Economic Diversification and Growth

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Chapter 5 not published, creating a missing step in the accountability cycle and preventing the appropriate follow up with the executive. Parliamentary processes need to be reviewed for a more efficient handling of audit reports. In addition, the inter-institutional linkages between OAG and its partners (investigation bodies and other regulators/auditors including PPDA) need to be strengthened to improve coordination and focus reporting on risks and impact. 5.32. Other Public Sector Management Issues (PSM). In addition to developing appropriate PFM systems, it is critical to ensure that individuals operating these systems and following rules and procedures understand their responsibilities and can carry out their functions effectively. The capacity of public servants in PFM functions should be developed. Basic accounting, audit, cash management, procurement, monitoring, reporting, management and supervision capacities are needed to perform ongoing PFM functions and implement reforms. 5.33. Incentives and performance management frameworks (pay reform and performance appraisal) should be developed. A number of public service reforms were implemented in the 1990s and technical investments in IPPS will improve efficiency of financial management. However, public sector wages stagnated and now are low compared to private sector equivalents. Uganda’s wage bill accounts for about 4 percent of GDP, compared to an African average of about 6.5 percent for the Central Government and 9.8 percent for all government entities. The PFM Act provides that Accounting Officers will sign annual budget performance contracts with the Secretary to the Treasury, involving binding obligations to deliver activities in the work plan. This is a very critical measure, but the government will need to ensure its enforcement. C. Public investment management 5.34. The management of Uganda’s public investment program is weak. Uganda ranks 46 th out of 71 countries in the IMF’s public investment efficiency index (PIMI), with relatively poor scores in project implementation and evaluation. A breakdown of the index shows that Uganda is performing well in terms of project selection (compared to Tanzania and Kenya). However, with respect to implementation and evaluation of public projects, Uganda is behind Tanzania and Kenya. A recent IMF report (2013) noted that Uganda’s public investment performance is characterized by poor planning, delayed procurement and under-execution. The government needs to improve its public investment management in preparation for a major inflow of oil revenue. 5.35. Higher allocations to development expenditures did not increase spending. The domestically financed development budget was under-executed by almost 40 percent in FY2011/12 and FY2012/13. Actual development spending remained well below the levels envisaged in the NDP. As a result, the backlog of planned infrastructure investments increased by over US$1 billion, on top of planned new investments totaling about US$ 9 billion for the next five to seven years. 7 To increase spending on infrastructure, Uganda will need to strengthen its public investment management capacity in order to deliver value-for-money and 7. Musisi and Richens (2014). ensure that future oil revenue will not be wasted. 5.36. The following paragraphs review the main components of an effective reform of public investment management. a. Strategic Guidance and Project Appraisal. Strategic guidance for public investment is an important component of the project preparation and selection process. In 2012, the government adopted the Vision 2040 which defines an ambitious thirty year structural transformation strategy aimed at making Uganda a modern society and a prosperous economy. Five-year National Development Plans will be the main instruments of the Vision. The first NDP ended in June 2015, while the implementation of the second (2015/16 to 2019/20) is ongoing. Many sectors have adopted strategic plans, which, however, need to be more consistent with national plans. The work of planning units in line ministries should be better coordinated with the plans, policies and strategies defined by the National Planning Authority, the Ministry of Finance, and the Office of the Prime Minister. b. Improved coordination. This will ensure that individual projects will be in line with key priorities identified in the NDP. Effective PIM systems include procedures eliminating projects that do not meet minimum technical and financial standards. In Uganda, project proposals are first approved by sector working groups before they are submitted to the Development Committee of the MFPED, which reviews all the proposals before integration into the Public Investment Plan (PIP). However, feasibility/pre-appraisal studies are not systemat- 96 Uganda Country Economic Memorandum: Economic Diversification and Growth in the Era of Oil and Volatility
