closing remarks by prof. emmanuel tumusiime - mutebile, governor, bank of uganda launch of the eighth edition of the world bank ’ s uganda economic update : “ step by step – let ’ s solve the finance puzzle to accelerate growth and shared prosperity ” kampala, serena hotel february 7, 2017 ms. christina malmberg calvo, world bank country manager for uganda, members of the diplomatic corps, distinguished panelists, staff of the world bank in uganda, distinguished guests, ladies and gentlemen. i would like to begin by commending the world bank for publishing the eighth edition in the series of uganda economic updates, which over the last few years, have provided a valuable source of economic analysis for everyone with an interest in the ugandan economy. i would also like to thank the presenters, discussants and other contributors for all of the important insights they have given us this morning. given the main theme of this latest economic update, i would like to take this opportunity to offer my own perspective on the development of the financial sector in uganda, its role in the economy, and the challenges which it faces. page 2 of 8 to begin, i think that it is important to recognise the progress which the financial sector, and especially the banking sector, has made over the last decade. between the 2005 / 06 and 2015 / 16 fiscal years, commercial bank credit to the private sector expanded by more than threefold in real terms, at an average real rate of 12 percent per annum. although bank deposits also grew strongly over this period, by two and a half times in real terms, there was a marked rise in bank intermediation, with the ratio of bank loans to bank deposits rising from 53 percent to 70 percent. secondly, there has been a notable strengthening of competition in banking markets. the herfindahl hirschman index of market concentration in the banking market fell from 1, 508 in june 2006 to 909 in june 2016, denoting a substantial reduction in market concentration and an implicit rise in competition. the fact that competitive pressures have intensified in the banking market over the last 10 years is also reflected in a secular fall in the industry ’ s after tax returns on equity, from 32 percent in 2005 / 06 to 14 percent in 2015 / 16. page 3 of 8 it is no longer tenable to argue that banks in uganda make excessive profits. thirdly, although there have been occasional incidents of bank distress and failure over the last 10 years, prompt regulatory

the sector to avoid a decline in output. moreover, they also find that investments which raise productivity in agriculture also boost manufacturing growth, because agriculture is an important source of intermediate inputs for manufacturing. 2 uganda currently only allocates about 3. 5 percent of the government budget directly to agriculture. raising budgetary allocations to agriculture and for investment in rural areas should be a strategic priority. whether or not public spending on agriculture actually contributes to improving agricultural productivity depends on the nature of the spending. there is strong empirical evidence from around the world to indicate that the provision of public goods and services, which are defined as goods and services which because of their character cannot be supplied optimally by the market, have a large positive impact on agriculture with potentially very high social rates of return, if well designed and implemented. 3 examples of the type of public goods and services which are relevant for agricultural development in uganda include : i ) agricultural research and development, to produce improved farm technologies such as high yield seeds and to determine the optimal farm technologies for the conditions prevailing in uganda ; ii ) agricultural extension services to provide information and technical advice to farmers to adopt good agricultural practises and to use appropriate purchased inputs ; this can help farmers raise their yields ; iii ) the construction and especially the maintenance of rural feeder roads to reduce the cost of transporting agricultural produce to markets and raise farm gate prices ; in the data are from “ agriculture for inclusive growth in uganda ” inclusive growth policy note 2, world bank, 2012. lawrence bategeka and john matovu ( 2011 ), “ oil wealth and potential dutch disease effects in uganda ”, economic policy research centre. the evidence is surveyed in enrique blanco armas, camilo gomez osorio, blanca moreno dodson and dwi endah abriningrum ( 2012 ), “ agriculture public spending and growth in indonesia ”, policy research working paper 5977 world bank. bis central bankers ’ speeches terms of encouraging farmers to produce more output for their market, investment in rural feeder roads is more important than investment in main roads ; iv ) the provision of veterinary services and the control of plant diseases ; controlling animal and plant disease is an activity with very large positive externalities ; v ) the provision of market information, for example price information, to help farmers make more informed decisions about which crops to grow and to strengthen their ability to negotiate prices with traders. vi ) clarifying and strengthening land rights and the security of land tenure, to improve incentives for farmers to invest