Will Uganda be­come a mid­dle in­come coun­try by 2020?

By: REA­GAN WA­MA­JJI

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.