There is something awkward going on in Uganda. No one seems to know the exact state of the economy. Not even those in charge of it. What exactly is wrong with the economy? Why has growth disappeared? Why is the economy not responding to the numerous strategies and interventions being executed to stimulate it?
What are the key drivers of Uganda’s growth? What policy priorities can help to address the key constraints to growth? Will the ongoing infrastructure investment help? Will it be industry? Which way for industry? Will it be agriculture? Or will it be regional integration?
What about leveraging urbanisation as a growth enabler? Where will the money come from for all these plans when domestic revenue mobilisation has remained low, viagra and debt is fast approaching unsustainable levels? These are some of the questions that need urgent answer.
Next week, the Ministry of Finance, Planning and Economic Development (MFPED) will host a conversation on the economy to find answers to these questions. They have named it the “Economic Growth Forum.” They have even invited a number of experts from abroad – some of top Universities in the US and UK – to provide better answers.
The last time I penned something in these very pages, I explained why it increasingly becoming clear that Ugandan government can no longer do anything until it can do everything .
Jobless growth paradox
To transform agriculture government needs to reform and secure land, invest heavily in irrigation and environmental modification, improve rural credit, revive cooperatives to facilitate efficient farm-input supply and marketing, build rural infrastructure (roads, electricity, agro-processing centres, and bulking and storage facilities), and provide extension services to boost productivity.
To build industries it has to first develop the human resources that are needed to work in the industries, develop the agriculture and mineral sectors to supply raw materials, and of course build infrastructure (roads, railways, and energy) to support the industrialisation.
Yet government has also realised it will not be able to build the infrastructure and other investment projects without seizing private land. Many projects have stalled because government has failed to pay land owners what they deem as fair value for their land. Government ended up here because of three key weaknesses: indecisiveness, conflict of interest, and pretense.
A fortnight ago, I presented a paper titled, “The Paradox of Economic Growth and Unemployment in Uganda” to a cross-section of people that attended a Public Symposium at Makerere University Business School (MUBS).
The conversation was organised by the Society for Justice and National Unity (SoJNU) hosted at the Law School of Makerere University in conjunction with the Leadership Centre at MUBS.
Numbers not telling the truth?
I explained the intriguing paradox that is on everybody’s lips: why has Uganda’s economy that has been touted for years as having grown rapidly failed to create jobs? World over, economists, politicians and other polished people agree that economic growth is good for employment.
Fifty five years ago an American economist, Arthur Okun, found through robust research that a 1% increase in the growth rate of GDP would lead to 0.3% reduction in unemployment (the so-called Okun’s Law). In short, economic growth is expected to create jobs and reduce unemployment.
The recent economic situation in Uganda has seriously challenged this bedrock postulation in economics. Empirical and diagnostic studies have found that Uganda’s growth profile has remained jobless. The economy has been growing rapidly in recent decades without a commensurate growth in employment. This is the paradox I set out to explain.
I started by asking whether the economy has really been growing as fast as reported in official data. Many people have asked the same question, and it is actually not a redundant question.
Although official data from Uganda Bureau of Statistics (UBOS) shows that Uganda’s GDP has expanded quite impressively since 1986, rising from USD 3.9 billion in 1986 to USD 27.5 billion in 2015—growing at an average yearly growth rate of 6.86% (1990–1999), 5.52% (2000–2005), and 7.7% (2006–2010)—several researchers have found that these numbers might not be telling the truth
The major issue researchers on economic growth in Uganda have had is the accuracy of GDP estimates. Existing economic data are considered inaccurate and thus unreliable. One World Bank researcher, Shantayanan Devarajan, has referred to it as an “African statistical tragedy.”
UBOS data relatively over valued?
He attributes our data problems to ‘political sensitivity of statistics’ and ‘donors’ interests’. His fears are confirmed by Thomas Bwire, a researcher at the Bank of Uganda (BOU). He recently compared Uganda’s GDP as computed by UBOS and the World Bank over the period 1970 – 2008, and found that the two datasets on real GDP annual growth rate estimates had a 1.5 percentage point average absolute discrepancy per year.
Earlier, Adam Mugume, the Executive Director in charge of Research at the BOU—and my teacher of econometrics—had already found that UBOS data was relatively over valued due to BOU’s intervention in the foreign exchange market. As we know, the BOU intervenes through its sales (or purchase) of foreign exchange to keep the exchange rate close to its market clearing level.
