Uganda - Growing out of poverty

Report No. 11 380-UG Uganda Growing Out of Poverty March 31, 1993 Africa Country Department II Country Operations Divisi )n FOP OFFICIAL USE ONLY U Documeni of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  GOVERNML'ZT FISCAL YEAR July 1 - June 30 CURRENCY EQUIVALENTS Currency Unit: Ugandan shilling (U Sh) Official Rate: US$1.00 = U Sh 1214 (December 1992) Foreign Exchange Bureau Rate: US$1.00 = U Sh 1248 (December 1992) ACRONYMS AND ABBREVIATIONS ACFODE Action for Development ACS Aid Coordination Secretariat DA distict administator DANIDA Danish Ienational Development Agency DCAT Distict Community Action Trust DENIVA Development Network of Indigenous Voluntary Associations DHS Demographic and Health Survey FHH female-headed households HBS Household Budget Survey MAAIF Ministry of Agriculture, Animal Industry and Fisheries MHH nale-headed households MLG Ministry of Local Govemment MLSW Ministry of Labor and Social Welfare NGO non-governmental organization NIC newly industrialized country NRM National Resistance Movement NUDIPU National Union of Disabled People of Uganda OGL Open Genveral License PAPSCA Program to Alleviate Poverty and the Social Cost of Adjustment RC Resistance Council SIP Special Import Program SSA Sub-Saharan Africa SWAA Society for Women and AIDS in Africa TOT terms of trade UCBHCA Uganda Community-Based Health Care Association UCOBAC Uganda Community-Based Association for Child Welfare UDC Uganda Daisy Corporation UNEPI Expanded Program on Immunization UNICEF United Nations Intemational Children's Emergency Fund URA Uganda Revenue Authority WHO World Health Organization WID Women in Development The maps used in this document are solely for the convenience of the reader and do not imply the expression of any opinion whatsoever on the part of the World Bank or its affiliates concerning the legal status of any counry, territoty, city, area, or of its authorities, or concening the delimitation of its boundaries or national affiliation.  FOR OMCMIL USE ONLY UGANDA Page 1 of A COUNTRY DATA SHEET aenral Area, land sq km 197,096 Population (1991) 16,671,705 Growth rate % per annum 2.5 Density (1991) per sq km 85 Soio-zomc IClatOt Total hours worked per day, wome 15-18 Total hours worked per day, man 8-10 Female ownership of land percent 7 Share of credit to women percent <1 social Indcators Population Chaacteristics (1990) CrUde birth rate per 1,000 51 Cmde death rate per 1,000 22 Life expectancy at birth, male years 47 Total fertlity rate 7.3 Coantrcptive prevalence rate percent 5 Female-headed households percent 30 Health infent mortality (1990) per 1,000 live births 117 Maternal mortality rate per 100,000 births 500 Female morbidty rate percent 76 Population per physician (1991) 24,700 Population per hospital bed (1991) 1,200 First birth in 12-15 age range percent 29 First birth after ge 19 percent 22 income Distribution, (1989-90) 1/ Highest quntile of national inome % of populaton 8 Lowest quintle of national mcome % of populaaoa 30 Access to Electricity (1989-90) % of Urban population percent 40.1 % of Rural population percent 1.9 Nutrition (1991) Calories per capita 2800 Education (1990) Literacy rate, 1991 percent, ge 10 and over 54 Female literacy, 1991 percent, age 10 and over 45 Adult leracy rate, 1991 percent, age 20 and over 52 Female adult literacy, 1991 percent, age 20 and over 39 Primary school enrollmont - total % of relevant popuation 72 Primary school enrollnt - femile % of relevant population 63 V Based on expend_te data font Houseold Bu4g*t Suewy. C-ontnued This document has a restrictod distribudon and way be used by recipients only in the performance of their offcial duties. Its contents may not otherawise be dit 'sd without Wotld Bank authorizaton.  UGANDA Page 2 of 4 COUNTRY DATA SHEET Gross Nationl Product - 1991 Annual growth rate of GNP (% p.a., constan prices) USS m % of GNP 1985-91 1989 1990 1991 GNP at market prices 278 100.0 3.9 7.8 5.5 3.6 GDP at factor cost 2805 97.5 4.6 7.3 4.0 4.1 Gross domestic investment 358 12.4 13.1 19.2 19.9 4.3 Gross national savings -35 -1.2 14.0 15.5 49.3 25.6 Cunrent account balance -393 -13.7 -5.1 10.7 -10.8 -17.6 Exports of goods & NFS 198 6.9 0.9 1.1 -3.7 -8.3 Imports of goods & NFS 591 20.5 -1.0 0.3 -9.0 -13.2 GNP per capita 170 ouLput, Employment and Productivity - 1991 =-V alue Addod- - Value Added - Labor Force - per Worker US$ m % mill. X USS % Agricultu 1443 51.4 5.23 80.1 275.7 64.2 Industry 330 11.8 0.21 3.3 1549.3 360.6 Manufacturing 119 4.3 .. Services 1032 36.8 1.08 16.6 952.5 221.7 Total 2805 100.0 6.53 100.0 429.6 100.0 Governmnt Finance In fislyea U Sh m -% of GDPmp- 1991J92 1987188 1991/92 Current receipts 185995 5.4 6.6 Current expenditures 323017 5.9 11.5 Current deficit -137022 -0.5 -4.9 Capital expenditures 21 258478 4.7 9.2 Continued 2/ Includes net lIdwg  UGANDA Page 3 of 4 COUNTRY DATA SHET Money, Credt and Prices In fiscalyears 1987/88 1988/89 1989190 1990/91 1991/92 In billias of U Sh outstatdin, enad of period: Money supply 26.83 00.17 94.43 138.56 222.33 Bank credit to public sector 11.93 26.40 9.20 12.91 64.03 Bank credit to private sector 12.29 42.06 70.46 107.82 136.74 Percentage or idx numbers: Manet- as % of GDP 6.4 6.8 6.8 7.2 7.9 Kampala CPI (Sept 1989 = 100) 32.8 75.7 110.1 137.1 194.8 (annual average) Aanuapercgntage chages: Kampala CPI 167.9 130.5 45.4 24.6 42.1 Money supply 212.0 124.3 56.9 46.7 60.5 Bank credit to public sector 191.0 121.3 -65.2 40.3 396.0 Bank credit to private sector 199.8 242.2 67.5 53.0 26.8 Balance oi'Payments in fs1cal years 1987/88 1988189 1989/90 1990191 1991/92 in RilOi"ns of US$ Exports of goods & NFS 324 304 246 200 195 Imports of goods & NFS 682 712 676 658 523 o/w Petroleum 69 76 78 87 57 Resomrce gap (deficit--) -358 -408 -430 -458 -328 Factor service payments, net -57 -67 -77 -66 -142 Net private transfers 120 114 78 80 127 Balance on current account -295 -361 -429 -444 -343 (excl. net official transfers) Net official transfers 92 131 153 205 217 Balance on curment account -203 -230 -276 -239 -126 (incl. net official transfers) Capital account 138 127 232 134 7 Long-term, net 101 125 215 131 21 Short-term, net 47 -4 18 3 -2 Errors and ommissions -10 7 0 0 -12 Overall balance -65 -103 -44 -105 -119 Monetary movements 65 103 44 105 119 Change in reserves ~74 12 l1 -5 -i IMF tr ctions,net -17- Other 85 85 34 64 121 Contimue  UGANDA Page4 of 4 COUlNTRY DATA SHEET Merchadse Exportf (Avrage 1987 - 19901) Vale US$ m % of Tota Coffee 218.6 89.8 Cotton 5.6 2.3 Tea 3.0 1.2 Tobacco 1.9 0.8 Other 14.5 6.0 Total 243.6 100.0 Rate of Exchag (Officia, mid-point) 1988 1989 1990 1991 1m US$1.00 = U Sh 0.009 0.005 0.002 0.001 0.001 U Sh 1.00 = US$ 106 222 433 750 1146 Extera Deb December 31, 1991 US$ n Public debt, mcil guarante 31 2325 IMP 330 Non-guaranteed private debt 0 Total long-term 2655 Short-term 177 Toal oubnding & disbursed 2832 Net LT Debt Serice Rtio for 19914/ Parcentage Public debt, incl guranteed 31 47.6 IMP 21.2 Non-guaranteed private debt 0.0 Total logterm 68.8 Short-term 2.6 Total outstanding & disbwsed 71.4 lRD/IDA Lendi, December 31, 1991 hI .lis of USS IlRD IDA Outstandng & disbursed 29 1078 Undisbursed 0 351 Total outnding including undisbursed 29 1429 3/ Excludes MP. 4/ Dt servie, nt of Interesta erned oan fori excohanerese, as a percenta of of expts of goods & NFS.  UGANDA Growirg Out of Poverty Contents Prfce ............ vii Executive Summary ................. ................ . ix Pantl: AProfUleofPovaty . ................................... I Chapter1: AProfileofPoverty ....................................... 3 Background .......................................... 3 DefiningPovety . ...................................... 4 Povert Edic r ad teR eonrVariaoninPoverty .............. 8 Intahouseholdlnequaity . ................................ 10 Nutitoral Indicators ........... ........................ 10 Social bidicaors ...................................... 11 The Voice of the Peoplc ................................. 14 Clpter 2: he Poor and the Vulnerable ............... ................. 17 Who are the Poor and Vulnerail ........................... 17 Chapter3: IheGenderDimension .................................... 25 Proflle of Women's Roles and Constahl ...................... 26 Gender Isues for Poverty Reduction and Economic Growth .... ....... 28 The Value of Women in Ugandan Society ...................... 29 Unequal Before the Law? ................................ 31 Me Diversity of Households in Uganda ....................... 32 The Gender Division of Labor ............................. 33 Intersectoral Linkages ................................ 35 Conclusion ............ .................... 39 Chapter 4: lnpact of Adjustment on the Poor ............................. 41 General ............................... 41 The Ugandan Experience ................................ 42 Rural and Urban GDP Per Capita . .......................... 43 Change in Domestic Terms of Trade (T) ....... ............. 45 Macroeconomic Polcy and Its Implications ..................... 46 lmplications for Household Welfare ........... ............... 49 What Has Been Happening to the nomes of the Poor? ..... ........ 50 Distortions inProductandFactor Markets ........ .............. 51 biatlon and s tmpa on the Poor ........... ............... 53 The Provision of Social Services ............. ............... 55 Conclusion .................................... 55  - iv - Part I A StWategy for Reducing Poverty ............................ 57 Chapter 5: Accelerating Economnc Growth ............................... 59 Introduction ................. 59 Perequisites for Accelerated EconomicGrowt .60 How Did Uganda Fare? ................................. 63 The Link Between Growth and Poverty Reduction in Uganda .... ...... 64 Structure of Production .................................. 66 Sources of Future Growth ................................ 67 Agriculture ......................................... 67 lidustry ... 71 Savings, InvestmeL and the Balance of Payments ..... ............ 73 Annex to Chapter S ...................................... 81 Agricultural Growth Prospects .......... ................... 81 Traditional Export Crops . ............................... 81 Matoke (BnXa) ..................................... 83 Cereals ........................................ .. 83 Roots and Tubers ............. ........................ 84 Pulses . ........................................... 