Will Uganda consolidate its recent growth in average incomes?

In June 2022, President Museveni officially announced that Uganda had achieved middle-income status.

However, this was followed by an exchange with the World Bank, which insisted that Uganda was not there yet, citing the use of incorrect parameters to establish the measure.

The debate remained muted, except for comments from various government officials, until March, when a UN report indicated that Uganda had met the requirements for lower-middle-income status following improvements in the health, education and income levels of the population.

Susan Ngongi Namondo, UN Resident Coordinator for Uganda, then revealed at the launch of the 2023/24 Human Development Report that the country has made significant progress on the Human Development Index, rising from a global ranking of 166 in 2022 to 159 in 2024 with 193 countries and territories assessed under the United Nations Development Programme, which assessed levels of income, health, education and inequality.

Presenting the report at the university, Ms. Nwanneakolam Vwede-Obahor, UNDP representative, said that in the 2021/2022 HDR, Uganda was classified as having a low level of human development and was ranked 166th out of 191 countries and territories.

“I want to inform (you) that Uganda’s transition to the medium human development category is in line with the exciting message I received a few days ago. “The United Nations Development Policy Committee announced that Uganda has, for the first time, met the criteria for moving from a least developed country to a lower middle-income country,” she said, noting that between 1990 and 2022, life expectancy in Uganda increased by 17.2 years, expected the number of years of education by 5.8 years, and gross national income (GNI) per capita by approximately 153.1 percent.

The World Bank categorizes the classification of countries by income level and population, with lower middle-income economies required to have a gross national income per capita of between $1,086 (Shs4.2 million) and $4,255 (Shs16.4 million), while upper middle income economies have a gross national income per capita of between $4,256 (Shs16.4 million) and $13,205 (Shs51.2 million) as of 2023.

Yesterday, in his budget speech, Finance Minister Matia Kasaija said Uganda’s per capita gross national income had increased to $1,146 (Shs4.3 million), putting the country’s progress in a stable position to remain at the lower middle income level.

However, in March, the UN noted that for Uganda to stay under the new classification it had to work much harder, which would involve short-term budget disruptions, noting that the country’s Human Development Index of 0.550 was higher than the African average of 0.549 Sub-Saharan, but still below the global average of 0.739.

Indeed, as the World Bank claimed at the time, Dr. Fred Muhumuza, a development economist, argued that the government may have based its statement on incorrect parameters, but there is a chance if the country makes the right investment decisions, especially in agriculture, industry and services.

Even though agriculture is the backbone of Uganda’s economy, employing the majority of the population and contributing about 24 percent of the gross domestic product, agriculture remains underfunded and faces challenges such as limited access to modern farming methods such as irrigation, mechanization and value addition, which is exacerbated by a serious the impact of climate change, low market access and infrastructure challenges.

That’s why prof. August Nuwagaba, an economic transformation consultant, says this puts one key sector at a disadvantage and is “declining instead of growing.”

“It is unrealistic to expect the economy to transform. Such an economy may experience growth, but it will not undergo real transformation,” he says.

However, as part of the 2024/25 budget, the government has committed to fully monetising the economy through agricultural commercialisation, industrialisation, digital transformation and market access.

Whether this can be achieved will be a key focus for the country as we enter the new financial year starting in July 2024.

Uganda also needs to strengthen its industrial sector, which accounts for about 26 percent of gross domestic product.

In a sector that includes manufacturing, construction, mining and utilities, construction is the main growth driver, supported by investment in infrastructure projects such as roads, bridges and energy facilities.

However, the discovery and development of oil and gas resources has brought new potential for the future development of industrial and natural resources, which Professor Nuwagaba believes must be organized to ensure equitable benefits to the lowest of Ugandans.

“If we attract Dangote who invests $1.2 billion here, we could reach (a new level of) middle income. However, a fundamental question arises: does such an investment really benefit people like my mother in Kisoro, Buliisa or Karamoja? Real progress lies in providing employment opportunities to all, which leads to increases in aggregate demand and incomes. When everyone earns money together, it creates an environment conducive to aggregate production and business development,” he says.

The key to sustainable growth is also the improvement of the situation in the services sector, which has the largest share in the gross domestic product, amounting to 42.4%.

The services sector covers a wide range of activities such as banking, telecommunications, tourism, education and healthcare, but its development is strongly influenced by investment in key sectors such as infrastructure and technology transfer and progress.

Tourism in particular has seen significant growth, fueling infrastructure investment, especially in regions where oil and gas projects are taking place.

However, despite this growth, income disparities remain a serious problem, and the capital Kampala boasts modernity and wealth, while vast rural areas still struggle with poverty.

The 2019/20 Uganda National Household Survey shows that approximately 21.4 percent of the population lives below the poverty line, which Professor Nuwagaba said is the domestic work that the government needs to focus on to sustain the country as a lower middle-income country.

“Transformation is about moving a large population from low-production sectors to higher-production sectors,” he says.

The government has launched several initiatives aimed at pushing Uganda towards sustainable development, which will largely lead to the creation of a cash economy.

Data shows that at least 30 percent of Ugandans are outside the monetary economy, which poses a significant challenge considering that such people pay no taxes to the country’s development.

Therefore, programs such as the Parish Development Model, Emyooga and Operation Wealth Creation continue to remain areas of focus for agricultural modernization and monetization of the economy.

The government has also launched other programs such as the Youth Livelihood Program, which focuses on empowering young people, and the Older Livelihoods Fund to support older people, many of whom have no source of income.

Finance Minister Matia Kasaija says the government’s policy is to support inclusive economic growth, with a focus on education, healthcare and infrastructure development, to ensure shared economic benefits.

Nevertheless, global economic trends and challenges, including persistent inflationary pressures, supply chain disruptions, geopolitical tensions, climate change, debt sustainability and digital transformation, remain a threat to a range of interventions and may disrupt the country’s progress to date.