In Summary
So what can Uganda do to increase the multiplier effect of its public investments? First, the government has to improve aggressively its investment management capacity so that projects are well selected and prepared, transparently tendered, and delivered on time and within budget.
By 2040, Uganda expects to have realised its vision of a transformed economy. An early milestone includes reaching middle income status by 2020. Whether the country will achieve these ambitious goals depends in no small degree on how Uganda manages its ambitious public investment programme.
The share of development expenditures in Uganda’s budget has steadily increased from an average of 4.3 per cent of Gross Domestic Product (GDP) during FY 2002/03 to FY 2007/08, to 7.6 per cent of GDP in FY 2008/09 to FY 2014/15. The bulk of this investment goes to infrastructure development, especially in the energy and transport sector. No one will argue with the need for electricity for human development and private sector investment, or the importance of reducing transport costs for agricultural productivity and regional integration. But how successful this investment strategy will be depends on whether the expected return on the investment will materialise, and this is closely linked to how a particular project was selected, tendered, implemented and subsequently operated and maintained. In other words, how well the investment is managed.
Over the past five years, almost half of resources allocated to Uganda’s priority infrastructure sectors were not spent, resulting in under-execution of the budget. One reason for this is that projects are inadequately prepared.
Over the past decade, for every shilling invested in the development of Uganda’s infrastructure, less than a shilling of economic activity has been generated. That will not translate into a transformed middle income country any time soon. As a somewhat far-flung comparison, for every dollar invested in the interstate highway system in the United States between 1954 and 2001, six dollars of economic activity was generated. So what can Uganda do to increase the multiplier effect of its public investments?
First, the government has to improve aggressively its investment management capacity so that projects are well selected and prepared, transparently tendered, and delivered on time and within budget. It also needs to maintain its existing assets. These are the main recommendations from the seventh edition of the Uganda Economic Update that the World Bank released on Monday.
The Update, the seventh in a series of bi-annual publications, takes stock of the economy—its day-to-day management—and has a special theme on public investment management. Titled “From Smart Budgets to Smart Returns – Unleashing the Power of Public Investment Management”, it examines how Uganda can make the public resources it allocates through the budget for investment purposes yield higher returns and increase and sustain higher rates of economic growth.
The Ministry of Finance, Planning and Economic Development has initiated reforms starting with the strengthening of the independent review of projects. This is important and should be supported. Getting the minimum critical elements of an efficient public investment management system will require strong commitment, and the reform effort can usefully be organised along three pillars:
l Streamlining and strengthening the institutional arrangements for the management of public investments;
l Ensuring a shared understanding across institutions regarding what needs to be done and how it should be done by standardising the information and documentation needed to guide the identification, formulation, preparation, appraisal, investment decision, execution, operation, monitoring and evaluation of projects; and
l Closing gaps in the legal and regulatory environment to strengthen mandates and the incentive structures.
Implementing these reforms is not a small challenge given political economy dynamics and governance challenges around public investments. The reform effort can initially be focused on six actions as momentum is built for the rest of the reform programme: (i) Formalise and strengthen independent review of new project proposals; (ii) Build the capacities of ministries, departments and agencies in the area of project preparation, appraisal, approval and monitoring phases; (iii) Document and implement good practice operational processes; (iv) Create a technical fund to facilitate feasibility studies during the pre-investment stage; (v) Establish a standard framework for the monitoring and evaluation of all public capital investment projects under implementation; and (vi) Formulate a policy framework for public investment management. Transparency is critical, particularly during the appraisal process.
In the coming years, Uganda will direct large resources into infrastructure to facilitate oil exploitation. These investments are a means to an end—improved welfare for all Ugandans through inclusive growth, better social services and continued poverty reduction. Improving management of public investments and assets will deliver these objectives sooner.
Ms Malmberg Calvo is the Country Manager of World Bank in Uganda. For more information, please visit: www.worldbank.org/uganda
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