ically carried out by MDAs before submitting project proposals to the Development Committee, which often fails to perform a cost/benefit analysis before approving projects. Feasibility studies are often carried out once the project has already been included in the PIP. c. Project selection and budgeting. The project selection needs to be integrated with the budget cycle and the medium-term expenditure framework. Uganda’s recent experience in implementing the first NDP shows how difficult it is to maintain a sound and stable macroeconomic framework and implement the country’s investment priorities. Often the Development Committee overemphasizes availability of financing at the expense of technical viability and economic priority. Often feasibility studies and pre-appraisals take place once the project has been included in the PIP and not as a condition for its inclusion. This means that there is no inventory of ready-to-go projects which can be approved and implemented when financing becomes available or when the government wants to re-direct public spending towards a specific sector. This is a serious obstacle to any short-term increase in public investment. In addition, sound project budgeting requires detailed and realistic cost estimates, which take into account both the capital and the recurrent costs necessary to operate and maintain existing assets. d. Project Implementation. In general, project implementation problems result from poor project selection and lack of oversight monitoring and accountability. Poor project selection and inadequate integration into the budget process lead to poor procurement plans and contract management procedures, which cause implementation delays and cost overruns. In Uganda, the DC often approves projects that do not provide a detailed implementation and procurement plan, assigning management responsibilities to specific units or agencies. In addition the absence of clear organizational structures responsible for reporting/monitoring projects during implementation leads to a lack of oversight and accountability in planning institutions and implementing agencies. There is no formal mechanism to track the status of PIP projects, and inform the DC about progress of implementation, including changes in project design, delays and reasons for these delays. Consequently, internal controls on project implementation are often dysfunctional. The Budget Monitoring and Accountability Unit in the MFPED has the mandate to monitor and verify the implementation status of government programs through on-site visits, but there is little evidence that the reports of this unit influence the budget process and are used to enforce on time delivery of planned projects. e. Project audit and evaluation. A basic project implementation review and ex-post evaluation would build capacity and create knowledge on public investment management that would feed back into the preparation and implementation process for new projects. It could also build up public support for government interventions by showing that past projects had a substantial impact on the country’s economy and citizens. In Uganda, basic comparisons of project costs with estimates are only performed for large projects. Completed projects are not systematically evaluated. Value for money audits carried out by the Auditor General seldom lead to follow up. Consequently, poor project implementation is not a cause for concern. D. Managing population expectations 5.37. Given the numerous uncertainties associated with the oil sector, the eventual development of the sector and the possible emergence of additional government revenue should not significantly change the overall goals of the government strategy. Efficiency gains and economic diversification must continue to dominate Uganda’s strategic objectives. Efficiency can provide fiscal space virtually equal to the expected levels of oil revenue. More importantly, despite the role oil production and revenue can play in Uganda’s future, the country should not abandon other available development and economic diversification opportunities. In fact, future oil revenue will be best used if integrated into Uganda’s current development objectives and partnerships. 5.38. In this context, the development and implementation of an effective communication strategy is a high priority. This strategy should define clear responsibilities for nation-wide communications on the oil and gas sector. The ultimate goal of the strategy will be to empower citizens by educating them on pertinent issues concerning the prospects and the possible impact of oil, gas and other mining activities, and to encourage them to participate in the ongoing dialogue on the future use of oil and gas revenue. This will also encourage transparency and accountability. 97
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Report No: 97146-UG Economic Divers
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Contents Contents List of Acronyms.
