There is a lot of anxiety as the clock ticks to 2020, with eyes glued to see Uganda graduate to middle income status. Amidst this anxiety is the debate as to the kind of strategic interventions required to summersault there. Lower middle income status, by World Bank standards, is achievable when a country crosses a threshold of $1,033 (about Shs 3.5m) income per capita, which is an equivalent earning of at least Shs3.5 million per Ugandan per year.
Uganda’s population stood at 34.9 million in 2014, and at an annual growth of 3.03%, was roughly 35.96 million in 2015. In 2015, Uganda’s Gross Domestic Product (GDP), unadjusted for price changes, was Shs84,239 billion, having expanded at an annual average of 13 per cent in the five years to 2015. The average exchange rate in 2015 was Shs3,245 per dollar. These numbers imply a per capita income of about Shs2.3 million, an equivalent of $722 in 2015.
Taking the aforementioned conservative growth rates in population and GDP and assuming the exchange rate depreciates at 7 per cent per annum in the years to 2020, we can deduce that per capita income will be about $817 (Shs2.8m) in 2020, which is $216 (Shs730,000) lower than the lower middle income threshold. The question of whether Uganda can achieve middle income status by 2020 is a hard guess, but by and large, will require well-coordinated strategic and policy interventions in three key areas: demographic transition, income growth acceleration and exchange rate depreciation deceleration.
What decline in fertility means
The demographic transition is critical because a decline in fertility rates brings about a reduction in dependency ratios as the share of young people of below working age in the total population falls so that growth benefits from the demographic dividend. Uganda has an age dependency ratio of 107 because the total fertility rate (TFR) is still very high at 6.2 births per woman. As this is one of the highest the world has, Uganda has barely begun its demographic transition and it will not derive a demographic dividend until the TFR has fallen. Lower dependency ratios generate three important benefits for long term development.
First, as the share of the workforce in the total population increases, output per capita rises, boosting economic growth. Secondly, the smaller share of young people in the population means that society can afford to allocate more real resources per person to their education, thereby enhancing the quality of human capital.
Indeed, as Uganda Population Secretariat figures show, if fertility remains at its current levels, Uganda will need to educate 18.4 million primary school pupils in 2037. But this will reduce to 10.2 million if fertility rate is gradually reduced to 2.2 children per women over the next 24 years. For any given budget resource envelope for primary education, reducing fertility would thus enable Uganda to spend about 80 per cent more in real terms per pupil. Thirdly, with fewer dependents to support, workers can save more of their income as demographic factors have a major influence on savings rates. Most of the countries with low dependency rates also have high domestic savings rates, enabling them to finance much higher rates of investment.
East Asian countries which have experienced rapid economic growth have far lower dependency ratios of less than 50 dependents per person of working age. In 2010, these countries had an average savings rate of 45 per cent of GDP, compared to only 20 per cent for sub-Saharan Africa. The lesson here is that increasing the much needed private investment rates in Uganda requires an appropriate boost to mobilisation of domestic savings.
Lessons from Asian countries
Uganda can draw useful lessons from low income countries such as Sri Lanka and parts of south India which have achieved strong declines in fertility and accelerated their demographic transitions. Reductions in fertility are brought about mainly by two factors. First is the education of the girl child. In Uganda, women with at least some secondary education have an average of 3.9 children in their lifetimes, compared to 7.8 children for women with no education. Secondly, fertility can be lowered by well-planned family planning programmes, which enhance access to contraceptives and active campaigns for smaller families.
Reflecting on the latter, a statistician colleague, Kenneth Egesa, goes numeric - positing that the middle income aspiration is consistent with population growth decelerating to about one per cent per annum over the remaining years to 2020. In his wisdom, achieving rapid deceleration in population growth does not need rocket science.
It takes a calculated government incentive directed at women to use contraceptives. To his knowledge, he adds, there are injectable female contraceptives with a life span of five years. So if government spent Shs50,000 to provide these contraceptives at no cost to each woman and paid an additional nominal amount of Shs50,000 to each woman who enlisted on the programme, enhanced with the right communication strategy, the magic could work. We would need about 6.7 million women of the 10 million women between the target population of 10 and 44 years, to enlist for the programme to achieve a population deceleration to one per cent per annum, with a budgetary implication of Shs670 billion, which is not a big bill for the government.