Embracing digitalisation in agriculture for inclusive growth

Embracing digitalisation in agriculture for inclusive growth

By Geoffrey Okidi

The COVID-19 pandemic was a wake-up call for businesses across various sectors to develop plans to ensure business continuity amidst disruptions of that magnitude. Most of these plans include embracing digitalisation.

For economies such as Uganda’s which are heavily dependent on agriculture, Digitalisation in agriculture can be a sector game changer. Digitalisation for agriculture is the use of digital technologies, innovations, and data to transform business models and practices across the agricultural value chain. This in turn helps address bottlenecks in productivity, postharvest handling, market access, finance, and supply chain management. This aims to achieve greater income for smallholder farmers, improve food and nutrition security, build climate resilience, and expand the inclusion of youth and women.

Financial Sector Deepening Uganda’s 2020 study on the impact of COVID-19 on agricultural finance in Uganda in September 2020 affirms the importance of digitalisation. The study points out that the lack of digitisation along the agricultural value chain exacerbated firm-level economic effects indirectly caused by COVID-19 measures. The study points out opportunities for digitisation that could have saved the day and fostered greater resilience to the impact of the COVID-19 lockdown measures. The study notes that there was a sudden growth in e-commerce (for example, door-to-door delivery) by 100 to 300 percent in some cases, albeit off a very low baseline, showing underlying demand for digitisation.

According to McKinsey Global Institute’s 2016 study titled Digital Finance for All: Powering Inclusive Growth in Emerging Economies, digital technologies cut the cost of providing financial services by 80 to 90 percent.

Findings of a similar study conducted by aBi Finance on the performance of SACCOs during COVID-19 lockdown are consistent with the McKinsey Global Institute Study. The aBi Finance study found that during the COVID-19 lockdown, fully digitalised SACCOs performed much better in terms of loan portfolio quality and savings mobilisation than their non-digitalised counterparts.

Uganda and other East African countries have some of the most conducive conditions for increasing uptake of digital finance technologies in the agricultural sector (about 56 percent of adults are already using mobile money – FSD 2018). However, agricultural payments in Uganda remain predominantly cash-based and many people remain unbanked (Better Than Cash Alliance, 2017).

To reap from the potential benefits of digitisation of the agricultural value chain, there is need to address the key challenges hindering it. According to the UN Capital Development Fund, the key challenges to digitalisation in Uganda are:

      • Low education levels, fluctuating incomes, price sensitivity/preference to pay with cash amongst many consumers
      • Formal financial exclusion and limited usage of available financial services
      • Limited infrastructure for digitalisation, for example, poor mobile network, high costs of mobile network expansion and maintenance
      • Gaps in the policy and regulatory environment, for example, SIM registration requirements were thought to limit smallholders’ access to mobile phones
      • Many agribusinesses do not have the internal systems in place to take advantage of digitalisation
      • Challenges in managing a national level digitalisation programme given diversity of languages across Uganda

To accelerate transformation in the agriculture sector, hindrances to the adoption of digitalisation must be addressed. According to The Digitalisation of African Agriculture Report 2019, Digitalisation for Agriculture solutions are categorised into five primary use cases: (i) advisory and information services; (ii) market linkages; (iii) supply chain management; (iv) financial access and (v) macro-agricultural intelligence. The report highlights the recommendations below to stakeholders to address the challenges in digitalisation.

Recommendations to address the challenges to digitalisation
To improve use, drive greater inclusivity, impact and reap the benefits of digitalisation of agriculture, priority should be placed on the following:

      • Development of human capital at every level of the digitalisation for agriculture ecosystem, including increasing awareness of digitalisation for agriculture, improving digital literacy and, greater digital skill building among actors across the agricultural value chain
      • Driving greater business model sustainability by, for instance, improving value for farmers, identifying, and promoting successful business models and mobilising funding to support a more diverse set of companies
      • Creating greater impact by making digitalisation for agriculture solutions more inclusive of women and other marginalised groups, as well as smallholders in geographies with relatively less digitalisation for agriculture investment
      • Investment in the missing middleware infrastructure. Successful digitalisation for agriculture solutions require access to a wide range of data (from remote sensing data to farmer-specific data) to deliver high-quality services to farmers
      • Investment in good data stewardship and designing for the risks and limitations of digital systems
      • Investment in the digitalisation for agriculture knowledge agenda
      • Creating an alliance of key digitalisation for agriculture stakeholders to promote greater investment, knowledge sharing and partnership building
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Covid – 19 Market Diagnostics and Options for Long-Term Recovery (Supply – Side Report)

Covid – 19 Market Diagnostics and Options for Long-Term Recovery (Supply – Side Report)

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    The overall objective of the study was to develop practical solutions for preserving and building relevant elements of the financial system to support the survival, recovery, and growth of micro and small enterprises (MSEs) in Uganda. The core of the market analysis was to understand how the supply of finance to the MSE sector in Uganda had been affected by the COVID-19 crisis and what options were available to build on ready measures to mitigate the impact. This analysis identified both threats and opportunities for inclusive finance service providers (IFSPs) to meet the financing needs of MSEs.

