The mix of development financing instruments for a country like Uganda

On 10 July, Development Initiatives convened an ‘Africa Counts’ roundtable forum in Kampala, Uganda, to bring together stakeholders to discuss the mix of instruments that play a role in financing the development of Uganda. This aimed to create a realisation that all available resources need to be viewed holistically to better understand how they can work together to contribute to ending poverty n the country.

The challenges and the policy responses that we discussed in the Ugandan context will be increasingly relevant to many developing countries in a post-2015 development framework. More than 20% of Uganda’s population are in income poverty, with some 40% vulnerable to poverty and over 60% in multidimensional poverty. It also has the fastest population growth rate in East Africa forecasted to have 114 million people by 2050 (a threefold increase from now). Yet Uganda’s annual economic growth averages 7% higher than the East Africa region’s average of 6.7%. The challenge is how to translate that growth into financing responses that can tackle the increasingly complex poverty picture.

Here are some of my key takeaways from the roundtable:

We need to invest in better information to measure poverty in Uganda

Uganda still relies on the 1992 national poverty line to measure the population proportions living in poverty. This has implications as the cost of living has changed and people may have fallen deeper into poverty, while others may be out. Not having the latest information on where poor people are also affects how we decide to allocate resources to better target development finance and to better assess its impact. It will be essential to invest in disaggregated, up-to-date, sub-national data on where poverty exists if Uganda is to target financing and policy effort at ending poverty.

Uganda could improve targeting of financial resources on poverty

Besides increasing resource allocation to the development of the various sectors in the economy, domestic resources must focus on human capital development – improving education and quality of life – to lead to improved outcomes. Taxes contribute over 60% of the country’s domestic revenue, but there is a feeling in the country that taxes should be evaded. Instead tax payers should view tax as a means of demanding accountability from government.

Remittances are seen to be on the increase, especially in times of crisis, as they act as safety nets. But Uganda does not yet have a policy framework to regulate remittances. The transactions costs are also high, which could mean people may opt for informal means to transfer money.

While microfinance is always seen as the nearest instrument to the poor, it only manages to reach the economically active poor who mainly reside in the urban areas. Microfinance in Uganda has also been skewed to supporting women. So then for financing to lead to development, instruments like microfinance need to reach the very poor, the rural areas and target men too, avoiding gender disparity.

Microfinance needs to have various financial products such as agriculture financing, health insurance and education. But there is also need to develop systematic ways of managing social performances, for example, are poor people moving out of debt through microfinance institutions? More evidence is needed on the impacts of microfinance and how different policy responses and financial instruments fit together to provide a coherent pathway for people who receive microfinance, to ensure they do not just move back into poverty again.

International actors could support Uganda to target financial efforts at ending poverty through…

More effective official development assistance (ODA)

More effective ODA means improving its value for money and focusing on the bottom of the pyramid, where poor people are. ODA could be re-examined by Uganda and donor partners in the national context to make sure it is being used according to its strengths and having the most impact on poverty.

Donors in the DAC group and other providers coordinating efforts

Roundtable attendees felt that donors in Uganda need to harmonise and coordinate their efforts. There needs to be reconciliation between the ODA donors in the DAC group and other providers such as China. It is felt that discussions on the Global Partnership for Effective Development Co-operation (GPEDC) through the Paris, Accra, Busan and the latest Mexico commitments, will only be fully implemented when donors in the DAC group and other providers sit at the same table.

Investments in agriculture banks

Agriculture is the backbone of Uganda, so investments in agriculture banks to increase access to finance are vital. Value addition on agriculture produce must be prioritised for agriculture to generate higher revenues.

In sum, participants at the roundtable agreed it is time that people in Uganda started looking at development financing instruments as a whole, and not only focusing on ODA and what can be traced through the national budgets. Ugandans must be aware that there is much more that can be done with the other instruments to pull people out of poverty. One good way of doing this is creating forums where people can access information on the various instruments and discuss ways to improve these.

Africacounts roundtables are multi-stakeholder forums designed to stimulate constructive dialogue and effective partnerships amongst civil society, media, government and academia to influence resource allocation and prioritisation of poverty eradication in the East African region.