Minimum pay, maximum pain

By Alan Ssempebwa

How a worker living on US$1.5 per day could hurt the economy

A cane cutter at Uganda’s biggest sugar plantation at Kakira in Jinja has to be at work by 6am. One is expected to gather at least 55 bundles of cane, each bundle containing 10 sugar canes. Armed only with a machete, he cuts the cane, cleans it, ties it in bundles, and loads it on transport trucks.

Often working far away from home, the cane cutter endures rain and sun without sheltering. For the night, the cane-cutters rest in a camp that is colloquially called a ‘labour village’ and start over again in the morning. At the end of the month, the cane-cutter is paid Shs 120,000; about US$1.5 per day.

One employee who wished not to be revealed told The Independent that he was paid less than Shs100,000 a month, but he is among the luckier ones. Some workers have a take home pay of only Shs 3000 a day.

Because the remuneration is meagre, some cane cutters work overtime or opt to have extra activities on the side to top up their wages.

The Kakira plantation is owned by Kakira Sugar Works Ltd which belongs to one of the wealthiest families in East Africa, the Madhvanis.  The Madhvani Group earns revenue in excess of US$100 million per year and has assets of over US$375 million (Approx. 5% of national budget) in a country with a per capita income of US$510.

The Madhvani family has other interest in over 100 enterprises on at least three continents and are, in fact, quite generous to their workers. They provide basic housing, medical care, and schooling for children. But the US$ 1.5 per day for their worker’s shows how paltry wages can be in Uganda.

Cleaners in homes and office, domestic servants, food vendors, construction site porters, and even radio station journalists are lucky if they earn more than US$3 per day.

The reason wages are so low is because an advert soliciting five jobs can attract over a 100 applications. Job-seekers are prepared to work for virtually nothing. This leaves them susceptible to low wages, unreliable job security, and the threat of layoffs.

One of the labour movement’s classic mottos; a fair day’s pay for a fair day’s work, is missing.  A measured debate on the topic has raged after Feb 21 when a Minimum Wage Bill was tabled in parliament. The three MPs who drafted  the Private Members Bill in Parliament;  James Mbahimba, Paul Mwiru, and Stephen Arinaitwe Rwakajara, say the debate is overdue. Others say it is not a straightforward one. As a result, Uganda is one of the few remaining countries in the region without a minimum wage. But the government is running out of excuses not to introduce it.

The issue is divisive, with private sector employers and econometricians on one side, and labour economists, trade unions and workers on the other. Convincing arguments for and against minimum wage make it a matter of social security.

It is an urgent topic because whilst Uganda continues to achieve around 5% growth a year, lower income families are not getting their fair share of the nations growing wealth. Indeed it is estimated that around 30% of Ugandans live below the international poverty line, and the growing economic disparity is hurting the nation’s economic development.

The past experience

A minimum wage is an authorised minimum remuneration for workers. It guarantees any worker a certain amount of money and is intended to reduce relative poverty. The last time Uganda’s minimum wage was set, was almost 30 years ago in 1984 and it is embarrassing to read a US State Department Report released in 2008 claiming that Uganda’s minimum wage is still Shs6,000 or about $0.27.

At the time it was set, it was quite celebrated with excited workers calling it Kakobogo, the big-push.

Dr John-Jean Baryaharawego in his book Law, state and working class organisation in Uganda: 1962-1987 reveals the context under which it was set. An economic crisis in the 1980’s meant that the cost of living rose significantly while wages did not; there was an “acute shortage of food supply, essential consumer commodities, raw materials and spare parts”. The previous minimum wage had been Shs240 and was set in 1976 by the Minimum Wage Advisory Board.

In 1995 the advisory council suggested a minimum wage of Shs75,000 for unskilled workers but it has never been implemented. Similarly discussions have popped up every now and again but nothing has materialised. More recently Trade unionists have pushed for Shs250,000 but the government has not budged.

A bad idea

Lawrence Bategeka, a Senior Research Fellow at the Economic Policy and Research Centre (EPRC), told The Independent that he was against any plan to introduce a national minimum wage.

“When you set a minimum wage the presumption is that it is above the equilibrium rate. This means demand for labour is lower, and the cost of production is higher which reduces supply. It will also cause unemployment,” he said.

Bategeka’s argument is a typical riposte against the minimum wage. It is in the tradition of neoliberal economic orthodoxy, arguing that: unemployment would rise as workers are laid off; inflation would rise as companies pass wage rises onto the consumer; it would distort the free market and ultimately does not lift the poor out of poverty. His allegiance to the neoliberal doctrine is confirmed as he says “We cannot fix the problem with all of this intervention.”

Bategeka wants workers to earn more. But, he says, “If you want wages to go up, you must push the demand curve upwards. Invest in enterprise development, this will see wages go up over time.” On the prospects of the Minimum Wage Bill becoming law he tells The Independent: “If parliament consults economic experts like ourselves we will do our best to resist it, but if it uses sentiment, then unfortunately we may see it being passed.”

Debunking myths

Contrary to Bategeka’s neoliberal orthodoxy, there is no conclusive evidence of the problems identified by the anti-minimum wage camp. At the core of the pro-minimum wage camp is the promotion of a better standard of living by reducing relative poverty. It is an important part of establishing labour standards and has been at the centre of trade union demands.

Wilson Usher Owere, Chairman General of the National Organisation of Trade Unions (NOTU), told the Independent “the minimum wage is long overdue”.

NOTU successfully campaigned for a National Employment Policy in 2010, and Owere adds that the minimum wage is the second step on their quest for workers rights. “We will dedicate our efforts to this cause through lobbying. We are going to lobby as many influential bodies as possible including parliament, civil society groups and other well intentioned agencies.”

Owere is as aware as anybody in Uganda of the exploitation that takes place in many work environments. Like Bategeka he spells out some of the economic arguments that support his views on the issue.

“The minimum wage can improve the productivity of Ugandans by incentivising and rewarding work,” he says.

By providing workers with a better wage, it will reduce poverty and even stimulate the economy. This is because the poor are more likely to spend their money than the rich.

Owere’s arguments are in line with the `New Deal’ stimulus offered by US president during the 1930s depression in the U.S.

Labour economists David Card and Alan Krueger produced the most cited study on the effects of minimum wage. They reveal that the increase in unemployment is either negligible or positive (a decrease). In any case, Owere suggests that perhaps negotiating a sector by sector minimum wage would be the best option, similar to what is done in other East African countries.

Future

The widespread adoption and socio-economic benefits of a minimum wage should give workers confidence that the Bill will become law. Finer points, about the level of the wage or whether it will be determined according to the job sector, will have to be discussed by the experts and trade unions. But they have to bear in mind the reason for introducing the Bill: reduce poverty and end exploitation. Econometricians operate in a vacuum and do not factor in real world circumstances; whether a sugar cane cutter really deserves to be paid so little needs to factor in basic human compassion.

Will the minimum wage “distort labour markets” as Bategeka claims or “improve productivity” as Owere says, is an on-going debate among economists. What is clear is that workers conditions in Uganda need to be drastically improved, especially for those who toil in factories like Kakira.