metadata: authors: 0: author: Atamanov,Aziz
1: author: Hoogeveen,Johannes G.
2: author: Reese,Benjamin Christopher
count: Uganda,World
docna: 0: docna: The Costs Come before the Benefits: Why
            Donors Should Invest More in Refugee Autonomy in Uganda
docty: Policy Research Working Paper
abstracts: cdata!: When host countries allow refugees to
            earn income, two main groups benefit: refugees, who become
            financially autonomous, and international institutions that
            can reduce the humanitarian aid that would otherwise be
            needed to support refugees. Uganda is one of the more
            progressive countries when it comes to promoting the
            financial independence of refugees and shifting from
            humanitarian aid to development ways of working. This note
            considers how successful refugees in Uganda have been in
            becoming financially independent and estimates how
            assistance has been saved due to these efforts at economic
            inclusion. Using the international poverty line of US$2.15
            in 2017 purchasing power parities to proxy the costs of
            basic needs, the results suggest that the amount of total
            aid needed was reduced by almost 45 percent. They also show
            that many refugees live in poverty, implying that the
            present combination of aid and work is inadequate to assure
            a decent standard of living. While more assistance is needed
            in the short run, reductions in development assistance are
            feasible but require upfront investments in refugee earning
            capacity to realize them.
display_title: The Costs Come before the Benefits:
            Why Donors Should Invest More in Refugee Autonomy in Uganda
listing_relative_url: /research/2024/01/34243399/costs-come-before-benefits-donors-invest-more-refugee-autonomy-uganda
topicv3: Voice and Agency m1326001 924,Jobs and Poverty m1327656 701,Humanitarian Aid m1503719 3039,Refugee Workers m1504034 2731
publishtoextweb_dt: 2024-01-22T00:00:00Z
dois: 10.1596/1813-9450-10679
origu: Off of Sr VP Dev Econ/Chief Econ (DECVP)
no_of_pages: 14
author_keys: 0: author_key: 1182029
1: author_key: 435354
2: author_key: 1865436
model_extractions: Policy Research Working Paper 10679 The Costs Come before the Benefits Why Donors Should Invest More in Refugee Autonomy in Uganda _Aziz Atamanov Johannes Hoogeveen Benjamin Reese_ Poverty and Equity Global Practice January 2024
Policy Research Working Paper 10679

# **Abstract**

When host countries allow refugees to earn income, two main groups benefit: refugees, who become financially autonomous, and international institutions that can reduce the humanitarian aid that would otherwise be needed to support refugees. Uganda is one of the more progressive countries when it comes to promoting the financial independence of refugees and shifting from humanitarian aid to development ways of working. This note considers how successful refugees in Uganda have been in becoming financially independent and estimates how assistance has been saved due to these efforts at economic inclusion. Using the international poverty line of US$2.15 in 2017 purchasing power parities to proxy the costs of basic needs, the results suggest that the amount of total aid needed was reduced by almost 45 percent. They also show that many refugees live in poverty, implying that the present combination of aid and work is inadequate to assure a decent standard of living. While more assistance is needed in the short run, reductions in development assistance are feasible but require upfront investments in refugee earning capacity to realize them.

This paper is a product of the Poverty and Equity Global Practice. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted at aatamanov@worldbank.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# The Costs Come before the Benefits<sup>1</sup>

Why Donors Should Invest More in Refugee Autonomy in Uganda Aziz Atamanov, Johannes Hoogeveen and Benjamin Reese* JEL classification: I30, I38, O15 Keywords: Uganda, refugees, aid, self-reliance, inclusion

* All authors are with the World Bank. Corresponding author is Aziz Atamanov

(aatamanov@worldbank.org).

**Acknowledgments: The authors are thankful to Xavier Devictor, R. Mukami Kariuki and Pierella Paci for overall support and guidance.

> 1 Dutch expression (de cost gaet voor de baet uyt) displayed on the front of an 18th century former trade information office in Amsterdam conveying the idea that one must make investments first, whether in terms of time, effort, or finances, before one can reap the rewards.
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# Data and descriptive statistics

Primary data used in this brief comes from the Uganda Refugee and Host Communities Household Survey 2018 (RHCS). The RHCS is one of the few surveys in the region providing a representative picture of the socio-economic status of the refugee and host community population. The survey is representative of the refugee and host population in the West Nile and Southwest regions, and the city of Kampala. The host population is defined as the native population in districts where refugee settlements are situated. One important advantage of the RHCS is that it uses an identical survey instrument as the Uganda National Household Survey (UNHS). The UNHS is the key survey conducted by the Uganda Bureau of Statistics to measure poverty. Using the same instrument allows measuring poverty in the RHCS in a way comparable to how the UNHS measures official national poverty rates.

