Friday 10 November 2017

Uganda's middle income- small it is

Over the last decenary, Uganda's growth has seen a surge in supply side particularly in the manufacturing and service sectors. The question,however, remains whether this supply side surge has created its own demand or rather meaningful middle income through enhanced employment. It is against that backdrop that I transpose the middle income discussion into numbers.
First, a country to attain lower middle income status, it requires a GDP per capita income (GDP divided by population) of USD 1,026. This translates into daily income per Ugandan of USD 2.8 (or UGX 10,000). However, Uganda's GDP per capita is only USD 710 – a daily income per Ugandan of USD 2 (UGX 7,000). Notably, the Uganda poverty status report of 2014 suggests that 64% of Ugandan's live below that USD 2 per day. Assuming the current population to be at 38 million, this translates into 24.3 million Ugandans earning less than UGX 7,000 daily or UGX 210,000 monthly. In addition, the vulnerability class is defined at twice the poverty line (i.e. people living between USD 1-2 per day) were vulnerable to falling back poverty. The recent economic developments reflected by slowdown in economic growth, downsizing and closures of some businesses and rising inflation may suggest increased vulnerability.
Looking at national census statistics, 49% of Ugandans are in the working age population (15- 64 years). This means working age population of 18.6m Ugandans. Thus the 19.4 million who are outside the working population age depend on the 18.6m leading to a dependency ratio of more than 100%.That is not the full story, 30% of the working population (5.6 million) are not employed. The unemployed 5.6m added to 19.4m implies 25 million Ugandans thrive on the economic power of the working within the working age population (i.e. 13 million) thus a dependency of 192%. In addition, 58% of the not working (3.2 million Ugandans) is due reasons other than participation in education and represent the non-utilized labour potential.
For the working population, 64% of working age population are employed in subsistence agriculture (arguably a non-monetary sector) - that is 11.9 million Ugandans. So this leaves only 1.1 million (of the 13 million) Ugandans in the monetary sector.  
Against that backdrop and a notable recent mitigated expansion of consumer services it begs a question as to whether population is a good indicator of consumer demand. By and large, this proxy is flawed. The economic prowess of this population is what matters. This now raises the next question, if 1.1million employees are estimated to be involved in money economic activities beyond subsistence, then how big is the middle income of Uganda.
A number of indicators could be used to corroborate the fact that Uganda has less than 1 million in the middle income. Understandably URA database has 964,000 registered PAYE clients, of which only 500,000 are in the tax bracket of 30% PAYE - earning more than UGX 410,000 per month.
Numerically, the privately owned cars on our roads – that is UAA 001A to UBA 999B gives approximately 676,000. With some individuals owning more than one car, it could mean those who own cars are about 500,000. Remember, public transport is not necessarily developed to incentivise middle class to use public means as opposed to buying cars.
Again, NSSF active members would another good indicator. The Fund currently has more than 1.6 million members, of whom about 600,000 actively contribute every month. An average NSSF member earns gross pay of  UGX 780,000. Deductively, usually middle income class is also an indebted class. So the statistics on the number of clients with access to credit from the banking system would be another telling figure. How many clients contribute to the current outstanding stock of Private Sector Credit of UGX 11.7 trillion? My guess is as good as yours, around the same numbers for NSSF active members. Also, on the business side, the Uganda Registry Service Bureau has a register of 500,000 businesses (active, dying and dead businesses).
To properly understand the middle income class, there is a desperate need for frequent information on the household income. With one million Ugandan's born every year and arguably less than 1 million in the middle income class today, underscores that Uganda's future middle income feasible in mid 2020s – may not be middle income for all. Addressing the supply side of labour and eventually the aggregate demand remains essential and should be at the root of budgetary framework. A meaningful lower middle class is classified at USD 10-20

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