Country Report Uganda March 2010

Economic policy: Rural development policies are to be tweaked

Two changes are to be introduced this year to the government's policies for modernising agriculture, as the authorities continue to struggle to raise agri-cultural production. First, the National Agricultural Advisory Services (NAADS) programme will be extended to benefit more farmers but with smaller grants. This substantial programme-USh40bn (US$21m) has been invested so far, with USh500bn budgeted up to 2014-has come under strong criticism, with some saying that the plan to invest in model farms throughout the country has benefited only NAADS officials, together with their friends and families. Following a review of the policy that was launched in October 2009, the programme to set up model farms will end and packages of free inputs (equipment, seeds and livestock) will be smaller, but will go to more farmers.

In a second change to agriculture policy, the government announced recently that it will in future channel funds directly to savings and credit co-operatives (SACCOs) rather than through intermediary microfinance companies. SACCOs were supposed to be an effective way of providing micro-finance to farmers, many of whom have no collateral to secure a loan. However, the micro-finance institutions set up to intermediate the allocation of funds have been disappointing, sometimes charging as much as 48% interest on government money costing them only 9%.

Despite the decline in agriculture as a share of total economic output, it remains the most important of the country's productive resources. Output from the monetary food-crop sector alone is worth more than any other sector outside of construction and retail, and agricultural commodities remain the most important locally derived exports. However, growth rates in agriculture are below the average for the economy as a whole. The sector has suffered more than others from the ravages of HIV/AIDS and its performance is still overly dependent on rainfall, but there are significant opportunities for expansion. Moreover, with perhaps 80% of the population located in rural areas and involved to some extent in agricultural production, growth in output would have a large direct impact on the level of poverty.

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