transformation, because it allows an economy to invest in physical and human capital. uganda ’ s demographic transition has stalled because insufficient effort has been devoted to population policies. across the developing world, in countries with diverse cultures ( e. g. iran, malaysia, sri lanka ), fertility rates have been brought down because governments actively promoted smaller families, made contraceptives available to all the population and invested in reproductive health and women ’ s education. uganda should follow these examples and prioritise population policies to reduce the fertility rate as quickly as possible. 4. private investment in labour intensive modern industries uganda ’ s record of attracting private investment into labour intensive industries such as manufacturing is poor, which is one of the reasons why so few formal sector jobs in medium and large scale enterprises are being created. the essence of structural transformation is a large shift in the labour force out of low productivity, informal, traditional activities into modern, formal sector industries with higher productivity. this is what is driving structural transformation in developing asia. however, such a shift in the labour force is only possible if there is private investment in the modern sector, to create jobs in high productivity industries. private investment rates in uganda are around 20 percent of gdp, but this is only half the private investment rates in developing asia. uganda ’ s policies to boost private investment have been ad hoc and ineffective. fiscal concessions, such as tax holidays, by themselves, are not an effective tool for raising the overall rate of private investment, even if they are successful at attracting investment in a few individual cases. to boost private investment, many different aspects of the business environment must be improved, to reduce the cost and risks of doing business in uganda. these include : reducing the regulatory burden on business and the burden of lengthy customs procedures for exporters and importers, reducing the burden caused by demands for corrupt payments, strengthening the legal system to resolve commercial disputes fairly and expeditiously and improving the infrastructure in the transport and power sectors. because the ugandan domestic market is very small, the country will become a much more attractive destination for private investment only if firms located in uganda can serve the entire east african market. but this will only be possible if non tariff barriers ( ntbs ) to intra - regional trade in the eac are removed. the customs union in the eac has not yet been properly implemented because a multitude of ntbs are still in place, slowing down trade across borders within the region. bis central bankers ’ speeches

mining industry. what policies are essential to bring about the economic transitions? macroeconomic policy the foundation of uganda ’ s economic growth over the past two decades has been the priority accorded to macroeconomic stability, and in particular the control of inflation. this will be equally important in the future, to support the transitions which i have discussed above, not least because the transition to an efficiency driven economy depends on attracting higher rates of private investment in modern industries. a stable macroeconomy is a prerequisite for private investment on a large scale. the two key components of sound macroeconomic management are a monetary policy which has as its primary policy objective the maintenance of low inflation, implemented by a central bank which has the operational independence to set interest rates to achieve this objective. the bou has modernised its monetary policy, introducing an inflation targeting lite monetary policy framework, which employs a policy interest rate – the central bank rate ( cbr ) – to influence demand in the economy. the new framework has already proved to be effective in bringing inflation down. inflation was driven up sharply last year by supply price shocks, but the bou ’ s strategy of raising the cbr has brought about rapid disinflation. the latest inflation data, released last week, show that core inflation has fallen to 4. 8 percent. the bou intends to hold core inflation as close as possible to its policy target of 5 percent over the medium term, using the policy interest rate to counter any shocks which threaten to drive inflation above the target in a persistent manner. fiscal policy will become even more important as a tool for maintaining macroeconomic stability once production of oil and minerals begins on a commercial scale. a large part of the rents accruing from natural resources take the form of government budget revenues and hence flow into the domestic economy through the government budget. how the government spends these revenues will have a crucial impact on macroeconomic stability and on the extent to which dutch disease affects the economy. a sound fiscal policy must be formulated in a forward looking medium to long term framework. it must ensure that revenues derived from natural resources are not spent in an unsustainable manner, leading to a short lived consumption and construction boom, followed by a bust once the resources run out. it must ensure that any expansion of domestic demand arising from the use of natural resource revenues is carefully matched to the available supply capacities, for example in the construction industry, to avoid driving up prices. fiscal policy must also ensure that public spending