By Tony Thompson (Editor: Adapted from World Bank blogs)
COVID-19 is the most significant shock the world has experienced since World War Two. Coronavirus infections are now accelerating in Africa, and the Government of Uganda has taken swift measures to respond to this threat both to the health sector and the economy.
The restrictions on movement of people, goods and services to contain the pandemic have severely affected lives and livelihoods in Uganda, just like everywhere else around the world. As a result of the pandemic, up to three million Ugandans could fall into poverty due to the economic hardship.
The government is scaling up existing and new social safety nets and will need to expand them further until the crisis passes – including labor-intensive public works providing short term opportunities for the most affected and cash transfers to the most vulnerable households.
The restrictions on movement and the collapse in economic activity in Uganda’s trading partners has hurt the economy, although not as much as in the developed countries. Many businesses are struggling to stay open and workers are being laid off. Informal businesses in urban areas are among those hit most by the crisis. Money that family members send from abroad, which usually helps to support consumption, has also dried up because of the crisis in these countries.
With the slump in consumption and trade, tax revenues have fallen, forcing the government to borrow large sums to keep providing services to its citizens. The government will need to cut back on non-priority spending and focus expenditures on critical services like health, education, water and electricity, but also on supporting the recovery phase down the road. The latter also means, among others, managing very carefully public debt as interest and principal payments are climbing sharply, and preparing the ground for boosting tax receipts.
The higher use of digital technology during the COVID19 lockdown such as mobile money, on-line shopping, on-line education, and disease surveillance and monitoring shows the great potential to aid faster economic recovery and strengthen resilience against similar shocks.
In our latest Uganda Economic Update, “Digital Solutions in a Time of Crisis”, we show how digital technologies can support the health response and economic recovery in Uganda. Scaling up available digital health solutions and using data from mobile network operators can allow for more effective epidemiological surveillance and outbreak control. In parallel, better integration of digital technologies with the real sector like agribusiness (e.g. expanding e-vouchers for farmers to buy fertilizers and seeds), manufacturing (e.g. adoption of smart manufacturing for safer products standards) and tourism (e.g. stimulating domestic tourism through use of virtual assistants for customized itineraries) industries could help the economy recover more rapidly. In order to realize the full potential of Uganda’s digital economy, digital enterprises will need scaled up support through hubs which offer product development and testing services, management skills trainings and access to investors.
At the moment, access to digital technologies remains limited for many Ugandans, who find mobile services to be unaffordable. In 2019, less than 70% of the population had access to mobile phones compared to an average of 84% of the population in other, similar countries in the East Africa region. This is partly a function of high cost of devices and services. Continued government infrastructure investment is in part addressing this issue, including with support from the World Bank through the Regional Communications Infrastructure Program (RCIP).
Nevertheless, high taxes on imports of handsets, mobile money withdrawals and social media access inhibit making digital products and services affordable for all Ugandans. To broaden the use of digital products, to the Government has to undertake a comprehensive review and cost-benefit analysis of taxation policies with regard to mobile money withdrawals and social media access. In contrast to traditional financial services, mobile money withdrawals are subject to 0.5% tax, while social media access is taxed at UGX200 per day.
The recent adoption of the National Payments Bill is a milestone in further improving the regulatory environment and its effective implementation will expand digital financial services in Uganda.
The next step should be to improve the environment for venture capital and private equity to allow for increased investments in the digital sector.
Regional integration is another area that could benefit Ugandan businesses in the recovery period. The development of the Single Digital Market would allow Ugandan enterprises gain access to an additional 200 million consumers and increase choices for Ugandan consumers as well. Estimates show that Ugandan mobile broadband subscribers would gain more than $0.5billion through lower prices and increased network effects.
COVID-19 is an unprecedented global crisis and uncertainty about its scope and duration persists. Through greater integration of digital technologies in scaling up health solutions and digitalizing the traditional business models, Uganda can accelerate its economic recovery and advance the frontier of its digital transformation.