Uganda’s fictitious disagreements

How our political elites waste so much time indulging in misguided debates about our development

THE LAST WORD | ANDREW M. MWENDA | President Yoweri Museveni and his critics have been locked in a debate on when or whether Uganda will achieve the much hyped “middle income” status. There are two classes of middle income: lower middle-income countries have per capital income of $1,036 to $4,045 and upper middle-income countries have a per capita income of $4,045 to $12, 535. Museveni had promised that Uganda would enter middle income status in 2020. That year came and his critics had him for dinner.

Recently, Museveni was reported to have said that Uganda had already achieved middle income status. Then the World Bank came out saying this was not the case. Then Museveni retracted his statement saying he meant Uganda was moving towards that goal.

In reality, the debate on middle income status is misleading. First it measures nominal GDP per capita. But this is not an accurate measure of a country’s actual income.

Just assume I have $100 bill in my pocket in Kampala and you have the same in New York. Do we really have the same amount of money in terms of the goods and services each one of us can buy? Clearly, $100 in Kampala would buy me much more than it would buy you in New York. That is why the IMF and World Bank introduced Purchasing Power Parity (PPP).

Secondly, nominal values (or market exchange rates) are volatile. They can change without affecting economic fundamentals. For instance, the exchange rate of the U.S. dollar to the Uganda shilling today is about Shs3,800. Let us assume that Uganda’s per capita income is Shs3.8 million. That would make it $1,000. Here Uganda would not qualify for middle income status. But anything can happen to the dollar in global markets and our shilling appreciates to Shs3600. All of a sudden Uganda’s per capita income would overnight rise to $1,055 – and bang, without changing anything domestically we would have leap frogged to middle income status.

Uganda is already a middle-income country, depending on the source of information. According to the IMF, Uganda’s GDP in 2022 is $46.4 billion, and a per capita income of $1,060. The World Bank, which does the rankings, puts our GDP at $37.3 billion and per capita income at $815 as per 2020. The United Nations puts Uganda’s GDP in 2020 at $37.8 billion and per capita income at $846. Clearly whether Uganda is a middle-income country or not is not an absolute figure but depends on whose numbers you are using.

The real challenge for Uganda should not be middle income status because it is just an arbitrary number that means little. Uganda’s main challenge is one of structural transformation of the economy from one based on primary commodity production to value addition i.e. manufacturing.

The debate between Museveni and his critics should be on whether our country has any serious policies and political drive to move towards a manufacturing-based economy. I have not read or heard a single opposition politician or activist raising this critical policy issue.

As Africans, we have been hoodwinked by Western scholarship into the belief that our economic and social development will come from “good governance.” Here, we are told that our governments need to respect human rights, promote democracy and fight corruption. Of course, these values are, in and of themselves, noble and have strong moral appeal. And they are the issues over which the government and the opposition in Uganda (and Africa generally) always have their pitched fights. Yet all the three are of very little significance to the process of development.

If anyone studied the history of the development of nations and looked at UK, USA, Germany, Japan, South Korea, Singapore, Taiwan etc., democracy was realised long after they had transformed from a poor, agrarian societies into a rich, industrial giants.

In fact, I cannot find a single country that was a democracy in the strict sense we understand it today and then developed. On the contrary, historic evidence shows that democracy was a byproduct of the development process, not a cause of it. The same applies to corruption and respect for human rights. This fact is so stubborn that even countries that are rapidly transforming right in front of our eyes today, China and Vietnam, are not exemplars for the respect of human rights or democracy and both are struggling under the weight of corruption.

What then are the factors that were common in these countries during their intense period of transformation from poverty to riches? I can only think of two: they had better terms of trade i.e. the price index of their exports was higher than the price index of their imports; and their citizens produced and owned a significant share of national output – GDP. Except for a few rare minerals, the terms of trade of primary commodities tend to be poor compared to those of manufactured products. Space does not allow me to elucidate further.

In Uganda (and Africa generally) we are fixated on a fourth issue as a precondition to development – Foreign Direct Investment (FDI). Again, I cannot find an example of a country that developed because of FDI. On the contrary, all historic evidence shows that FDI has not been a primary factor driving development. None of the Asian countries (Japan, South Korea, Taiwan) that have caught up with the rich nations of Western Europe and North America had huge inflows of FDI relative to their GDP during their transformation. The same applies to China today. All these countries financed investments in human and physical capital that transformed them themselves.

Interestingly, countries whose economies are owned by foreign interests (Uganda is the best example) have not been successful at structural transformation Why? Because foreigners invest in areas without much prospect for future development.

Development is really a movement up the value chain in product quality – from mining coltan to making microchips to finally designing smart phones. Apple is not going to transfer the design function of the iPhone (contributes 65% of the value) to its subsidiary in Uganda.

Yet Museveni and his critics are debating how to turn Uganda into a nation of prosperous peasants using the “Parish Development Model.”  This treats every peasant as a Schumpeterian entrepreneur. There is no country where 70% of the population depend on agricultural for a livelihood whose per capita income is above $1,200. Therefore, for as long as agriculture is the mainstay of our economy, we are doomed to remain perpetually poor.

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