According to the World Bank (2019), despite all economic inclusion efforts and basic service integration, refugees in Uganda were much more likely to be poor than Ugandans in 2018, 46 versus 18 percent using the national poverty line. This implies that almost half of refugees did not have enough resources to satisfy the minimum daily caloric requirements and basic non-food needs – an issue that has become more acute recently as WFP’s general food assistance has had to be prioritized and reduced for many refugees due to financing shortfalls. Using a different daily poverty line, the international poverty line of US$2.15 expressed in 2017 purchasing power parities (PPP), one finds even higher poverty rates: 70 versus 38 percent accordingly. The highest poverty rate among refugees is observed in the West Nile region reaching 58 percent using the official national poverty line and almost 80 percent using the international poverty line. Having a better educated household head is associated with lower poverty among refugees. There is little difference in poverty incidence among refugees who depend on income from economic activities or aid. However, the poverty rate for refugees who depend on remittances is lower.<sup>3</sup> Higher poverty rates among refugees are associated with higher food insecurity and lower asset ownership compared to hosts. About seven out of ten refugee households in Uganda experience severe food insecurity, while for hosts the proportion is five out of ten (World Bank 2019). Food insecurity among refugees in Kampala (57 percent) is lower than in the Southwest (89 percent of households) and West Nile (85 percent). Regarding assets, refugees are less likely to have access to productive assets such as agricultural land and livestock compared to Ugandans. Land ownership and size of land are also significantly lower respectively smaller among refugees than the hosts but with some variation among refugees across settlements and their time of arrival.

Access to basic services among refugees is either on par with hosts or sometimes better according to World Bank (2019). Access to improved water and sanitation is found to be higher among refugee households compared to host households (94 and 39 percent versus 66 and 26 percent accordingly). There are no substantial differences in school enrollment among refugees and hosts with primary enrollment being high, but secondary enrollment being remarkably low for both groups. Elevated costs and language of instruction (which changes from local vernacular to English) are often mentioned as important constraints to staying in school among refugees. There are no major differences in illness prevalence between refugees and hosts, but refugees have slightly better access to health care.

Refugees are less likely to be employed than hosts, with agriculture being the largest sector of employment. Only 28 percent of refugees are employed compared to 64 percent among Ugandans. Unemployed refugees are more likely to be young, with low levels of education, who arrived in Uganda less than two years ago. One in five refugee households own a non-agricultural enterprise which is slightly less than among Ugandans. Among the employed, seven out of ten hosts and half of refugees work in the agriculture industry. As mentioned earlier, refugees are less likely to own land than hosts and mostly have user rights instead of owning the land (World Bank 2019).

The COVID-19 shock had a substantial negative impact on refugees who demonstrated a much slower recovery than Ugandans. According to results from phone surveys conducted since onset of the COVID-19 pandemic (Atamanov et

> 3 These are mostly Somalian refugees living in Kampala and who are not getting aid.

4
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characteristics discussed earlier enter the regression as explanatory right-hand side variables. We also added a variable measuring the number of mature cattle refugee households own and a dummy capturing if households borrowed or paid back money or borrowed goods. Finally, we also added the dependency ratio to proxy a household’s capability to work. These variables are expected to affect the capacity of refugees to earn income. Finally, we controlled for the region of residence, household size, age, sex, and literacy of the head of the household. Variables with a positive sign are associated with reducing the gap between consumption and the poverty line (lower costs of basic needs), while variables with a negative sign are associated with widening the gap between consumption and the poverty line.

|Table 1. Results from OLS regression explaining difference in log ratio of pre-assistance consumption to int<br>line byrefugee household characteristics(positive coefficient means reduction ofpoverty gap)|ernational poverty|
|---|---|
|**Variables**|**Coefficient**|
|Head of household working (base=not working)|0.265***|
|**_Household owns at least one plot of land_**||
|Household does not have land or have use rights on land|-0.168*|
|**_Household does not have land_**||
|Household owns less than 0.05 hectare per capita|-0.116|
|Household owns more than 0.05 hectare per capita|0.263**|
|**_Household lives in Uganda one year or less_**||
|Household lives in Uganda 2 years|-0.0762|
|Household lives in Uganda longer than 3 years|0.410***|
|Household child/children have Ugandan friend|0.233***|
|**_One member household_**||
|Two household members|-0.533**|
|Three household members|-0.537**|
|Four and above household members|-0.760***|
|Dependency ratio (children and elderly over total household size)|-0.712***|
|Head of household is literate|0.05|
|Number of cattle owned|0.0195***|
|Any member borrowed money or goods or paying back|0.289***|
|**_West Nile_**||
|Kampala|1.806***|
|Southwest|0.259***|
|Head of household age|-0.00533*|
|Male head of household|-0.00418|
|Constant|-0.129|
|Observations|691|
|R-squared|0.578|
|Source: RHCS 2018, WB staff calculations.||
|Note: *** significant at 1 percent, ** at 5 percent, * at 1 percent. Regression is run for refugee sample only using<br>population weight.||

Consistent with the earlier descriptive analysis, there are several household characteristics which are significantly correlated with the consumption to poverty line ratio. Thus, having an employed household head helps to reduce the gap between household consumption and the poverty line. Having at least 0.05 hectare of land per household member and owning at least one plot helps to reduce the gap. Social integration proxied by refugee children having Ugandan friends also reduces the ratio between pre-assistance consumption to international poverty. Given that integration takes time, staying in Uganda three or more years reduces the poverty gap compared to staying in Uganda only one to two years. Ownership of large cattle and the ability to borrow are also found to be associated with a lower poverty gap. The gender of the head of household does not affect the size of the poverty gap controlling for other characteristics of refugees and their location. Households with larger shares of children or with more elderly tend to have a higher gap, presumably because of a lower capacity to work.