Researchers, therefore, conclude that it is difficult to find a consistent and stable GDP series that ‘best’ reflect Uganda’s economic welfare. They recommend that Uganda’s GDP data should be taken with caution. Yet we know that economic growth is measured in terms of growth in GDP. GDP in turn is measured by national accounts.
African Development Bank succinctly put it thus: “A country’s GDP estimates are only as good as the data on which they are based.” The question that comes to an inquisitive mind is: if Uganda’s GDP data should be taken with caution, yet it is the data that UBOS and other agencies use to measure economic growth, how accurate is the reported growth anyway?
On two occasions (in 2008 and 2014), UBOS revised its national account estimates (by changing base years and methodology), after which it reported that the economy had been more buoyant than previously reported. The 2014 revisions resulted in overall GDP, at current prices, to increase by 16.5% a year, on average.
Who is growing?
The tragedy here is that analysts, politicians, citizens, and the development community were quoting GDP statistics and growth figures (before the rebases) for Uganda over the decades, analysing the country’s economic performance. Then all of a sudden, the figures were revised. Therefore, the fact is that all along we did not know how well Uganda was doing.
The truth of the matter, we shall perhaps never know the true statistics at which Uganda’s economy was growing in the past, is growing right now, and will grow in the foreseeable future.
When we disaggregate sectoral growth in Uganda’s economy to know who exactly is growing, we see that on average, the industrial sector has been Uganda’s fastest growing sector in the economy, while agriculture was the slowest.
Industry—a sector whose main activities are mining and quarrying; manufacturing; electricity; water; and construction—on average grew at 10.3% per year for the first 15 years of NRM regime, compared with services (6.9%) and agriculture (3.5%).
After the turn of the new millennium, industry slowed down but still continued to lead, growing at an annual average rate of 7.5%. Services converged towards industry, registering an annual average growth rate of 6.5% between 2001 and 2016. On its part, agriculture continued trailing other sectors managing an average growth rate of only 2.7% per year.
However, as we already noted, the data on which this analysis was based should be used with caution. In any case most of the datasets about Uganda’s GDP are mainly gap-filled with extrapolated data.
More questions, few answers!
The data constraint notwithstanding, we see that there is something fundamentally wrong with Uganda’s economy. The sector that employs most Ugandans (agriculture) stopped growing at averages commensurate with Uganda’s population growth rate in 2002. Since then, the population has been winning the race in every single year.
This implies that the per capita income growth for a section of Ugandans employed by agriculture (73%) has been negative for about 15 solid years. Yet these are the people involved in harvesting and extraction of resources used as raw materials in industries. It would therefore be interesting to look at the growth drivers in the ‘fast growing’ industrial sector.
So, for those who are grappling with Ugandan economy’s growth constraints, you might need to answer a few questions: First, why has manufacturing value added as a percentage of GDP stagnated (at around 8.8%) since 1960s? Uganda has been worse than the world’s average worst performers in manufacturing. Why?
Second, why are large and thriving businesses in industry and services in Uganda foreign owned? Ugandans are concentrated mainly in small, informal businesses that are also considered by UBOS as services — vending the products that foreigners produce, riding motorcycle taxis (boda-boda) and minibus taxis, hair salons, bars, and other in that bracket.
Third, why is it the case that the lowest rates of unemployment in Uganda are observed among those with little or no education, while the few educated Ugandans, particularly women, are unemployed? Is education graduating Ugandans from available opportunities? Are policymakers doing their job?
Fourth, why has agriculture had the lowest labour productivity in Uganda, yet it is the sector that hosts three quarters of Uganda’s labour force? Fifth, can Ugandan economy sustain growth when population growth rate is higher than total employment growth? Sixth, is the dogma of neo-liberalism where private investment is supposed to be “good” while state investment is supposed to be “bad”, still tenable?
Seventh, why do Ugandans typically think “life is short” yet life expectancy is reported to have risen to over 60 years? Why do Ugandans still produce many children even when infant mortality is reported to have reduced? Why do people prefer withdrawing their savings and donate them to Pentecostal clergy or pastors instead of investing it? Why does Uganda have more churches than factories?
Finally, can the current set up of civil service and politics of this country preside over the kind of economic reform needed to rediscover Uganda’s growth? Wishing the MFPED a resourceful economic growth forum!