85 Oilseeds ........................................... 85 Industrial Crops . ...................................... 86 Horticultural Crops .................................... 86 Livestock and Dairy .......................... ....... 87 Chapter 6: Labor Market Policies for Poverty Reduction ...................... 89 The Distribution of Labor Force ............................ 89 Featues of the Labor Market .............................. 94 Which Employment Categores are Poor? ...................... 98 The Objective of F-mployment and Labor Market Policies .... ........ 99 Annex to Chapter 6: Urban Employment ......................... 103 A Further Disaggregation ................................ 103 Growth in Public Sector Employment ......................... 105 Chpter 7: Providing Key Services and Safety Nets ......................... 107 Introduction ......................................... 107 Government Expenditure on the Social Sectors ................... 108 Incidence of Government Expenditures ........................ 109 Education .......................................... 110 Health . ........................................... 111 Family Planning and Environment ........................... 113 Development of the Rural Areas ............................ 113 The Provision of Safety Nets .............................. 114 Keeping Afloat . ....................................... 115 b There Anybody to Help? ............................... 117 Safety Nets for the Future ................................ 119  Chaper 8: nstltutlonal Framework Delivering Essendal Services ................. 123 Background ......................................... 123 Governm Ientallnsttuitons .. .. .............................. 123 Self-Help Groups ... ................................. 125 Non-Governmental g tions............................ 126 Coordination between Government and NGOs ................... 127 Creating a Fmework fr Collaboration ........ .. ............. 129 Decentr ization .. .................................... 135 TheDistictCommunityActonTrust(DCAT) ...... .. ........... 135 Conclusion ......................................... 136 Chapte 9: A StWy for Reducing Povety ............. .. ............... 137 A. Policies for Accelerating Growth ............................ 137 Policies for Accelerating Agricultural Growth ..................... 138 Policies fr Acceleraing ndustr aGrowth ...................... 139 Employment and Labor Market Policies ....................... 140 Policies for Gender-Responsive Growth ....................... 141 B. Policies for the Delivery of Social Services ...................... 142 The Public Expenditure Agenda ............................ 142 Institutional Issues and the Provision of Safety Nets ................ 143 Text Tables Table 1.1 Selected Characteristics of Ugandan Households. 5 Table 1.2 Poverty ndicators for Uganda .............................. 6 Table 1.3 Expenditure on Different Food Items .......................... 8 Table 1.4 Uganda Social ndicators ................................. 13 Table 4.1 Growth and Sectoral Distrbutionof GDP ...................... 43 Table 4.2 Foreign Trade Taxes, Trade Deficit and Exchange Rates .... ......... 47 Table 4.3 Index of Red Farmgate Prices ............................. 49 Table 4.4 Real Wages of Agriculat Workers ......................... 51 Table 4.5 Fisca an Monetay Performance ........................... 52 Table5.1 AnnualRatesofinflation ................................ 61 Table S.2 Domestic hnestment and Savings ........................... 61 Table S.3 School Enrollment ........... ......................... 62 Table S.4 Average Ai.xiGDP Growth Rates ......................... 63 Table 5.5 Average Annaal Sectoral Growth Reaes ........................ 64 Table 5.6 Yeas Required to Double GDP ............................ 65 Table S.7 Distribution of GDP ........... ........................ 66 Table 5.8 Present vs Potendial Crop Yields ............................ 70 Table 5.9 Key Macroeconomic Indicators ............................. 74 Table 5.10 GDP By Sector in Constat Prices ........................... 76 Table 5.11 GDP By Sector in Constant Prices (Annual Growth Rates) .... ........ 77 Table 5.12 GDP By Expenditure at Constant Prices ....................... 78 Table 5.13 Babnce of Paymerts ........... ........................ 79 Table 6.1 Distribution of Population by Primary Activity ................... 90 Table 6.2 Estimated Mid-Year Distnrbution of Labor Force, 1992 .............. 91  -vi- Table6.3 SomeFa sAbout U rbanad Publtc S cttooE Employme............. 92 Table6.4 Peretof Male andFemale I eWorkForce .. ................ 93 Table6.5 ReladveEaminp ofLaborin Dlffrent Actdvides ...... 97 Table 7.1 SectorW Ependtue Prorm nce of the Central Government ...... 108 Table 7.2 Poverty Focus of Govemnmnt Curet ExpMditures . 109 Text Boxes Box 1.1 Poverty Indicat ...... 7 Box 2.1 Orphans oTheir Own . 18 Box 2.2 A Woman Who was an Orphan ........................ 19 Box 2.3 I Used to Crawl . ...... 20 Box 2.4 Meet the Core Poor ..20 Box 2.5 Life in Wllk (Gulu Disrict) ..23 Box 2.6 Everybody Has Horror Stories o Tell ..24 Box 3.1 No ime for Health ..28 Box 3.2 A View from the Top .. 29 Box 3.3 Ines That Bind ...... ................ 30 Box 3.4 Women and LgReg t.. . ........... 31 Box 3.5 Female LaborTime and Ehicy . . . 33 Box 3.6 Differeaial lcendves: Two "_-es fm Kenya . .34 Box 3.7 Povety and AIDS . 36 Box 3.8 Domesc Relations inthe Context of ADS ..37 Box 3.9 lvesg In Girls' Educaton .38 Box 7.1 The *Rwot Kweriu ........................ 116 Figures Figure 4.1 Real Per Capita GDP ...................... 44 Figure 4.2 Domestic Terms of Trade .45 Figure 7.1 Primary Education Expendit. .110 Fiure 7.2 Prmay Health Exp en us ................ . ............ 112 Maps map 1.1 Districts with the Highotl dence of Povety .... ....... 9 Map 1.2 Districts with the HiZest Incidence of AIDS .... ....... 12 Selected Bibliography .145 Annex I Statistical Appendix .151 Annex 11 Poverty: A Child's View .189 Annex m Adjustment to te HBS Data .199  Preface The last Country Economic Memorandum for Uganda, Towards Stabilization and Economic Groih (Report Number 7439-UG), was issued in September 1988. Since that time, despite a severe deter.ioration in the country's interational terms of trade and the exacerbation of the AIDS pandemic, the Government of Uganda has continued to implement a challenging economic reform program, with support from the World Bank, the IMF and the donor community. This report documents the progress made to date and compliments the Government of Uganda for takig some bold economic decisions. With the restoration of peace and security throughout most of the country, and the improvement in the investment climate, the time is now ripe for the citizens of Uganda to start taking advantage f the new e.onomic enviionment. While poverty in Uganda continues to be a serious problem, this report suggests that there is some evidence that, as a rweult of the policies implemented, Uganda is slowly on its way towards Vgrowing out of poverty". The report cautions, however, that there is little ground for complacency. Reinforcing the recommendations of the 1990 World Development Report, it advocates a growth oriented strategy for poverty reduction in Uganda and advises the Government o 'stay the course' and continue implementing the set of policies which will augment the country"s I aman capital and enable its citi;ens to participate equitably in that growth. This report has been prepared by a team led by Kapil Kapoor (Task Manager, AF2CO) and comprising Emmanuel Ablo (AF2CO), Maurizia Tovo (AFTSP), Lemma Merid (AFTSP), Mark Blackden (AFISP), Hailu Mekonnen (PIHRWD), Eliabeth Shields (EDICD), Mimi Klutstein-Meyer (AP2CO), Aziz Khan (consultant) and Mark Henstridge (Summer Intern). Bonnie Keller (DANIDA) and Carol Carolus (USAIMD) participated in the main mission and contributed to the preparation of the report. The team worked in close collkboration with a UNDP programming mission on poverty alleviation and rural development, led by Prof. A. Mafeje and the Goverment's counterpart team led by Keith Muhakanizi (MFEP) and consisting of Joseph Okune (PAPSCA Coord;"ator), Damon Kitabire (MFEP), Margaret Kakande (MFEP), R.P. Tumusime (MWIDCY), Moses Bekabye (MFEP), Harriette Mugerwa (MFEP) and Francis Wagaba (MFEP). The peer reviewers were Helena Ribe (PHRPA) and Oey Astra Meesook (AV4CO). The document was produced by a team led by Katiryn Rivera (AF2CO). The report was discussed with the Government of Uganda in March 1993.  Executive Summary 1. With a per capita Income of under US$170, Uganda today is one of the poorest countries in the world; indeed, it is a living testament of the havoc caused by the politica turmoil and economic decline brought about ty more than a decade of despotic rule. 2. At independence (1962), Uganda had one of the most vigorous and promising eccnomies in Sub-Saharan Africa (SSA), and the years following independence amply demonstrated this economic potential. Favored with a good climate and fersle soil, the country was self sufficiet.. in food, with the agricultural sector being a large earner of foreign exchange. The manufacturing sector supplied the economy with basic inputs and consumer goods and was also a source of foreign exchange earnings through the export of textles and copper. Export earnings not only financed the country's import requirements but also resulted in a current account surplus. Fiscal and monetary management was sound and the domestic savings rate averaged about 15 percent of GDP, enough to finance a respectable level of investmeLt. Uganda's system of transportation was widely regarded as one of the best in SSA and included an effective network of roads, railways, port and air transport. 3. Ug&ea's social indicators were comparable to, if not better than, most countries in Africa. Tbhe country's health service had developed into one of Africa's best and pioneered many low cost health and nutrition programs. There existed a highly organized network of vaccination centers, and im_unkation programs reached as much as 70 percent of the population. Although school enrollment was still low, Uganda's education system had developed a reputation for very high quality. 