About me.

Andrew M. Mwenda is the founding Managing Editor of The Independent, Uganda’s premier current affairs newsmagazine. One of Foreign Policy magazine 's top 100 Global Thinkers, TED Speaker and Foreign aid Critic

Monday, March 5, 2018

The poverty paradox

UGANDA: Why economic development tends to increase social insecurity leading to anger

  A couple of months ago, the Uganda Bureau of Statistics produced its survey showing that between 2012 and 2017, the number of people living in poverty increased from 19 to 27%. This provided considerable grist to the anti President Yoweri Museveni mill. It confirmed the accusations of his critics that the president has been mismanaging the economy.

I think these studies obscure, rather than highlight, the actual problem facing us. Our country/continent should aim at structural transformation, not poverty reduction. Making peasants earn more is not a solution to Uganda (and Africa’s) economic backwardness. There is no country where the majority of people depend on agriculture for a livelihood, which is rich.  Our challenge is how to transform peasants into industrial/service workers. But that is a debate for another day.

Now government critics have always dismissed UBOS statistics as propaganda. They argue that we can measure poverty by just using our eyes. They have been mocking me, asking what happened to the “rosy picture” of Uganda’s economic growth that I have “always painted”. Yet UBOS figures actually prove the point that economic growth is critical for poverty reduction. For example, over the last five years, Uganda’s growth has slowed down from an average of 7.4% between 2001 and 2010 to an average of 3.9% between 2012 and 2016.

The more important point, however, is that most people grossly misunderstand the challenge of economic development. This is a very slow and painful process whose results can only be realized after a long time lag. Economists and statisticians use the “rule of 72”. This rule says that if an economy (or anything else under measurement) grew at an annual average rate of 1%, it would double every 72 years. If it grew at an annual average of 7%, it would double every ten years. It is not accurate but gives us a good idea.

Now 7% is about the highest rate of growth any country has ever enjoyed in history. Of course some outliers like South Korea did 9.4% between 1960 and 1990 and China 10.2% between 1980 and 2010 among a few others. I tend to remove from the sample countries that have relied on natural resources to grow fast because they are enjoying God’s (or nature’s) bounty. Equally, I remove city-states like Hong Kong and Singapore because, lacking a hinterland, they did not have a peasantry to transform from agriculture to industry.

Let us assume a country had a per capita income of $150 as Uganda did in 1986. Let us assume its per capita income grows at a supersonic speed of 7% per annum. This country would reach $300 after ten years, $600 after twenty years and $1,200 after 30 years i.e. it would still be a poor country. It would take 70 years to reach a per capita income of $19,200 – which is the lower rungs rich countries.

Uganda’s per capita income growth has been slow because of a very high rate of population growth. Remember per capita income is calculated by subtracting the population growth rate from the GDP growth rate. From 1986 to 2016, Uganda’s GDP grew at an annual average of 6.74% while its population grew at 3.2%, giving us a per capita income growth of 3.5%. At this rate, per capita income in Uganda doubles every twenty years. Now it may be surprising to many that no country in Europe ever achieved this over 30 years, except West Germany between 1950 and 1980, which did 3.8%.

No comments: