By Ahmadou Moustapha Ndiaye
Creating more productive jobs in sectors that employ more people will accelerate Uganda’s economic transformation
Jobs are central to development, because they affect living conditions, determine the pace of economic transformation and foster social cohesion. This was the key message of the World Bank’s World Development Report of 2012.
It would be hard for Uganda to develop if the bulk of labour force remains stuck in low productivity employment. That is the challenge that the World Bank’s second Economic Update on Uganda seeks to address.
The Update takes stock of the economy and proposes solutions for identified challenges to inclusive development. Its analysis suggests that despite a difficult past five years, the renewed macro-stability is providing a foundation for faster economic growth.
Uganda has recovered from a lowly growth rate of 3.4 percent during FY12 to about 5.0 percent, which is expected to continue into the medium term, if government sustains prudent monetary and fiscal policies to remove binding constraints, and manages exogenous shocks that may arise from climate change, volatile import and export prices, regional instability, and other forms of uncertainty.
This can bring back robust historical average growth rates of 7 percent. This can also accelerate the pace of job creation.
But the sectors that are driving this growth have not been important sources of employment, leaving the bulk of the labour force to be employed in low value subsistence agriculture and small low value non-agricultural enterprises.
Urbanization is providing opportunities through agglomeration of firms and customers, especially in services, and to some extent manufacturing. However, these involve only a small proportion of the labour force.
Uganda therefore has the challenge to productively employ its fast growing youthful and increasingly literate population. Genuine transformation can only be realized if the labour force is in productive jobs.
Titled ‘Jobs: Key to Prosperity’, the second Uganda Economic Update argues that given Uganda’s current and future economic structure, demographic patterns, and rural-urban dynamics, the ‘good jobs’ agenda can be complex, involving: (i) Creating better jobs on the farm by increasing agricultural productivity; (ii) Making the informal sector more productive; (iii) Improving survival, growth and productivity in the formal sector; (iv) Ensuring that the labour force has appropriate skills; and (v) Planning for urban growth more efficiently. Even though the impact may only be realised in the medium-to-long run, time for action is now.
The highest priority lies in ensuring increased agricultural productivity. However, with people moving off the farm and more school leavers joining the job market, the quick wins can be fewer and isolated. The Update argues for some options to consider:
First: A deliberate effort to grow large firms by supporting the development of clusters and full value chains for strategic sectors. Most large firms down-sized following privatization between the 1990s and early 2000s, yet very few new large firms have been established since.
A typical value chain approach to support export of processed foods, for example, would require attracting investors, particularly foreign investors, into foods and beverages manufacturing, phyto-sanitary certification, plastics, packaging, and transport logistics.
Second: Faster targeted improvement in the business environment through industrial zoning to reduce transaction costs, improve connectivity, increase access to finance, and facilitate the transfer of technology and innovation.
Successful industrial zones create an enabling environment for a large number of firms when they support cluster formation. Efforts to establish industrial parks need to be followed more zealously where clusters are already forming.
Third: Creating linkages between large industries and small manufacturers can raise productivity of smaller firms, formal or informal, while lowering input costs for the large firms.
The incentive framework to encourage linkages between large steel and mills manufacturing industries with the jua kalis could, for instance, build on the practice of collecting scrap metal used in steel mills, or plastic scrap that is recycled into large plastics industries.
Fourth: Raise the informal sector’s productivity by introducing ‘matching grants’ to enable informal business operators to access capital and workstations, with such a system also requiring recipients to improve their skills.
Ahmadou Moustapha Ndiaye is the World Bank’s Country Manager in Uganda