4. The Amin regime radically reversed the economic and social progress attained since independence, and the ensuing civil strife resulted in a tremendous loss of human life. It is estimated tat as many as 500,000 Ugandans lost their lives during Amin's eight-year dictatorship and ar many as one milion more were internally displaced from their homes and farms. A 1985 estimate by the U.S. Committee for Refugees concluded that in that year one out of every fourteen Ugandans was either a refugee or was displaced; it was estimated that as many as 200,000 Ugandans had fled the country and were living in exile. 5. Economic mismanagement accompanied the civil war and professional standards deteriorated rapidly as skilled personnel fled the county. Between 1970 and 1980, Uganda's GDP declined by about 25 percent, exports by 60 perceAt, and import volumes by close to 50 percent. With large increases in defense expenditures, the government budget became increasingly untenable and was largely financed by bank borrowing which resulted in average inflation rates well in excess of 70 percent. Ecoromic i ament and abuse of human rights on a massive scale continued during the Obote regime in the early 1980s. By 1985 govrment expenditure on education and health, in real terms, amounted to about 27 percent and 9 percent respectively of the 1970s levels. When the National Resistance Movement (NRM) Government assumed power in January 1986, it inherited a shatered economy whose social indicators today paint a dismal picture of the quality of life of its citizens and are indicative of the extent of poverty within the country. 6. Given this legacy, this Country Economic Memorandum focuses on poverty in Uganda. Part I of the report presents a profile of poverty, using data from the recently concluded Household Budget Survey, the Demographic and Health Survey and the Population Census. These data were supplemented by a Rapid Poverty Appraisal conducted by the mission in August, 1992, in an attempt to get a beter understanding of the causes of poverty and what it means to be poor in Uganda. Particular emphasis has been placed on the gender dimensions of poverty, recognizing the fact that  - x - poverty affects men and women in different ways becase they play different roles, have different needs and face different constraints. Part I of the report also examines the policies that have been implemented by the NRM Government during the past five years and, despite the data-poor situation, analyzes the impact of adjustment policies on the poor. Part 11 of the report is forward looking and, consistent with the recommendations of the 1990 World Development Report, articulates a two- pronged strategy for poverty reduction. The first prong of the strategy outlines policies designed to increase labor productivity and accelerate economic growth. The second prong recognizes that while economic growth is a necessary condition for poverty reduction, it is, by no means, a sufficient condition. In order to ensure that the poor are able to participate equitably in such growth, it recommends increasing the share of public expenditures on critical social services in order to foster the development of human resources within the country. Although a special case could be made for targeted interventions for the vulnerable groups in Uganda, the report recommends keeping these to a minimum, given the tight budgetary constraint and poor adwlnlstrative capacity in the country. A. Poverty Profile 7. This report has defined two relative poverty lines for Uganda. The first poverty line has been drawn at U Sh 6,000 per capita per month (approximately US$110 per capita per year in 1989/90 prices), which is approximately equal to four fifths of the mean per capita monthly expenditure in 1989/90 (U Sh 7,512). The second poverty line has been drawn at U Sh 3,000 per capita per month (approximately US$55 per capita per year), which is approximately equal to two fifths of the mean per capita monthly expenditure. Ugandans falling below the U Sh 6,000 poverty line have been charactrized as the 'poor' and those falling below the U Sh 3,000 povert line as the "poorest", or the core poor. 8. PreJiminary estimates indicate that, In 1989190, a minimum of U Sh 6 000 per capita per month would have provided a daily intake of 2,200 calories plus some reasonable nonfood penditures (e.g., clothing, fuel, etc.). This does not mean that people with monthly expenditures higher than U Sh 6,000 in 1989/90 lived comfortably; rather, it means that those witi lower monthly peaditres could not satisfy their basic requirements. The lower poverty line of U Sh 3,000 represents the bare minimum for adequate food intake. At U Sh 3,000, if you are adequately fed, you do not have anything else at all, however essential. As the key social indicators discussed below indicate, access to basic social services is very low throughout the country, implying that some Ugandans living above the poverty line could be considered poor. 9. Using total expenditure as the measure of welfare and a poverty line of U Sh 6,000, 55 percent of Ugandans can be defined as being poor. The poor are disproportionately found in rural areas, where about 57 percent of the population is poor, compared to about 38 percent in urban areas. Ninety-two percent of the poor in Uganda live in the countryside, while only 89 percent of the population is classified as rural. The discrepancy between nura and urban levels of povsrty is even greater using the lower or *core* poverty line; 96 percent of the core poor live in nur *J areas. When the data are analyzed to take into account the depth of poverty, it turns out that not only is poverty more widespread in rural areas, but that it is deeper. In other words, rural people are more likely to be poor than urban dwellers, and their poverty is more severe. 10. Poorer households in Uganda tend to be larger, have older and less educated household heads, and are more likely to be headed by a woman. Not surprisingly, the dependency ratio, which is calculated as the proportion of the household population younger than 18 and older than 55, is quite high and increas's for poorer households. The difference in average per capita expenditure between urban and rural areas is significant, with rural people spending about 60 percent as much as urban  . xi - dwellers. Accordingly, indicators generally associated with poverty have higher values for rural Uganda: larger household size, higher dependency ratio, higher illiteracy, etc. 11. Ihe highest incidence of poverty is in the northern part of the country. In the rural areas of the north, 81 percent of the population have a real per capita monthly expenditure of less than U Sh 6,000 and 42 percent have a real per capita monthly expenditure of less than U Sh 3,000. Such high incidence can be ascribed for the most part to the ravages of the civil war. As persistent insecurity prevented the hardest hit northern districts fro- being included in the Household Budget Survey, it can be assumrl that the actual poverty incidt n the north is higher. Social and / -W ial Indkcators 12. Life 3xoectancy at 47 for men and .50 for women is one of the lowest in the world, and it is difficult to see how the situation could improve in the near future with the AIDS pandemic threatening not only the adult population but also infants. AIDS has emerged as a significant cause of death and illness among young chiidren. Thus, the already high infant and child mortalitj rates (respectively, 117 and 180 deaths per 1,000) can be expected to rise. Areas whet peace has not yet been completely restored are at a greater risk of HIV infection because of the presence of both regular and rebel armies. 13. Not surprisingly, insufficient access to health and sanitation services is also reflected in the general mortality and tuorbidity pattens. Uganda's crude death rate, at 20 per 1,000, is about twice the level of the average low-income country (e.g., neighboring Kenya) and considerably ibove the SSA average. While such high rates can be partly explained by civil strife and AIDS, it is undeniable that poor health conditions are part of the explanation. Malaria has been found to be the principal killer among adults admitted to hospitals, far ahead of AIDS. Diarrhea, pneumonia and anemia are almost as common as AIDS as reported primary causes of death. Among children under five, who account for over half of hospital deaths, the main killers are malaria, pneumonia, diarrhea and malnutrition. Available information on morbidity, as measured by outpatient statistics asd surveys of mothers, confirms a similar pattern. Thus, the main causes of mortality and morbidity, with the exception of AIDS, appear to be related to a generally unhealthy environment and a lack of routine medical intervention. 14. The Demographic and Health Survey (DHS) conducted in 1988/89 found that 45 percent of children aged 0-60 months had stunted growth, as shown by their height-for-age. Severe growth retardation occurred in 20 percent of the sampled children. Sunting reflects the cumulative effect of chronic malutition over a number of years, and it is typically associated with poor economic conditions (as illustraed above). Although it is conceivable that some families will fail to provide adequate nutrition to their children out of ignorance or neglect, it is very unlikely that this would be the case for the majority. This assumption is supported by the fact that stuntig is almost twice as common in rural than in urban areas, that is, in areas that where the incidence of poverty is much higher. Thus, we can conclude that, when the effect of insufficient access to social services is combined with that of limited economic resources, the percentage of Ugandans living in poverty apps to be higher than what a poverty line at U Sh 6,000 would suggest. 15. There are, of course, regional variations. The DHS found the prevalence of stntig to be considerably higher in the southwest (54 percent), while Kampala had the lowest percentage of stunted children (22 percent). The northern districts could not be surveyed because of the insecurity in the area, but medical personnel in Gulu and Kitgum estimate malnutrition rates to be at least 60  - mi - percent. Acute malnutrition (i.e., wasting) is only 2 percent according to the DHS, but in Gulu, Kitgum and Karamoja it is estimated to be as much as 30 percent. Impact of Adjustment on the Poor 16. Against this backdrop, and the seemingly overwhelming problems facing them, the NRM Government must be complimented for their tenacity and determination to improve the lot of Uganda's citizens. During the past five years, the Government has implemented a far-reaching economic reform agenda which has today transformed Uganda into one of the most liberal economies in Sub-Saharan Africa. With the liberalization of the exchange and trade regime, the abolition of the Industrial Licensirg Act, the promulgation of a new investment code, and the gradual liberalization of agricultural pricing and marketing, the Government has succeeded in establishing some of the fundamental preconditions that are essential for sustainable growth. 