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The 2024/2025 financial year is here and the Government’s fiscal strategy aims at attaining inclusive economic growth, while maintaining a stable macroeconomic environment and preserving debt sustainability; it will require sh72 trillion.
As an infrastructure financing enthusiast, I am happy with the Government’s goal of achieving fiscal strategy through continued investment in public infrastructure for inclusive growth — that is the right way to go.
Public infrastructure is wide, but the most important aspects would cover transportation (bridges, roads, airports, rail transport), water (water supply, water resource management, sewage and drainage systems) and energy—power generation and distribution.
Given the revenue mobilisation challenges, it will be interesting to see how much of the actual budget is ultimately allocated to public infrastructure development projects — that way, we’ll be walking the talk of our strategic fiscal aspirations.
Filling the investment gap
While Uganda acknowledges the importance of prioritising public infrastructure development, the financing challenge is a real barrier.
In 2018, the African Development Bank released a startling statistic that Africa’s infrastructure development needs face an annual financing gap of $68b-$108b. Six years later, this gap hasn’t narrowed much — the continent still invests only 4% of its GDP in infrastructure, compared with China’s 14%; bridging the infrastructure gap could increase Africa’s GDP growth by an estimated 2 percentage points a year, per expert estimations.
Despite posting impressive growth figures in recent years, the infrastructure gap in Africa is a major impediment to achieving its economic potential.
The inadequacy of productive infrastructure in power, water and transport services has not only impacted economic growth, but limited opportunities for inclusive social development.
Recent studies by the World Bank found that bad infrastructure reduced national economic growth by 2%, cuts business productivity by as much as 40% and increases cost of intracontinental trade by 30- 40%.
In Uganda, as one combs through the recent budget figures, productive infrastructure in the energy and transport sectors unsurprisingly gets a sizeable allocation for both new constructions, upgrades and rehabilitation works.
But the figures are nowhere close to what would be desired to chip away at the sizeable infrastructure gap, but simultaneously signal the importance assigned to these sectors as an enabler of economic growth. As we grapple with the matter of constrained financial resources, some examples can illustrate what the true cost of Uganda’s infrastructure gap is.
Reducing the cost of trade
With bad transport infrastructure, the costs related to moving agricultural produce, raw materials and finished goods reduce manufacturing competitiveness and consequently export competitiveness thereby limiting intra-regional trade. Our exports become expensive compared to efficient global manufacturers who can produce at a significantly lower cost and larger scale.
Added to this are challenges in getting products for a landlocked country like Uganda to the ports and international markets where speed and reliability in delivery are desired.
If you take the example of Uganda, any large manufacturer in the western belt of the country would be able to serve the eastern parts of DR Congo more efficiently than a manufacturer in the distant capital Kinshasa, if the road network was developed.
That is why, aside from the geopolitical undertones, the 2021 move by the Uganda Government to construct roads in eastern Democratic Republic of Congo in a bid to boost trade can be hailed as audacious and visionary in driving intra-regional trade.
Infrastructure is not only an enabler for development but makes Uganda attractive for inward foreign direct investment which is a source of external finance and employment. Gaps in energy and transport infrastructure would make investors consider other destinations given the importance of these factors.
As our government leads the drive for opening new industrial parks in all corners of the country, the need for energy and transport infrastructure cannot be overstated as it considerably impacts investment decisions.
Social service inequality
Infrastructure development is a key tool in addressing social inequality by ensuring all parts of the country can enjoy the benefits of economic development. As stated above, good infrastructure attracts investment in parts of the country that may not be close to pre-existing urban areas. This increases productivity and gives these communities better access to jobs, healthcare and other social services.
As an example, the Kabale-Kisoro-Kyanika-Bunagana road that was completed in 2012 boosted tourism in Kigezi sub-region, reduced travel times by up to four hours, gave better access to the areas agricultural produce, improved health service delivery and has led to the creation of several trading centres.
Similar infrastructure investments in all corners of the country will go a long way in ensuring that no region is left behind as the economy grows.
In conclusion, it is evident that as Uganda strives for sustainable and inclusive growth, there is a need for continued urgent delivery of productive infrastructure in energy and transport to improve lives of her citizens, create employment opportunities for the large young workforce as well as compete in the global marketplace.
Reducing the infrastructure gap will be key in addressing some of the social inequality and create a path towards equitable distribution of developmental dividends.
With challenges faced by the Government in terms of funding the identified priorities, it presents a unique opportunity to tap into private capital through models such as public private partnerships (PPPs) for timely and innovative delivery of infrastructure projects. Success will, to a great extent, depend on the Government developing conducive policy instruments in a timely manner.
Nicholas Kiiza works at Stanbic Bank Uganda as an infrastructure financing expert.