Who is benefiting from growth?

By Andrew M. Mwenda  

Uganda has sustained robust economic growth for the last 23 years, a fact that opponents of President Yoweri Musevei ignore actually to their disadvantage. This growth has produced a private sector and a political and bureaucratic class with money and power. In denying it, the opposition actually lose the support, implicit or explicit of this small but rich and most influential section of our society.

Yet the most important value of this growth is not economic but political. For example, tax revenues have increased from Shs 44 billion in 1988 to Shs 5.3 trillion in 2011. Even accounting for inflation, this is a significant gain. These taxes are not collected from trees but from increasing economic transactions. Most critically, growing tax receipts increase Museveni’s ability to manage his politics.

For example, Museveni can now afford to expand his political coalition by increasing the size of cabinet, number of presidential advisors, districts, semi autonomous government agencies and security outfits. The appointees have official privileges and unofficial opportunities to profit from corruption. But he can also deliver welfare dividends to the poor in form of UPE, USE and basic health, however incompetently provided. Foreign aid adds to Museveni’s capacity to beef up the police and the army to effectively crack down on the opposition.

Some critics claim that figures of growth are cooked up. This is wrong. The more legitimate criticism is that economic growth has not benefited ordinary citizens. Consequently, there are huge income disparities between ordinary people and the elites because the benefits of growth are concentrated in the hands of a few corrupt officials in government and their allies in the private sector.

Statistical evidence lends credence to this point. According to the 2002 census results, 78 percent of Ugandans depend on agriculture for a livelihood yet it contributes only 14 percent of GDP. Even accounting for the growth of industry and services over the last ten years, this figure has not changed much ‘ so it may now be about 70 percent. Services contribute 52 percent of GDP but employ 10 percent of Ugandans. Industry contributes 22 percent of GDP but employs 2 percent.

More worrying is that growth in agriculture over the last ten years has averaged 1.1 percent yet population growth is 3.3 percent. This means that per capita income growth in agriculture over the last decade has been negative 2.2 percent. If these official figures are accurate, then it means that rural Uganda should be facing a devastating food crisis and the country should be depending on imported food.

Yet food imports in Uganda are low and our country is now a net exporter of food to the region. How can a country that has spent tens years producing less food than children be exporting instead of importing food? Something must be wrong with official figures. This suggests that it is government that should be complaining about official figures, not the opposition.

Yet, even if official figures understate the contribution of agriculture to GDP, they cannot be more than 5.0 percent off the mark. Therefore, at the very best, agriculture should be contributing about 19 percent. This still is not good news because it means that over 70 percent of Ugandans depend on only 19 percent of national output ‘ or possibly such income disparities are not such a big problem after all.

In the 1980s, a popular criticism of government policies in Africa was that they tended to have a strong urban bias. Popularised by Robert Bates’ acclaimed study, Markets and States in Tropical Africa, this argument has been the official view in policy circles. Bates had shown that governments in Africa highly taxed agriculture in order to raise money for industry. They also kept food prices low to subsidise urban consumers.

Today, the reverse is actually the case especially in Uganda. Even if we agree that agriculture contributes about 19 percent to GDP according to my arbitrary estimate, it contributes almost zero percent to tax revenue. According to URA, 75 percent of tax revenues are collected from Kampala alone. This means that either there is little economic activity in the rest of the country (which confirms the view of critics) or tax administration is very weak outside the capital. The answer is a combination of both.

The largest government expenditure goes to education and health to finance UPE, USE and basic health. Since government schools and hospitals are poorly run, better off Ugandans send their children to private ones. Therefore, the beneficiaries of most government services are largely the poor. We should not be surprised therefore, that urban areas (in southern Uganda) are hotbeds for opposition politics. Urban elites are taxed to provide public services to the poor in rural areas.

Yet most expenditure on education, health, infrastructure and agriculture gets stolen by public officials. Therefore, the actual transfer of income is from the productive sections of our people in urban areas (those who tend to invest and pay taxes) to the political and bureaucratic elites who steal it (those who tend to consume).

It would be wrong to present the productive and the predatory elite in urban areas as separate and opposed groups; because in spite of liberalisation and privatisation, the state in Uganda has remained the largest single consumer. A significant section of our private sector makes its money by supplying goods and services to government. Many of those who produce the wealth of our nation often depend on collusion with those in government for public tenders and contracts.

Ordinary folks do not lose out entirely. Given the clientelistic nature of our social relations, elites in urban areas send money for food, medical care and school fees to relatives, friends and in-laws in rural areas. Such personalised transfers create an unfair distributional system because the beneficiaries are few.

In sharing their loot with the rural poor, elites in Uganda may have avoided widespread discontent likely to lead to popular protest. However, this has been at the price of a failure to build public institutions that can ensure an impersonal application of public policy and hence the evolution of a more efficient distribution of the benefits of growth.

amwenda@independent.co.ug