Fellow Countrymen

Economic Performance in 2007
Over the past year, our economy is estimated to have expanded at a robust pace of about 7 percent per annum, despite shocks to the economy that included the power shortages which the Government is working hard to eliminate, and the floods that disrupted production in a larger part of Northern and Eastern Uganda. This strong economic growth, which is consistent with the growth our economy registered between 1995 and 2000, was mainly on the account of a continued strong growth in industry and services.
Within the industry sector, the major source of growth in the past year has been in the construction, manufacturing and electricity sub-sectors. The construction sub-sector registered a growth of 11.8 percent in 2006/2007 and is expected to grow by 17 percent in 2008. Much of the construction was by the Private Sector, which recorded a growth of 17.4 percent, last financial year. The decline in manufacturing and electricity that occurred in 2006 was reversed, registering a modest growth of 5.0 percent p.a and 1.6 percent p.a, respectively in 2007.

The agricultural sector registered a modest recovery following the drought in 2005. There was a strong recovery of the cotton sub-sector in 2007 where growth in this sub-sector was 18.8 percent compared to a decline of over 60 percent in 2006. A total of 14,000 thousand bales of cotton lint were processed in 2007 compared to 10,000 thousand bales in 2006.

Tea and cocoa also registered a growth of 4.9 percent and 79 percent respectively. Coffee and tea are projected to improve even further over the medium term in view of the Government interventions under the Strategic Export Programme and partly in response to the rising international prices. Inspite of the recovery in the agricultural sector, the transformation of our economy is continuing steadily, in response to the excellent economic policy framework that has been in place for the last 15 years. The share of agriculture, which was over 42 percent a decade ago is now about 29 percent as at end of June 2007.

The share of industry is currently about 21 percent compared to 18 percent ten years ago and 9.1 percent in 1986. However, this is not good enough. We need more industries to create enough jobs for our youth and I am happy to inform Ugandans that the NRM Government is working tirelessly to remove impediments towards a faster pace of industrialization. I will, later talk about how the NRM Government will deal with these impediments, such as those in infrastructure especially roads and electricity later.

As a manifestation of the process of structural transformation, the size of the informal sector has also continued to decline, now accounting for 17.6 percent of GDP compared to 22.7 percent in 1997/98. The decline in the informal sector, coupled with a decline in the share of agriculture to GDP, means that labour is moving from agriculture which is mainly subsistence and from informality, to the formal sector in industry and services where labour would be better organized in order to increase productivity in the economy. As I said in my New Year's message a year ago, these shifts constitute the continued process of structural transformation of our economy.
The shifts in labour from agriculture to other sectors on the economy would create the necessary conditions for agricultural commercialization which would increase productivity in agriculture and therefore, improve incomes in rural areas. I cannot fail to, again, express my anger at those that delayed our electricity programme in the Sixth Parliament. Our GDP rate would be much higher-9, 10 or 11% as happened in 1994.

Export Performance and International Reserves
Exports continued to do well in response to our deliberate policy of export diversification and value addition. During the fiscal year that ended June 2007, our total exports, including goods and services, was US$ 1.758 billion compared to US$ 1.395billion recorded in the previous year. This is an increase of 42% in a single year! Non-coffee exports (excluding services) increased by 50 percent from US$571 million in 2005/06 to US$ 854 million in 2006/07, while coffee exports increased by 32 percent from US$ 173 million to US$ 229 million in the same period. I expect export performance for 2008 to perform even better as regional peace and stability is restored and greater trade takes place within the Great Lakes Region. The US$1.7 billion forex earnings mentioned above does not include the US$731,000 million from abroad (kyeyo). If that is included, our forex earnings come to US$ million.

On account of a significant increase in Private Sector imports to support an expanding economy and an increase in the Oil Bill due to the hike in international oil prices, the trade deficit widened by 16 percent in the fiscal year ending June 2007. This underscores the importance of industrialisation to manufacture some of the products we are now importing, together with having a strategic export sector strategy to add value to our raw materials by processing and through improving the quality and branding of our products so that they access premium niche markets.

We also need a bigger market for our exports. By continuing with the integration of the East African Community, we hope to strengthen intra-regional trade, but also target markets outside the Community such as Europe, USA, China, etc. Integrating into a single East African market will also provide a platform for trade negotiations such as the recently concluded EPA with the European Community that would allow our exports to reach European markets with reduced restriction.

