Why Uganda's Economic Growth Isn't Reaching Ordinary Citizens

Uganda’s economy is experiencing significant growth “on paper,” with Gross Domestic Product (GDP) figures indicating a healthy expansion. However, this prosperity is not translating into improved living standards for the majority of the population. Experts explain that headline GDP numbers often mask underlying issues, such as who benefits from this growth.

The key distinction lies between “asset holders” and “non-asset holders.” When economic expansion is driven by large capital projects like infrastructure, oil, and telecommunications, the primary beneficiaries are those who own assets such as property or shares. The current economic strategy in Uganda, focusing on agro-industrialization, tourism, minerals, and technology, alongside infrastructure, tends to benefit capital owners more directly.

In contrast, labor-intensive sectors that could create widespread employment opportunities, such as light manufacturing, construction, informal trade, and hospitality, are not prioritized. This leaves individuals whose primary asset is their labor behind. Data reveals that the share of the economy reaching workers as wages has remained stagnant at around 37 percent since 2009, despite the economy tripling in size.

A significant portion of the national budget is also allocated to debt servicing, consuming roughly 40 percent of the total budget. This leaves less funding for critical sectors like health and education, which are deemed “enablers” of growth. The World Bank highlights that a substantial number of Ugandan children lack basic literacy skills, indicating underinvestment in human capital, which is crucial for a productive workforce.

The majority of Ugandans work in the informal sector, with limited security, pensions, or savings. Recent economic shocks, like supply chain disruptions and price hikes, disproportionately affect these workers. Consequently, a significant portion of the population, over 51 percent, lives below the international poverty line, demonstrating the gap between macroeconomic performance and individual economic well-being.

Efforts like the Parish Development Model (PDM) and Emyooga aim to reach the grassroots, but face challenges such as governance issues, low absorption rates, and potential misuse of funds, some of which are themselves reliant on government borrowing. Critics argue that this approach creates a cycle where borrowing to fund development programs increases interest rates, thus hindering the private sector and widening the very gap it seeks to close.

To bridge this divide, economists suggest reducing domestic borrowing, clearing outstanding arrears, and raising the income tax threshold to allow ordinary citizens to retain more of their earnings, thereby boosting consumption, which is a major driver of the economy.

Source: Daily Monitor (Uganda) https://www.monitor.co.ug/uganda/business/markets/why-you-don-t-feel-economic-growth-in-your-pocket-5501882