19 May 2012

Uganda: Poverty Levels Down, but Only Just

If figures in the 'Poverty Status Report,' which was released on May 08 are anything to go by, Uganda's poverty levels are declining. The report shows that the number of people who are absolutely poor has gone down by about 10% in the last ten years.

The report, which was compiled by the Ministry of Finance, shows that the percentage of the poor stood at 24.5% in 2010 down from 33.8% in 2000 and 56.4% in 1993.

Despite this improvement, the report also shows that the number of "non-poor but insecure" - citizens who despite being able to meet their basic needs; they remain insecure and vulnerable to falling into absolute poverty - has more than doubled.

The reduction was attributed to increased economic activity especially in the agriculture sector and the establishment of small businesses by individuals and groups. At a glance, the apparent reduction in poverty levels should have been good news but analysts still argue that the figures are not reflecting exactly what is on the ground. They say a lot more still needs to be done to lift people out of biting poverty - especially by helping them acquire capital to boost their household incomes.

"People are still very poor and many cannot afford a meal in a single day," said Charles Ocici, executive director Enterprise Uganda. Ocici, who seemed to blame subsistence agriculture for keeping people in perpetual poverty, said there is need for capital to enable people engage in commercially viable agricultural practices. He said lending institutions find it hard to risk their money on individual farmers who might not be able to pay back. Currently, interest rates on loans stand at an average of 28%, which not many subsistence farmers can afford.

"The lending institutions are in business and are struggling to survive themselves. That means there have to be other avenues through which individuals should raise capital," he said. "This is not only good for individuals but also for the government in form of taxes."

Analysts say it is ironical that any plan to fight poverty should exclude agriculture, on which the majority of Uganda depends. The sector employs over 70% of the total population, contributes 24% of Gross Domestic Products (GDP) and accounts for over 50% of the country's export revenues. But it gets credit from lending institutions amounting to just 9% out of the total loan portfolios for commercial banks in the country.

And at a time when the sector needs more financing, the government is planning to slash its budget in the 2012/2013 fiscal year. It will be allocated Shs 351bn down from Shs 447 billion in 2011/2012 budget, which analysts say is an indication that the sector is not being given the priority status it deserves in the effort to fight poverty.

Even donors are not impressed. As Roberto Ridolfi, the head of European Union Delegation to Uganda, put it recently, investment in agriculture should have been more than double its projected growth rate, which could lead to a reduction of poverty. "Investing more in agriculture is one of the surest ways to effectively reduce poverty," Ridolfi said in his speech on the occasion of 'Europe Day' in Kampala on May 9.

But Finance Minister Maria Kiwanuka suggested that it is unfortunate that financial services institutions are reluctant to support agriculture despite its immense potential to alleviate poverty. She told reporters at the launch of the report that even insurance companies were not willing to extend their support to farmers because of the high risks involved. Part of the problem she said, is lack of sufficient information about the various aspects of the agricultural sector and its sub-sectors - an issue that the government is trying to address.

Lessening risk

To help financial institutions reduce the risks associated with lending to agriculture, there is need to devise innovative ways to fight poverty. One such effort is the Foundation for Urban and Rural Advancement (FURA). Reuben Mbaguta, the chief executive officer, said the organisation enables borrowers especially farmers to form larger groups, solicit capital and then lend it amongst themselves.

Mbaguta said, through FURA, they have been able to form a group of 150,000 members largely comprised of small and medium farmers in Kasese, in western Uganda. The company has encouraged the members to save certain amounts of money on a monthly basis so that at the end of the day, they are able to access their savings. Launched in 2004, the group has raised cumulative value of savings amounting to over Shs 3.8 billion.

"Part of this money has been lent out to the members and they are paying back certain amount on a monthly basis. The system is working so well and members have been able to invest in agriculture and meet costs of their domestic necessities," Mbaguta said.

The group is partnering with Stanbic and Centenary bank where special accounts were opened at no cost. Of the 150,000 members, Mbaguta says 75% of these are women, who no longer have to depend on their husbands for everything.

The system is also being implemented in Bushenyi, Soroti, Kabarole, and Kampala and is being seen as a boost to the fight against household poverty particularly among the vulnerable small holder farmers whom the banks try to avoid.

According to the report, mid western and mid eastern are some of the most poverty stricken regions in the country. Albert Musisi, the acting commissioner Economic Development Policy and Research in the Ministry of Finance Planning and Economic Development, acknowledged that it had been found out that lending institutions were looking to support progressive farmers and the middle class and not the poorest of the poor.

However, John Mutenyo, an economist at the School of Economics at Makerere University, also blamed high poverty levels on illiteracy and lack of information. He said it is important for government and other stakeholders to engage the public on issues of financial literacy so that they can be able to raise capital to start their own business and fight poverty.

"This should start in schools," he said. "You have to be educated if you are to fight poverty."

Ocici agreed, saying it is important that Ugandans change their mindset and attitude towards work if they are to overcome poverty.

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