricultural and rural development pertains to Micro-Finance. I fully agree that Savings and Credit Cooperatives (SACCOs ) need to be helped build the necessary capacity to manage savings and micro-finance that may come from other sources. However, we must also remember that the purpose for which the NRM Government is providing micro-finance is to increase agricultural production.
Micro-finance must, therefore, be made available to both SACCOs that qualify, but also to individual farmers and agro-processors who have been appraised to be able to repay. Micro-finance must be provided to SACCOs, individual commercial farmers with adequate and fully appraised business development plans and to agro-processing with viable ventures. The Minister of Finance is hereby directed to ensure that these changes to micro-finance policy are effected forthwith.
These measures will go along way towards resolving the weaknesses in the agriculture sector that make it lag behind the rest of the economy in terms of growth.
Together with the infrastructure developments that I have outlined, market access of increased agricultural production will be assured and, consequently, incomes of households will be increased.
Social service delivery
The NRM Government has made strategic interventions in the development of the Education and Health Sectors that will enable better quality of life and ensure that Ugandans are skilled and healthy.
In Education the Universal Primary and Secondary Education programmes are aimed at achieving the NRM goals of increasing access to quality primary and secondary education and I am pleased with progress so far.
However, while we continue implementation of both these very useful programmes, the Minister of Education must cause building of inspection capacity at both primary and secondary levels to ensure that teachers are in school; and that they use proper teaching methods.
The Minister of Education also needs to create further partnerships with the private sector especially in secondary schools to ensure that where there are no Government secondary schools but there are private ones instead, we utilize the private schools until we build the Government ones.
I am glad that in a bid to ensure standards, the Ministry of Education made the following moves:
In the Health Sector, I am concerned that many health centres are not fully functional, with the necessary drugs, health workers in place and the basic equipment to run a health facility. I am directing the Minister of Health to ensure that there is greater responsiveness of the Health sector to the needs of Ugandans.
There is no reason why health centers must not be manned by health workers at all times, when we have resources available for recruiting many more and salaries have been increased substantially.
I am also disturbed that the labeling of drugs that I directed to happen at the beginning of last year has not been done as of now. Yet patients continue reporting failure of health centers to provide drugs when resources have been budgeted for and provided. In some Health Centres staff are selling Government drugs to patients. This is unacceptable.
I will dismiss any Gombolola chief and CAO who fail to detect this theft. The public should be informed that Government drugs are not for sale; they are free. Also the so-called ‘consultation fees’ are illegal and must stop except in Grade A sections where they exist.
At the regional and national levels, National and Regional Referral Hospitals need to be rehabilitated and equipped urgently and must now start performing their true function of dealing with referrals from lower units. I will not accept any further excuses with regard to the state of regional referral hospitals, such as Mbarara Teaching Hospital and Mubende Hospital among others which are in a sorry state; whereas resources are available for rehabilitation and re-equipping them.
The Minister of Finance is negotiating with the World Bank for a credit that will rehabilitate the hospitals and build more secondary schools.
Implementation of government programmes
The NRM Government has, therefore, put in place all the necessary strategic imperatives that will drive the future successful growth and transformation of the social economic fabric of Uganda. In line with the NRM Manifesto, our target is to increase the population’s access to quality services including education, roads, health care, water and sanitation, agricultural advisory services and energy, among others.
During this financial year, we prioritised and provided sufficient resources to key ministries and local government to ensure that they are able to implement scaled-up programmes and projects. Although some Government programmes and projects have been implemented satisfactorily, I am greatly disappointed that resources are not being used efficiently and the quality of services is poor, which is totally unacceptable. On the part of Government, this means that all Ministers and Public Servants must implement the policies, programs and projects that the NRM Government has spelt out in its Election Manifesto and other policy pronouncements.
In order to implement Government programmes on time, Permanent Secretaries and CAOs must ensure that there is adequate preparation and planning. To take the example of the roads sector, while the Government provided UShs 1.1 trillion in this year’s budget for road construction and maintenance, progress has been slow because of lack of adequate preparatory work and procurement plans.
I am told that the funds provided cannot be disbursed because there are no procurement plans and in some cases the necessary studies and designs are not ready! This method of work is not acceptable. I am, therefore, directing all Government agencies to prepare work and procurement plans which will be the basis for any further allocation of resources by the Ministry of Finance.
In addition, all Permanent Secretaries will now be appointed only if they are performing well in the achievement of results. This method of work will ensure accountability for achieving results in the implementation of Government programs and will ensure value for money.
Public finances and corruption
Discipline in public financial management is a critical element in ensuring that adequate resources are channeled to the priority sectors, as well as ensuring value for money. In this regard, I am directing that emphasis on value-for-money must be strengthened, to ensure that available resources are spent well and high return public investments are given high priority.
In this regard, the Office of the Auditor General has been strengthened to ensure that it undertakes all the necessary audit of all public departments and those private companies receiving funds from Government to ensure there is value-for money.
In the forthcoming year, the Minister of Finance must ensure that the Auditor General has the resources to conduct special value for money audits in the following sectors: - roads, health, agriculture, education, water and all public universities. I expect that immediate action will be taken within these institutions where there has been found to be abuse of public resources.
The Inspector General of Government must also be provided resources to follow-up cases which require investigation and prosecution for corruption.
I am also concerned about the level of corruption and ineffectiveness at land registries across the country. I understand that it is now very difficult to transfer titles or that transfers of titles are being made illegally.
I am directing the Minister of Lands and Housing and the Inspector Generals of Government and Police to deal with the matter urgently, including causing criminal investigation with a view to prosecute the officials who are involved in fraudulent activities.
The Ministry of Lands must also prepare the necessary legal framework to separate land registries from the regular civil service like we did with the Uganda Revenue Authority (URA) in the early 1990s; and hold officials in the new agency responsible for all their activities.
Public-private partnerships
Finally, as a measure to increase the effectiveness of government implementation and improved service delivery, I am directing the Minister of Finance to finalize the framework for Public-Private Partnership in 2009. This will allow government agencies to concentrate on their core business while the private sector perform other services that they are better at. For instance, the management of non-clinical facilities such as management of buildings at Mulago hospital can be done by the private sector while our doctors concentrate on providing clinical services to patients.
Similarly, the management of halls of residence and faculty buildings at Makerere University can also be done by the private sector while our lecturers and professors concentrate on teaching and research.
The Minister of Finance must expedite the legal and institutional framework for the efficient management measures including the transformation of the privatisation unit into a public-private partnership unit to build the necessary capacity to implement this initiative throughout Government.
I thank all of you and I wish you a prosperous 2009.