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Contents Figures Figure 1: Export D
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Contents Tables Table 1: Summary of
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List of Acronyms ACD AFCE AFMUG AFR
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Contents Preface For about ten year
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Contents Acknowledgments The World
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Acknowledgements Credits Regional V
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Exuecutive Executive Summary Figure
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Uganda’s Executive Economy Summar
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Executive Summary longer term as it
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Executive Summary Contractors handl
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Executive Summary was mentioned bef
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Executive Summary 48. Excessive bor
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Executive Summary be met by 2020, w
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Executive Summary Value addition to
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Executive Summary going through the
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Executive Summary Table 1: Summary
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Part I An Economic Development and
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Chapter One 1 Key Messages and Conc
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Chapter One 1 Table 1.1: Poverty Tr
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Chapter 1 is viewed as a promising
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Chapter One 1 also claim 15-17 perc
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Chapter 1 Table 1.6: Savings-Invest
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Chapter 1 significantly by other se
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Chapter 1 Box 1.2: Country Experien
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Chapter 1 Table 1.8: Diversific tio
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Chapter 1 Box 1.3: Product Complexi
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Chapter 1 Box 1.4: A Short-term Exp
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Chapter 1 Figure 1.20: Uganda’s P
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Chapter 2 Development of Oil and Ot
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Box 2.1: Three exploration areas in
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the oil price will recover in the m
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Figure 2.7: Uganda’s Real GDP Gro
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Much of Uganda’s oil deposits are
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2.18. The overall impact of the eme
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IV. The Macroeconomic, and Fiscal I
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Containers loaded with crude oil re
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and other financial institutions to
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Page 88 and 89: Chapter 3 Key Messages and Conclusi
Page 90 and 91: Chapter 3 can have a negative impac
Page 92 and 93: Chapter 3 Box 3.2: Financing of Oil
Page 94 and 95: Chapter 3 are required to notify su
Page 96 and 97: Chapter 3 Table 3.1: Mapping of Con
Page 98 and 99: Chapter 3 Figure 3.2: Horizontal Di
Page 100 and 101: Chapter 3 Table 3.2: Addressing Hor
Page 103 and 104: Chapter 4 Strategic Implications of
Page 105 and 106: Figure 4.1: Average Adjusted Saving
Page 107 and 108: Box 4.2: Angola Case Study When fou
Page 109 and 110: time, raising investment spending t
Page 111 and 112: Figure 4.3: Uganda’s Infrastructu
Page 113 and 114: Figure 4.7: Cumulative Spending on
Page 115 and 116: Figure 4.11: Overall Fiscal Deficit
Page 117 and 118: The efficiency of methods of tax co
Page 119: nue will need to be accompanied by
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Page 124 and 125: Chapter 5 Key Messages and Conclusi
Page 126 and 127: Chapter 5 i. Highly skilled technic
Page 128 and 129: Chapter 5 Table 5.1: Summary Instit
Page 130 and 131: Chapter 5 Table 5.2: Governance Ind
Page 132 and 133: Chapter 5 PFM also creates addition
Page 137 and 138: Chapter 6 Implementation of the Str
Page 139 and 140: consistent with local needs and org
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Page 143 and 144: Steel wire Seamless iron tubes M
Page 145 and 146: 6.31. The government and Total are
Page 147 and 148: 6.36. Several policy interventions-
Page 149 and 150: Chapter 7 Implementation of the Str
Page 151 and 152: Figure 7.2: Share of Intra-EAC Expo
Page 153 and 154: Table 7.1: Decomposition of Uganda
Page 155 and 156: Figure 7.8: Transit Traffic t ough
Page 157 and 158: sures aimed at reducing the time an
Page 159 and 160: to the Port of Lamu in Kenya. 4 The
Page 161 and 162: Table 7.7: Labor Migration Policies
Page 163 and 164: References: 1. Acemoglu, D., S. Joh
Page 165 and 166: September 2010, 28 (5), 553-571. Wa
Page 167 and 168: Annexes: Annex 1: Non-hydrocarbon G
Page 169 and 170: (3) • Consumption basket: composi
Page 171 and 172: (12) • International commodity pr
Page 173 and 174: Annex 3: Key Features of the Uganda
Page 175 and 176: Rural Activities: Exportable and Se
Page 177 and 178: Level of Prices • General Level:
Page 179 and 180: Total Expenditures: • Primary: NG
Page 181 and 182: Annex 4: Key Features of the Uganda
Page 183 and 184: Recursive dynamics o Following prev
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o where: is total consumption in ad
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Human Capital Formation • Schooli
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• Assuming again full depreciatio
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• Thus, an increase in the saving
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Annex 6: Econometric Results of Fir
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Table A6.3: Probit Estimates of Exp
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Economic Diversification and Growth

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