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food insecurity, children dropping out of school, and negative coping mechanisms like transactional sex and even suicide.

It is straightforward to estimate by how much aid falls short. The post assistance poverty gap of refugees is 28 percent, implying an average annual shortfall in per capita consumption of US$97, or US$145 million per year when applied to all refugees. Rather than offering their full contribution to global burden sharing by providing US$290 million in aid, refugees receive only half, US$145 million.<sup>10</sup> Given the growing global demand and increasing costs of humanitarian refugee assistance, it would be more equitable and financially smarter not only to meet the obligations for burden sharing but also to invest additionally in the productivity of refugees. Development partners needs to find ways to capitalize on Uganda’s progressive refugee policy context to better facilitate ways that refugees can capitalize on economic opportunities and access to jobs. This way, considerable savings can be realized in the future for hosting refugees.

# Conclusion

Uganda has been at the forefront of refugee integration and social inclusion. The country has created a legal framework that allows refugees to be economically active and offers access to land and housing. This approach has been partially successful. Despite having the right to work, and obtaining land, many refugees remain poor and fail to gain economic independence. Too many refugees remain dependent on humanitarian aid.

This note estimates that at present US$290 million is needed to ensure consumption for all refugees in Uganda is brought up to the international poverty line. Refugees do not receive this much, and the note estimates a shortfall of US$145 million in assistance. This shortfall in burden sharing, due to underfunding is borne by refugees who end up in poverty with levels of consumption that fall below the international poverty line with follow on consequences for food security, nutritional status etc.<sup>11</sup> US$290 million is, however, a lot less than the US$515 million which would have been needed, had refugees not had the right to work. The question is whether refugee income could be boosted further and the need for aid reduced?

A comparison between refugees and host communities suggests there is potential for refugees to do better. Poverty incidence and the poverty gap for hosts are much lower than for refugees. It is beyond this paper to establish how to increase the productive capacity of refugees. Yet lower ownership of land and its small size, along with limited access to credit are obvious obstacles to productivity which have been found to increase the poverty gap of refugees. Others (Bohnet and Schmitz-Pranghe 2019) have pointed to limited access to agricultural inputs (seed, fertilizer, irrigation) and limited access to markets as obstacles for refugees to reach their productive potential.

There is much to be said to invest in increasing the income earning capacity of refugees through more development focused investments by the international community. When poor refugees earn income, there are two key beneficiaries. Refugee households, who gain dignity and financial autonomy. And the international community, which can provide less humanitarian aid. This note has provided an estimate of the money currently saved by refugees earning their own income: US$225 million. With an eye on the future, it would be worthwhile to invest some of the current savings to increase the productive capacity of refugees.

> 10 It is tempting to compare the estimates of aid needed and aid received by refugees with the numbers available in the account of humanitarian agencies. Unfortunately, without additional analysis it is impossible to make direct comparisons. Not all resources provided by humanitarian agencies will be received by eligible beneficiaries. All assistance programs experience ’leakage’, so some of the spending on basic needs assistance reported by humanitarian agencies is not picked up as having been received by poor households. Second, the assessment is complicated because reporting by humanitarian agencies mixes direct benefits for households (like food assistance), with cost-of-service provision for services that are then provided free of charge (e.g., for health), with investments in e.g. shelter, which are then made available free of charge to refugees.

> 11 See UNHCR 2023a.

10
By allowing refugees to participate economically, the Government of Uganda has already created the legal environment which makes it possible to reduce refugee dependence on humanitarian assistance. Thus, Uganda provides an ideal environment to also demonstrate how development investments in refugee earning capacity, can bring about savings in future assistance and provide more long-term and sustainable management models for refugees in the country.

Not only does Uganda provide an ideal environment to further promote economic inclusion, as savings over and above the present US$225 million are made in basic needs assistance, the international community might want to consider sharing this ‘inclusion dividend’ with the host country. After all, Uganda’s policies make economic inclusion feasible, so why should the international community reap all its monetary benefits? In a situation where host communities are at times worse off than refugees (e.g. refugees have better access to certain services) it is critical that some of the inclusion dividend is invested in host communities. Only when all parties benefit - refugees, donors and host communities - is continued economic inclusion of refugees sustainable.

11