Remarks by
Prof. Emmanuel Tumusiime-Mutebile,
Governor, Bank of Uganda
UBA Annual Bankers' Conference
Kampala Serena Hotel
Tuesday, July 16, 2019
The Rt. Hon. Prime Minister, Dr. Ruhakana Rugunda,
Mr. Patrick Mweheire, Chairman - Uganda Bankers
Association (UBA)
Mr. Wilbrod Humphreys Owor, Executive Director
Members of the Executive Committee of the UBA
Members of Uganda Bankers Association
Invited guests
Ladies and Gentlemen
I would like to thank the UBA for inviting me to address
this third edition of the Annual Bankers Conference on the
theme - "De-risking Financing & Investment in Agriculture to
promote decent youth employment and inclusive growth".
It is commendable that the UBA has focused attention on
the potential role that finance can play in leveraging the
agriculture sector to diffuse the demographic bomb that
threatens to explode in our midst if Uganda does not
create decent jobs for the youths.
The value added by agriculture, forestry, and fishing as a
percentage of gross domestic product (GDP) declined
from 49 percent in 1991, to 28 percent in 2000, to 26
percent in 2010, and down to approximately 24 percent in
20181.
Over the same period, employment in agriculture as a
percentage of total employment declined from 74 percent
in 1991, to 70 percent in 2000, remained at 70 percent in
2010, and rose to approximately 71 percent in 20182.
While the contribution of agriculture to national economic
growth has halved between 1991 and today, the share of
the population that is employed in this sector has hardly
moved. Moreover, 68 percent of the population is engaged
in subsistence farming.
The United Nations forecasts that Uganda's population
will rise to 102 million by 2050, and then to 203 million by
2100. Uganda will become one of the most densely
populated countries in the world by the middle of this
century, when its population will be more than two and a
half times the current level.
It is quite unlikely that the formal sector will employ a
significant share of the population. Moreover, some
surveys including one conducted by the Aga Khan
University in 2016 indicated that a tiny proportion of the
youths aspire to employment in the agriculture sector.
And this brings me to the finance sector. A previous
edition of the World Bank's Economic Update on Uganda
argued that the high cost and limited access to credit was
a binding constraint on Uganda's economy. This implies
that if only banks and other financial institutions could
lower their lending rates and expand the volume of their
lending, substantial numbers of businesses in the economy
would be able to borrow money for investment in order to
boost their output while servicing their debt and
increasing their incomes.
While I remain uncomfortable with the high lending rates
and believe that they should be reduced sustainably over
time, I dare say that access to credit is not the ultimate
binding constraint on economic growth.
We must think holistically about the challenges holding
back the power of finance to transform our economy.
Proper diagnostics must reveal the problems that
constrain agricultural finance before we devise durable
solutions. We must examine the borrowing capacities of
the businesses in our real sector.
On one hand, financial institutions are challenged to
rethink their views of bankable projects so as to design
solutions for potential borrowers at their level. On the
other hand, formal sector creditworthy businesses, which
have been the main clients of commercial banks, comprise
a small share of the economy. Informal business and
micro-enterprises abound and their capacity to utilize
credit effectively is constrained, including by inadequate
business and technical skills, the high costs of inputs, and
unpredictable market conditions.
Fortunately, some financial institutions have started
tackling these problems through business incubation
programs. Moreover, through automation and adoption of
new technologies for delivering financial services, it is
possible for banks to reduce their operating costs, and
pass on the savings to borrowers through reduced lending
rates. I am also optimistic that banks will exploit the
potential of bancassurance to exploit synergies with
insurance to design products for the riskier borrowers.
Indeed, I am anxious to learn from the speakers about
UBA's plans to de-risk financing and investment in
agriculture.
I must applaud the UBA for embracing the role that can be
played by the financial sector in transforming our people
into a non-agrarian workforce and urban-dwelling
populace. But I must add that it will take a comprehensive
approach by all sectors to bring about this transformation.
Indeed, the fruits of higher labour productivity in
nonagriculture sectors, and higher living standards in urban
areas enjoin the government to develop the manufacturing
and service sectors in order to absorb the youths who are
migrating from rural areas. Research conducted by the
International Growth Centre has shown that it is possible for
Uganda to industrialise through prioritization of high
productivity services or non-traditional "industries
without smokestacks" such as agro-processing, ICT,
transport and tourism, which can absorb the youths
seeking jobs.
Government must focus on boosting export-oriented
manufacturing and growth of the tradable services. This
will help to meet the rapidly growing urban demand for
food thereby linking urban and rural growth by creating
market for rural production, and even reducing the import
bill.
Such demand-driven agricultural development would
foster innovation and advancement in production,
processing, and packaging, across all the stages of the
chain in catering to the demands of urban consumers of
processed products including packaged foods.
Government needs to join hands with finance and all
sectors by facilitating urban-rural linkages, to embed local
firms within the supply chains of international retailers,
such as the international supermarkets in our cities and
towns, and promote export readiness of local firms if we
are to be the bread basket of the region.
Potential areas of further investment for government and
the financial sector include roads, cold storage, transport,
support for farmer organisations, agricultural extension,
and out grower schemes. It is also necessary to address
information asymmetries, for example, by matchmaking
international firms and local suppliers.
Only through boosting agricultural development through
inclusive rural-urban links will we effectively harness the
agriculture sector as a dominant source of employment.
I applaud the UBA for rising to this challenge and call
upon Government to join the bankers in the
modernization of agriculture for job-creation and inclusive
economic growth.
On our part, the Bank of Uganda will continue to work
with Government and commercial banks in promoting
affordable agricultural finance through the Agricultural
Credit Facility, which we encourage all eligible borrowers
to take advantage of.
I thank you all for listening to me.