The 2014 Poverty Status Report uses new evidence to present an updated analysis of Uganda’s poverty trends and status. The report’s thematic focus is the relationship between structural change and poverty reduction, exploring the complementarities between some of Government’s most important policy objectives: economic growth, job creation and poverty reduction. The report also analyses the reasons that many households remain vulnerable even as the economy continues to modernise. This evidence is brought together to recommend a set of complementary policy measures for structural change that generates productive employment, and reduces poverty and vulnerability.

Understanding poverty trends

Uganda has continued to reduce the number of people living in poverty. The national poverty rate fell to 19.7 percent in 2012/13, from 24.5 percent in 2009/10. Even with significant population growth, the total number of Ugandans living below the poverty line declined from 7.5 million to 6.7 million over the same period. There are now almost twice as many Ugandans in the middle class – living above twice the poverty line – as there are poor. In 1992/93, there were more than five Ugandans below the poverty line for every Ugandan in the middle class.

Significant poverty reduction has occurred across all regions of the country. In the last 10 years, poverty reduced by 18 percentage points in the Central region; 19 percentage points in the Northern region; 22 percentage points in the Eastern region; and 24 percentage points in the West. The Northern region remains the poorest part of the country, but the gap has narrowed significantly since the restoration of peace in 2006. More recently, it is the east that has seen the slowest progress in reducing income poverty. This mainly reflects adverse weather conditions, a high dependency ratio and growing population pressures contributing to land fragmentation and soil degradation. However, the region has seen significant progress in other dimensions of welfare, including education, health, housing conditions and access to information.

The considerable reduction in poverty over the years is attributed to Uganda’s general economic development, significant public investment in physical infrastructure, and several targeted Government interventions. Lower trade costs across the country, driven by improved transport infrastructure and better-integrated agricultural value chains, have been particularly important in ensuring agricultural households share the benefits of economic growth. Increased demand in the context of rapid urban growth and an increasingly connected region have created numerous income-earning opportunities for poor households. Government supported SACCOs have enabled many households to grow their enterprises, particularly those which emerged to advance the common economic interests of a particular group. Government interventions such as the Vegetable Oil Development Project in Kalangala have also had a transformative impact on the livelihoods of smallholder farmers. Gaps in public service delivery have successfully been addressed, through the Peace, Recovery and Development Programme in the north for example.

Uganda’s progress in reducing income poverty is strongly reflected in other dimensions of welfare such as education, health, housing conditions and access to information. To monitor and analyse these various dimensions of wellbeing, the report constructs the first nationally defined Multidimensional Poverty Index (UMPI). Uganda’s progress against this more comprehensive measure of welfare has been even more impressive than the country’s reduction in income poverty. In just three years between 2009/10 and 2012/13, the share of the population classified as multidimensionally poor reduced by 10.1 percentage points. On the other hand, the multidimensional poverty index provides a higher threshold for the minimum acceptable living standards; a significant proportion of households living above the income poverty line remain poor in the other dimensions considered. This underlines the need for Government to broaden its development objectives beyond the 19.7 percent of the population living below the poverty line.

Structural change and poverty reduction

Uganda’s first National Development Plan (NDP I) launched in 2010 rebalanced the policy agenda towards long-term issues related to structural change, wealth creation and the productive capacity of the economy. This signalled a broadening of Government’s objectives, beyond the narrower focus on extreme poverty which characterised the Poverty Eradication Action Plan (PEAP). With most gaps in basic public services addressed, to sustain progress Government increasingly needs to harness the poverty-reducing potential of structural change – or shifts in the sectoral share of employment and GDP in favour of more productive and dynamic activities. Chapter 3 of this report demonstrates the numerous channels through which growth and structural change help to reduce poverty. Economic growth is required to create jobs to employ the working poor and their children, but there are many more indirect benefits. For instance, demand resulting from growing urban markets and an increasingly connected region have benefited the large majority of the poor engaged in agricultural production, and created a growing number of off-farm income-earning opportunities. Growth of agro-processing, financial services, telecommunications, transport and storage services and many other sectors is also benefitting agricultural households.

The broad distribution of economic opportunities is not only important for reducing poverty, but is also critical for sustaining growth and structural change. The simulation results presented in Chapter 3 indicate that growth without improvements for the poorest households will be self-limiting, mainly due to the smaller domestic market. On the other hand, broad-based growth driven by the agricultural sector allows for a larger pool of domestic savings to finance an expansion in private investment, while stronger domestic demand and relatively cheap agricultural commodities ensure high investment returns and strong employment growth.

This implies that productivity growth and improved market integration in the agricultural sector are critical for both poverty reduction and structural change. Catalysed by increased public investment, there has been significant progress in these areas. Stronger farmer groups and the emergence of professionally managed agribusinesses have been critical, providing farmers with a ready market for their produce and facilitating access to credit and quality inputs. Nonetheless, the majority of smallholder farmers remain subsistence-orientated, using few intermediary inputs and rudimentary technology to produce low-value crops. Overlapping rights and the lack of full ownership under customary tenure systems – particularly in the north and east – mean farmers are less likely to invest in the land they cultivate, contributing to declining soil fertility. Although the situation is improving, agribusinesses often still struggle obtaining land and credit, and with the unpredictability and poor quality of produce supplied by local farmers.