Will government's new 5-year growth plan deliver middle income?

Five months to end of the financial year, the quest for middle-income status is teetering on the brink of hitting a brick wall even as government officials continue to peg hopes on a third plan, listing a cocktail of priority areas that need attention to propel economic growth and turn around the fortunes of Ugandans.

The Third National Development Plan (NDPIII) 2020/21 – 2024/25 in which government promises to “increase average household incomes and improve the quality of life of Ugandans,” has replaced NDPII that sought to achieve “competitiveness for sustainable wealth creation, employment and inclusive growth”.

To propel the country to a middle income status, the overall cost of financing all the NDPIII planned programme interventions over the five-year period is estimated at around Shs342.607 trillion. Of this, Shs213.913 trillion would be funded by the public, representing 64.4 per cent of the total cost. The remaining Shs128.164 trillion (38.6 per cent) would be funded by the private sector.

The NDP document, which forms the basis of the annual budget allocations, is in a series of six five-year plans aimed at achieving Uganda Vision 2040, which envisions “a transformed Ugandan society from a peasant to a modern and prosperous country within 30 years. In the remaining 20 years, the government seeks to achieve upper middle income status with a per capita income of $9,500 (Shs34.9m).

Forecast
Over the plan period (2020– 2025), the government forecasts an ambitious economic growth rate of 7 per cent. The GDP per capita is also expected to reach $1,301 (Shs3.8m), therefore, putting the country into middle income status by 2025. The initial government plan was to achieve the middle income status in 2020.

The National Planning Authority (NPA) developed the National Development Plan II (2015-2020) with the aim of driving the country towards a lower-middle-income status by 2020. This, however, has not been possible due to decelerated economic growth, delayed projects, uncontrolled population growth and corruption in various government departments.

According to World Bank yardsticks, middle-income economies are those with a Gross National Income (GNI) per capita of more than $1,045 (about Shs3.5m) but less than $12,736 (about Shs42m). This is where Uganda was supposed be this year. In East Africa, Kenya is the only country with middle-income status.

After studying economic trends under NDP II, the former NPA chairperson, Dr Wilberforce Kisamba Mugerwa, wrote to Finance minister Matia Kasaija about the country’s inability to achieve the coveted middle income status by 2020. Dr Kisamba cited the declining economic growth as a major barrier in the quest for a middle income status.

Dr Kisamba explained that given the projected economic growth of 5.5 per cent in the 2017/18 financial year contrary to the 15 per cent envisaged in the NDP, “it’s very unlikely” that Uganda will achieve the lower middle- income status. For many countries, attaining a double-digit growth is not easy.

Other experts, including MPs, have blamed failure to achieve the set targets under NDP II on poor absorption of funds, uncollected revenue and financial indiscipline in government departments.

They have also noted serious inconsistencies in the implementation of key government projects and revealed that with less than six months to the end of the financial year, the budget performance across sectors of the economy is inadequate.

“We see plan after plan but no tangible results because we lack the discipline to adhere to the set economic targets,” Mr Abdu Katuntu (FDC, Bugweri) said.
He added: “Resource allocation is never consistent with the agreed economic plans, culprits are never punished and its business as usual.”

But former shadow finance minister Geoffrey Ekanya blamed lack of goodwill to implement the plans under NDP, diversion of funds, corruption, increased costs of public administration and failure to involve local citizen infrastructure development, leading externalisation to profits.

Suruma weighs in
Dr Ezra Suruma, a senior presidential adviser on finance and economic planning, explained that “If middle income status is defined as per capita income above $1,000 per annum and since per capita income is calculated as GDP/Total Population, if population grows rapidly making the denominator ever larger, then it will be difficult to reach the middle income target.”

Planning State minister David Bahati yesterday presented the NDPIII to Parliament for approval and acknowledged the challenges at hand. The minister, however, told Daily Monitor in a separate interview that the government set out to attain a middle income status by 2020, which meant that the country achieves a per capita income of $1,039 (Shs3.8m).

“We are moving progressively towards achieving the target. By 2018, we had moved from $744 (Shs2.7m) to $878 (Shs3.2m),” Mr Bahati said.
“One of the factors of slow movement is the high population growth rate and then the slow implementation of projects which impacts on economic growth. We are still hopeful that by end of this year, we shall be very close if not on the mark,” he added.

Mr Bahati also revealed that the economic growth strategy for the new plan focuses on expanding the industrial base of the economy, consolidating and increasing the stock and quality of productive infrastructure and enhancing productivity especially in the agricultural sector. He added that it also focusses on sustainable exploitation of natural resources and supporting private sector development through providing affordable financing.