17. Runl and Urban GDP Per Capta. Since poverty in Uganda is largely a rural phenomenon and most of the poor are engaged in multicrop and mixed production, the trend in real agricultural GDP closely reflects the pattern of rural living standards. Moreover, since most rural land falls under the customary tenancy system where access to land is fairly open, and since over 85 percent of the farming population operates on less than two hectares of land, the benefits of agricultural growth are likely to be evenly distributed among the rural population. Thus, average trends are expected to be a fair reflection of changes in rural living conditions. Aggregate real per capita GDP, which had declined steadily between 1983 and 1986, increased significantly between 1987 and 1991. Real GDP per capita in rural and urban areas essentially followed the same trend. On average, the welfare of the rural and urban poor, in real terms on a per capita output basis, has improved by between 14 and 16 percent respectively during the past five years, maintaining the rural-urban income gap at around 5.2:1 over the second half of the 1980s. Compared to the early 1980s, some income redistribution in favor of the rural areas seems to have occurred. It is important to note, however, that averages mask the existence of wide intraregional differences, particularly in urban areas. 18. There is considerable uncertainty in determining whether these improvements were entirely a result of adjustment policies, other extraneous factors, or some combination of the two. Given that peace and security were regained at a time that the strctural adjustment policies were put in place, causes serious jifficulties in disentangling the effects generated by the macroeconomic policies per se. The problem is also compounded by the difficulties in isolating the effects of the price reforms (i.e., changes in the exchange rate, interest rates and product pricing) from the impact of the injection of large amounts foreign exchange support accompanying the reform program. To isolate, at least partially, the effects of the "peace dividend* from the effect generated by policy measures, the domestic barter TOT for cash crops (traded), food crops (nontraded), and the agriculture sector as a whole have been calculated. These prices are influenced, in one way or another, by such policy measures as the changes in the exchange rate, price and trade liberalization, and the elimination of marketing monopolies. 19. The terms of trade for cash crops fluctuated considerably during the 1981-86 period and experienced a sustained deterioration between 1986 and 1989. However, there was a dramatic improvement in the cash crops TOT in 1990 and 1991. Food crop TOT improved steadily between 1981 and 1987, largely as a result of insecurity, which prevented adequate supplies of food from reaching the market. Since 1987, with the restoration of peace throughout most of the country, there has been a significant revival in agricultural output and in the marketed surplus causing the TOT for food crops to decline. Given the dominance of the food crop sector, this has resulted in the aggregate TOT shifRing against agriculture. This somewhat surprising result probably warrants further research  - Xiii - which present data limitations do not permit, i.e., a closer examination of farmers" incomes and expenditures per capita. he key implication of the decline in agricultur. TOT is that increases in gross domestic incomes have tended to be smaller than the increases in gross domestic product in agriculture. It must also be pointed out that the improvement in the security situation has resulted in a decrease in the farmers cost of production and so the decline in TOT probably overstates the loss in incomes. 20. Mamecononkc Po&yaa1l$slmplica#ioes. A poor macroeconomic eAvironment, in addition to providing the wrong market signals and thereby stifling economic growth, hurts the poor by indirecty taxing the resources that they possess. An enabling macroeconomic environment. on the other hand, removes production disincentives, encourages optimal resource allocation, and improves income distribution. The impad of macroeconomic policies, particdularly those fobsing on taxation and the exchange rate, is particularly pronounced in largely agricultural economies such as Uganda and thereby warrants carefil consideration. The exchange rate, in particular, produces the most pervasive impact that often outweighs the other effects of crop-specific policies. 21. Through a series of changes in the foreign exchange allocation system, the Ugandan shilling has depreciated significantly since 1987. In 1987, the US dollar was officially exchanged at an average rate of U Sh 44.7 and the spread between the official exchange rate and the free market exchange rate amounted to about 266 percent. Starting in 1988, the Government began implementing an aggressive program of adjusting the ofhicial exchange rate with a view to compressing the gap between the official and the foreign exchange bureau rate and in July 1990 it legalized the operation of the foreign exchange bureaus. By 1991, the Government had adjusted the official exchange rate to an average of U Sh 750 per dollar, i.e., over a 17-fold depreciation. When the differential had declined to about 15 percent, the Government decided to cease setting the official exchange rate administratively and introduced a foreign exchange auction in January 1992. 22. It is important to note that real devaluation, by itself, cannot provide positive incendves and stimulate the supply response unless it is complemented by price and market liberalization which allows market-determined or border prices to be unsmitted to the producers and reduces the monopoly rents enjoyed by marketing boards. Recogniing this, the Government of Uganda has overhauled the system of marketing, pricing and taxing coffee. Starting with the 1991/92 coffee year (October-September), the Government has moved to a system where only an indicative floor price for coffee is announced and the actual producer price is determined by market forces. The export monopoly of the Coffee Marketing Board has been eliminated and coffee exporting has been opened to competition. To couneract the adverse impact of the decline in the international price of coffee, the Government has viruly abolished all taxes on exports; the remaining export tax only applies to Arabica coffee which commands a premium price on the internaional market. The Government has further elimined the export monopoly of the Uganda Tea Authority and the Produce Marketing Board, although the Lint Markeding Board still enjoys a monopoly for exporting cottonL These changes have gone a long way in altering relative prices in favor of cash crops (tradables), and have had a beneficial impact on the poor, to the extent dtat they are involved in the production of such crops. 23. The over 50 percent decline in the international price of coffee, as a result of the collapse of the Intnational Coffee Agreement, has caused major foreign trade, fiscal and price instability, inimical to the rural as well as to the urban poor. As a result of the actions mentioned above, partcularly since 1990, the Government has been able to protct the price received by producers. Although the real producer price of Robusta coffee declined in the early years of the program with the deteioration in the international environment, in 1991 the price was about 7 percent higher than  - xiv - the price in 1987, the year when the Government commenced implementing the ERP. The farmers' share of the international price of coffee in 1991 and 1992 was more than double their share in the mid 1980s. As a result of the adjustment measures implemented by Government, relative prices, particularly since 1989, have changed in favor of coffee as compared to the prices received by farmers for growing food crops such as plantain (matoke), cassava and maize, which compete with coffee for farmer's resources, particularly labor. It is therefore apparent that, through macroeconomic and agricultural pricing policies, the Government has been largely successful in preventing the coffee industry from virtually collapsing which would have occurred in the absence of the structural reforms implemented. 24. Impicatons for Household Welfare. To keep real incomes rising in the face of the overall decline in the TOT of the agricultural sector, various strategies are being adopted by farmers. As recent experience in several areas shows, monetization of the agricultural sector is gradually on the increase as farmers shift resources, particularly labor, from less paying crops to crops commanding higher prices at the farmgate level. In particular, incomes are being supported, in some areas, by the introduction of some high-paying export crops into the production mix. These encouraging developments are also being affected by changes in the labor market. In recent years, labor shortages have started manifesting themselves, particularly in the estate sector, as a result of which real rural wages have risen. Among the reasons for the labor shortage, particularly during peak season, is the decline in the supply of migrant labor from neighboring countries and the impact of the AIDS crisis on the productive segments of the population. Although this labor shortage has adversely affected the up-keep of the coffee trees, a relatively labor-intensive activity, it has helped to supplement the income of net-labor supplying households further improving rural welfare. 25. Inlation and Its hIpact on he Poor. While adverse weather conditions and the frequent adjustments to the exchange rate and to interest rates have all contributed to the escalation of prices, the imaance between government revenues and expenditures, and the link between the fiscal deficit and monetary expansion has been the primary cause for the high rate of inflation in Uganda. The tax effort in Uganda is still among the lowest in SS , and total revenues are sufficient to finance only about 50 percent of government expenditures. While external loans and grants have traditionally financed a large part of the fiscal deficit, borrowing from the domestic banking system bas been an extremely impoitant sc'lrce of financing for the Govermment, at least until 1988/89. Consequently, until 1988/89, the large-scale monetization of the deficit resulted in triple digit inflation levels, thereby severely eroding real incomes in Uganda. 