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Business Insight: Uganda

In Uganda, donors divided on response to aid embezzlement scandal

By Lorenzo Piccio10 December 2012

Uganda ranked 130th out of 176 countries in the Corruption Perception Index 2012 released Dec. 5 by Transparency International. Photo by: futureatlas.com / CC BY-NC-SA

Last week, the European Union became the latest donor to suspend budget support to Uganda in the wake of allegations that up to $13 million in aid money may have been embezzled through the prime minister’s office. EU Ambassador to Uganda Roberto Ridolfi called the reported misappropriation of funds, which were intended to support stabilization and development programming in Northern Uganda, “a breach of trust.”

In response to the allegations, the United Kingdom, Denmark, Germany, Ireland and Sweden had earlier suspended budget support to Uganda. Norway – one of four donors to reportedly lose aid money in the embezzlement scandal – ceased general budget support to Uganda in 2010. Ireland, Sweden and Denmark have also lost aid money, according to the Ugandan auditor general which uncovered the misappropriation of funds in the prime minister’s office.

Ugandan Prime Minister Patrick Amama Mbabazi has since apologized for the reported embezzlement of aid money. Seventeen officials, including from Mbabazi’s office, have been suspended without pay.  

Analysts say that the nearly $300 million in budget support cutbacks from aid donors will likely take a serious toll on the Ugandan economy, which had been one of the fastest-growing in sub-Saharan Africa in recent years. On Tuesday, Uganda’s central bank governor predicted that the cuts will set back the country’s economic growth by 0.7 percent over the next 12 months. Uganda relies on external financing for about a quarter of its public expenditures.

Invariably, the allegations in Uganda will trigger questions about the practicality of on-budget support in this value for money and results-focused era. Donor governments and elected officials, already under stress from austerity, remain fearful of these types of high-profile corruption cases, which go public and cause taxpayer backlash. As the investigation in Uganda unfolds, it will be interesting to see how donors handle the situation and if it affects the way aid money is being spent in other developing countries with poor governance and weak budget accountability.

Yet even as more European countries join the ranks of donors freezing budget support to Uganda, a number of other donors have postponed judgment on the aid embezzlement scandal (see graphic below).  In fact, none of Uganda’s three largest donors – the United States, African Development Bank and World Bank – have announced cuts to their aid spending in the East African country since the Ugandan auditor general unearthed the corruption allegations in October.

United States

On November 21, U.S. Ambassador to Uganda Scott H. DeLisi announced that the United States would maintain its assistance to Uganda despite the scandal. DeLisi has also said that he is “deeply concerned” by the reported embezzlement of aid money. In line with Washington’s longstanding preference for project-based aid, the United States does not provide budget support to Uganda.

However, the recent revival of an anti-homosexuality bill in the Ugandan parliament may yet prompt the administration to re-evaluate its development partnership with Uganda. In February 2010, U.S. President Barack Obama had strongly condemned the bill which would make some homosexual acts in Uganda a crime punishable by death. Late last year, in a historic directive, Obama instructed U.S. aid agencies to consider host countries’ treatment of lesbian, gay, bisexual and transgender people in making funding decisions.

For fiscal 2012, the United States has budgeted $461 million in foreign aid to Uganda, keeping its standing as the largest donor to the East African country. The bulk of this amount has been allocated to health programming through the President’s Emergency Plan for AIDS Relief. Uganda is a focus country for each of the Obama administration’s marquee global development initiatives: the Global Health Initiative, Feed the Future and Global Climate Change Initiative

African Development Bank

AfDB has not issued a statement in response to the allegations of aid embezzlement in Uganda. On November 12, in an apparent sign of the bank’s continued support for Uganda, AfDB approved a $103 million project to support higher education, science and technology in the country. Through the project, 35,000 Ugandan students will be able to enroll in science, technology and innovation programs, according to the bank.

In its 2012-14 program budget, AfDB anticipates $285.5 million in total lending to Uganda this year. The bank’s Uganda portfolio focuses on infrastructure development, as well as capacity skills development. On a visit to Kampala last month, AfDB President Donald Kaberuka met with Ugandan president Yoweri Museveni to discuss ongoing cooperation between AfDB and Kampala, among other issues.

World Bank

In a statement released on November 14, the World Bank revealed that the multilateral lender was reviewing its assistance to Uganda in light of the findings of the country’s auditor general. The bank pledged to work with the Ugandan government and other development partners to help the country deliver on its national policy of zero tolerance for corruption.   

For 2012, the World Bank has approved a total of $235 million in lending to Uganda. The bank’s lending to the country this year has comprised of $135 million for a water management and development project and $100 million for a poverty reduction support credit program. According to its 2011-15 country partnership strategy, the bank’s priority sectors in the country are inclusive and sustainable economic growth, public infrastructure, human capital development and governance.

United Kingdom

On November 16, U.K. Secretary of State for International Development Justine Greening announced that the United Kingdom was immediately suspending budget support to the Ugandan government. Greening’s move was informed by initial evidence from the U.K. Department for International Development’s own audit of the Ugandan prime minister’s office which indicated that aid money may have been misused. Only last year, the U.K. bilateral aid review named Uganda as one of 27 countries where U.K. aid programs were not only most needed but also delivered the greatest impact.

For fiscal 2012-13, the United Kingdom had planned to spend 26.9 million pounds ($43.1 million) in budget support to the Ugandan government. Budget support currently accounts for 27 percent of British aid spending in Uganda. Last year, DfID set in motion plans to reduce the share of budget support in its Uganda program through 2015.

Following its freeze on budget support to Uganda, the Cameron administration has taken steps to reaffirm its development partnership with the country. In a speech in Kampala last week, DfID Permanent Secretary Mark Lowcock emphasized that the agency’s programming in Uganda – which focuses on the health sector – will continue. And at the recently concluded U.N. climate change conference in Doha, U.K. Secretary of State for Energy and Climate Change Ed Davey pledged 14 million pounds to support small-scale renewable energy projects in Uganda. 

European Union

On December 3, EU Ambassador to Uganda Roberto Ridolfi told an audience in Kampala that Brussels would be suspending budget support to the East African country for at least the next six months. Under the 10th European Development Fund – the EU’s principal financing instrument for aid to Uganda – Brussels had allocated 460.9 million euros ($594.4 million) in foreign assistance to the country from 2008 to 2013. More than 50 percent of this amount was slated for budget support to the Ugandan government.  

Only in November of last year, EU Commissioner for Development Andris Piebalgs visited Uganda to make a push for innovative financing, as well as public-private partnerships in the country’s agricultural sector. Piebalgs called Uganda an “excellent partner country to start putting our ideas into practice.” Rural development – in addition to transport and macroeconomic development – are the EU’s priority sectors in its Uganda aid programming.

Denmark

On October 31, Danish Minister for Development Cooperation Christian Friis Bach announced that Denmark was immediately suspending budget support to Uganda. Denmark was one of four donors to reportedly lose aid money in the embezzlement scheme at the Ugandan prime minister’s office. Friis Bach – who was recently interviewed by Devex – asked Ugandan government officials not only to recover the stolen donor funding but also to prosecute those involved.

For 2012, the Danish government had set aside 360 million kroner ($62.6 million) for aid spending in Uganda. According to Friis Bach, Danish contributions to Uganda’s judicial sector, civil society groups, the Human Rights Commission, Office of the Ombudsman and local nongovernmental organizations will continue in spite of the scandal. Denmark’s aid programming in Uganda is currently focused on growth, good governance, and human development.

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About the author

Piccio
Lorenzo Piccio

Lorenzo is a Devex senior analyst based in Manila. Our resident budget cruncher, Lorenzo spearheads Devex's in-depth reporting and analysis on global development finance and policy. He attended Wesleyan University in Connecticut on the Freeman Asian Scholarship, earning degrees in Government and Social Studies.


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