Muhumuza
Fred (PhD)
[Paper
presented at the Launch of the Society for Justice and National Unity (SoJNU),
on 11 May 2017, at the School of Law, Makerere University.]
1.
Introduction
“High levels of inequality across Africa have prevented much of the
benefits of recent growth from reaching the continent’s poorest people. To
combat inequality in Africa, political and business leaders have to shape a
profoundly different type of economy.”
Oxfam Briefing Paper, “Starting with People: A
human economy approach to inclusive growth in Africa.” May, 2017.
|
The above quotation presents a case for political and
business leaders to design a different economy that is geared towards
generating benefits to all citizens as a means of actualizing inclusiveness,
sustainability and nationalism. Based on the premise that growth of the economy
should benefit citizens, the paper was necessitated by the general and
increasing reality of inequality and growing sense of disenfranchisement in Uganda.
Powerlessness undermines the sense of belonging and the social fabric that
holds society together. Questions on whether the economy is growing and if so,
who is benefiting from such growth have created an ultimate question: “who owns
Uganda?”
To answer the question, the paper blends economics,
business and general public policy to explain the distribution of various
social and economic benefits from Uganda’s economic system. The business
analogy of distribution of earnings as benefits to various shareholders is used
to link benefits to ownership. Citizens, which are deemed to be the legal
owners of a country, are entitled to enjoy the rights and privileges granted by
the state through its laws, policies and related processes. Economic and social
benefits form part of the major privileges that any country should provide to
citizens either through ownership of productive economic assets or access to
their use and resultant products and services.
Ownership of a country
from the economic perspective has a direct relationship with rights of
ownership, access and usage of national assets and/or realizing benefits from
the said assets. Even when one does not own the assets, they should be able to
access and/or use them as well as realize the benefits of such usage. Emphasis
here is necessitated by cases where certain persons who own assets have not had
the privilege of using them while those who have used them have been denied the
privilege of realizing benefits/proceeds of such usage. In both cases the
concerned person cannot be deemed as the ‘owner’ since ownership should entitle
an individual to benefits. Access may be through rent of the assets or as an
employee. Either way, the person is entitled to a portion of the proceeds that
is attributable to their personal involvement and contribution. This is the
essence of citizens demanding for jobs, business opportunities, credit,
leasing, etc.
The ownership of a country should entail systems that
deliver to the people a fair share of their entitlement as citizens/shareholders.
The criteria for sharing involves a combination of rewards due to: (i)
ownership of productive assets (rent and interest); (ii) participation in the
production process (wages and profits); and (iii) entitlement as a citizen
(benefits of government services).
2.
The
underlying theory and practice of public policy
Analysis of
distribution of economic benefits can be based on Euler’s theorem on income
distribution among the owners of the various factors of production. It is
argued that the entire value of production should always be distributed to
those who contribute to its creation either by virtue of direct engagement
through labor or ownership of the capital assets (land, physical capital, and
entrepreneurship).
Realistically,
distribution of benefits based on Euler’s theorem would result in an unfair
outcome given the often biased initial ownership of production assets. To
resolve this initial handicap, Governments are required to put in place
policies and programs that correct or minimize the distortion. Government can
and does influence the ownership of these assets. This can be through laws and procedures that govern
land rights and business ownership and management; social policies for
education and health that determine acquisition of skills and knowledge of
human beings; redistribution through taxation and transfers; social and
physical protection through security, law and order among others. Contrary to
theoretical expectations as reflected in stylized facts, redistributive public
spending (including pensions) and education performance have not had a
significant effect on income earnings and distribution in Uganda.
Finally, citizens,
whether working or not, are entitled to economic benefits through various
government policies. Public policy should not only provide relief to the less
privileged citizens but also aim at empowering the active but disadvantaged
citizens through distributive and protective programs. Public policy
interventions are critical in the sense that market forces cannot be relied
upon to cater for citizens given the nature of initial endowments, acquisition
of assets over time and variable rates of returns to some assets. Without
appropriate public policy, it is possible for some individuals to realize more
benefits than others either through ownership of a big stock of productive
assets or their high productivity and rate of return. Overtime, production
processes do change due to innovations and inventions that may render certain
assets (including skills) obsolete. The government (of the people and for the
people) has to intervene to correct such anomalies through public policy –
mainly fiscal policies on taxation, other revenues and expenditure.