26. In order to stem this erosion, one of the key objectives of the stabilization component of the adjustment program in Uganda has therefore been to keep prices in check by mobilizing incremental fiscal revenues and restricting cxpenditures to budgeted amounts. Bringg inflation down to levels comparable with those of major trading partners is a declared objective and a continuing challenge for the Government. Since 1990, the Government has embarked upon a concerted program aimed at mobilizing incremental revenues and controlling expenditures. The tax and tariff regime has been rationalized, the rate structure has been greatly simplified, and tax exemptions mnmized. With the establishment of the Uganda Revenue Authority (URA) in September 1991, the Government has taken a bold step forward in overhauling its system of tax administration. Furthermore, the Government has instituted a strict program aimed at keeping expenditures in line with the budget and has started paying back its arrears to the banking system. As a result of these measures, Uganda has been successful in reducing the average rate of inflation from over 200 percent in 1986/87 to about 42 percent in 1991(92. The average monthly inflation rate between July 1992 and February 1993, has been -0.2 percent.  - xvv 27. Ike ?isJWon of Soda( Series. Another channel through which adjustment policies impact on the poor is throi'gh the restrucuring of public expendiures such that an increased emphasis is placed on the ptovision of economic and socia services which increase human capital. Expenditures in areas such as primary health, primary education services, agricultunl research and extension, etc. empower the poor, raise their productivity and augnt their eaning potential in the long run. While Uganda still spends far less on economic and social services than do most countries in the world and in SSA, the adjustment program in Uganda bas nonetheless emphasized the need for and resulted in a visible change in public expenditure priorities with expenditure allocations increasing In favor of social sectors in general and on education and heath care in particular. Given the extremely low revenue effort mentioned above, the Government plans to continue increasing these allocations steadily, keeping in mind the macroeconomic implications of the constraints imposed by the tight resource envelope. B. A Streg for Poverty Reduction 28. Despite the progress achieved to date, the unfinished economic agenda is large and there should be little cause for complacency. If the Government's overarching objective is to make a serious dent in poverty over the next decade, it wiUl have to vigorously implement the two-pronged set of policies alluded to earlier, i.e., (1) policies which wil accelerate economic growth; and (ii) policies which will deliver key services to the poor and, by investing in human capital, ensure that the poor are able to participate equitably in that growth. While there is broad ownership of these policies within Governmen, the principal challenge ahead lies in building the capacity to ensure that policy changes can be implemented efficiently. Furthermore, there is an urgent need to strengthen the databe and develop a poverty monitoring system which can provide policymakers with reguar infomation on the impact of economic and social policies on the lives of the poor. Poldes for Acceleating Growth 29. Experience from other countries has shown that macroeconoriic stability, a high rate of investment backed by domestic savnWgs, and high rates of literacy and nuneracy are vital for rapid economic growth. Uganda continues to do poorly in each of these three areas. Inflation continues to be high and savings and investment continue to be low as do rates of litracy and numeracy. Tbe key to achieving macroeconomic stability is to get firm control over the government budget. Despite the rationalization of the tax and tariff regime and the establihment of the Uganda Revenue Authority, the Government's revenue effort remains one of the lowest in the world. In the coming years, it will be imperative to fiuther tighten tax administration and to broaden the tax base. The Government has made remarkable progress in keeping expenditures in line withlihe budgeted amounts and such discipline has to be maintained. However, given the low revenues, the Government will probably continue to be a dissaver for several years to come thereby necessitating that the private sector generate the large increases in savings that wil be necessary to finance the investment needed for rapid econonic growth. Experience of countries like China, India, and Kenya has shown that poor countries are capable of saving 20 percent of GDP or more. Ihis places a premium on the development of the financial sector, because the key to higher rates of saving is an efficient finacial syste capable of mobilizing small savings from a large proportion of the populaion. 30. Poliesfor Acdxag Agdcdual Grw&th At the heart of its growth strategy will have to be the transformation of agriculture. The agricultural sector has the pnti to feed the country, to supply food to the regional market, to export horticultural products in addition to the traditional export crops, to produce industrial raw materis (sugarcane, coton, etc.) and generally to act as the engie of growth. The key to readizig this potel is increasing yields by raising the productivity  - xvi - of the farmer. That means security of land tenure, investment in research and extension, control of plant and animal diseases and rural feeder roads. Por some crops hbh-yielding varieties are available from local research stations or foreign stations. What remains is to adapt them as necessary, and propagate and disseminate them. An effective extension service is needed to ensure rapid adoption of improved varieties by the farmers. Many countries in Asia have shown that rapid and sustained improvements in yields are possible. The key question is one of timing, i.e., how quickly can Uganda put in place the infrastructure needed to raise yields. The answer partly lies in targeting incremental national and donor resources towards agriculture, particularly research and extension and rural feeder roads. Raising agricultural productivity, along with increased access to basic health and education, must take priority in the Government's spending program. Markets, with the associated infrastructure of storage and refrigeration, also matter a great deal. This is a maOter for private investors rather than Government except with regard to government support for the collection and dissemination of market intelligence. 31. In addition to raising yields, Uganda must pay more attention to the working of the domestic markets in agricultural products. This is not an invitation to Government to intervene in the affairs of producers, processors and traders. Rather, it is to draw attention to the need to use public policy and public expenditure to facilitate the proper functioning of markets in agricultural products. Poor rural roads, for example, can place producers of certain crops, or producers in a particular reglon, at a disadvantage vis-a-vis producers in other regions or producers of the same or other crops. Or the way truck operators are licensed or regulated may have adverse effects on the markets for agricultural commodities. In Uganda there is anecdotal evidence of very low farmgate prices for some crops relative to final consumer prices. It is the legitimate responsibility of Government to find out whether the gap between farmgate and final prices is broadly reflective of costs or whether it is indicative of a malfunctioning market. 32. Rural feeder roads constitute an essential element of Uganda's strategy for accelerated agricultural growth. Roads are needed to bring in agricultural inputs and implements, facilitate the work of extension staff, bring access to manufactured goods, create access to basic social services such as education and health and, most important of all, provide access to markets for farm goods. During the early phase of the ERP the Government placed emphasis on the rehabilitation of the major runk roads and much progress has been achieved in this area. The Government has recentiy shifted attention to rural roads and the donors have responded enthusiastically with funds, equipment and technical assistance. However, progress with the rehabilitation of rral roads has been slow. Ihe main reason for this is the weak implementation capacity of the Ministry of Local Government and the district authorit 2s upon which falls the responsibility for the construction, repair and mainte_nce of rural roads. This is a task which will be gradually shifted to the districts, in parallel with the necessary financial and trained manpower resources. The decentralization of responsibilities will probably start with feeder roads maintenance. 33. In the drive towards greater reliance on market forces and on the private sector, Uganda has moved quickly to dismantle the monopolies in the agricultural sector. These monopolies were the Coffee Marketing Board fur coffee exports, the Uganda Tea Authority for tea exports, and the Produce Marketing Board for the export of food crops. In all three areas the emergence of competition is acting as a spur to fiuther market development. In food crops, for example, private traders have been the driving force behind the penetration of the European and Middle East markets in simsim. Unfortnately, Uganda is not entirely rid of monopolies. The Lint Marketing Board sfill has the right to purchase all cotton for export. Ginneries are free to sell lint to the domestic cotton- processing mills. However traders in cotton lint and seed must be licensed by the Lint Marketig Board. Ihe Cotton Act, last revised in 1964, provides for the zoning of cotton production, the setting  - xvii - of fixed seed and cotton lint prices, restrictions on the Importation of, or trade in cotton and for the licensing of ginneries and restrictions on the siting of the same. As a result the cooperative unions have a de facto monopoly of cotton ginning. There has been much talk of amending the Cotton Act and the Lint Marketing Board Act with a view to introducing more competition into the cotton industry but little action so far. Given the potential for fast growth of a once-thriving industry, Government must set itself monitorable targets for removing the institutional factors constraining the revival of cotton. 