CHAPTER 4
Findings and Observations
R
emi ance flows continue to grow and be significant for the Ugandan economy. Over the years, they have overtaken the FDIs and, by 2006, nearly matched ODA. At the macrolevel, remi ances contribute to smoothing the balance of payments in Uganda. At the microlevel, remi ances are mostly distributed in cash and are used mainly for consumption and education. Overall, it could be stated that remi ance flows have supported wealth creation and contributed toward increased welfare gains to recipients. This chapter summarizes the findings and observations of Uganda as a remi ance-receiving country and the impact of the three bilateral remi ance corridors: United Kingdom–Uganda, United States–Uganda, and South Africa–Uganda. In order to harness the development potential of remi ance flows, Uganda has to overcome certain challenges. These challenges are broadly identified as developmental measures that are necessary to ensure market efficiency and to simplify the remi ance process and risk minimizing measures necessary to mitigate remi ance risks and avoid reputational problems. Some of the developmental and risk minimizing policy responses taken by Uganda are also highlighted
Summary of Findings in Uganda
Population and labor force growth rates over the past five years averaged around 3 percent. Estimated population growth for the next two decades is also around 3 percent. These factors indicate that Uganda would be in a position to increase the labor export in the foreseeable future. Recorded remi ance inflows to Uganda have been increasing. In 2008, the inflows reached US$723.5 million, which accounts for approximately 5 percent of the GDP. Remi ance flows have grown faster than both FDI and ODA, a phenomenon observed globally. However, despite the efforts by the BOU to improve the quality of remi ance data, it is a challenge to identify sources of remi ances and market share by service providers. Present estimation and recording methods do not warrant such data analysis. Formal MTOs and commercial banks play an important role in distributing remi ances. Local MTOs are able to engage in remi ance services following the enactment of the Foreign Exchange Act 2004. In the United Kingdom–Uganda corridor, local MTOs dominate the market while international MTOs and banks lead the market in the United States–Uganda and South Africa–Uganda corridors. Several microfinance deposit-taking institutions distribute remi ances in agency partnerships with international MTOs. However, capital requirements under the new regulations and international MTOs dominating local partners through exclusivity contracts are barriers for newcomers to the remi ance market in Uganda. Using a bank is a high hurdle for remi ance recipients. Banks charge higher fees to open and maintain accounts as well as for remi ance transfers; hence, remi ers and recipients are known to choose remi ance mechanisms that do not require 55