    With the support of the Association of Microfinance Institutions of Uganda (AMFIU) and with some direct provision of information by IFSPs, the study team had detailed operational and financial information on 30 SACCOs and 11 MFIs. Due to confidentiality/nondisclosure policies, AMFIU provided anonymous data, stating only the region in which the entity operates and its institutional form.

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    Covid – 19 Market Diagnostics and Options for Long-Term Recovery (Demand- Side Report)

    Covid – 19 Market Diagnostics and Options for Long-Term Recovery (Demand- Side Report)

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      The COVID-19 pandemic has had significant impact on the Ugandan economy especially hitting the micro- and small enterprises (MSEs) in the informal sector. MSEs have been facing unprecedented income losses and uncertainties about their future because of business disruptions due to the outbreak of COVID-19.

      FSD Uganda commissioned a demand side market diagnostic study to assess the impact of COVID-19 on micro and small enterprises in Uganda. The overall objective was to develop practical solutions to preserve and build relevant elements of the financial system to support the survival, recovery and growth of micro and small enterprises in Uganda.

      From the research, only 3% MSEs reported to be completely recovered. 71% of the surveyed MSEs are yet to return to normal pre-COVID-19 operations timing. Several factors such as reduced hours of operation, disruptions in movement, and general low customer turnout have impacted the businesses severely.
      MSE owners hope to bounce back, however, some issues continue to plague the recovery of enterprises. These include, on an average 50% of reduction in household income due to low revenue from the business, job losses in the family, or depletion of other income sources hit by the pandemic.

      Women-led enterprises have suffered a greater average loss in income (50%) compared to men-owned MSEs (33%) from the pre-pandemic level of income. Also, while MSEs in urban areas have been able to attain 57% of the pre-pandemic income level, MSEs in rural areas have recovered up to 50% of the pre-pandemic income level.

      As per the estimates of the World Bank, the COVID-19 crisis has pushed around 2.6 million Ugandans into poverty. With longest closure of schools in Uganda, not only the education sector but many other businesses providing services in the ecosystem suffer a great deal in their bid to recovery to pre-pandemic level.

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      IRA Regulating for Innovation – Case study

      IRA Regulating for Innovation – Case study

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        The enactment of a new Insurance Act, which came into operation in early 2018, expanded the Insurance Regulatory Authority (IRA)’s mandate from market soundness and consumer protection to also include market development. As part of this new mandate, the IRA is committed to encourage and facilitate innovation in its market. However, encouraging innovation may introduce new risks, thereby leading to conflict between the different mandates. To strike the right balance, the IRA recognised that it needed to update some of its existing supervisory processes and regulations, plus introduce new tools to steer its interaction with the market.

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        The Overall Impact of COVID on The Economy; An Agile Scenario Analysis

        The Overall Impact of COVID on The Economy; An Agile Scenario Analysis

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          This agile scenario analysis conducted in partnership with the Ministry of Finance, Planning and Economic Development and The Bank of Uganda explored the potential short and mid-term economic effects the pandemic would have on the key labour segments. Using additional insights from ongoing economic recovery efforts, the team also identified the potential role various sectors could play in strengthening the inclusiveness of the country’s recovery efforts.

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          The Impact of COVID on Agriculture in Uganda

          The Impact of COVID on Agriculture in Uganda

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            Earlier studies conducted by FSD Uganda indicate that specific segments of the population – including people who directly or indirectly rely on farming – will be severely affected by the impact of COVID-19 pandemic. We conducted a rapid diagnostic to understand how agricultural finance in Uganda has been affected, to inform financial market-led recovery efforts. Findings from the study have been used to strengthen FSD Uganda’s new five-year agricultural portfolio.

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            Assessing the Economic Resilience of Ugandan Households During COVID

            Assessing the Economic Resilience of Ugandan Households During COVID

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              This phone-based survey conducted between April 2020 to September 2020 over five waves provides a detailed analysis on the resilience of the sample surveyed. It demonstrated:

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              Highlights: Impact of COVID-19 on the economic resilience and financial behaviour of Ugandans

              Highlights: Impact of COVID-19 on the economic resilience and financial behaviour of Ugandans

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                FSD Uganda partnered with the Ministry of Finance, Planning & Economic Development and undertook a COVID-19 tracker survey which traced the impact of COVID-19 on livelihoods, financial behavior, and social responses of Ugandans. The phone-based survey was conducted in 5 waves between April and September 2020.

                Similar surveys were conducted by the FSD Network in Kenya, Rwanda, South Africa, Nigeria, Zambia, and Ghana. The COVID-19 Tracker explored composite data sets from across the continent.

                This highlights document is based on an analysis of data from the five waves of the tracker survey and presents insights on how the pandemic continues to affect Ugandan adults across several domains.

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                Unlocking the Potential of Uganda’s Housing Value Chain Through Strategic Partnerships and Collaboration

                Unlocking the Potential of Uganda’s Housing Value Chain Through Strategic Partnerships and Collaboration

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                  By Jimmy Ebong and Maria Nkhonjera
                  Uganda’s Financial Sector Development Strategy (FSDS) estimates the country’s housing deficit to be 1.6 million units, with an annual requirement between 180,000 and 210,000 units. Given rapid rates of population growth and urbanisation, a widening housing need may overwhelm cities in the near future. Uganda has the third highest population growth rate in Africa (at 3.6%), while the country’s urbanisation rate is projected to be 5.6% per annum. Urban households are expected to grow to 3.8 million in 2025, from 2.9 million in 2020 – a 31% increase. Uganda’s urban areas are therefore poised for a rapid increase in households, implying a huge demand for adequate, affordable housing. Only 44% of the urban population own their dwellings[1], while the 2018 FinScope Survey indicates 19% of adults aspire to acquire a house.

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                  Regulating for Innovation Supervisory Toolkit

                  Regulating for Innovation Supervisory Toolkit

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                    The fast-paced changes in the financial sector are primarily driven by innovation and advancements in technology. Proactive engagement with the market will help policy makers and regulators build their understand of trends and allow them to effectively assess the opportunities new technologies present against any emergent risks.

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                    Cooperatives as Engines of Transformation

                    Cooperatives as Engines of Transformation

                    By Anthea Paelo

                    Cooperatives continue to be an important engine for economic productivity and growth in countries like Uganda. They play a critical role in mobilizing savings, increasing access to credit, and facilitate various activities along production value chains, including procurement, storage and distribution. Where, for example, a farmer might find it challenging to access a tractor to plough his fields, or credit to purchase seeds, as a part of a cooperative he can access these inputs more readily and at much better terms. It is perhaps for this reason that as of January 2020, agricultural cooperatives numbered over 9,000, double the number just twelve years ago1.

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                    Determinants of Interest Rate Spreads in the Ugandan Banking System

                    Determinants of Interest Rate Spreads in the Ugandan Banking System

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                      FSD Uganda Executive Director made a presentation as a discussant at the Bank of Uganda (BoU) and International Growth Centre (IGC) Policy Seminar on lending rates. Download the presentation to find out about why we should care about bank interest rate spreads and how it affects every day Ugandans and Ugandan businesses.

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                      Insurance Innovation Dialogue; Opportunities in the time of COVID-19

                      Insurance Innovation Dialogue; Opportunities in the time of COVID-19

                      By The FSD Uganda Team

                      The Insurance Regulatory Authority (IRA) of Uganda, in partnership with FSD Uganda and the Innovation Village, hosted an interactive virtual workshop on 19th November 2020, to discuss the opportunities and challenges to innovation in the Ugandan insurance market.

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                      Informal Sector Pensions: Protecting millions of East Africans from old-age poverty

                      Informal Sector Pensions: Protecting millions of East Africans from old-age poverty

                      By Joseph Lutwama.

                      It is everyone’s desire to retire with a roof over their head and a decent income that will sustain them through their old age. However, very few ever realize that ideal, and it remains a dream that eludes millions in the region. Many East Africans never retire but die while toiling away as their productivity decreases. Economists and financial experts tell us that it is possible for one to save for retirement, and if those savings are invested well, they stand a better chance of reducing their old-age vulnerability and living their retirement dream. However, this is not the case in East Africa. Kenya, which has the highest pension sector coverage, sees only two out of every 10 working adults save for retirement. What could explain this paradox? In East Africa, the pension system is predominantly focused on the formal sector, leaving the informal sector largely unattended to. With levels of informal employment in East Africa as high as 91 percent, it follows that there would be such low levels of formal retirement savings.

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                      Strengthening the effectiveness of Uganda’s consumer protection framework

                      Strengthening the effectiveness of Uganda’s consumer protection framework

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                        An assessment of credit cost disclosures
                        There is a need to promote trust in the financial sector by putting robust consumer protection measures in place – this will help protect lower-income borrowers from poor market conduct and bridge the credit gap in the market.

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                        Message from FSD Uganda Executive Director on COVID-19

                        Message from FSD Uganda Executive Director on COVID-19

                        Uganda confirmed its first case of COVID-19 this weekend. The Government of Uganda, together with private sector actors, continue to demonstrate great leadership by putting in place and adopting progressive measures aimed at protecting Ugandans and limiting the impact of the pandemic.

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