How Should Uganda Grow?

ESID Working Paper No 30

43 Pages Posted: 21 May 2014 Last revised: 11 Feb 2015

See all articles by Ricardo Hausmann

Ricardo Hausmann

Harvard University - Harvard Kennedy School (HKS)

Brad Cunningham

Center for International Development

John Mary Matovu

Harvard University - Center for International Development (CID)

Rosie Osire

Center for International Development

Kelly Wyett

Center for International Development

Date Written: May 20, 2014

Abstract

Income per capita in Uganda has doubled in the last 20 years. This remarkable performance has been buoyed by significant aid flows and large external imbalances. Economic growth has been concentrated in non-tradeable activities leading to growing external imbalances and a growing gap between rural and urban incomes. Future growth will depend on achieving sufficient export dynamism. In addition, growth faces a number of other challenges: low urbanisation rate, rapid rural population growth and high dependency ratios. However, both the dependency ratio and fertility rates have begun to decline recently. Rural areas are also severely overcrowded with low productivity subsistence agriculture as a pervasive form of production. Commercial agriculture has great possibilities to increase output, but as the sector improves its access to capital, inputs and technology it will shed jobs rather than create them. These challenges combined tell us that future growth in Uganda will require a rapid rate of export growth and economic diversification. The country faces the prospect of an oil boom of uncertain size and timing. It could represent an important stepping stone to achieve external sustainability, expanded income and infrastructure and a greater internal market. However, as with all oil booms, the challenges include avoiding the Dutch disease, managing the inevitable volatility in oil incomes and avoiding inefficient specialisation in oil. Policies that set targets for the non-oil deficit could help manage some of these effects, but a conscious strategy to diversify would still be needed.

The best strategy is therefore to use the additional oil revenue and accompanying investments to promote a diversification strategy that is sustainable. To determine how to encourage such a transformation, we draw on a new line of research that demonstrates how development seldom implies producing more of the same. Instead, as countries grow, they tend to move into new industries, while they also increase productivity in existing sectors. In this report, we analyse what those new industries might be for Uganda.

To do so, we first look to those products which balance the desire to increase the diversification and complexity of production, while not over-stretching existing capabilities. These include mostly agricultural inputs, such as agrochemicals and food processing. In addition, Uganda should concurrently develop more complex industries, such as construction materials, that are reasonably within reach of current capabilities and will be in great demand in the context of an oil boom. Here, the fact that Uganda is landlocked and faces high import costs will provide natural protection to the expanding demand in Uganda and neighbouring countries. We conclude with a discussion of the government policies that will support Uganda in developing new tradeable industries.

Keywords: economic growth, urbanisation, industries, diversification, complexity, Uganda

Suggested Citation

Hausmann, Ricardo and Cunningham, Brad and Matovu, John Mary and Osire, Rosie and Wyett, Kelly, How Should Uganda Grow? (May 20, 2014). ESID Working Paper No 30 , Available at SSRN: https://ssrn.com/abstract=2439277 or http://dx.doi.org/10.2139/ssrn.2439277

Ricardo Hausmann (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Mailbox 34
Cambridge, MA 02138
United States
617-496-3740 (Phone)
617-496-8753 (Fax)

HOME PAGE: http://www.hks.harvard.edu/about/faculty-staff-directory/ricardo-hausmann

Brad Cunningham

Center for International Development ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

John Mary Matovu

Harvard University - Center for International Development (CID)

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

Rosie Osire

Center for International Development ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Kelly Wyett

Center for International Development ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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