Why Uganda is struggling to attain middle-income status

By Blessing Atwine (EPRC)

In response to the aspirations of Uganda Vision 2040 of transforming Uganda from a peasant to a modern and prosperous economy by 2040, the second National Development Plan (NDPII) 2015/16-2019/20 was developed.

The NDPII was developed with the goal of driving the country towards a lower-middle-income status by 2020, progressing to an upper-middle-income status by 2032 and attaining the target of USD 9500 per capita in 2040.

The plan intended to achieve this target through strengthening the country's competitiveness for sustainable wealth creation, employment, and inclusive growth, a private sector-led; export-oriented; quasi-market approach, as well as, industrialization, fast-tracking infrastructure and skills development strategies in order to achieve the objectives and targets for the five-year period.

According to the World Bank, a lower-middle-income economy is defined as one with income per capita between USD 1006 (Shs 3.7 million) and USD 3955 (Shs 14.8 million). Therefore the NPDII aimed at achieving an annual per capita income of 1039 USD. To attain this, the total GDP would have to grow by 12 percent each year until 2020. However just one year to the end of the NDPII period, Uganda's current per capita income stands at only 800 USD with an average growth rate of 5.3 percent for the first four years of the plan (UBOS, 2018). By the look of things, Uganda will most likely not be able to meet its NDPII target of lower-middle-income status by 2020

GDP per capita has not grown as expected partly due to a fast-growing population at a rate of 3 percent per annum. According to the State of Uganda Population report 2019, more than half of the population is younger than the age of 15. This has translated into a high dependence ratio which places significant pressure on families which must spend scarce resources on their children's health, food and education rather than investment in profitable ventures that would increase the country's GDP growth rate and per capita income. This puts the country at risk of not being able to achieve the plan's targets by 2020. This has been a major hindrance mainly because the country has failed to tap the demographic dividend through the provision of decent work.

Secondly, the majority of the working are in vulnerable employment. Vulnerable employment is often characterized by inadequate earnings, low productivity and difficult conditions of work that undermine worker's fundamental rights. UBOS (2017) estimated that 54.3 percent of the working population is self-employed with 6.9 percent as contributing family workers. With more than half (61 percent) of the persons in employment classified as in vulnerable employment in Uganda (UNHS 2016/17), it implies that majority of Ugandans earn less than what is required to meet their expenses and make investments that are necessary to increase the country's GDP growth rate and consequently increase GDP percapita to 1039 USD for the country to leap-frog to a lower-middle-income status by 2020.

Attaining middle-income status will require initiatives that help the country to take advantage of the ‘Demographic Dividend'. This requires an increased investment in the social sectors such as education and health accompanied by social protection initiatives for the vulnerable groups through increased and widened access to social security, increased access to child-oriented services: health, education and social support.  This will reduce the dependence burden on parents allowing them to invest in profitable ventures. In addition, it will also trigger human capital development and allow broader development of skills and improvement of labor outcomes and consequently contribute to inclusive growth and attainment of middle-income status.

 

In addition, there is a need for more public intervention in the agricultural sector to transform it from the subsistence sector to a commercialized sector capable of providing gainful employment for Ugandans. This can be done through improving farmers' access to markets, credit, and lower cost inputs, better land policies such as expedited issuance of titles, extension of the research and advisory services. Being the major source of employment once commercialized the agriculture sector has the capacity of ensuring inclusive growth that will enable Uganda to fulfill its aspiration of becoming a stable, integrated middle-income country.

The author is a research associate at the Economic Policy Research Centre