Developments in the external sector are expected to contribute positively to growth on account of growth in exports largely driven by agro-processing and increased domestic production. Core inflation is targeted within 5 per cent and a prudent fiscal policy that includes a ceiling on debt to GDP of 50 per cent in present value terms.

But the overall development strategy of NDP III is largely hinged on the need for rapid industrialisation based on increased productivity and production in agriculture, while nurturing the potential of the tourism, minerals, and oil and gas sectors.

President speaks out
Although NDPII is unlikely to deliver the middle income status, mainly on account of slow economic growth, in the forward section of NDPIII document to Parliament, Mr Museveni insists that “the economy has done significantly well, most notably in the areas of improved peace and security, maintenance of macroeconomic stability, development of social and economic infrastructure and expansion of access to social services.”

Over the years, the President has reiterated that a firm foundation for ‘take-off’ has been laid. “This is evidenced by the doubled size of the economy’s GDP from Shs64.23b in 2010/11 to Shs128.49b in 2018/19 in addition to significant expansion of economic and social infrastructure in energy, ict, transport, health and education.”
Mr Museveni has explained that the government pursuit for industrialisation is based on the need to accelerate growth of the economy, transform the lives of the people and strengthen the country’s regional and international competitiveness.

He also revealed that the new plan will focus on enhancing value addition in key growth opportunities (agriculture, tourism, minerals, oil & gas and knowledge) which NPA officials say have the highest potential to generate employment for Ugandans and positive multiplier effects on other sectors.

“We will continue to invest in maintaining and developing productive infrastructure to reduce the cost of doing business and increase connectivity, especially for those areas that are lagging behind,” the President’s statement reads.

NDPIII expected results after 5 years

•Reduced Poverty rates; from 21.4 percent to 14.2 percent
•Reduced Income Inequality (Ginicoefficient); from 0.41 to 0.38
•Increased contribution of industry to GDP; from 18.6 percent to 25 percent;
•Rate of growth of the industrial sector from 6.1 percent to 8.1 percent
•Rate of growth of the agricultural sector from 3.8 percent to 5.1 percent
•Reduced Youth unemployment; from 13.3 percent to 6.6 percent
•Increased value of manufactured exports in total exports; from 12.3 percent to 20 percent
•Increase in the ratio of Exports to GDP from 12.7 percent to 20 per cent
•Increase in the share of intermediate goods (inputs for manufacturing) in total import bill from 18.6 percent to 25.5 percent;
•Reduction in the percentage of households dependent on subsistence agriculture as a main source of livelihood from 68.9 percent to 55 percent;
•Increased electricity consumption per capita from 100kwh to 578kwh
•Increased forest cover; from 9.5 per cent to 18 per cent;
•Reduction in cost of electricity to $5 cents for all processing and manufacturing enterprises;
•Increased population with access to electricity; from 21 percent to 60 per cent;
•Increased coverage of the national broadband infrastructure to 45 per cent of total number households and 70 per cent of the total number of schools.

NDP achievements

•GDP increased from Shs64.23b in 2010/11 to Shs128.49b in 2018/19
•Domestic revenue increased from Shs5.02 trillion in FY2010/11 to Shs16.359 trillion
•Total exports grew from $3.83 billion in FY2010/11 to $5.3 billion in FY2017/18
•Remittances increased from $819 million in FY2010/11 to over $1 billion in FY2017/18
•Paved roads network increased from 8% in 1986 to 21.1% (or 4,551 km) as of May 2018.
•Electricity generation capacity increased from 601MW in 2010 to 1839MW in 2020
•Access to and utilisation of education services significantly increased

NDP failures/ challenges

•Middle income status by 2020 unlikely
•A large proportion of households (68.9 percent) still in the subsistence economy
•Insufficient creation of quality and gainful jobs (unemployment rate of 13.3 per cent)
•Cost of electricity has reduced, but remains higher than the targeted 5 cents per unit.
•Widening income inequality, particularly between the regions.
•Limited access to and high cost of capital
•Low capacity in public service and prevalence of corruption
•Severe reduction in the forest cover as well as wetland degradation and encroachment.
•Dwindling local revenues insufficient to fund local service delivery.
•Uncoordinated approaches to implementation planning.
•The quality of education remains low characterised by the low levels of literacy and numeracy, coupled with the high rate of school dropout.
•Inadequate functionality of health facilities
•Interest rate payments incurred on borrowed funds that are not immediately used
•In addition, many projects are not completed on time and within budget.
Key NDPIII Objectives
•Enhance value addition in key growth opportunities;
•Strengthen the private sector to create jobs;
•Consolidate and increase the stock and quality of productive infrastructure;
•Enhance the productivity and social wellbeing of the population;
•Strengthen the role of the state in guiding development.

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