Experts urge government to strengthen regulatory framework, review taxation and promote financial inclusion
Kampala, Uganda | JULIUS BUSINGE | The use of digital technologies has potential to jumpstart the economy that has been battered by COVID-19 pandemic, according to the World Bank’s latest Economic Update for Uganda.
The report, which analyses the performance of the economy, key challenges and opportunities, and provides an economic forecast for the year ahead, focused on digital economy this time round.
Titled ‘digital solutions in a time of crisis,’ the report notes that increased use of digital technologies during the COVID-19 lockdown such as mobile money, on-line shopping, on-line education, digital disease surveillance and monitoring, and dissemination of public health messages demonstrated a great potential for digital technologies to support faster economic recovery and strengthen resilience against similar shocks.
Tony Thompson, the World Bank country manager for Uganda said digital space in Uganda is very innovative – and has quickly adapted during the pandemic to provide various solutions in various sectors.
These solutions, Thompson said, if up-scaled and developed to their potential would boost the digital economy and maximize its benefits to the country.
The report also points to the current national ID system as one of the successes of technological advancement that can be leveraged on to support more efficient e-government systems and authentication by the public and private sectors while expanding financial inclusion, strengthening social protection delivery, supporting immigration control and refugee management.
However, the analysis notes that although technological advancement has been on increase, it still lags behind in terms of mobile phone penetration which currently stands at 69.2% of the population, far below the average 84% on the African continent. There are also gender and geographical gaps in access, with only 46% of female adults having access to mobile phone compared to 58% of male adults.
Similarly, adults in urban areas are more likely to own mobile phones (70%) and have access to the internet (25%) compared to adults in rural areas (46% own phones and 5 percent have internet access).
The economic update makes several recommendations for the economy and information and communication technology sector, including implementing supportive policies and regulation, review of taxation in the digital economy, leveraging technology to support the health sector and economic recovery through increased digitization of agribusiness and manufacturing, expansion of social safety nets, and transparency and accountability of government’s response to COVID-19.
It also recommends development of a coherent strategy of ecosystem support and catalysing regional and global integration of Uganda’s digital economy.
“There are areas of the economy that have shown resilience in the current crisis by leveraging digital technologies that are inventing new ways of operating and doing business,” said Richard Walker, the World Bank Senior Economist for Uganda.
The report also comes as Uganda’s economy continues to suffer from the triple shocks of the COVID-19 related economic and social disruption, locust invasion and floods.
The update warns that up to three million Ugandans could fall into poverty due to economic hardship and a lack of alternative means of survival.
Global and local restrictions in the movement of people and goods and provision of services to contain the COVID-19 pandemic have resulted in lower consumption, loss of jobs and a 43% reduction in remittances.
The government has also been forced to borrow more to extend social services to its population due to a sharp drop in tax revenues.
Uganda, however, remains at low risk of debt distress based on the April 2020 joint World Bank-IMF debt sustainability analysis.
With total debt service (interest and principal due) expected to average around 55% of government revenues over the next three years, the World Bank says, there is a need to cut back on non-priority spending in order to provide essential public services such as health, education, water and sanitation and electricity.
“A more widespread pandemic could pose significant risks to the outlook, as well as any further significant locust invasion,” the bank warned.
“Weak economic growth in the post COVID-19 period will continue to reduce overall consumption and commodity demand,” it added.
Meanwhile, crude oil prices are expected to average $35 per barrel this year and $42 per barrel in 2021. Although this will limit external inflationary pressures for import-dependent Uganda, these prices are below the estimated breakeven price of $60 for oil production in Uganda.
This, according to the World Bank, could negatively impact Uganda’s prospects of becoming an oil producer within the next four to five years.