Prospects for economic growth and poverty reduction in Uganda
: a Computable General Equilibrium (CGE) analysis

  • Francis Drake Kyalimpa

    Student thesis: Doctoral ThesisDoctor of Philosophy


    Uganda faces considerable challenges in revamping economic growth performance, reducing the proportional of people living below the poverty line to below 20 percent, and attaining other Millennium Development Goals by the year 2015. These developments have prompted the government to prioritise poverty alleviation and the attainment of sustainable real GDP growth (i.e. at 7 percent per annum), among other policies. This dissertation argues that a proper identification of the critical sectors of growth with significant linkages to the rest of the economy can guide policy makers to affect the outcomes of external shocks (e.g. by redirecting resources to sectors with potential for higher output growth and welfare effects) .
    Using the 2002 Social Accounting Matrix (SAM) for Uganda, we investigate the properties of the multipliers that can be calculated from the SAM, in particular contrasting them with the simpler input-output multipliers. Using the SAM multipliers, the computed linkages suggest that Agriculture, Food Processing, and Other Services (Trade, and Health and Education) are the key sectors of Uganda’s economy. Similarly, Manufacturing, Construction, and Transport were found to be sectors with weak linkages to the rest of the economy. Moreover, the multiplier impact on output, employment, and household income distribution is higher with in agriculture relative to other sectors. Our multiplier results confirm the need for policy makers in Uganda to target agriculture-led growth if Uganda is to substantially raise economy wide growth, and to improve household incomes for significant poverty alleviation. Policies to boost the agriculture sector include: building and maintaining feeder roads, provision of farm inputs, training farmers on better methods of production and productivity, reviving cooperatives (i.e. to enable coordinated farming activities, storage, processing, and marketing of farmers produce, and easy access to credit from lending institutions). It should be noted that Agriculture in Uganda is characterised by low productivity resulting from the use of poor inputs, undeveloped value chains, and low public and private investment in the sector.
    Government should significantly invest in agro-processing industries to increase value addition and exports for higher incomes. Since such investments are costly, requiring significant capital investments which majority of poor farmers cannot afford, the government should promote public-private sector partnership. It should be noted that Uganda’s exports are dominated by unprocessed primary low products which fetch low earnings from world markets.
    Using a country specific CGE model and selected exogenous changes and policies, our findings suggest that an increase in the world price of exports and workers remittances, and a decrease in import tariffs are growth and welfare enhancing with the positive shock to world export prices producing the largest impact on real GDP, employment (largely, low skilled labour and in agriculture), factor and household incomes. The significant role of migrant remittances in growth and poverty alleviation (i.e. by increasing household incomes, and investment in agriculture, education, and real estate among others) is worth noting. These findings suggest that Ugandan authorities could encourage Ugandans living and working abroad to invest at home by introducing a diaspora bond and sharing information on investment opportunities to encourage increased inflow of workers remittances which would boost domestic investment. Where possible, surplus labour could be exported to other regions or countries and arrangements made to have workers remittances invested in Uganda.
    In all the policy experiments performed, we find that the welfare of households in the northern and eastern regions of the country is lower compared to that of households based in other regions. This suggests that the government needs to design and implement specific poverty alleviation programs in these regions. The relatively high poverty in northern and eastern regions is attributed to the 19 year civil conflict and the communal land ownership which limits agriculture production for food security and improved household incomes. The government could increase the provision of social and physical infrastructure and promote sustainable agriculture by opening up irrigation schemes, supplying farmers with drought resistant crops, restocking farms, and building and maintain valley dams, and implementing land reforms which promote agriculture.
    Given the importance of agriculture to Uganda’s growth and poverty alleviation prospects, we argue that the government should implement the recommendations of the Comprehensive African Agriculture Development Program (CAADP) and the Maputo Declaration which calls for the allocation of 10 percent of the national budget to agriculture. This allocation is necessary to achieve the target of agriculture sector growth by 6 percent which is required to reduce significantly the number of Ugandans living in extreme poverty and hunger. The budgetary allocation of 4 percent coupled with inadequate supervision, and corruption and misallocation of funds meant for agriculture development programs have contributed to persistent decline in in output and increase in rural and urban poverty. Our results suggest agriculture is associated with higher employment of low skilled labour which is the largest labour force in Uganda. According to the World Bank, employment is the surest way to poverty alleviation. Thus, Uganda should pursue an agriculture led growth strategy for poverty alleviation and sustained economic growth. However, to substantially increase household incomes and contribute to poverty alleviation, policy interventions in agriculture should focus on increasing value addition through food processing and exports.
    Further, interventions that empower women to own assets should be enforced by government. Women are the principal users of land, and they must have stronger rights over the resources they depend upon. Our simulations have demonstrated that employment and incomes of women increase from interventions that target the agriculture sector in Uganda. Women constitute over 90 percent of the total labour force employed in agriculture and earn less or none of farm incomes, and most of them operate under chronic poverty. To gain greater knowledge of and control over their environment and build more productive sustainable systems, the government could empower women with basic education and training, increase their access to new technologies and mobilise them to participate in rural saving banks and cooperatives to boost their earnings from agriculture.
    Our results suggest that Services (mainly education and health) are potential candidates for growth and poverty alleviation in Uganda because they generate significant employment. However, Uganda, Services employ high skilled labour and are urban based, implying they cannot absorb the dominant low skilled labour and the youth. According to the Uganda Bureau of Statistics, Uganda currently has about 34.5 million people of which about 65 percent are youth. About 83 percent of these youth (aged 18-30 years) have no formal employment. This calls for authorities in Uganda to reorient the current curriculum towards her development needs where the youth and graduates are trained to be job creators and not job seekers. Massive investment in vocation training where the youth are trained and equipped with skills to manage their own lives by engaging in small scale projects should be prioritised by the government.
    To overcome the high rate of youth and graduate unemployment in developing countries Uganda inclusive, the donor community in collaboration with African governments identified vocational training as a critical component in each country’s poverty reduction strategy. To achieve this, students should be trained in fields such as entrepreneurship, agriculture, and building construction. Uganda stands to benefit from the allocation of shillings 426 billion (US$171.5 million) from donors for health, technical and business institutions. A number of new technical institutes are being earmarked for refurbishment and construction in selected parts of the country beginning financial year 2013/2014. The largest share of these funds (about Shillings 104 billion) is from the World Bank. Other donors are Belgium (shillings 44 billion) and the Islamic Development Bank (shillings 35 billion).
    Finally, the vast majority of the poor in Uganda are rural based smallholder farmers working in conditions of either static or declining productivity. Poverty reduction and broad-based growth in Uganda is clearly dependent on rural development. At present the agricultural growth that is badly needed to lift rural areas out of poverty is not taking place in any systematic way. As pointed out by the International Fund for Agriculture Development, in order to realize the potential of the land and reduce poverty and attain better food security, the rural poor need adequate access to natural resources, and they need assistance in developing their capacity to manage and utilize those resources productively. The Uganda government needs to prioritise interventions in key productive sectors of the economy this study has identified especially in agriculture and services to boost household incomes. Tis will go a long way in reducing income disparities and significantly alleviating poverty especially in rural areas where majority of poor households live.
    Date of Award2014
    Original languageEnglish
    SupervisorHassan Molana (Supervisor) & John Dewhurst (Supervisor)


    • Economic growth
    • Poverty alleviation
    • Social accounting matrix multiplier
    • CGE modeling

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