Economic growth is more than cash in people`s Pockets!!

I read with interest Dr. Augustus Nuwagaba’s opinion titled “Why Economic Growth Is Not Felt In People’s Pockets” which was published in the New Vision of September 15. Nuwagaba gave an inaccurate analysis.

First, he wrongly characterises economic growth as construction of roads, buildings, airports, and other public facilities! What he characterises as economic growth is physical infrastructure development, which is only an indirect productive capital that facilitates the production of goods and services in a country.

Economic growth is the increase in a country’s output of goods and services in a given period. The total value (in dollars or shillings) of these goods and services is called gross domestic product (GDP). It constitutes national income over that period and includes what everyone in the country earned including, the two kilogramme of cassava per household dried by women along Iganga-Tirinyi-Mbale road that Nuwagaba mentioned.

Secondly, Nuwagaba failed to link economic growth and development. The UNDP human development report of 1990 defined “human development” as a process of enlarging peoples choices and opportunities — being educated, enabling individuals to develop their full potential and lead productive and creative lives, having access and command of resources to live decent, healthy and longer lives.

Development reflects improvements in welfare and expansion of choices and opportunities. So why has Uganda’s 8.9% economic growth rate not translated into cash in people’s pockets? This question can be misleading!

The reported growth rates often reflect both monetary and non-monetary GDP growth. When women along Iganga-Tirinyi-Mbale road produce cassava and feed their families (many households in Uganda are net food producers and rare goats, chicken and pigs), this enhances welfare more than cash in the pockets.

producing food for family consumption is the non-monetary GDP. If each household sells the surplus cassava and receives cash, this household income is reflected in the total national income as monetary GDP. So an economic growth rate like 8.9% of this financial year reflects goods and services that were produced and consumed at home to produce family welfare and those goods that went to the market to be exchanged for cash into the pockets.

So apart from what is felt in the people’s pockets, can we find other indicators of economic growth in Uganda? Yes, in the last 10 years, primary health care has improved while illiteracy rates, infant mortality rates and maternal mortality rates have gone down. More Ugandans go to school, more Ugandans can read and write, and an average Ugandan owns more now and lives longer than he did 10-years-ago.

Uganda is one of the countries in Sub Saharan Africa that has gained seven years of life expectancy (at 50.4 now). These are changes that have occurred because of sustained rapid economic growth that broadens people’s choices than cash in the pocket.

Until recently (2005), Uganda was one of the Sub Saharan countries on the path likely to attain the UN Millennium Development Goals (MDGs) by 2015, but the recent global economic changes and probably changes in Uganda’s priorities that have derailed it from this path. So it is not correct to focus on economic growth analysis in terms of only income-poverty aspect.

There are reasons why Uganda’s high economic growth rate may not translate into accelerated poverty reduction and economic inclusiveness. For example, Uganda has one of the highest population growth rates in the world (3.24% annually) and the highest proportion of the young in its population (49.4 % under the age of 14).

These statistics have a negative impact on the income of individuals even if the economy is growing at impressive levels of above 8.9%. Furthermore, productivity in the agricultural sector, which is the largest employer, has lagged behind the high population growth rate. This brings about low incomes in the sector and employment opportunities are not being generated quickly enough to meet the growing demand of non-agricultural work by graduating Ugandans.

Uganda’s rate of growth has been largely driven by concentrated enclave of exports especially coffee, fish, tea, limited manufacturing and construction, transport and communications. These sectors have few linkages with the informal economy that defines an average Ugandan.

This leads to income inequality that is hindering poverty reduction in Uganda, as Nuwagaba rightly observed.

How can income poverty be reduced? Through the increased rate of economic growth, and increasing the share that goes to the poor. The more of this income increment is captured by the majority poor, the more efficient the country will be in converting growth into poverty reduction.

The Government must prioritise creation of an enabling environment for small scale agriculture, micro enterprises and informal sector — the sectors that the poor depend on for their livelihood. This is possible if the steps being taken under “Prosperity-for-All” are effectively implemented and the Government continues focus on infrastructure development, especially transport and energy — contrary to Nuwagaba’s view of “public goods model”.

The writer is a Trade and Development Specialist
based in Geneva