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Uganda: Expanding Social Protection Programs to Boost Inclusive Growth

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Uganda’s economy grew by 6.5 percent in FY18/19, maintaining the rebound in economic activity over the last two years, according to the latest edition of the Uganda Economic Update released by the World Bank today.

The fourteenth Uganda Economic Update report, “Strengthening Social Protection Investments to Reduce Vulnerability and Promote Inclusive Growth” shows that the economy was boosted by strong consumer spending, and sustained levels of public and private investment. Foreign investors have been particularly interested in the oil and gas, manufacturing and hospitality sectors.

Following the release of new Gross Domestic Product (GDP) estimates in October 2019, the share of the services sector has fallen from 57.7 percent to 46.2 percent, while industry has risen to 29.5 percent from 20.1 percent and agriculture to 24.2 percent from 22.3 percent. There has been a strong jump in manufacturing growth supported by recent expansions in the sector, including investments in new factories.  

The outlook is favourable with the economy expected to grow at 6 percent over the next year. This requires sustaining high levels of investment in energy transmission, road construction and maintenance, industrial parks, and oil production-related infrastructure and services. Such investments also need to be executed effectively. Improving domestic revenue collection and utilizing concessional lending is important to ensure continued debt levels sustainability.

Uganda’s economy faces several risks on the macro and micro level. One in five Ugandans still live in extreme poverty and more than a third live on less than $1.90 a day with 70 percent still depending primarily on agriculture for their livelihood. This exposes them to risks of weather-related and other shocks.

Furthermore, with the expected population growth over the next 10 years, it is now estimated that average annual GDP growth rates will need to exceed 8 percent for Uganda to have a chance of reaching lower middle-income status by 2030. So, policy makers need to consider innovative ways for Uganda to reach its development goals.

Evidence shows that social protection programs can provide an answer to some of these challenges. Expanding social protection could have positive impact on growth and would provide social safety nets to reduce vulnerability to shocks, build equity, and maintain high labour productivity.

Two out of three people who get out of poverty fall back in – that is about 1.4 people in the last household survey conducted in 2016. We need to consider the importance of investing in people, building their human capital, and providing them with the tools and assets to manage shocks and reduce their vulnerability,” said Tony Thompson, Country Manager, World Bank.

Despite the potential that social protection initiatives offer, the Senior Citizens Grant (SCG) and the Northern Uganda Social Action Fund (NUSAF) – the two main social protection programs reach only 3 percent of the population compared to 6 percent in Kenya. The Government of Uganda spent 0.14 percent of GDP (FY17/18) on the two programs, less than Kenya and Rwanda at 0.4 percent and 0.3 percent of GDP, respectively.

The coverage and spending on these types of initiatives in Uganda is not optimal, based on regional and global comparisons. There is therefore a strong case to be made to expand these programs, and to consider how to reach different vulnerable groups. Simulations show, for example, that programs covering the poorest 50 percent of households with infants under 2, would cost an estimated 0.23 percent of GDP, whereas similar programs covering the poorest 50 percent of all households with children under 5 would cost 0.50 percent of GDP.

The Update makes several recommendations, including the need to expand direct income support investments in human capital and to help mitigate shocks and scale up existing disaster risk financing pilot programs to better prepare for climate-related shocks,  such as drought, and mitigate other shocks.

Given that there are competing fiscal demands on government resources, there is need to prioritize social protection expansion. One way of doing this, as recommended in the Update, is to focus on the poor and vulnerable in the neediest geographical areas, with various options outlined in the report to guide expansion to these areas, based on levels of vulnerability and human capital.

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Cash flow the biggest problem facing business during COVID-19 crisis

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A new report  on the impact of the COVID-19 pandemic  on businesses shows that their greatest challenges have been insufficient cash flow to maintain staff and operations, supplier disruptions and access to raw materials.

With businesses already undergoing significant competitive pressure prior to the crisis, government restrictions, health challenges and the economic fall-out brought by COVID-19 further set back many enterprises.

Interrupted cash flow was the greatest problem, the survey found. More than 85 per cent reported the pandemic had a high or medium financial impact on their operations. Only a third said they had sufficient funding for recovery. Micro and small enterprises (those with 99 employees or fewer) were worst affected.

The survey, carried out by Employers and Business Membership Organizations (EBMOs), involved more than 4,500 enterprises in 45 countries worldwide. EBMOs gathered data from their enterprise members between March and June 2020. The businesses were asked about operational continuity, financial health, and their workforce.

At that time, 78 per cent of those surveyed reported that they had changed their operations to protect them from COVID-19, but three-quarters were able to continue operating in some form despite measures arising from government restrictions. Eighty-five per cent had already implemented measures to protect staff from the virus.

Nearly 80 per cent said they planned to retain their staff – larger companies were more likely to say this. However, around a quarter reported that they anticipated losing more than 40 per cent of their staff.

Looking into the future, preparing for unforeseen circumstances and mitigating risks associated with a disruption of business operations is needed. Fewer than half the enterprises surveyed had a business continuity plan (BCP) when the pandemic hit, with micro and small businesses the least likely to have made such preparations. Additionally, only 26 per cent of the enterprises who responded said they were fully insured and 54 per cent had no coverage at all. Medium-sized enterprises, (those with 100 to 250 employees), were most likely to have full or partial coverage.

Strengthening government support measures for enterprises are also vital for their recovery. Four out of ten enterprises said they had no funding to support business recovery while two-thirds said funding was insufficient. Of the sectors analysed, the tourism and hospitality sector, followed by retail and sales, were most likely to report funding issues.

