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Investment in infrastructure gets Uganda up and running

13.07.2007
Investment by the Ugandan government in physical infrastructure will pay itself back says Dutch-sponsored researcher Aldret Albert Musisi. Each shilling that the government invests in infrastructure will yield a return of 1.2 to 3.6 shillings. This seems to be substantial enough to counteract the symptoms of the so-called 'Dutch disease': the phenomenon where currency value rises and the economic position of a country deteriorates due to investments with development funds.

Musisi argues that the Ugandan government should invest 24 percent of the gross domestic product in physical infrastructure. Then in the mid to long term the investment will have a highly positive effect on various sectors.

The research reveals that most districts in Uganda have very low levels of infrastructure for it to have any significant productivity effects. Only one-fifth of the Ugandan districts investigated have the critical density (threshold value) required to stimulate growth. Further investments in the electricity network seem to yield the greatest return and the services sector in particular clearly benefits from investments in the infrastructure.

The returns to the industrial sector also considerable, while other types of infrastructure have a positive effect on the agricultural sector. Musisi therefore calls upon the government to make investments in infrastructure a top priority because it can play an important role in the process of economic structural change, a major channel through which developing countries can escape from low-growth development traps.

Strengthening of socioeconomic research

Musisi's research has contributed to a strengthening of research conducted at the Ministry of Finance, Planning, and Economic Development in Uganda. Cooperation with the Institute of Social Studies (ISS) in The Hague has resulted in a development project that is being implemented in collaboration with the Economic Policy Research Centre, the most important think tank of the Ugandan government as well as the Uganda Bureau of Statistics. During that project it transpired that the Ugandan government lacked important information and therefore, together with the ISS, a Social Accounting Matrix (SAM) was set up. This matrix is to be used as a basis for building a computer model that can be used for socioeconomic research and analysis.

Current views called into question

The results of Musisi's research challenge the current tendency to reduce investments made by the government in developing countries, pinning hopes on the private sector to bridge the gap. The decline in public infrastructure investments has not been offset by higher private investment in infrastructure which is having negative effects on economic growth. According to Musisi, investments in the infrastructure can also have a significant contribution to poverty alleviation, the country’s major development objective.

Dr Aldret Albert Musisi | alfa
Further information:
http://www.nwo.nl/nwohome.nsf/pages/NWOA_74HHSK_Eng?Opendocument

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