Republic of Uganda Public Disclosure Authorized Agriculture Sector Public Expenditure Public Disclosure Authorized Review Public Disclosure Authorized Public Disclosure Authorized September 2019 STANDARD DISCLAIMER CURRENCY EQUIVALENT This Report is a product of the staff of the International Bank for Exchange rate effective as of May 11, 2018 Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this Interim Report Currency unit = Ugandan shilling (USh) do not necessarily reflect the views of the Executive Directors of US$1.00 = USh3,700 The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Republic of Uganda: Agriculture Sector Public Expenditure Review ACKNOWLEDGMENTS This report was produced by a team from the World Bank Group, led by Ladisy Komba Chengula (Lead Agriculture Economist) and comprising Holger A. Kray (Lead Agriculture Economist), Kevin John Crockford (Sr. Rural Development Specialist), Joseph Oryokot (Sr. Agriculture Specialist), Irina Schuman (Sr. Agriculture Economist), Friederike Mikulcak (Jr. Professional Officer), Barbara Kasura Magezi Ndamira (Senior Public Sector Specialis), and Christopher Paul Jackson (Senior Public Sector Specialist). Agnes Yvonne Masaka (Team Assistant), with Janet Christine Atiang and Srilatha Shankar (Program Assistants), provided administrative and logistical support. A team of consultants led by Christian Derlagen and including Alban Mas Aparisi, Leopold Ghins, Paul Cathala, and Lucile Hummel undertook the expenditure analysis from the BOOST database. Other consultants included James Joughin (institutional analysis) and Charles Owuor (private sector analysis). Diego Arias Carballo (Lead Agriculture Economist), Michael Morris (Lead Agriculture Economist), Philip Schuler (Lead Economist), Elliot Mghenyi (Sr. Agriculture Economist), and Tihomir Stucka (Sr. Economist) contributed useful insights as peer reviewers, while Antony Thompson (Country Manager) provided additional guidance at various stages of the report’s preparation. Dina Umali-Deininger (Practice Manager) provided oversight for the work. The team would like to thank the leadership of the Ministry of Finance, Planning and Economic Development (MoFPED) and the Ministry of Agriculture, Animal Industries and Fisheries (MAAIF) for excellent collaboration, including organization of the various missions and meetings, and provision of the information and inputs requested. Special thanks go to Mr. Pius Wakabi Kasajja (Permanent Secretary, MAAIF) for support and oversight. Finally, the team would like to thank all the contacts in the various public ministries, departments, agencies, non-governmental agencies, and donor organizations who have contributed to and otherwise supported the development of this review. I Republic of Uganda: Agriculture Sector Public Expenditure Review ACRONYMS & ABBREVIATIONS AgGDP Agricultural Gross Domestic Product AgSER Agriculture Sector Expenditure Review ARUD Agriculture, Rural, and Urban Development Program ASSP Agriculture Sector Strategic Plan AU African Union AUGN African Union Guidance Note BFP Budget Framework Paper CAADP Comprehensive Africa Agriculture Development Programme CBA Commodity-based approach CDO Cotton Development Organization COCTU Coordinating Office for the Control of Trypanosomiasis in Uganda COFOG Classification of the Functions of Government DDA Dairy Development Authority DFID Department for International Development (United Kingdom) DSIP [Agriculture Sector] Development Strategy and Investment Plan EAC East African Community GDP Gross domestic product GoU Government of Uganda ICT Information and communication technology IFAD International Fund for Agricultural Development IFMS Integrated Financial Management System IMF International Monetary Fund KSW Kakira Sugar Works MAFAP Monitoring and Analyzing Food and Agricultural Policies MAAIF Ministry of Agriculture, Animal Industry, and Fisheries MoFPED Ministry of Finance, Planning, and Economic Development MoLG Ministry of Local Government MoLHUD Ministry of Lands, Housing, and Urban Development II Republic of Uganda: Agriculture Sector Public Expenditure Review MoPS Ministry of Public Services MTEF Medium-Term Expenditure Frameworks MWE Ministry of Water and Environment NAADS National Agricultural Advisory Services NAEP National Agricultural Extension Policy NAGRC&DB National Animal Genetic Resource Centre and Data Bank NAP National Agriculture Policy NARO National Agricultural Research Organization NBFP National Budget Framework Paper NDP National Development Plan NPA National Planning Authority OPUL Oil Palm Uganda Limited