Our international foreign reserves, which reflect the number of months of imports the economy has in reserve, are currently about US$ 2.5 billion, the equivalent to 7 months of imports of goods and services. The strong reserve position and a diversifying export sector have helped our economy to withstand external shocks such as the escalating international oil prices.

Prices
The exchange rate, or the price of the US Dollar in Uganda Shillings, remained broadly stable during 2007, with a slight appreciation of the shilling against the US dollar of about 6 percent between November 2007 compared to 12 months earlier. Inflation which averaged 6.6 percent per annum during 2006 mainly on account of the high international fuel prices which led to escalation of prices in almost all sector of the economy, had declined to 1.0 percent per annum by November 2007.

Prospects for 2008 and the Future
The prospects for the economy in 2008 are even brighter. GDP growth is expected to continue at a pace of, at least, 7 percent per annum. This growth will continue to be powered by expansion in the industrial sector and services which are expected to grow by [10.1' percent and 9.5 percent per annum, respectively, in this Fiscal Year 2008.

In industry, the major sources of this growth will be in mining, electricity in view of the heavy investments in hydropower sources and in the construction sub-sector. In the services sector, strong growth will continue in transport and communication particularly;
Air and support services - (13.2 percent),
Post and telecommunications - (30.4 percent);
Health services - (10.2 percent) and
Wholesale and trade - (8.5 percent).

This growth is due to a Private Sector response to the continued policy reforms and investments that the Government is undertaking in the critical sectors of our economy.

Key Priorities for 2008 and the Future
The NRM Government's key objective is to substantially increase the incomes of the Ugandan people and transform the economy. In order to achieve this, the economy must sustain at least a growth rate of 7 percent per annum in order to rapidly create wealth for the Ugandan people. The key priorities for the NRM Government in 2008 and the medium term are, therefore, as follows:-

1. Enhancing the pace of Industrialisation of the Uganda Economy and consequently providing gainful employment to a growing number of our workforce by developing industrial parks
2. Developing energy infrastructure to support economic and social development across Uganda
3. Lowering costs of communications through utilization of the National Data Transmission Backbone.
4. Eliminating the back-log on national and district road maintenance and embark on new road construction
5. Developing a master plan for national rail network;

6. Implementing measures to improve the business climate, including maintaining macro-economic stability, undertaking pension reform, reforming commercial law etc.

Industrialisation
The key to sustainably increasing incomes and wealth of Ugandans is to rapidly transform the economy through industrialisation and creating gainful employment for our labour force, especially the youth, while also expanding the services sector. The NRM Government will accelerate the pace of industrialization by facilitating investors and developing strategic partnerships to support the industrialisation process at all levels.

The NRM Government will develop an Industrial Park in every regional center in Uganda to support investors with workspaces serviced with the necessary facilities such as electricity and water. This will be done in collaboration with strategic developers such as the Uganda Gatsby Trust. A good example of this has been the development of the Mbarara Industrial Park by the Gatsby Trust,
which has bought land and completed construction of 60 industrial workspaces for their members in Mbarara on their own, with support from the Government of the United Kingdom and bank loans. In view of this excellent initiative, Government will support such ventures and build Industrial Business Parks in Arua, Lira, Gulu, Soroti, Moroto, Mbale, Tororo, Iganga, Jinja, Luwero-Nakaseke, Nakasongola, Bushenyi, Kabale, Kasese, Fort-Portal, Hoima, Rakai and Mubende. I am directing the relevant Government agencies, under the leadership of the Ministry of Finance, to work out a framework on how these ventures involving the Private Sector, will be operationalized. Construction of these Parks will commence beginning 2008 in a phased manner. Support to the Mbarara Industrial Park and the completion of the Namanve Industrial Park will be undertaken in 2008.

In order to expedite this undertaking, I am directing the Ministry of Finance to provide adequate resources for the construction of business industrial parks over the medium term.