34. Ineffective and inefficient financial intermediation hurts all sectors of the economy, including agricuiture. At present agriculture does not depend much on purchased inputs and implements, whether locally made or imported; nor is the bigger proportion of agricultural output marketed or processed. The heaviest demand for credit in the agricultural sector has come from the agencies responsible for the procurement, processing and marketing of the traditional export crops, particularly coffee. Apart from the Rural Farmers Scheme that has been operated by the Uganda Commercial Bank, institutional credit has generally not been available to the smallholder. As a result not enough is known about the capacity of the smallholder to absorb and repay loans. The usual presumption is that credit is a constraint on production. This may well be true in Uganda but it does not follow that rushing credit to the farmer would translate into increased production. The first priority should rather be to get a better understanding of the different factors limiting the smallholder's ability to expand output. 35. PolUiesforAcelerating Industrial Growth. Although import-substitution, certainly the old- fashioned, state-directed kind, is out of favor, it must be said that Uganda has substantial scope for replacing imnorts, provided this is done efficiently. A wide range of basic products are still imported, including cekent, paints, biscuits, processed milk, garments, blankets, tomato paste, and tinned fruit juices. Import-substitution is more likely to succeed if it is part of an outward-oriented development strategy than one focused entirely on the domestic market. The Republic of Korea, China, and other fast-growing countries have demonstrated the superiority of outward orientation. Thus, Uganda must exploit, to the full, the opportunities for entering export markets. As far as manufactured exports are concerned, there are no obvious winners on the horizon but these cannot be ruled out. It is private investors, not governments, who pick winners (or losers). ITe government's role is to ensure that the investment climate is conducive to attracting investors who can produce a wide range of manufactured goods for the local and export market. In this regard, the great success achieved by Mauritius in identifying and exploiting an export market niche (n this case, wearing apparel) provides an indication of the opporunities that Uganda can seize. 36. Given the dearth of long-term finance, modern technology, knowledge of foreign markets and management skills in Uganda, foreign investment has a crucial role to play as the catalyst for the transformation of the economy. In some countries minorities from a particular foreign country or region have performed this role. In Uganda the Asians fit the bill. A significant number of the Asians expelled by Amin in 1972 have become successful entrepreneurs in Britain, Canada and other countries. The courageous decision of the NRM Government to reurn the expropriated properties to the owners opens the way for these entrepreneurs to invest in Uganda. Having been dispossessed once, they will most likely exercise maximum caution in committing resources to Uganda. Nevertheless, the early signs are encouraging and a number of Asians have embarked upon a major rehabilitation of their properties once these were returned to them. Uganda needs to be forthright about the catalytic role that investors can play in the economy and it should mount investment promotion exercises directed at Asian and other foreign invesors.  - xviii - 37. Enployment and Labor Market Polcies. The central objective of employment and labor market policies for the reduction of poverty in Uganda should be to increase the earnings of labor in agriculture. From the objectives of the land reform legislation proposed by the Agriculture Policy Committee, it appears that the Government rightly wishes to pursue a strategy of rural development which promotes a system of smallholder agriculture by further consolidating the de facto universal access to land. For this strategy to work, the proposed land reformr legislation must find ways of guaranteeing tenancy rights to all the existing users of land and ' 'proving the land endowment of the very small farmers. To encourage the small farmers to overc.. ne the absence of the advantage of economies of scale, steps should be taken to facilitate their access to an appropriate technological package. As has been stated throughout the report, Ugandan agriculture operates under primitive conditions and the knowledge of farming systems and crop husbandry practices is rudimentary. 38. Iabor Mobii. The operation of the rural labor market will continue to be constrained due to the absence of a large and mobile ruril labor force. This is not by itself a problem as long as the concentration of labor in smallholder agriculture is not artificially promoted by inappropriate incentives. Improved systems of information and infrstuctural facilities, along with the steady improvement of productivity in smallholder agriculture, is likely to make as much labor available to the rest of the economy as it can efficiently employ. 39. Govenamert Role in the Fonnal Sector. Regulation of employment and wages in the formal sector has traditionally been kept low in Uganda and the Government has rightly resisced pressures to regulate formal sector wages, through such measures as the legislation of minimum wages. As long as there ib a healthy growth of earnings in the primary sector of the economy, the market might be trusted to ensure that the formal sector of the economy pays a price for labor that is adequate for living above the poverty threshold. Creating too great a differential between earnings in the primary sector and the earnings in the formal sector ofte leads to a lower than optimal rate of industrialization, an unwarranted influx to urban areas leading to an overcrowded informal sector, and a rising differential in the earnings between the formal and informal sectors. 40. Edcation and fIhing. Education and taining facilities must adjust to make the allocation of lahor more efficient. Improved productivity of agricultural labor hinges critically on the expansion of primary education. Urban educational services would be better advised to reduce the focus on general higher education and instead increase the emphasis on technical training. Clearly the entire system of pricing of educational serices is in need of a basic reappraisal. At present a primary school student in Uganda is charged a tuition which is often a significant proportion of the cash income of an average rural household whereas university education continues to be free of tuition, often with access to additional subsidies. 41. AIDS. The effects of the AIDS pandemic on employment and the labor market in Uganda cannot be determined with any precision. It is however clear that AIDS, which disproportionately strikes people in their prime, will increase the dependency ratio and make the task of poverty reduction more difficult. The pessimistic prognosis is heightened by the fact that measures to prevent the spread of HIV infection - critically important though they are - will have little effect on the incidence of AIDS during the next decade. The Government of Uganda deserves credit for dealing with the AIDS issue in an open manner. Besides concentrating efforts on containing the firther spread of the HIV infection, e.g., by promoting the use of condoms, the Government, working with the NGO comunity, should explore the need to make targeted interventions in order to reduce the extreme effects on householas whose labor endowments have been depleted by AIDS.  42. Public SectorIkmployment. Expaosion of public sector employment is not an effective method of poverty reduction. Indeed an expansion in public employment almost certainly hurts the cause of poverty reduction by appropriating resources that might be used to expand employment more productively elsewhere in the economy. The number of persons employed in the public sector has grown too rapidly over the years from the standpoint of the actual expansion of public services and the capacity of the Government to protect real wages of public employees from serious erosion. ne result is widespread resort to cormpt and fraudulent practices (e.g., bribety, keeping 'ghost' workers on the payroll) and moonlighting and second informal jobs. On the whole, the effective labor time spent in public employment may have declined at the same time that there has been a steady rise in the number of persons on payroll. Recently tha Government has succeeded in reversing the trend and reducing the number of persons on payroll. The task is incomplete and should continue. To the extent that the reduction in government employment comes through the elimination of ghost workers and attrition (i.e., not replacing the low priority retirees) the process does not impose any burden on the current budget. A further opportunity may become available if the increase in capacity utilization in formal sector enterprises provides a leeway for productive expansion of employment. In that event positions in these enterprises might be filled by the redundant government workers. However, a reduction in public employment is by itself a rather minimsl measure. A central objective of the presently underway civil service reform program must be to introduce a culture of improved job performance, matched by higher real earnings commensurate with skill levels. This in turn means that a way must be found to prevent employment in public sector to be determined by the supply of high school and university graduates in a system of irrational relative costs of different forms of education. Policies for Gender-Responsive Growth 43. The strategies adopted by the Ugandan Govermnent to reduce poverty and to foster sustainable economic growth need to take explicit account of the gender dimension. In this respect, they must recognize and seek to address the asymmetries in the