The study provides a
conceptual discussion of the determinants of income equality: initial
conditions and public policies that affect income distribution directly (via
the effect of taxes and spending) or indirectly (via the effect on earning
opportunities, human capital and institutions). The next stage was to review
empirical studies in relation to distribution indicators on the one hand and
public spending and policy outcomes on the other.[1]
Based on the nature of sharing benefits from business
companies on basis of ownership and participation in production processes –
inclusive growth – the argument of who owns Uganda can be inferred by tracing
benefits from the economy (GDP) and its growth. The methods adopted to compute
the size of the economy provide an insight into who is participating in the
growth of the economy and the resultant benefits through direct engagement or
redistribution by the state. According to approaches of computing national
income one can use the output, expenditure or income methods.
Without delving into the details of each method, the
complexity involved in establishing ownership of economic assets in Uganda with
its inherent deliberate data problems, it was preferable to use the expenditure
and/or income approaches. The paper used distribution of income among segments
of the population, as well as the sectoral composition of GDP and respective
populations engaged in each sector. Secondly, the revealed benefits of
government and household expenditures can be captured by observing impacts on
poverty levels. Preference for these two methods was based on availability of
sufficient economic theory and practice, data concerns as well as existing
evidence from empirical studies on Uganda.
3.
A
narrative from observations and empirical findings
The empirical relation
between distribution indicators on the one hand and public spending and policy
outcomes on the other show the efficiency of public spending in promoting
realization of more equalization of income. This discussion involves evidence
on income distribution levels at the macro and micro levels.
At the national or macro
level, the policies and resultant outcomes provide a basis of analysis of
policy implications on distribution of benefits to the population. The
reduction of poverty in Uganda from 56.4 per cent in 1992/93 to 19.7 per cent
in 2013 on the basis of US$ 1 per day, shows the same trend as when one uses
the international poverty line of US$ 1.90 per day that shows a reduction from
68 percent to 34 percent over the same period. However, the international
poverty line is more realistic in terms of absolute numbers of the poor, over
12 million people, which is in tandem with regular observations and public
opinion.
Another measure of
inequality or who is benefiting from Uganda’s economy was based on sub-samples
of the population. The use of sharing of national wealth by percentiles such as
top and/or bottom 10 per cent shows a more disturbing reality of the inequality
problem. The richest 10 per cent of the population enjoy 35.7 per cent of
national income, while the poorest 10 per cent share a meager 2.5 per cent.
Similarly, the poorest 20 per cent have only 5.8 per cent. Furthermore, on a
regional basis, the incidence of poverty remains highest in rural areas, at
22.8 per cent of the population compared with 9.3 per cent in urban locations.
Geographically, development is skewed towards the central and western as
poverty remains highest in the north and north east.
These trends affirm the
fact that, while the general policy environment enables almost everyone to move
up the welfare ladder, a number of factors determine who gets left behind –
causes of inequality. Whereas, the period of 1993 to 2000, which was
characterized by stabilization and recovery policies, increased consumption for
all household by an average of 5.3 per cent per annum, there were disparities
related to location (rural-urban) and endowments position. The bottom 40 per
cent in urban areas had an increase of 6.9 per cent while the top 60 per cent
had consumption growth of 8.6 percent. Progress was faster for wealthier or
more endowed households (World Bank, 2016).
The period between 2010
and 2013 was the only time from 1992 when consumption growth benefited the poor
more than the rich. During this time, the growth rate of the bottom 40 per cent
was higher than the growth rate of the top 60 per cent (2.3 per cent compared
to 1.8 per cent). Otherwise the rest of the period was dominated by growing
disparities between the rich and the poor.
4.
Understanding
the macro level observations
The benefits of poverty
reduction have been driven by growth in agricultural incomes, peace in northern
Uganda, improved regional crop markets, and modest gains in education and
urbanization. The disparities in progress point to key underlying factors
ranging from failures in policy formulation and management, through regional
specific issues, to gender and cultural factors. For example, poverty has
become increasingly concentrated in the North and East of the country. Although
most households in these regions own
land, they are less likely to own other assets and have lower access to
infrastructure services. Households
in the north are larger and more likely to be headed by a woman or a person
with no education.