The report production was facilitated by EBMOs who collected and shared the survey data with the Bureau for Employers’ Activities  (ACT/EMP) at the International Labour Organization. ACT/EMP is a specialized unit within the ILO Secretariat that maintains close and direct relations with employers’ constituents.

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Lithuania: COVID-19 crisis reinforces the need for reforms to drive growth and reduce inequality

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Effective containment measures, a well-functioning health system and swift public support to firms and households have helped Lithuania to weather the COVID-19 crisis to date. That said, the pandemic still carries significant economic risks, and the recent upsurge in infections is very concerning. Once a recovery is under way, Lithuania should aim to reform public companies, strengthen public finances, and ensure that growth benefits all people and regions, according to a new OECD report. 

The OECD’s latest Economic Survey of Lithuania says that prior to COVID-19, good economic management and an investment-friendly business climate were helping to lift average Lithuanian incomes closer to advanced country levels. While the recession provoked by the virus has been milder than elsewhere – with GDP projected to drop by 2% in 2020 before rebounding by 2.7% in 2021 – Lithuania’s small and open economy will be vulnerable to any prolonged disruption to world trade. Increasing public investment and improving governance at state-owned enterprises could help lift growth and productivity. Other reforms should focus on improving the effectiveness of spending and taxation. Over the longer term, Lithuania should establish a clear debt reduction path and a long-term debt target.

“Lithuania’s sound economic management of recent years, and its swift response to both the health and economic aspects of the pandemic, are helping the country to weather the COVID-19 crisis,” said OECD Secretary-General Angel Gurría. “It is now key to build on these achievements and restart the reform engine to ensure robust, sustainable and inclusive growth for the future.”

The pandemic has exposed high levels of income inequality in Lithuania, where relative poverty is high among the unemployed, the less educated, single parents and older people due to a tax-benefit system that is insufficiently redistributive. The Survey recommends Lithuania to continue providing temporary support to people and businesses hit by COVID-19, as well as to increase regular social support while retaining incentives to work.

In terms of support to the economy, the Survey notes that while Lithuania’s government spending has increased considerably over the past two years, it remains below the OECD average. Public investment also remains low. Given the importance of modernising infrastructure and stimulating crisis-hit demand, the Survey recommends maintaining or increasing current levels of investment and improving investment quality by carrying out rigorous cost-benefit analysis for individual projects. Increasing investment in rural areas, and giving local government more say in tax policy and spending, could help reduce regional disparities and promote inclusive growth.

The Survey also recommends phasing out environmentally damaging fossil fuel subsidies and increasing environmental taxation, which would benefit public finances while helping the shift to a lower-carbon economy.

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United States confirms its leading role in the fight against transnational corruption

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The United States continues to demonstrate an increasing level of anti-bribery enforcement, having convicted or sanctioned 174 companies and 115 individuals for foreign bribery and related offences under the Foreign Corrupt Practices Act (FCPA) between September 2010 and July 2019. The United States is thus commended for a significant upward trend in enforcement and confirming the prominent role it plays globally in combating foreign bribery.

The 44-country OECD Working Group on Bribery has just completed its Phase 4 evaluation of the United States’ implementation of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and related instruments.

Given developments since the United States’ last evaluation in 2010, the Working Group made a range of recommendations to the United States, including to:

  • Consider ways to enhance protections for whistleblowers who report potential FCPA anti-bribery violations by non-issuers and provide further guidance on available whistleblower protections;
  • Continue to further evaluate and refine policies and guidance concerning the FCPA;
  • Make publicly available the extension and completion of NPAs and DPAs with legal persons in foreign bribery matters as well as the grounds for extending DPAs in FCPA matters;
  • Continue to evaluate the effectiveness of the Corporate Enforcement Policy in particular in terms of encouraging self-disclosure and of its deterrent effect on foreign bribery; and
  • Continue to address recidivism through appropriate sanctions and raise awareness of its impact on the choice of resolution in FCPA matters.

The report praises the United States for its sustained commitment to enforcing its foreign bribery offence as well as its key role in promoting the implementation of the Convention. This achievement results from a combination of enhanced expertise and resources to investigate and prosecute foreign bribery, the enforcement of a broad range of offences in foreign bribery cases, the effective use of non-trial resolution mechanisms, and the development of published policies to incentivise companies’ co-operation with law enforcement agencies.

The report also notes a large number of positive developments and good practices, such as the DOJ’s reliance on several theories of liability to hold both companies and individuals responsible for foreign bribery, and the United States’ successful co-ordination that has allowed multi-agency resolutions against alleged offenders in FCPA matters. In parallel, the United States has increasingly sought to co-ordinate and co-operate in investigating and resolving multijurisdictional foreign bribery matters with other jurisdictions. Finally, the United States has helped foreign partners build their capacity to fight foreign bribery through joint conferences and peer-to-peer training thus enabling the law enforcement authorities of these countries to better investigate and sanction prominent foreign bribery cases.

The United States’ Phase 4 report was adopted by the OECD Working Group on Bribery on 16 October 2020. The report lists the recommendations the Working Group made to the United States on pages 111-113, and includes an overview of recent enforcement activity and specific legal, policy, and institutional features of the United States’ framework for fighting foreign bribery. In accordance with the standard procedure, the United States will submit a written report to the Working Group within two years (October 2022) on its implementation of all recommendations and its enforcement efforts. This report will also be made publicly available.

The report is part of the OECD Working Group on Bribery’s fourth phase of monitoring, launched in 2016. Phase 4 looks at the evaluated country’s particular challenges and positive achievements. It also explores issues such as detection, enforcement, corporate liability, and international co-operation, as well as covering unresolved issues from prior reports.

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