Economic Diversification and Growth

Chapter One 1
Key Messages and Conclusions:
Figure 1.1: GDP Per Capita Growth
(Annual Percent)
Figure 1.2: Real GDP Growth Across
Selected Sectors (Index 2003/04=100)
The report describes two paths to diversification. The
first one aims at expanding productive capabilities.
Over the past twenty years, 60 new products
appeared in Uganda’s export basket, including
cooking oils, processed fruit and vegetables, fish,
flowers, wood, minerals, chemicals, high-value
leather, and construction materials. Accelerating
Uganda’s economic transformation, however, will also
require expanding productive knowledge beyond
existing productive capabilities. The report outlines a
methodology for the selection of increasingly complex
products that Uganda may wish to promote in the
context of a longer-term development strategy.
Conclusions: Elements of a short- and long-term
strategy:
The short-term diversification strategy would focus
on developing existing capacity. It would include
manufactured exports that Uganda is most capable
of exporting: (i) light manufacturing industries
(garments, leather, and wood products); (ii)
strengthening existing agriculture-related processing
industries (cereals, dairy products, cooking oils, and
sugar products); and (iii) a few chemicals and metal
products for which Uganda’s capabilities could be
fostered. Implementation of the short-term strategy will
generate a pool of industrial skills that are essential
for the development of more complex manufacturing
capabilities.
The focus of the long-term strategy would, therefore,
be on new and more complex products, including: (i)
dairy and footwear products; (ii) processed meat; (iii)
more sophisticated wood and metal products; and
(iv) expanding the production of chemical products,
based on the local availability of minerals and
unprocessed chemicals.
Uganda
Sub Saharan Africa (developing only)
Lower middle income
Source: World Development Indicators; Uganda Bureau of Statistics.
over the same period). Following initial productivity
gains in the 1990s, growth was largely driven by factor
accumulation. In fact, 90 percent of growth variations in
the 1990s are explained by total factor productivity (TFP)
growth (capturing reform dividends). Increased physical,
and human capital was the main driver of growth during the
2000s, as reforms attracted investment in two key sectors
(agriculture, and services).
1.2. Uganda’s economy has begun to diversify.
Agriculture remains a major economic sector, employing
about 66 percent of the workforce, and accounting for
over 22 percent of GDP (compared to 24 percent a decade
ago). However, an expanding services sector, notably
transport, telecommunications, and financial services, has
become the main driver of economic growth during the
Source: World Development Indicators; Uganda Bureau of Statistics.
last decade. The average annual growth rate of services
exceeded 10 percent during the last decade. In addition, the
growth of a labor-intensive manufacturing sector averaged
7 percent during the same period.
1.3. Prudent macroeconomic management dominated
the government performance. Consumer Price Index
(CPI) Inflation (end of year) averaged 4.9 percent per
annum from FY1999/2000 to FY2008/09. Improved fiscal
management led to a decline in the fiscal deficit (including
grants) from 7.6 percent of GDP in FY1999/2000 to
1.5 percent in FY2006/07–2008/09. 1 The successful
implementation of reforms undertaken in the context of the
1. A similar pattern is observed with respect to the fiscal deficit (excluding
grants), which declined from 14.8 percent of GDP in FY1999/2000 to an average
of 5.3 percent in FY2006/07–FY2008/09.
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Uganda Country Economic Memorandum: Economic Diversification and Growth in the Era of Oil and Volatility