Uganda is the largest refugee-hosting country in Africa, with 1.5 million refugees mainly from South Sudan and the Democratic Republic of the Congo. This paper examines the poverty dynamics among refugee and host communities in Uganda. The authors aim to answer two key questions: (1) how do the wealth dynamics differ between refugees and hosts? (2) Is
there a poverty trap exist and, if so, for whom?
Poverty traps are self-reinforcing mechanisms that perpetuate poverty by limiting households’ ability to accumulate assets. In the case of refugees, there are four main mechanisms that can contribute to poverty traps: asset loss (physical or social), trauma and psychological stress, geography, and institutional factors. These mechanisms can also affect host communities, potentially trapping them into poverty as well.
The analysis is based on data from the FAO-RIMA’s Uganda Refugee and Host Communities Panel Survey, which covers refugees and host communities in more than 10 districts and 13 refugee settlements from 2017 to 2021. The authors construct a tradable asset index that includes durable assets and tools (radio, TV, bicycle, solar panel, cooker, box, table, chair, bed, mattress, animals, hoe, axe, shovel, pickaxe, sickle, slasher) as well as land size.
The data reveals that:
• Host households are, on average, larger in size, with older and slightly more educated heads compared to refugee households.
• Refugees have significantly smaller average land sizes than hosts, and tend to have fewer tradeable assets than hosts.
• Per capita expenditure and income are very low for both groups, but hosts report higher values on average. Formal transfers represent the primary income source for refugees, while hosts rely on enterprise, wage, and crop income. In 2019, refugees’ average income exceeded that of hosts due to transfers.
• In 2021 both groups experienced a general deterioration in their conditions, including reduced land and livestock holdings, fewer assets, decreased enterprise activities, lower income per capita, reduced dietary diversity, and a higher coping strategy index, likely attributable to the COVID-19 pandemic.
Main findings from the empirical analysis:
• A single low-level asset equilibrium exists for both host and refugee populations, indicating a structural poverty trap. There is no evidence of multiple equilibria poverty traps.
• Refugees and hosts tend to different single low-level equilibria, with hosts achieving a higher equilibrium than refugees. The different equilibria can be explained by refugees’ lower physical asset endowments such as durables, agricultural tools, animals, and smaller plots.
• Disaggregating the population across various dimensions reveals the importance of geography and specific household characteristics. The most important factors associated with asset growth for both refugees and hosts include household size and education. For refugees, other asset growth enabling factors include larger land size, self-employment, and not receiving transfers. Asset-reducing factors for refugees include displacement due to famine or natural hazards, experiences of violence, time spent in settlements, and weak social cohesion.
• The channels affecting both hosts’ and refugees’ welfare are the labour market and market creation, with the agriculture sector playing a key role. Households below the dynamic equilibrium are more involved in wage employment, with lower wages. Households above the equilibrium are more involved in market creation as evidenced by sales of products, purchase of agricultural inputs, and food purchases, with exchanges between hosts and refugees playing an important role. Additionally, households above the dynamic equilibria are more involved in enterprise business and commercial farming (crop sales) than those below the equilibrium.
The authors conclude that refugees and host communities are in a structural poverty trap, which is more severe for refugees. They suggest that while immediate assistance like cash and in-kind aid is important for addressing urgent food security needs, sustained, long-term improvements in living conditions require comprehensive structural reforms to raise the overall equilibrium. For refugees, this may involve addressing behavioral traps caused by psychological stress, trauma, and hopelessness, as well as reducing other factor that hinder households from accumulating assets. Both host and refugee populations are impoverished and stuck in low equilibria, making standard interventions in education, skills, and the labor force less effective due to limited economic opportunities. To be effective, policies need to expand economic opportunities for refugees and host communities, shifting the focus from solely providing social protection to fostering economic growth in host areas.