OWC Operation Wealth Creation PE Public expenditure PEAS Public expenditure in support of the agriculture sector PMA Plan for Modernization of Agriculture PPP Public-private partnership R&D Research and development SAGA Semi-autonomous government agency SSA Sub-Saharan Africa SWG Sector Working Group TFP Total factor productivity U-PACT Uganda Platform for Agricultural Coordination and Transformation UCDA Uganda Coffee Development Authority USAID United States Agency for International Development VAT Value added tax WHT Withholding tax III Republic of Uganda: Agriculture Sector Public Expenditure Review GLOSSARY OF KEY TERMS Analysis that permits one to understand priorities and balance of Allocative efficiency of public expenditures. It consists of the analysis of economic and public expenditures functional compositions Budget allocation approved by the Ugandan Parliament at the Budget estimates beginning of each fiscal year Investments where the benefit continues over a long period rather than being exhausted in a short period. Such expenditure is of Capital expenditures a non-recurring nature and results in acquisition of permanent assets Economic composition of Assessment of balance between wages, non-wage recurrent, and public expenditures capital expenditures Assessment of allocation of public expenditures by main functions and Functional composition of alignment of this composition with policies, strategies, growth public expenditures diagnostics, and other priorities Non-wage recurrent Recurrent expenditures less expenditure on wages, salaries, and expenditures supplements Expenditure that does not result in the creation or acquisition of fixed assets. It consists mainly of expenditure on wages, salaries and Recurrent expenditures supplements, purchase of goods and services, operations and maintenance of fixed assets, interest payments, subsidies, and transfers Revised budget allocation approved by the Ugandan Parliament during Revised estimates mid-term review Wage expenditures Recurrent expenditure on wages, salaries, and supplements IV TABLE OF CONTENTS ACKNOWLEDGMENTS I ACRONYMS AND ABBREVIATIONS II GLOSSARY OF KEY TERMS IV EXECUTIVE SUMMARY 1 1.0 UGANDAN AGRICULTURE AND THE OBJECTIVES OF THE PUBLIC EXPENDITURE REVIEW 11 1.1 Objectives of the Agriculture Public Expenditure Review 11 1.2 The Macroeconomic and Fiscal Environment 15 1.3 The Growth Potential for the Agriculture Sector in Uganda 15 2.0 SYNTHESIS OF PUBLIC SPENDING ON AGRICULTURE IN AFRICA 2.1 Rationale for Public Spending on Agriculture 20 2.2 Level and Trends of Public Spending on Agriculture in Africa 21 2.3 Improving the Quality of Public Spending to Maximize Returns 26 2.4 Improving Budget Management Processes 32 2.5 Conclusions 33 3.0 UGANDAN AGRICULTURAL PUBLIC EXPENDITURES: LEVEL, COMPOSITION AND EFFICIENCY 35 3.1 Data Sources and Methodology 36 3.2 Level of Public Expenditure in Agriculture 38 3.3 Efficiency of Public Expenditure in Agriculture 40 3.4 Conclusions 60 4.0 UGANDAN INSTITUTIONAL ENVIRONMENT AND BARRIERS TO IMPROVING AGRICULTURE 61 PUBLIC EXPENDITURE 4.1 The Policy and Institutional Framework for Agriculture 61 4.2 Institutional Barriers to Improving Public Expenditure in Agriculture 67 4.3 Conclusions 74 5.0 THE ROLE OF THE PRIVATE SECTOR IN PROVIDING AGRICULTURAL SERVICES 75 5.1 The Private Sector and Agricultural Services in Uganda: Background and Context 75 5.2 The Private Sector in Uganda 77 5.3 Private Sector Approaches to Providing Agricultural Services 78 5.4 Main Constraints Facing Agribusiness 79 5.5 Incentives for Attracting Private Investment in Agriculture 81 5.6 Models Used by the Private Sector to Provide Agricultural Services 82 5.7 Conclusions 88 6.0 CONCLUSIONS AND RECOMMENDATIONS 90 6.1 Public Expenditure on Agriculture: Level, Composition, and Efficiency 90 6.2 Institutional Environment and Barriers to Improving Public Expenditures on Agriculture in Uganda 92 6.3 Role of Private Sector in Providing Agricultural Services 94 REFERENCES 98 ANNEX 1: SUMMARY OF POLICY RECOMMENDATIONS 105 ANNEX 2: DATA SOURCES AND METHODOLOGY 107 ANNEX 3: LEVEL OF PUBLIC EXPENDITURE IN AGRICULTURE 115 TABLES Table 2.1. Trends in public spending on agriculture in Africa 24 Table 2.2. Returns to agricultural research in sub-Saharan Africa 25 Table 2.3. Impacts of different types of public spending on agriculture in Africa 26 Table 2.4. Drivers of agricultural productivity in sub-Saharan Africa 29 Table 2.5. Factors affecting agricultural productivity 31 Table 3.1. Main PEAS indicators (nominal USh billions) 39 Table 3.2. Main PEAS indicators