respective rights and obligations of men and women, and pay particular attention to the gender division of labor, and differential incentives and opportunities facing men and women, as the country embarks on monetization, diversification, and productivity enhancement in the critically important agricultural sector. It is, in particular, necessary that gender-responsive actions be undertaken as an interconnected package of measures which are mutually reinforcing. The priority areas requiring attention if Uganda is to enable both men and women to break out of poverty, and to contribute more fully to economic and social development, are: (i) to promote, through literacy and education, and in conjunction with the vigorous pursuit of the gender-responsive legal (and customary) reform efforts underway, the legal rights and protections enabling women to benefit from their own labor and to have greater access to and control of economically productive resources, including capital and land, thereby raising the status of women to enable more equal participation in household-level, community, and national decisionmaking; (ii) to raise the productivity of women's economic (paid) labor through investment in education aimed at overcoming social, financial, and cultural barriers to female participation, including at the post-prinary level; through investment in basic, accessible, and affordable health care responsive to the wide range of women's health needs; and through targeted actions aimed at raising women's access to information, technology, inputs, credit, and extension services; (iii) to alleviate the domestic labor constraint through substanially increased attention to and investment in labor-saving technologies, in infrastructure (especially transport, feeder roads,  - xx - and markets), and in waver supply and woodlots, that take explicit account of female users' needs in design and implementation; (iv) to provide maximum political and financial support to the efforts, spearheaded by UNICEF, to reduce AIDS risk among young girls; and to protect the rights of children, including ftrough institutional measures in the RC system to ensure appropriate representation and articulation of children's needs. C. Policies for the Delivery of Sodal Services 44. 2&e Public xpendUuwe Agenda. The Government recognizes that, since the single most important asset owned by the poor is their labor, the central element of its poverty reducing public expenditure strategy should be to accord highest priority to developing their human capital. Human capital, more than any other factor, increases the income earning opportunities of the poor and contributes both to individual and national productivity. Accordingly, during the past two years, the Government has bee" attempting to foster such development in human capital by restructuring government expenditures in favor of the social sectors and rural infrastructure. Notwithstanding the sere resource constraints, the Government must continue to ensure that these priority programs reemain protected. Not only should more resources be channelled towards primary education and primary health care, but the efficiency of these expenditures should also be improved by ensuring that money is spent on high impact programs and that the combination of expenditures within and across sectors are optimal. The Government needs to critically review its portfolio of investment projects in order to ensure that it is responsive to the country's changing needs. In other words, Government needs to ensure that expenditures are made on a rational basis rather than the allocated on the basis of historical levels. The combination of capital and recurrent expenditure also needs to be improved. 45. Both the quantity and quality of desired social services is advers--y affected by a lack of sufficient funds. In the medium-to-long run, mobilization of domestic resources, through improved efficiency in tax collection and also through the judicious adoption of cost recovery scheme! in appropriate sectors, will be essential. This will need to be augmented by shifting minds from relatively unproductive areas such as defense, state farms, teacher training colleges, u.-iversities, curative health, etc. to areas where the economic and social returns are the highest, i.e., primary health, primary education, agricultural research and extension, rural feeder roads and rural water supply. 46. Polcis to Conol the Growth in Pop'ation. Uganda needs to slow down population growth in order to reduce poverty within the shortest possible time. At present, the Government of Uganda does not have an explicit population and family planning pi:cy and lags far behind other SSA countries in encouraging its citizens to have small, manageable families and informing them of methods of doing this. in addition to aggravating poverty, the growing population has adversely affected the environment by increasing the encroachment on forests and by intensifying farming, resulting in soil erosion and stagnating yields. It is therefore imperative that the Government develop a national family planning program and closely monitor progress towards decreasing presently high fertility rates. 47. Insitutional Issues and e Provsion of Safety Nets. Although a strong case could be made for this in the Ugandan context, targeting the poorest and most vulnerable is far too expensive an option for the Government of Uganda to consider at present, given the extremely low revenue effort and the weak administrative capacity. Instead, the focus should be on providing fundamental services in rural areas: primary education, primary and preventive health care, rural feeder roads, safe, easily accessible water, agricultural exterqion, and marketing assistance. Communities can help provide  - xx' - some of wese services themselves, with assitance from Government and NGOs. Government, donors and NGOs need to develop a tripartite system to support self-help projects, and to ensure that priority investments are undertaken. If Government wishes NGOs to follow Government leadership in a scenario in which Government formulates policy and sets standards, NGOs, including Ugandan ones, shouid be involved in policy formulation. For the tripartite svstem to work, it must be 'owned' by a substantial portion of the three sets of actors (Government, NGOs and donors). The policy development process in the areas of AIDS and child welfare could become a model for other sectors. 48. Tle program of decentralization being adopted by the Government offers a unique opportunity to support community and NGO initiatives, particularly in light of the fact that the Government lacks the capacity to deliver much needed services to most of Its citizens. For this new model to work, it will be imperative for the Goverment to educate the population and to reorient and educate civil servants towards its changing role. The District Community Action Trust (DCAT), which should be designed as a social investment fund which disburses funds quickly for projects generated by self-help groups, could emerge as an important instrument to address poverty on a broad scale.  Part I A Profile of Poverty  1 A Profile of Poverty -There are tree dibt conenu to the measremn ofpoverty. rst, we have to spec what we mean by the standad of living. Second, we have to delineate a crial levl of the standard of livng below which there is powrty, by defjn* id, we need to copress formation on tde standards of liV below the crcal level into an nde of povert. ' (Ravi Ranbur, Poverty and Developent, PPR Working Paer 618, World Bank 1991. p. 3 Background 1.1 With a per capita Income of under US$170, Uganda today is one of the poorest countries in the world. Having seen beaer days at the time of gainng independence, it is a living testament of the havoc caused by the political turmoil and economic decline brought about by several years of despotic rule. 1.2 At independence (1962), Uganda had one of the most vigorous and promising economies in Sub-Saharan Africa (SSA), and the years following independence amply demonstrated this economic potential. Favored with a good climate and fertile soil, the country was self sufficient in food, with the agricultura sector being a large earner of foreign exchange. The manufacuring sector supplied the economy with basic inputs and consumer goods and was also a source of foreign exchange eanings through the export of textiles and copper. Export eanings not only financed the country's import requirements but also resulted in a current account surplus. Fiscal and monetary management was sound and the domestic savings rate averaged about 15 pereent of GDP, enough to finance a respectable level of investment. Uganda's system of transportation was widely regarded as one of the best in SSA and included an effective network ot roads, railways, port and air transport 1.3 Ugada's social indicators were comparable to, if not better than, most countries in Africa. The country's health service had developed into one of Africa's best and pioneered many low cost health and nutrition programs. There existed a highly orgaiized network of vaccination centers, and immunization programs reached as much as 70 percent of the population. Although school enrollment was still low, Uganda's educadon system had developed a reputation for very high quality. 1.4 The Amin regime radically reversed the economic and social progress attained since independence, and the ensuing civil strife resulted in a tremendous loss of human life. It is estimated that as many as 500,000 Ugandans lost their lives during Amin's eight-year dictatorship and as many as one million more were internally displaced from their homes and farms. A 1985 estimate by the U.S. Committee for Refugees concluded that in that year one out of every fourteen Ugandans was either a refugee or was displaced; it was estimated that as many as 200,000 Ugandans had fled the country and were living in exile. 