Energy
In 2007, Government provided resources for the construction of the Bujagali Hydropower station to start earlier than had been programmed. I am pleased to report to fellow Ugandans that the construction of Bujagali Power Dam is in progress and moving on smoothly. I am now directing the Ministries of Energy and Finance to commence with the fast-track development of the Karuma Hydropower Project in 2008. The completion of these two projects is a key objective towards the immediate industrialization and transformation of the Uganda economy. This will also reduce reliance on expensive thermal power, enhance the rural electrification programme and eliminate load shedding. In the medium term, the development of 100 MW Isimba Hydropower Project and other renewable energy generation projects e.g. at Kakira, Lugazi and Kinyara will be undertaken. Improved efficiency measures, like; the use of solar photovoltaics and solar water heaters; biogas and production of electricity from municipal waste for sale of power into the grid will be enhanced.

In future, the development of large hydro-power sites at Ayago North (300MW), Ayago South (200MW) and Uhuru (300MW), will be undertaken. Construction of power dams also demand that power generated be distributed to reach consumers and this means we need to upgrade some transmission lines and build new ones where none exist.

Oil and Gas subsectors
Petroleum exploration in Uganda continues to register unprecedented successes. Following successful Petroleum exploration in which a string of discoveries were made in 2006 and early confirmation of the commercial viability of these discoveries, Government entered into a Memorandum of Understanding with the Hardman Petroleum Africa Pty Ltd in November 2006 for an early production scheme. Hardman has since January 2007 been wholly acquired by Tullow Oil Plc.

The early production scheme is expected to commence in mid- 2009, with the following components:
(i) a modest production of 4,000 barrels of oil a day to supply stabilized crude oil;
(ii) a mini-refinery to process crude oil to produce diesel, kerosene and heavy fuel oil;
(iii) a generation unit that will use heavy diesel oil to generate 50-85 MW of electricity;
(iv) a 273 km transmission line from Kaiso-Tonya through Fort-Portal to Nkenda sub-station near Kasese to convey the electricity generated using heavy diesel oil to the national grid;
(v) Expansion of the early production scheme as soon as the full potential of the oil reservoirs is established and the optimum production rate is determined.

The oil and gas discovery in Uganda is a significant asset and resource for the country and, therefore, should be handled carefully. On account of the rapid expansion of the oil sector in the country, the existing oil and gas policy and the legal framework will soon be revised.

Government is also working to strengthen the technical and managerial capacities in the handling of oil resources. Oil resources will be for all Ugandans irrespective of where the reserves are located, in accordance with the provisions in our Constitution. We will use our oil revenues to improve our infrastructure in order to increase competitiveness of our economy. The areas where oil is located will also benefit from improved infrastructure including roads, schools, health units and improved prospects for employment of the local people in the area.
Besides, our constitution provides for unique benefits for the peoples of the area where petroleum, gas or other minerals are discovered.

The NRM Government will ensure that prudent policies, transparency and accountability of operations occur to ensure efficient extraction of oil and gas; there is prudent management of the financial proceeds; and also build consensus on the effective long-term management of the oil wealth to the benefit of all Ugandans.

Telecommunication
Telecommunications continue to expand particularly in the mobile telephones sub-sector and I am happy to report that Government has licensed two additional mobile telephone operators and their operations will start soon. The entry of more service providers in the market will help to increase competition in the sector and, therefore, improved customer service through reduced costs and better quality services. Private sector companies, including telecommunication companies, are also investing heavily in ICT which should help faster transfer of data and processing, with a significant potential to create jobs and exports services without Ugandans actually leaving the country to work abroad.

To complement the work of the Private sector and in view of the heavy capital outlays involved, the Government has invested in an US$ 90 million ‘National Data Transmission Backbone' to speed up coverage and to lower the cost of internet connections. I, therefore, urge private companies to take advantage of this facility and help to lower the cost of doing business. I am directing the Ministry of ICT to implement measures to pass on the benefits of the first phase of this project to the Nation over 2008.

Transport
The transformation of the economy into industrial production and services requires a transport system that provides easy connectivity within the country, in the region and internationally. The objective of the Government in this regard is to improve infrastructure in roads, railways and air transport.

In the road sector, a number of construction projects have been going on smoothly after resolving the initial contractual problems that prevented faster implementation of new projects.

In the course of the next two years, construction of the following roads will commence and/or will be completed: Fort-Portal-Bundibugyo; Kabale-Kisoro-Bunagana; Soroti-Dokolo-Lira; Gayaza-Zirobwe; etc. The upgrading of the Kasio-Tonya-Hoima; Matugga-Semuto-Kapeeka and the Kampala-Mbarara roads. The construction of a second lane for the Northern Bypass will also start in 2008.

