Will Uganda become a middle income country by 2020?
The World Bank classifies countries with the Middle Income Status as those whose citizen’s average income is between USD 1,000 to 12,000. Based on the formula of how Middle Income Countries are determined, close of half of all African countries are in the middle income range. Uganda is aiming to join that category by 2020.
The Government of Uganda has over the last couple of years undertaken an investment push aimed to propel the country into middle income status by 2020 with the fiscal policy greatly hinging to capital development. Heavy investments in infrastructural projects have been undertaken, the works and transport and energy and mineral development sectors have averaged a combined total of over 30% of the national budget over the last three years. These public investment strategies if prudently managed have the potential to transform the economy to some extent.
The country’s GPD per capita stands at $740. It will require a leap to $1,000 for Uganda to achieve this goal in 2020. In the last six years the county’s GDP per capita has increased by $161 from $578 in 2010 to $740 in 2016. With the economic growth rate averaging 4.6% over the same period it begs the question; will Uganda achieve middle status by 2020 granted that it will require a sustained growth rate of 7% over the next four years?
The World Bank report (Uganda’s Economic update: Seventh edition 2016) notes that for every dollar invested in Uganda’s capital infrastructure, only seven-tenth of a dollar has been generated. Uganda needs to invest in her ability to invest by transforming her public investment management system so that it generates more. The report further forecasts that if Uganda operates at a highest level of efficiency it will achieve middle income status by 2020.
The government policy in infrastructural investment envisioned that these investments will stimulate economic growth and growth of other sectors such as manufacturing, agriculture and industry. In the energy sector alone, Uganda is investing heavily in large hydro power projects (Karuma, Isimba) which account for 58.7% of the sector budget for FY 2016/17. However, the demand vis a vis supply is asymmetrical. Current power generation is 658MW with 135MW excess capacity. It is projected that by 2019 will be 1,217MW. This however is in stark contrast with the limited demand.
In line with the goal of bridging the infrastructure gap government will spend 19% of appropriated budget on works and transport sector alone. However, the World Bank report notes that on average, up to 36 % of the planned spending in the last five years did not materialize, with the bulk of this under-spending recorded in the priority sectors of energy and transport sector meaning that budget performance and execution has been poor.
Sustained economic growth will hinge greatly the country’s ability to improve public investment management. I for one am not so confident about this changing anytime soon. My despondency about Ugandan’s economic prospects is born from the fact that many of the internal and structural challenges limiting our potential continue to persist and won’t be done away with overnight.
Corruption and injudicious management of the public investment projects has increasingly reared its ugly head over the last couple of years. The UNRA probe recently unearthed a staggering UGX 4 Trillion as having been lost in the last five years, the Mukono-Katosi road saga among others. The procurement processes involved in the large hydo power projects have been questioned by the Auditor general, to the extent that the cost Isimba hydro power project was excessively exaggerated. Other weaknesses include poor project management where contract disputes, poor quality works, and poor project identification and inception are all too common.
These investments have so far fallen short of stimulating economic growth. For instance high energy costs manifest themselves in the cost of business making it harder for enterprises to set up within the country thereby restricting employment opportunities required to a nation to get to middle income status.
The 2016 budget speech indicates that government will enhance productivity in primary growth sectors of the economy which include agriculture, tourism, manufacturing and the mining sectors. However, in the previous year, the agricultural sector grew by 3.12% in the previous year, industry 3.2 %. 68% of Ugandans continue to rely on subsistence farming. This indicates that these investments have so far fallen short of stimulating the required economic growth to push us into middle income status.
On paper the future looks bright for many Ugandans, with oil production expected to start in the next few years and major infrastructure projects scheduled to be completed. Poverty levels have dropped to 24% of the population. However, the level of youth unemployment continues to skyrocket regardless of the different initiatives to curb it such as the youth livelihood programs and increased government investment in human capital development.
Uganda, like most African countries has potential in spades, but the one thing we lack is efficiency and efficacy. Whether my pessimism and despondency under current circumstances is irrational or not, time will tell. But I would love to be wrong about this.