1) Context

Uganda aspires to be a middle income country by 2040. This would mean more than doubling the average Ugandan‟s annual income of $460, and potentially no longer needing development aid. Successful regional economic integration could help achieve this sooner. Revenues from oil offer good prospects for economic growth, although much depends on how the windfall from oil is managed and invested. Since 2005 Uganda‟s gross national income has increased by an average of 7.6% a year, and inward investment has doubled. There has been good progress towards the Millennium Development Goals (MDGs), with a decline in the proportion of people living in poverty from 31% to 24.5%, and particularly towards MDGs on hunger, gender equality, HIV/AIDS treatment and access to safe water. Uganda has experienced double digit inflation since early 2011 and there is some risk that rising food prices since the end of 2010 could have an adverse effect on poverty levels. But sustained stability and the end of conflict, first nationally and then in the north, have underpinned two decades of progress.

Continued growth has not benefited everyone. In the north, 46% of the population still lives in poverty; nationally, rural areas remain much poorer than towns. Uganda has the third highest population growth rate in the world, which stretches its government‟s ability to provide services such as drugs in health facilities. HIV/AIDS is resurgent, with over 130,000 new HIV infections in 2010. Sharp gender inequalities persist. Only one in three girls completes four years of secondary education. Some 60% of Ugandan women experience violence of some kind but only 5.5% of them report this to the police. Every day, 16 women die from pregnancy or childbirth. Malaria is the country‟s biggest killer, yet only 41% of the population use mosquito nets.

The Ugandan government’s priorities are stability and economic growth. The 2010 National Development Plan states that “the private sector will remain the engine of growth and development”. Other issues, including poverty eradication, democratic development and action against corruption, are seen through this prism. But substantial constraints to growth exist, including inadequate electricity supply and poor transport infrastructure. Financial services are inaccessible, expensive and often unregulated. Climate change will increase pressures on land use. Women and girls‟ lack of access to education and employment reduces economic performance. And standards of governance are stagnating: widespread corruption and weak systems of accountability remain day-to-day concerns for citizens, investors and development partners. There has been no peaceful transition of power since independence. The drivers of past conflict persist: further violence resulting from poor governance, ethnic divisions or unequal regional development would have a rapid and damaging impact on economic progress.

Strengthened East African regional integration will bring opportunities for Uganda to raise its income from trade and to attract greater private investment; and revenues from oil production will further boost the economy if well managed. But oil wealth will bring new challenges. A reorientation of the economy and an appreciation of the exchange rate could undermine existing agricultural exports. Millions rely on agricultural livelihoods. Oil revenues can be volatile and also risk creating opportunities and incentives for corruption.

Some 29 multilateral or bilateral development partners provide support to Uganda. The four biggest – the World Bank, the USA, the European Union and the African Development Bank – provide 60% of total aid. In 2009/10, total external assistance was around $1.6 billion (compared to GDP of $16 billion). The UK is the second-largest bilateral donor. Our strengths include our professional expertise in-country, our willingness to provide leadership in key programme areas, and our approach - aligned closely with national priorities but able to work flexibly enough to influence other development partners and spearhead a range of joint approaches to programming. However, the relative contribution of donors to the Ugandan economy, and the influence they hold, is diminishing including on issues of transparency and accountability.

The broader UK-Uganda relationship includes strong bilateral engagement on diplomatic, political and security issues. The UK is the largest cumulative inward investor to Uganda, with $1 billion in foreign direct investment and an important presence in the energy sector. As a Commonwealth partner, we work with Uganda to protect stability in the region, including through Uganda‟s leading role in the African Union peacekeeping force in Somalia and as a neighbour of South Sudan.