However, we still face challenges of maintaining our road network. In order to overcome this problem, the Government has established a Road Fund to specifically earmark resources for roads maintenance. I am directing the Minister of Finance, together with the Minister of Transport, to increase budget allocation for roads maintenance to eliminate the backlog on road maintenance at national and district levels in 2008. I have also given instructions to the Ministers of Finance and Works to, if necessary, use our Government of Uganda money to start work in the next two years,
on the tarmacking of the following roads: Mukono-Katosi; Mpigi-Kabulasoke-Maddu; Mbarara-Kikagate; Mbale-Magale-Bumbo; Muyembe-Namalu-Moroto; Ntungamo-Mirama Hill and other priority roads. The routes to link us with Southern Sudan are also crucial and must be tarmacked. These are Gulu-Atiack-Bibia and Arua-Koboko-Oraba roads.

I am aware that these funds are not always utilized efficiently and I want to warn public servants and contractors alike and all Government agencies, to refrain from abuse of taxpayers' money. The Government will strengthen anti-corruption measures and will punish anyone who will misuse or divert public funds. In this regard, I am informed that about Ushs 120 billion is allocated for roads equipment maintenance in FY 2007/08, even though the maintenance of roads is contracted out to the Private sector. I am, therefore, directing the Minister of Transport to report on how this money has been utilized.

With respect to the railways, the implementation of reforms in the sub-sector led to the concessioning of the national rail network, together with Kenya Railways, to a private concessionaire. The operation of the rail network, specifically between Kampala and Malaba, has greatly improved in efficiency. The number of days from Mombasa to Kampala have been significantly reduced from 22 days in 2005 before the concessioning to 7 days currently. With the expected investment by the private concessionaire, which will include increasing the number of locomotives and improved infrastructure, freight from Kampala to Mombasa and vice versa is projected to increase significantly in the near future, which will help lower the freight costs. In view of the importance of rail transport in reducing transport costs, I am directing the Minister of Transport in 2008 to embark on measures for re-opening of the railway between Tororo and Gulu and Pakwach and between Kampala and Kasese. In addition, the Minister will develop a master plan for the further development of the national rail network. With respect to air transport, work will start in 2008 on upgrading the Kasese Airfield and the reconstruction of the Gulu airfield to become a hub to serve the region.

Business Environment
Maintaining sound macroeconomic policies and developing a skilled and flexible labour force will be the key fundamentals in enabling the private enterprises to operate successfully. Since 1987, the NRM Government has maintained macro-economic stability and implemented structural reforms that have led to liberalization of the economy and created the environment where the Private sector makes the decisions on how efficiently to allocate resources. This has served us well. The performance of the private enterprises improved tremendously due to our business friendly policies. Since 1991, the Uganda Investment Authority (UIA) has registered 3,026 companies, out of which 3,010 of them have already been implemented, creating a total number of 286,457 jobs.

In 2008, Government will improve the business environment for investors by removing hurdles that they face, including lack of serviced land and bureaucratic red tape. Over the coming year and in the medium term, the Government will continue to give priority to the following:
(i) Enactment of commercial laws;
(ii) Undertaking pension reforms, initially to provide a framework to regulate pensions, and later liberalising the sector;
(iii) Computerization of the Land and Company Registries;
(iv) Eliminating red-tape by public servants; and
(v) Strengthening the fight against corruption.

NAADS
In the Agricultural sector, you will recall that I suspended NAADS operations and put in place a Cabinet sub-committee to review the design and implementation modalities. The review has been completed and its recommendations are being implemented, with a view to enhancing agricultural production and productivity.

A revised NAADS Strategy will include a programme to supply improved varieties and inputs to farmers based on capacity building within the community linked to SACCOs and marketing cooperatives. The provision of technological inputs will be linked to the production of specific commodities including coffee, tea, cotton, fish farms and fruits. NAADS will make it its priority that all agricultural produce which is not consumed fresh is processed into finished or intermediate goods. This is to eliminate post-harvest waste, increase the shelf life of the products and increase our export capacity.

Education
In 1997, the NRM Government introduced Universal Primary Education (UPE) with the aim of increasing access, equity particularly for girls and quality of primary education and to eradicate illiteracy and subsequently transform society. This led to a significant rise in the number of primary school enrolments from approximately 2.5 million in 1996 to 5.7 million in 1997. In 2007, 7.4 million were enrolled, of which 49.9% were girls. It is clear from these figures that the two objectives of increasing access and equity have been achieved in the last ten years. We are, therefore, on course to reach the Millennium goals in this area before 2015-and Ugandans should be proud of this achievement.