Ugandan households have
a higher level of education than in the past, but it remains low, particularly
among poorer households. Although there has been much progress in educational
attainment in recent years, many working-age adults still have low levels of
education. Only about 24 per cent of household heads had education levels
higher than primary and the percentage was even lower at 11 per cent for the
bottom 40 per cent of the population.
Table 1: Proportion of
individuals that live in a household by education level of the head
Level of
education
|
Bottom 40
|
Top 60
|
|
None
|
29.4
|
16.3
|
|
Primary
|
58.5
|
49.0
|
|
Secondary
|
11.4
|
27.3
|
|
Tertiary
|
0.7
|
7.5
|
|
World Bank,
2016. The Uganda Poverty Assessment Report, 2016
In addition, the
analysis shows large variations in asset ownership and access to infrastructure
services between the rich and the poor. Mobile phone ownership was only 37 per
cent among the bottom 40 per cent compared with 70 per cent among the top 60.
Almost no households in the bottom 40 per cent had access to electricity or
piped water, compared with 20 per cent and 10 per cent, respectively, in the
top 60 percent.
Besides poverty,
vulnerability has also remained high as two out of every three Ugandans who
came out of poverty fell back into poverty between 2005 and 2009. Overall, on
the criteria of US$ 1 per day, over 22 million Ugandans, or 63 per cent, were considered
poor or vulnerable. Based on extrapolation techniques, nearly 88 percent lived
on less than US$ 3 dollars a day.
Employment and
wages
Employment,
which is supposed to provide benefits through jobs and business ownership, has
not given the expected traction. The UNDP report[2] on the status of poverty shows mixed
results from support to high-value sectors, which were prioritized to decrease
poverty directly by generating jobs for the poor and indirectly through
important inter-sectoral linkages that benefit the poor. The high value sectors
that generated much of the growth were inclined to the use of technology, which
mitigates the creation of jobs. They were also dominated by foreign ownership –
implying foreign capture of profits, interest and to an extent rent. For
example, growth in Uganda has largely been driven by financial services, real
estate that is partly fueled by credit from the banks, and telecommunication
services. Each of these sectors is dominated by foreign investors who repatriate
profits and business by trading with their parent firms.
The employment
opportunities have not increased as fast as the labor force implying that, even
with the little increase in wage employment over the last decade, its share of
the labour force has remained low. See Table 2 below. Employment trends have
denied many Ugandan youth an opportunity to benefit from their own economy.
Table 2:
Characteristics of manufacturing businesses
2001/02
|
2010/11
|
|
No.
of manufacturing businesses
|
11,968
|
31,757
|
Number
of employees in manufacturing business
|
87,131
|
139,097
|
Average
size of workforce per business
|
7.3
|
4.4
|
Share
of manufacturing employment in business employment
|
20%
|
13%
|
Share
of formal manufacturing employment in working population
|
0.8%
|
0.7%
|
Business
Survey Reports
Wage
employment and ownership of a nonfarm business was higher among the top 60 per
cent than the bottom 40 per cent. The bulk of the people are engaged either in
Nonfarm self-employment or Agricultural self-employment. Each of these areas has
not had effective targeted Government programs as one would expect in an
economic system designed to empower communities.
Table 3: Structure of household income, 1993 to
2013
Proportion of households reporting receiving
income from
|
1993
|
2006
|
2013
|
|
Wage
employment in agriculture
|
10.7
|
20.9
|
22.7
|
|
Wage
employment out of agriculture (private and public)
|
21.2
|
27.2
|
24.0
|
|
Nonfarm
self-employment
|
27.7
|
41.4
|
42.5
|
|
Agricultural
self-employment
|
82.0
|
77.3
|
75.8
|
|
World Bank, 2016
Direct
redistribution through social protection
The policy
provisions for senior citizens have not delivered to expected levels for all
categories of the elderly. Government pensioners have either not received their
benefits, got them late, or are too little to make any reasonable change in
welfare. There is a failure to make adequate provisions for the elderly
citizens (former workers and otherwise) and protect such entitlements against
abuse through theft and unnecessary delays.
