The transition to a green economy requires substantial financial investments estimated at US$1.8 billion annually to 2020. Estimates show that thew current Government’s plans already cover 75% percent of the required investment for the transition to green growth of which 44% is expected to come from the private sector. The additional annual investment is estimated to be around US$450 million per annum, of which US$200 million would be expected to come from public sources [1].
The implementation of mitigation and adaptation actions related to Uganda’s NDS is conditional on the support of international stakeholders. As per it’s NDS, it is estimated that Uganda will require United States dollars 2.9 billion over the next 15 years to address the impacts of climate change in addition to the existing interventions. This represents approximately 1.2% of the country’s yearly Gross Domestic Product (GDP) over the next 15 years (GDP at market prices as of 2011). Uganda expects 70% of the funds to originate from international sources, while national sources will cover 30%.
The foreign direct investment net inflows in Uganda was around 3.6 % of GDP in 2019. The rate peaked in 2007 reaching approximately 6.7 % of GDP [2].
Weak policy interventions continue to pave the way for investments that do not fully integrate environmental and social issues.
Key policies and governance approach
Uganda has put in place relevant institutions and legal instruments. These include the Equal Opportunities Commission and Public Finance Management Act that recognize the need for equity and other aspects of sustainability in development finance. The country’s national budget process is guided by the Budget Act that takes into consideration gender and equity issues. All these are critical steps towards addressing the concerns of vulnerable groups. In 2019 Uganda received 2.1. Billion in Net official development assistance, which represented around 44% of central government expense [3].
Effectiveness of Implementation
Uganda has attempted to translate various sets of international targets into national development plans and priorities. The country has for instance harnessed the 2030 Agenda to renew its commitments to sustainable development goals including the green growth agenda. Multiple stakeholders have also been brought on board to shape discourses on the country’s sustainable finance’s initiatives. While there are positive steps in terms of climate finance flows and the development of nationally determined contributions, far more ambitious plans and accelerated action are needed on mitigation and adaptation. Thus, Uganda is yet to fully embrace the principles of sustainable finance. As a result, most of its financial policies and interventions have not made significant progress in taking into considerations the issues of environmental, social and governance in investment decisions in the financial sector, within the public and private sectors. Given the inadequacy of both Government and development partners’ financing for green growth-related activities, it is absolutely essential to explore innovative means of mobilizing private sector finance to bridge the financing gap [1].
Initiatives and Development Plans
Uganda has strengthened the capacity of domestic financial institutions to encourage and expand access to banking, insurance, and other financial services for all. Access to financial services enables individuals and firms to manage changes in income, deal with fluctuating cash flows, accumulate assets, and make productive investments. Furthermore, improved financial services increase economic growth and help in reducing poverty and income inequality.
The Government with the support of GIZ is currently developing a Climate Finance Strategy which will contain among others, strategies to effectively mobilise domestic and international private sector climate finance to bridge the financing gap. A National Financial Inclusion Strategy 2017-2022 was launched recently, making Uganda the 44th country to adopt a financial inclusion strategy. It aims at reducing income inequalities and meeting the financial needs of the poor through increased access to quality affordable financial products and services especially by women and children who are the most excluded [1].
Furthermore, according to Uganda’s Multi-Annual Indicative Programme, sustainable finance represents a real potential in the region and could help accelerate financial flows towards green, inclusive and resilient transitions (e.g. through green bonds and other relevant sustainable finance instruments). Blended financing and de-risking via guarantees will be one of the means of implementation in the programme, particularly in implementing the European Green Deal in the country. This could include the area of sustainable finance to promote climate finance, taxonomy, biodiversity financing, payments for ecosystems services among others. It can also be used for greening certain value chains, notably in the areas of forestry, eco-tourism, extractive industries, agribusiness, digitalisation and infrastructure investments. In particular, the mobilisation of guarantees can be a strong added value in sectors like commercial forestry where the EU has invested for the past 14 years or to support investments to promote biodiversity interventions [4].
Goals and Ambitions
To strengthen the access to sustainable finance, Uganda should consider the following recommendations:
- The Ministry responsible for finance should increase public expenditure for green growth initiatives;
- The Ministry responsible for finance should increase public expenditure in activities relating to sustainable development and management and protection of natural systems; investing in people and improving their lives through green policy processes; greening economic sectors; influencing flows in green finance; and measuring progress towards greening the economy.
- Through the national budget, the government should try to influence interaction with the environment by using financial carrots and sticks to improve the environment [1].
- Innovative finance mechanisms have the potential to improve Uganda’s food security and nutritional diversity and improve rural communities’ capacity to live through shocks, which are becoming more recurrent and intense with climate change and COVID-19.
- The Ministry responsible for finance should increase public expenditure for green growth initiatives;
- The Ministry responsible for finance should increase public expenditure in activities relating to sustainable development and management and protection of natural systems; investing in people and improving their lives through green policy processes; greening economic sectors; influencing flows in green finance; and measuring progress towards greening the economy.
- Through the national budget, the government should try to influence interaction with the environment by using financial carrots and sticks to improve the environment.
[2] The World Bank Data. Foreign direct investment, net inflows (% of GDP) - Uganda
[3] The World Bank Data. Net ODA received (% of central government expense) – Uganda