When children graduate from primary, they need to go to either secondary schools or vocational training colleges. In view of this, the Government introduced Universal Secondary Education (USE) in 2007 to expand equitable access to secondary education for all pupils who have successfully completed primary. USE will be limited to Senior One to Four and will target the needy but bright children in the remote, rural and poor communities who cannot afford the cost of education. I have noted some delays in the implementation of the USE program, primarily because of inadequate prioritization in our budget. I am, therefore, directing the Minister of Finance to provide adequate resources for this program to start without any further delays and give priority to science education. I have also decided to provide tax incentives to those private schools that are investing in quality science education. The Ministers of Finance and Education will work out a mechanism on how to implement this measure.

A critical feature in both the Universal Primary and Secondary initiatives has been limited efficiency of the Education system. I am aware that while enrolment numbers have grown significantly, completion rates are still low. Government will ensure that once children are enrolled, they complete primary education. This problem must also not spread to Secondary Education. Government will, therefore, improve the efficiency and the quality of the Universal Primary and Secondary Education system by strengthening the Education Standards Agency (ESA) in 2008 to undertake the inspection function and remove wastage and misuse of resources.

With respect to the Technical and Vocational Education system, the NRM Government is currently undertaking reforms aimed at revamping it, to meet the growing demand for technical skills in the labour market. The establishment of the Uganda Vocational Qualifications Framework to standardize and rationalize vocational training as a basis for assessment of skills and competency levels will be completed in 2008. The Government will also operationalise community polytechnics where they exist, and also establish more in counties that do not have any.

Health
In the Health Sector, I am concerned about the outbreak of diseases such as the recent Ebola episode. Government will continue to develop capacity to monitor and contain such diseases outbreaks anywhere in the country. I commend Health Sector personnel for their dedication in dealing decisively with the recent outbreak and those who lost their lives in the effort to save the lives of others.

The health system in Uganda has continued to suffer from poor service delivery, mainly as a result of inefficiency. I abolished the payment of user charges in [2000] to enable access by all Ugandans. The health centers continue not to have drugs and health workers are always absent from duty stations. Inefficiency and consequently, poor service delivery and corruption that leads to drug outages in health centers must be dealt with decisively. The Health Sector needs to develop mechanisms to ensure that health workers are in health centers as is required, just like the inspection function should work in the Education Sector. Drug thefts by health workers, as revealed recently by civil society, must stop henceforth. The Ministry of Health must devise mechanism to ensure inefficiency and theft in the health sector is eliminated. The sector should immediately institute accountability measures, for example, the labeling of drugs, so that any drug stores found with them will be severely punished. Health workers should also not be allowed to work in private health clinics and drugs stores when they have not provided their minimum required work hours in the Government health centers. In future, we shall ban the double allegiance.

Peace, Reconciliation and Economic Recovery of Northern Uganda

I want to inform Ugandans particularly those from Northern Uganda that the terrorism that was causing immense suffering of our brothers and sisters from that region, has practically ended. The peace process which has resulted in the return to their homes of internally displaced people has created a conducive environment for Government and private investments to be undertaken and, therefore, the region is set for faster economic recovery and consolidation of peace. The Private sector is booming in the North, a sign of the trust that investors have in the future of Northern Uganda.

As a manifestation of the end to the conflict in the North, on the 15th of October 2007, I launched the Peace, Recovery and Development Plan (PRDP) for Northern Uganda, as a stabilization plan aimed at consolidating peace through: consolidation of State Authority; Rebuilding and empowering communities; revitalization of the economy of Northern Uganda; and peace building and reconciliation.

The PRDP will, therefore, not be limited to recovery and rehabilitation of Northern Uganda, but will also be an instrument for the transformation of the economy of Northern Uganda. For this reason, the PRDP contains, among others, programmes for increased investment in infrastructure and proposals for industrial initiatives particularly on sugar and fruit processing. I urge the people of Northern Uganda and all Ugandans in general to take advantage of the improved environment in the North, by embarking on gainful economic activity.

I thank all of you for listening to me and I wish you a Prosperous 2008.