Balance investments in infrastructure and human capital

Massive infrastructure development alone without well trained and skilled personnel will not help the country achieve desired economic growth targets.

Kampala, Uganda | PATRICIA AKANKWATSA AND JULIUS BUSINGE | This was the message directed to the government during the recently concluded infrastructure conference in Kampala titled ‘infrastructure and human capital investment for growth and development in Uganda.’

The conference was organized by the African Development Bank in partnership with the International Monetary Fund and the Ministry of Finance Planning and Economic Development at the Kampala Serena Hotel on Oct.04.

Edward Buffie, an executive at the AfDB said though the government is spending heavily on key infrastructural projects, it should equally invest in human capital.

“Investment in human capital generates larger development gains in the long run but infrastructure scores better at the 15 year horizon,” he said.

Other areas that need to be addressed include; sufficient capacity to implement projects, proper funding of maintenance and the need for reforms to increase investment efficiency.

Buffie said in the event that the government is sure that the returns to education is correct, then, investment in upper education is more effective than investment in infrastructure.

This comes as Uganda’s current National Development Plan (NDP II) identifies infrastructure and human capital development as fundamental for the realization of its objectives.

At regional level, Uganda’s focus on infrastructure development is in tandem with that of the partner states in the East African Community, which all aim to boost their trade competitiveness.

The government is currently investing in various infrastructure projects including; Karuma and Isimba hydropower plants and the Entebbe International Airport.

Clara Mira, the International Monetary Fund Resident Representative, Uganda, said it is important for the government to strike a balance in investing in infrastructure and human capital.

“Uganda could effectively expand capabilities of its people particularly children by addressing social wellbeing through relevant sectors in order to transform the country from a peasant to a modern and prosperous country as anticipated in Vision 2040,” she  said.

Kasekende agrees with other speakers

Meanwhile, the Deputy Governor at the Bank of Uganda, Louis Kasekende, said public investments provide a near-term boost to economic growth and there is an enormous amount of economic evidence demonstrating that public investment is a significant long-run driver of productivity growth.

He concurred with the previous speakers that for infrastructure to result in economic transformation, it has to be combined with a skilled labour force.

“Public investment in infrastructure at the cost of human capital development will not support Uganda’s economic transformation,” Kasekende said, adding that Uganda’s prosperity in the years ahead will largely depend on its skilled human capital which is useful for innovation and supporting economic growth.

However, Kasekende said expanding public investment in human capital and skills raises the issue of sources of funding such as taxes or changes in the composition of public spending.

“This therefore points to the need for the right mix of public infrastructure investment and social spending,” he said.

He added that even if public investments spur long term growth, Uganda faces challenges of public investment management and financing these investments.

However, he said that concessional financing has substantially declined but access to international financial markets has eased.

He, therefore, said the opportunity to borrow at concessional rates to meet infrastructure needs has become very tempting, especially in anticipation of oil revenues, which serve as collateral for borrowing from international markets.

He said that public investments financed by public borrowing against future oil revenue is a precursor for a resource curse.

Moreover, he added that Uganda has a low public investment efficiency. He warned that if public investment is scaled up quickly, absorption capacity constraints could drive public investment costs further.

Uganda’s public debt has risen sharply since 2009/2010with nominal debt to GDP ratio increasing from 19.2% in FY2009/2010 to 42.2% in FY2018/19.

Given the current commitments on infrastructure projects by government, debt is projected to increase further to around 45.7% of GDP in FY2019/20.

Kasekende said, there are risks to the rapidly rising public debt, especially the external debt that has risen on an annual basis at an average of about 18% in the four financial years to 2018/19.

“…it is important for Uganda to strike a balance between the need for public investments and managing public finances,” Kasekende said.

Julius Mukunda, the executive director at the Civil Society Budget Advocacy Group (CSBAG) said completion of government projects on time should also be a priority.

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