Other pensioners
have realized benefits that easily get eroded by the rising cost of living and
deterioration of complementary public services that increase the burden on
income of individuals. Public transfers to households are negligible in Uganda
as total spending on direct income support to poor households was 0.4 percent
of GDP compared with 1.1 percent in other low income countries in Africa. Even
programs such as SAGE, which involve provision of Shs 800 per day are too
little, erratic and with limited coverage.
General
empowerment policies and programs
There are
widespread views to show a limited role of policies and institutions involved
in delivery of services in education, health, law and order, protection of land
rights, agriculture, and safety of citizens. For example, Government policy and
programs have contributed so little to improvements in agriculture, which has
largely been driven by individual private efforts, natural factors and luck.
Where extension services were provided, which was in very few households, crop
income was only 20 per cent higher. The World Bank Report shows that extension
services expanded from 8 per cent of households in 2006 to 12 per cent in 2013.
Even then, there was limited increase in the use of improved inputs. As a
consequence, agriculture remains largely traditional and subject to vagaries of
nature.
Fiscal policy in
terms of income taxes on persons and firms, despite being based on the right
principle of progressive taxation – taking more from those who earn more – has
delivered results that are not robust. The low ratio of tax-to-GDP, less that
13% in Uganda, indicates limitations of taxing production for redistributive
purposes and equality to enable the high income earners contribute more to
growth of the economy. Such low rates of taxation are often characteristic of
disenfranchisement whereby a clique of powerful elites control government
processes and provide themselves with tax exemptions, skillfully or forcefully
hide incomes and/or their sources, and directly interfere with the taxation
system.
Besides the physical
interruption of fiscal policy by those who are able to cause deviations in tax
policy, the design of taxes as a means of income redistribution has come under
scrutiny (see Fogel, 2000). Progressively, progressive taxes have been found to
potentially generate disincentive effects because of the concentration of
income taxes on dependent workers. The preference would be to replace income
transfers by universal entitlement programs, especially in health and
education, which benefit all citizens and not just the poor. Fogel (2000)
argues that because material goods account for a progressively smaller share of
total spending for most people, in the future the fight for more equality or
equity will be directed to the distribution of immaterial goods.
Furthermore,
effectiveness and efficiency of public social spending is often more enhanced
in countries with a strong education systems performance (strong institutions
depicted by professionalism of teachers, supervision, motivation and
facilitation) as opposed to mere education spending. Unfortunately, in the case
of Uganda, both spending and effectiveness of education systems are weak. While
the education budget may appear big in terms of ratios of the total budget, the
amounts involved at the actual service delivery facility level are
insignificant. Teacher’s salaries remain low and releases per pupil per year
are equivalent to only a few US dollars.
The results of
inadequate budgets, ineffective systems have undermined the right of citizens
to gainfully benefit from opportunities in the country. Many Ugandans are not realizing substantial benefits from the education system. According to the
World Bank,[3] increase in primary enrollment rates are yet to
translate into substantial improvements in educational outcomes. Completion
rates were at 53% in 2011, which is much lower than countries with similar
income levels. At secondary level, pregnancy remains a major setback as 10 per
cent of girls dropped out of school due to pregnancy.
5.
Conclusion
The question of who owns Uganda can certainly
invoke many answers depending on the nature of analysis and individual views.
However, based on the economic evidence from various sources and logic of
ownership in terms of who is benefiting from the economy, the conclusion is
clear – very few Ugandans. Over the years, Government programs and budgets have
not provided effective empowerment to citizens to gainfully engage in the
economy and rightfully claim bragging rights as owners of the country. Ugandans
can hardly say with pride, “Oh Uganda, the land that feeds us.” They have
indeed given their labour but someone else seems to be taking the wages, the
profits, the rent and the interest. Not
only are they losing the monetary interest but also the interest in terms of
passion and pride of their motherland.
To recap from the very first sentence, there
is “a case for political and business leaders to design a different economy
that is geared towards generating benefits to all citizens as a means of
actualizing inclusiveness, sustainability and nationalism.”
Notes and References
1.
António
Afonso, Ludger Schuknecht, and Vito Tanzi (2008), Income Distribution Determinants and Public Spending Efficiency, Working
Paper Series No. 861 January 2008. European Central Bank.
2.
UNDP (2014), Structural Change and Poverty
Reduction in Uganda.
3.
World
Bank, Poverty Assessment Report, 2016.
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