Reality Check: Powering Uganda's TransformationCENTRE FOR DEVELOPMENT ALTERNATIVES | KONRAD-ADENAUER-STIFTUNG UGANDA & SOUTH SUDAN
This study explores the relationship between energy and economic transformation in Uganda.
Commissioned by the Konrad-Adenauer-Stiftung and carried out by the Centre for Development Alternatives, it forms the tenth edition of the Reality Check publication series.
It examines to what extent Uganda’s energy system currently drives or hinders economic transformation, identifies the greatest constraints hindering the energy system from being a driver of transformation, and explores opportunities for progress in that regard. In doing so, this study aims to contribute to fostering a richer public discourse on energy in Uganda.
The Government of Uganda has expressed its commitment towards transforming the country from an agrarian low-income country to a modern upper middle-income status country by 2040, thereby lifting the vast majority of households out of poverty, giving them the purchasing power to buy more modern energy, among other things.
Such a transition will require a fundamental transformation of the economy, whereby a substantial part of the labour force moves from low productivity into modern, high productivity sectors and activities.
Energy is one of the fundamental building blocks of such an economic transformation. All economic activity requires energy; high productivity sectors require more, more reliable and more modern forms of energy. Energy access is not an end in itself. Its benefits extend to all areas of society such as agriculture, commercial activities, health, women economic empowerment, education and welfare for displaced persons. For energy to foster economic growth, its use and benefits will need to be explored independently for each of these sectors.
Defining Economic Transformation
Economic Transformation: Shift of labour and other inputs from low to high productivity activities and sectors
Inclusive Economic Transformation:
- Chances to benefit shared broadly among the population
- Decent and productive employment
- Wealth distribution
- Social safety nets
Uganda is growing quickly but transforming slowly
Uganda’s economy shifted rapidly during the 1990s, with output shifting from agriculture to services, and to industry to a lesser degree. However, this was not due to, nor accompanied by, a similar shift in labour.
The services sector has driven growth in Uganda’s economy in the past two decades, with uneven productivity growth concentrated in high-skill sub-sectors.
Uganda is poised for economic transformation
SME growth in high potential labour-intensive sectors
The movement of labour from low to high productivity sectors and activities in Uganda is likely to be driven principally by SMEs in high growth potential industry and services sectors.
Productivity growth in household enterprises
However, household enterprises – mostly informal family businesses – will continue to employ most labour in Uganda in the next two decades. Therefore, raising the productivity of household enterprises will be key to driving economic transformation in Uganda.
Energy for Economic Transformation
Energy is a driver of economic transformation. Energy powers all economic activity, from industrial machinery, irrigation and mechanised tillage to cooking, transportation, and digital devices. Higher productivity allows an economy to specialise and diversify by expanding the range of products and services it produces.
Energy is also a shaper of economic transformation. How we produce, use and distribute energy bears important economic, social and environmental consequences.
Energy for Economic Transformation in Uganda
Uganda’s projected patterns of economic transformation have important implications for Uganda’s energy system.
Uganda's Energy Sector
87% of the total primary energy consumption in Uganda is generated through biomass; electricity accounts for just 2% of the national energy balance.
Households are by far the biggest consumer of energy. However, hidden in this statistic is the fact that most businesses are informal micro-enterprises that are not easily distinguishable from households.
Assessing Uganda's Energy Sector
The following framework of criteria was applied in this study to assess the energy system and its ability to drive economic transformation:
The study identified six binding constraints in Uganda’s energy sector. It then surveyed several opportunities that are being explored by various stakeholders to overcome these binding constraints.
Constraint 1: Electricity Reliability
Despite significant reductions in power outages after the operationalisation of Bujagali Dam which all but eliminated load-shedding, the reliability of electricity continues to be a severe constraint on firm productivity.
Outages and fluctuations due to technical weaknesses in the power transmission and distribution system frequently damage machinery and raw materials and lead to lost time and money.
This hampers the competitiveness and growth prospects of Uganda’s industrial sector.
Constraint 2: Unequal Electricity Access
The electricity distribution network does not evenly serve the national territory.
It is clear that a large number of microenterprises currently operate without a grid connection, and likely that more microenterprises and SMEs would exist in peripheral areas if power was accessible.
Distribution and transmission systems are now lagging behind generation. In parallel to the difficulty to access the grid for many businesses in Uganda, the supply of off-grid technologies for productive use remains limited.
Constraint 3: Electricity Affordability
Uganda’s electricity tariffs have been rising faster than inflation for decades … but are not significantly higher than in other Sub-Saharan African countries.
This especially hurts power-intensive sectors such as heavy manufacturing and cold storage. The addition of new dams won’t be enough to significantly and sustainably reduce tariffs.
Constraint 4: Over-reliance on depleting forest reserves
Uganda’s economy is overly reliant on woodfuel and charcoal. Deforestation will soon render wood-based fuels an unsustainable source of energy for productive use.
Constraint 5: Urban air pollution and greenhouse gas emissions
Kampala is already one of the African cities with the worst air quality in many parts of the urban metropolitan area. Air pollution, induced mainly by the growing number of petrol and diesel vehicles, is a growing health hazard. With the growth of a middle class that can afford to buy vehicles and the rapid pace of urbanization, transport is one of the main drivers for air pollution.
Constraint 6: Vulnerability to petrol price and supply shocks
Uganda is dependent on a single import route from Mombasa for 90% of its petroleum products, making it vulnerable to supply shocks. Ordinarily, fuel is transported from Mombasa through a pipeline to Eldoret and Kisumu from where it is supplied by road to Kampala and other Ugandan cities. This route that has proven prone to supply chain bottlenecks, causing fuel shortages and price shocks in Uganda.
In the analysis of the current status of Uganda’s energy system, it became clear that there is a dearth of data, which impedes rigorous analysis and, consequently, evidence-based planning and prioritisation.
Therefore, the following further research is needed: