Rakesh GuptaBy Rakesh Gupta N. R.

Through the National Development Plan (NDP II), Uganda has prioritized the attainment of middle income status by 2020. This article examines what the country needs to attain the NDP II target. We will focus on income measures in this article for ease of interpreting where we stand and what needs to be achieved by 2020. Of course, we also need to understand this in the backdrop of economic slowdown – perceived and experienced. We hence believe that the time is opportune for the country to bring in much-needed reforms and policy changes – to take bold steps in the right direction.

Figure 1

 

Figure 2

 

Economic woes:

Uganda’s economic fortunes have reversed in the recent past. Figure 1 shows that the GDP growth that took off well since the early 1990s is on downward trend starting around 2007 as the moving averages trendline suggests and at one of the lowest points since the early 1990s.

Another indicator that supports this claim is found in Figure 2 when we look at inventories data – which are stocks of goods held by firms to meet temporary or unexpected fluctuations in production or sales, and “work in progress” – are piling up since 2011. These goods are unable to find customers or to meet future demand (which may not be the case).

Manufacturing sector represents 10 percent country’s GDP and is hence not the complete picture. However, other sectors of the economy are consuming the goods produced by the manufacturing sector – agricultural and services (and exports), and most importantly contribute to household incomes.

Perceptions and qualitative studies of business environment (Business Climate Index, a panel study) and Micro-Small-Medium-Large Enterprises’ barriers study respectively undertaken at EPRC indicate that morale is low among businesses.

Economy and domestic consumption - Growth is necessary, but (and is) not sufficient:

Although the Ugandan economy has maintained positive growth rates coupled with reduction in the incomes, disparities in incomes remain large. Economic growth and greater productivity is necessary to create jobs and generate opportunities for productive economic activities that people can engage in to increase their incomes.

However, growth alone may simultaneously be increasing poverty and/or inequality. Latest official poverty estimates stand at 19.7 percent (UNHS 2012/13) and inequality (as measured by the Gini index) at 41.1 is relatively high, and higher than several countries in the region. Estimates also show that 43.3 percent of the population remain vulnerable (living below twice the national poverty line). Vulnerabilities arise from disease burden of population and agriculture that depends on the vagaries of weather which is undergoing marked change (climate variability and change) in recent years.

Furthermore, the rate of growth of household consumption expenditures has declined. Growth – sustained and increasing – is required to increase the pie and share of the pie for everyone. The following figure 3 indicates household consumption expenditure on the rise, however growth of consumption is receding in the period 2011-2016 as compared to 2006-2011 (same results for poverty reductions hold true). However, 2016 and 2017 might see some rise in consumption for households because of elections related expenditures.

Figure 3

Middle-income dream:

Uganda is among few countries to have achieved one of the UN Millennium Development Goals (MDGs) of halving poverty levels. Much remains to be done if the middle-income status of the NDP II is achieved by 2020. Back-of-the-envelope calculations suggest there are two inconsistencies with the goal criteria for 2020. First, inconsistent measures of target setting. Second, significant improvements in GDP growth and Gross National Income (GNI) per capita are necessary.

In order to achieve middle income status by 2020, Uganda has set the following targets: UGX 3.5 Million income per capita per annum, two meals a day, average eleven years of schooling, access to electricity at 30 percent, labour-force participation rate at 79 percent, Under five-year-old mortality rate at 51, infant mortality rate at 44, safe water coverage at 90 percent among others. 2015 estimates of GDP per capita stand at UGX 1,910,337.40. This means, for the next five years starting 2015/16, a growth rate of 12.87% is necessary (give or take inflation). National official poverty line rate targets 14 percent by 2020.

If the progress achieved between 2006-2011 is followed in the period 2011-2016, national official poverty rate might have fallen to 14 percent already (national poverty line stands at between USD 0.88 and USD 1.04 2005 PPP). Of course, computing the poverty estimates with the help of to-be-released latest wave of Uganda National Panel Survey (UNPS) to understand the transient and chronic poverty in addition.

These inform us of the lack of planning and policy coordination since the goal criteria are not consistent across metrics, and monitoring (with frequent interval data publicly available for informed policy making) of the same. Clear policy direction is also required that serve as signals for all actors of the economy to restore confidence, including welfare improvements for people at the bottom of the income distribution.

Given the economic slowdown challenges, Uganda 2020 middle-income and long-term Uganda 2040 targets, some of the quick-wins to turn the economy around are:

1. Fiscal policies and programs interventions is required to ensure we enrich those who can absorb the inventories and provide manufacturing sector and the economy at large the much-needed lease of life. Especially, introducing public works programmes as part of large infrastructure projects and investments which is the focus of the government.

2. Infrastructure and investments in productive sectors were prioritized over further expenditure increases on social sectors (Education, Health, Water and Environment, and Social Development). These projects suffer from poor implementation as demonstrated by the 30 percent which requires improving. Impact of infrastructure projects can be improved by eliminating corruption in procurement by making audits public and tenders transparent.

3. Most importantly, debt servicing of infrastructure investments needs to be better managed which takes up 10 percent of budget that could be freed up to invest more in social sectors and create universal safety net programs. Negotiating new loans to pay on outstanding or used-up money component alone may help in the context of low absorption rates.

4. On a related note, Official Development Assistance (ODA) status will be lost as Uganda attains middle-income status. Hence, access to loans and grants with advantageous terms and conditions will be phased out which needs to be leveraged to frontload on investments and plan future course of action.

5. Reforms on tariff and non-tariff barriers to trade (within and outside the region) is necessary to make Ugandan economy relevant and competitive again. This applies to agriculture and manufacturing sectors across the board activities.

6. Improving expenditures on social sectors, social welfare and social security programs is crucial. Since these policies and practices have managed to generate impressive results in poverty reduction in Uganda compared to its peers (e.g. Mozambique, Rwanda among others) in the region for the last two decades.

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