|Our consumption bubble will eventually burst|
|Written by Enoq Omwanawomwanawomuntu|
|Sunday, 05 June 2011 20:35|
|Uganda is a country which is largely rural, with 80% of the population rural bound and 70% employed in agriculture. |
This means Uganda has a small sector which ideally bears the tax burden and according to the Uganda National Household Survey 2009/10, 24.5% (about 7.5 million) Ugandans still live in poverty, meaning one can’t afford the basic necessities like food and shelter. Also noting that the population is increasingly becoming younger, with 60% of the population under 18 years, means Uganda has a high dependency ratio of 115%.
Dependency eats into the working population’s income, leaving it with limited savings. Despite the high dependency, Monday to Sunday, week-in, week-out, 365 days a year, you will be assured of party time in Uganda and more particularly in Kampala’s pubs and nightclubs. There are theme nights in different drinking joints that attract a massive clientele seven days a week in all corners of town.
No wonder we are ranked among the topmost alcohol consumers in the world. Strangely though, you will notice that Ugandans are also quite generous to churches, some churches reporting Sunday collections averaging Shs 200 million! Every month, one has to part with wedding contributions.
One should be able to save at least Shs100,000 for that cause monthly. Gone are the days when owning a car was a luxury for the corporate class yet the minimum expenditure on fuel alone, given today’s prices, is Shs 300,000 per month. And considering the potholed Kampala roads, repairing of cars is likely to be on a monthly basis.
Most corporate class fellas stay in upscale locations where rent prices today are quite exorbitant. For those who own homes, they are largely funded through mortgages which eat a big chunk into one’s salary each month. Since Government does not adequately provide the basic necessities like education and health gratis, we also have to spend much of our little savings on them.
The aforementioned expenditure excludes the most basic needs basket of goods and services like food, fuel, clothing and energy. And these have been prone to inflation, especially food whose inflation in April, 2011 was 39.3%. Economists have always observed that with inflation, employers tend to be slower in adjusting wages commensurate to the price movements, meaning, in real terms, the salary earners receive less when there is inflation.
To put this in context, one friend recently mentioned how he used to buy a decent meal at Shs 3,000 four years ago and now the same food costs Shs 8,000 (166% increment), his rent that was once Shs 250,000 is now Shs 500,000 (100% increment) yet his salary scale has only changed marginally over the years by about 10%. In real terms, he is worse off than he was four years ago.
Also notably, when inflation is high, rather than companies increasing salaries commensurately, they reduce the number of employees instead.
Against this backdrop, it is evident that the incomes/expenditures of average Ugandans are consumption bound, resulting in less savings and investments. One is then left wondering how this expenditure is funded.
The unfortunate answer is our expenditure per capita is higher than the income capita, meaning expenditure is largely funded by the private sector credit from banks, including the unsecured salary loans. These loans fetch interest rates averaging 20-25%. Unlike governments which could get reliefs on their debts, the individuals don’t and if anything could lose their property (if the loan was secured) on failure of payment.
It is not strange to find a young university graduate more likely ‘investing’ in a Blackberry, iPad, galaxy or some android based phone before any savings are made for the future. Others would rather borrow for a boda boda ride than walk from their residence, say in Mbuya, to Makerere University Business School, even when time is available. Hotels and bars are now one of the most profitable ventures while less is being invested, say in production for export.
Low production reduces employment and, in the long run, there will be no income to support the consumption. What is regarded as savings is actually for immediate consumption though we still witness here and there limited collective savings like investment clubs and limited stock market participation.
If we don’t re-adjust to live within our means, this consumerism is actually unsustainable. Drawing from the US experience, once the consumption bubble bursts, it will have spill-over effects on business and credit default rates will likely increase, thus creating a ‘Uganda crisis.’
The author is an economist