1.5 Economic mismanagement accompanied the civil war and professional standards deteriorated rapidly as skilled personnel fled the country. Between 1970 and 1980, Uganda's GDP declined by about 25 percent, exports by 60 percent, and import volumes by close to 50 percent. With large increases in defense expenditures, the government budget became increasingly untenable and was largely financed by anlk borrowing which resulted in average inflation rates well in excess of 70 percent. Economic mismanagement and abuse of human rights on a massive scale continued during the Obote regime in the mid 1980s. By 1985 govermment expenditure on education and health, in real  azapter1 4 terms, amouWted to about 27 percent and 9 pCent respetively of the 1970s levels. When the National Resistance Movement (NRM) Government assumed power in January 1986, it inherited a shaed economy whose social indicators today paint a dismal picture of the quality of life of its cizens and a indicative of the exteat of poverty within the country. The following sections present a brief profile of poverty in Uganda. Def_ng Povert 1.6 Being multidimensional, poverty cannot be reduced to a single indicator. However, in order to estimate the distribution and depth of povety, it is generally consiuared acceptable to use real per capita expenditure as a proxy for welfare. A yardstick is then needed to determine who is poor and who is not and, for this purpose, a poverty line is drawn which defines the cutoff living standard below which a person is classified as being poor. Two approaches are frequently used. An absolute poverty line can be calculated on the basis of the income needed to satisfy minimal nutritional remen and a non-food compone. Alterively, a relative povery line may be used, whereby a percentage of households at the bottom of the income distribon is considered poor, e.g., the bottom 40 percent. The advantage of using a relative poverty line is that k avoids complex, and often controversial, calculations of a minimum food or commodity basket, while sfill providing essentfal Iformation for policy action and targeting of special programs. 1.7 This report has defined two relative poverty lines for Uganda. The first poverty line has been drawn at U Sh 6,000 per capita per month (approximately US$110 per capita per year), which is approximately equal to four fifths of the mean per capita monthly expenditure in 1989/90 (U Sh 7,512). The second poverty line has been drawn at U Sh 3,000 per capita per month (approximaely US$55 per capita per year), which is approximately equal to two fifths of the mean per capita mondthly expenditure. Ugandans filling below the U Sh 6,000 poverty line have been characteized as the *poor* and those falling below the U Sh 3,000 poverty line as the *poorest" or the core poor. 1.8 Preliminary estimates indicate that, in 1989/90, a ninimum of U Sh 6,000 per capita per month would have a daily intake of 2,200 calories plus some reasonable non-food expenditures (e.g., clothing, fuel, etc.).' This does not mean that people with monthly expenditures higher than U Sh 6,000 in 1989190 lived comfortably; rather, it means that those with lower montly expenditures could not satisfy their basic requirements. The lower povet line of U Sh 3,000 represents the bare minimum for adequate food intake. At U Sh 3,000, if you are adequately fcd, you do not have anything else at all, however essential (see also para 1.11). As the key social indicators discussed An average intabc of about 2,200 caltries per day wuld llow an adult to main meamble heal and perfomane stadards, aoding to the standard esbid by ot WoM Halh Oraniat. People of differe ges, szes, ad ocpaton may rquir diffetat kveb of calorie td to b adeuaely fed. An -eqvac me is dwterefo often used in order to tUsomn the number of people in a houseoWld io an 'aduk-equivalat mimber of peope. Por exawle, wom ad youngr mebers of th houehold a often counted as haing _ X t _ s - rqurment that am de t h of an adul male. In th anlyss presnted in ths chapter, suh equivalea have d no be und the at h be presentd on a pe capita basis. While equivalen sae ca bhe dived fan houseod expenditur data, t cma bo a complex and time consuming ptocoss. The imposio of a scale from anotber eount, or a made-u equive sale is often, ooned unnece_ily arbiry. Work is presently underway xc estmo at Ug specil oequivlenc scale. It is impotant to point out ta Xt per ap measm pmesed hew may la to lae huehl wthh mom hir apparing to be poorer tn they acualy an whih is of pariulr snificane in assessing rlai trl/urt poverty, kin epectdth the analyis pre y undewq wm shed fihe lighet in this are.  Table 1.1: Slected fa t Ugandan Households AU No.- AU Al Feale Mae AveWig Uada FPeo Poow Poora Rual U&ban Headed Headed RealPer CpbkalussholdExpendltu 7,512 11,810 3,485 1,84$ 6,885 11,760 7,491 7,517 Household Sim 5.4 4.8 6.1 6.4 S.6 4.5 4.5 5.7 DepeudenyRat (Ro 44 38 51 52 46 37 45 44 Aveg Age of Household Read 42 40 43 43 43 35 44 41 F.aohAe dedlowhvoldds(S) 22 21 23 25 21 31 100 0 No4ebold Headsl ietate (S) 77 80 74 70 74 93 69 79 Percent Shamca in Totd Ebeadihie: Food 67 66 67 58 67 61 70 66 Dhik ad Tobacco S 6 S 3 S 6 2 6 Cloehde 6 6 7 10 6 7 6 6 Rea 3 3 4 7 3 3 4 3 Fuad 2 2 2 3 2 3 2 2 T,ampqont 0.3 0.4 0.2 0.2 0.4 0.2 0.1 0.3 Heam I 1 2 2 2 1 2 1 Educao.n I I 1 2 1 1 1 1 Food Bxpnditu., aa Share of Tota tehnd1tume: Mastat Purchseh 26 30 23 19 23 53 29 26 own ProducBon 40 36 44 39 45 8 41 40 Source: Staff caBoluam bind an H2B date. below demonstrate, access to basic soci services is very low thoughout the country, implying that some Ugandans above the povety line could also be considered poor. The role of the poverty lines defined in this report is not to prem a precise defiition of poverty in Uganda but rather to illustate where the pOOr are and what their c tics are (see Annex m for a brief description of the adjusments made to the Household Budget Survey data to arrive at these poverty lines). 1.9 Table 1.1 shows mean per capita expendiure per month and a number of household charactestics emated on the basis of a Houseold Budget Survey (HBS) conducted in 1989990.V The table reveals t the poorer households tend to be larger, have older and less educated household heads, and are more likely to be headed by a woman. Not surprisingly, the dependency ratio, which is caculated here as the proportion of the household population younger than 18 and older than 55, is quite high and increases for poorer households. The difference in average per capita expenditure between urban and rural areas is significant, with rural people spending about half as much as urban dwellers. Accordingly, indicators generally associated with poverty have higher vawues for rural Uganda: larger household size, higher dependency ratio, higher illiteracy, etc. (additional discussion on female-headed households is presented in the following two chapters). Dat in do 1990 MM conductd by th Sktat Demet_ of dte Minib of Fmance oad Ecoosui Plaing oosilt of a staifoed aVnp, of 4,500 heusebiolds a cra Ugauba ebcept for eo4lt distuic in the North sad East wbich wm not amped due to inewiy. DIpediues wmr calcad adig the valu, of puaend goods and he aad o va (at ma*t piae) of th goods conmmed m of om preduon  Chapter 1 6 Tale 1.2: Povery Inicats for Ugand Populdon P. I,dcator Cotribution to Nation Poverty Sham P0 P, P2 Po P, P, For a roverty Line of U Sh 6,000 Al Uganda 1.00 0.55 0.03 0.01 1.00 1.00 1.00 Urban 0.11 0.38 0.02 0.01 0.08 0.07 0.06 Rund 0.89 0.57 0.04 0 01 0.92 0.93 0.94 Towns 0.07 0.38 0.02 0.01 0.05 0.04 0.04 Centrl Urban 0.01 0.48 0.03 0.02 0.01 0.01 0.01 Cental Rual 0.29 0.49 0.03 0.02 0.26 0.23 0.20 North Urbn 0.01 0.55 0.03 0.02 0.01 0.01 0.01 Noith Rurl 0.09 0.81 0.06 0.03 0.1S 0.18 0.19 Eas Urban 0.01 0.30 0.02 0.01 0.01 0.01 0.01 Eas Rum 0.21 0.70 0.0Q 0.03 0.28 0.32 0.34 wet Urban 0.01 0.30 0.01 0.00 0.01 0.01 0.01 West Rural 0.31 0.47 0.03 0.01 0.23 0.21 0.20 Fora Povrty Line ofU Sh 3,000 All Ugand 1.00 0.19 0.01 0.01 1.00 1.00 1.00 urban 0.11 0.08 0.00 0.00 0.04 0.04 0.03 Rura 0.89 0.21 0.01 0.00 0.96 0.96 0.97 Towns 0.07 0.07 0.00 0.00 0.02 0.02 0.02 Central Urban 0.01 0.14 0.00 0.00 0.00 0.00 0.00 Centmr Rum: 0.29 0.10 0.00 0.00 0.15 0.15 0.12 Nor Urban 0.01 0.15 0.00 0.00 0.00 0.00 0.00 North Rural 0.09 0.42 0.02 0.01 0.21 0.21 0.20 East Urban 0.01 0.04 0.00 0.00 0.00 0.00 0.00 Ea Rurl 0.21 0.30 0.02 0.01 0.35 0.41 0.42 Wes Uba 0.01 0.04 0.00 0.00 0.00 0.00 0.00 Wet Rurl 0.31 0.17 0.01 0.00 0.24 0.20 0.23 Soew: Wc sAo= basedon BSdatL 1.10 Scattered evidence suggests that the high dependency ratio esdmated here is likely to be only one side of the coin, although available national data do not allow fiuther analysis. The other (hidden) side is that, as a result of civil strife and the AIDS pandemic, there are now entire households made up of "dependents". These are grandpFwUnts taking care of their grandchildren, or minors and elderly people living on their own (see following chapter for further discussion). While the phenomenon is probably more pronounced in areas heavily affected by AIDS and civil war, under present circumstanes we can expect the dependency rado to grow, putting an increasingly heavy burden on the shoulders of surviving responsible adults.  Chaptsr 1 7 e imp otbasu e ia eofpovie *oiof ividual, i eac Marea which 1 i belot*h povety l;ne, or t1X 'b oCouMtim (P). 'i1 is qual ta tae wf individu" l aling below-,, tline divided by'the POPAdon tarea m dei ion. |Howevre as a measure of tki era the depth of U6Vwtty. IAthough we w how man fall below the povet line, we do t-- know by how much th poore fi beow ine. This can be capurd a" h total poP a Sb M'e, r ech individual, he bpeitw per xpvits epeditreandthe povey i ute ,twh efah fs Iote oct line ud tis X:iste dl vdeby teperylinein net maim tJ _rpnoa to1 thsie sagregoafoding toesl uxpgvendtr inrases, as x.kn,wfrom the n~onet poo to poor houebld. lrblIi inraetwis sm fall, aowever, pbs rhap s lhenus dvthe sbare pof foodafor thataes.I w eo-o isasofirply aigb by ithedifrnationalhsuds, sumgsu.u thtman pofet the hoaustholse abov aure bpelo tovert lin,ne har healso~ sing. lhe foode rqu$ed fo the poores Wis l~essc tbartng tbaor the pnote indicatin tast eindb the poret ae to edo without*e fodt aeaynnfocnmto.Cobshv a fairly c ns etshar~te two sx enditures f itor ifrntegmnt a Uof thgrepop*ulation,butth Ezshareo set on fu elgows ase inovest deline. A th deisataurbing finin ismeobat hapeniwreon drnk ad obaofis ales asul high orhihr than aon egssetiral itemsuhasei lovety.n andh eoerent While y akn theporssen propor ottonasto lshothaln thecad othrs on uo su hlusuries, thystl dspenid aboe disturessigl high 3 wertent aod dri thesqand edobacco comparedIto under 2l prethosn mlk,~ heloIiess and, eggs, whichare arguablydtbe most impo ant m1#a suc stof prteins ofore yongi~ chiden.se W orse sill the shaey spen on edctionan 1.lthe sharieood isbuthl toftbeal on ex pendtur ondincre ses asd exetedbaccom.h3o-ooopo housels pa 24.0eSw incese t small,o hoawever, pehaps beas tnheashare offod