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Why is growing Uganda’s economy not creating jobs?

Ramathan Ggoobi

Why is growing Uganda’s economy not creating jobs?

About 30,000 students graduated from Makerere and Kyambogo Universities last week

Government is good at talking and penning policy documents that generate more heartwarming stories than they create jobs!

Last week, 000 students were passed out with degrees, sales diplomas and certificates. I taught many of the new graduates of Makerere. So I felt obliged to send a congratulatory message to them. I used the most effective medium today — social media — to send my “congratulations to you all on your graduation” message.

Within minutes replies were suffocating my iPhone. Majority of them were not the “thank you” type. The new graduates were asking, “We’ve made it but where are the jobs?” Soon the job pessimists multiplied into hundreds. So I once again felt obliged to guide them. I asked, “Did you want to first get a job and then look for education? I thought first things first.”

Of course I knew the magnitude of the undeserved mixture of joy and anxiety the young men and women were going through as they pulled on their graduation gowns. Uganda, like many other least developing countries (LDCs), has failed to create decent productive jobs and livelihoods for the thousands of its young people who enter the labour force each year.

Many of those who graduated with first class and second class upper degrees last week will struggle to secure decent employment in the formal sector. There is no reliable data on employment in Uganda, but the World Bank put current youth unemployment in Uganda at 83%. This implies that nearly the entire youth cohort in Uganda is frustrated by the apparent lack of employment opportunities.

Jobless transformation

Yet the economy has reportedly been growing, quite impressively, for the last two and a half decades. Since 1990s to date, Uganda’s GDP (gross domestic product — the value of the total output of goods and services produced in the country) has been growing at an average annual rate of 6.5%, one of the highest sustained GDP growth rates in the world.

The impressive economic growth has been accompanied by structural transformation away from agriculture, mostly towards the services sector, driven primarily by developments in the banking, telecommunication and transport services.

The 2014 Africa Transformation Report rates Uganda as fifth out of 21 African countries with regard to its transformation process. The report indicates that between 2000 and 2010, Uganda increased its transformation rate (measured in terms of the five elements, summarised as DEPTH: Diversification; Export competitiveness; Productivity; Technological upgrading, and Human economic well-being) faster than any other country in sub-Saharan Africa.

However, despite all these impressive rankings and statistics, empirical studies have found that Uganda’s growth profile has remained jobless. My former professor and now colleague at Makerere University, Edward Bbaale, published a paper in the International Journal of Economics & Finance, confirming that our economy is growing without creating jobs.

Prof. Bbaale found that both agriculture and manufacturing, although contributed positively to the change in per capita GDP, were negatively contributing to change in total employment rate in the country. In simple terms, the economy is growing but does not create jobs. The only area where some positive contributions to the employment rate and per capita GDP were observed was in the services sector.

Start with agro-processing

This is the paradox we must explain and address. Why is the growing Ugandan economy not creating jobs? What does Uganda need to do to accompany growth with decent job creation?

Well, I will not pretend that I have the perfect answers to these critical questions. However, I have always been willing to provide a few ideas that would guide the debate.

First of all, we need to ask ourselves; where does the growth we are talking about take place? The fastest growing sector in Uganda is the services sector (particularly telecommunications, financial services, and real estate) as well as the construction sector.

The first two activities (telecommunications and financial services) do not create many jobs, partly because they are more capital intensive — using more technology than human labour. For example, I don’t remember the last time I entered a banking hall, yet every week I transact business with my banks. How do I do it? I bank through automated teller machines, or for larger transactions, using electronic banking. Visit any bank in Kampala and you will find many empty teller cubicles. Banks are expanding without employing more workers.

Secondly, employment opportunities generated in the construction and real estate sectors are short-lived and also not commensurate with the education for the tens of thousands of the young people that leave university and colleges.

The agricultural sector which employs over 77% of the workforce in Uganda is not growing and it is being rapidly phased out — contributing only 23% to GDP. I have written in these pages before that to create more productive jobs and increase household incomes, we need to industrialize, beginning with the agricultural sector.

We need to build small-and medium-scale agro-processing plants around the country to provide incentive to peasants to commercialize their activities. Agro-processing will raise and stabilize farm-gate prices, which are still very low and fluctuating — the main reason the sector is stagnant.

Overrated private sector

Who will build these agro-processing and manufacturing plants? Not our highly overrated private sector. Never! There is no economy that has ever been industrialized by the private sector. Capitalists do not invest where they don’t expect immediate returns. Yet building an economy is not an overnight job; it is like watching grass grow!

NRM government must seriously reconsider its favourite private-sector led economic model. It does not work. Many countries, including Europe and America, have long realised this and are seeking other models that would strike a balance between private enterprise and public investment and regulation. It is the model that enabled East Asian economies (South Korea, Hong Kong, Singapore, China, Taiwan, etc.) perform the miracles in the history of development.

This government has been very good at talking and penning policy documents that generate more heartwarming stories than they create jobs. One of them is National Employment Policy that was published in 2011 with the goal of creating “Productive and decent employment for all women and men in conditions of freedom, equity, security and human dignity.”

In the document, government emphasises entrepreneurship; that young people will create their own jobs if government supports them with start-up capital and training. In this line, a number of programs were launched including the Youth Livelihood Programme that was launched at the beginning of 2013, with a promise that government was going to provide a total of Shs. 265 billion to the youth to enable them get involved in entrepreneurial activities. I wrote in these pages last year that this money was actually going to exacerbate the tragedy of being a youth in Uganda. At least now they are only unemployed; in future the young people will be both unemployed and indebted!

Population growth

In almost all the progressing countries — the tigers of East Asia I mentioned above, those breeding in Latin America, and a few others in Africa such as Mauritius, Lesotho — the quickest way to escape joblessness and poverty is to board a bus to the nearest city for a manufacturing job. To build these factories that absorb nearly everyone, governments in those countries were actively involved. Not your singular private-sector.

Lastly, I am part of a team comprising economists from the European Centre for Development Policy Management (ECDPM), the Overseas Development Institute (ODI), and Makerere University Business School (MUBS) that has conducted a study intended to profile Uganda’s employment trends between 1990 and 2014.

We have found that between 1990 and 2014, total employment in Uganda grew on average by 2.96% per annum, below the population growth rate of above 3%. Therefore, the last (but of course not least) obvious contributing factor to Uganda’s unemployment challenge is unsustainably rapid population growth. Recent data from (UNICEF – United Nations Children’s Fund) indicates that Uganda has the 5th highest population growth rate in the world, only surpassed by Afghanistan, Yemen, Niger, and the Occupied Palestinian Territory.

With such high fertility rates, the possibility of a demographic dividend for Uganda is still far ahead and responding to the current demographic pressures remains a priority. Whenever I enter the lecture theatre to teach a class of over 700 students, I wonder less when I read media stories how 8 flight attendant jobs at Qatar Airways attracted 4000 qualified applicants!

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Ramathan Ggoobi

Ramathan Ggoobi is Policy Analyst, and Researcher. He lecturers economics at Makerere University Business School (MUBS) and has co-authored several studies on Uganda's economy. For the past ten years, he has published a weekly column 'Are You Listening Mr. President' in The Sunrise Newspaper, Uganda's Leading Weekly

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