Will Uganda consolidate recently achieved middle-income gains?  

In June 2022, President Museveni officially announced that Uganda had achieved middle-income status. 

However, what followed was an exchange with the World Bank, which insisted that Uganda was not yet there, citing usage of incorrect parameters to arrive at the measure.

The debate remained muted, save for pronouncements from different government officials until March, when a UN report indicated that Uganda had met requirements for a lower-middle-income status following improvements in the population’s health, education and income levels.

Ms Susan Ngongi Namondo, the UN resident coordinator in Uganda, revealed then during the launch of the 2023/24 Human Development Report that the country had made significant progress in the Human Development Index, rising from a global ranking of 166 in 2022 to 159 in 2024 out of the 193 countries and territories assessed by the United Nations Development Programme, which had assessed income, health, education, and inequalities levels. 

While presenting the report at the university, Ms Nwanneakolam Vwede-Obahor, the UNDP resident representative, said in the 2021/2022 HDR, Uganda was placed in the category of low human development and positioned 166 out of 191 countries and territories.

“I want to inform [you] that Uganda’s transition to the medium human development category aligns with an exciting message I got a few days ago. The UN Committee for Development Policy has announced that Uganda has now fulfilled the criteria for graduation from the least developed country to the lower-middle-income country category for the first time,” she said, noting that between 1990 and 2022, Uganda’s life expectancy increased by 17.2 years, expected years of schooling by 5.8 years, and Gross National Income (GNI) per capita by about 153.1 percent.

The World Bank categorises country classification by income and population levels with lower-middle-income economies required to have a Gross National Income per capita of between $1,086 (Shs4.2m) and $4,255 (Shs16.4m), while upper-middle-income economies have a Gross National Income per capita of between $4,256 (Shs16.4m) and $13,205 (Shs51.2m) as of 2023.

In his Budget Speech yesterday, Finance Minister Matia Kasaija said Uganda’s gross national income per capita had increased to $1,146 (Shs4.3m), which puts the country’s progress in a stable position to sustain itself in the lower middle-income level.  

However, the UN had noted in March that for Uganda to sustain itself under the new classification, it had to work a lot harder and there would be short-term disruptions in the budget, noting that the country’s Human Development Index of 0.550 was above the 0.549 sub-Saharan Africa average but, still below the global average of 0.739. 

Indeed, as the World Bank then, Dr Fred Muhumuza, a development economist, says government could have based its announcement on incorrect parameters, but there is an opportunity if the country makes the right investment decisions, especially in agriculture, industry, and services. 

What needs to be done

Despite being the backbone of Uganda’s economy, employing the majority of the population and contributing about 24 percent of gross domestic product, agriculture remains underfunded, facing challenges such as limited access to modern farming methods like irrigation, mechanisation, and value addition, worsened by the severe impact of climate change, low market access, and infrastructure challenges.

Thus, Prof August Nuwagaba, a consultant on economic transformation, says this puts one of the key sectors at a disadvantage, and “is declining instead of increasing”.  

“The decline is unrealistic to expect the economy to transform. Such an economy may experience growth, but will not undergo a true transformation,” he says. 

However, under the 2024/25 budget, government has committed to fully monetise the economy through commercialisation of agriculture, industrialisation, digital transformation and market access.  

Whether this is achieved, will be the big focus point as the country transitions into a new financial year beginning July 2024.

Uganda must also strengthen its industrial sector, which contributes about 26 percent of gross domestic product. 

The sector, which includes manufacturing, construction, mining, and utilities has construction as the major growth driver, supported by investment in infrastructure projects such as roads, bridges, and energy facilities. 

However, the discovery and development of oil and gas resources has brought new potential for future industrial and natural resource development, which Prof Nuwagaba says must be structured to equitably benefit the lowest of Ugandans. 

“If we attract a Dangote, and he establishes an investment worth $1.2b here, we could reach [a new level of] middle-income. However, the crucial question arises: Does such an investment truly benefit individuals like my mother in Kisoro, in Buliisa, or Karamoja? True progress involves ensuring that employment opportunities are created for all, leading to increased aggregate demand and income. When everyone earns collectively, it fosters a conducive environment for aggregate production and business growth,” he says. 

Also key to sustainable growth is improvement of the services sector, which contributes the largest share of gross domestic product at 42.4 percent. 

The services sector includes a wide range of activities such as banking, telecommunications, tourism, education, and healthcare, but its growth is largely influenced by investment in key sectors such as infrastructure and technological transfer and advancements. 

Tourism, in particular, has seen significant growth, feeding off investment in infrastructure, especially in regions hosting oil and gas projects. 

However, despite this growth, income disparity remains a significant issue, with Kampala, the capital city, showcasing modernity and wealth, yet the vast rural areas still grapple with poverty. 

The Uganda National Household Survey 2019/20 reported that about 21.4 percent of the population lives below the poverty line, which Prof Nuwagaba argues provides the homework on which government must concentrate on to sustain the country in the lower middle-income status.

“Transformation involves shifting a large population from low-production sectors to higher ones,” he says. 

Interventions 

Government has launched several initiatives that seek to propel Uganda into sustained development that will largely lead to creation of a money economy. 

Data indicates that at least 30 percent of Ugandans are outside the money economy, which presents serious challenges given that such people do not contribute any taxes towards development of the country. 

Thus, programme such as Parish Development Model, Emyooga and Operation Wealth Creation continue to be focus areas towards modernising agriculture and monetising the economy. 

Government has also put in place other programmes such as the Youth Livelihood Programme to focus on empowering young people and the Elderly Livelihood Fund, to support the elderly people, many of who have no source of income.

Finance Minister Matia Kasaija, says government policies have been built around fostering inclusive growth, with focus on education, healthcare, and infrastructure development to ensure shared economic benefit. 

Nevertheless, global economic trends and challenges, including persistent inflationary pressures, supply chain disruptions, geopolitical tensions, climate change, debt sustainability, and digital transformation, remain a threat to several interventions and might disrupt the progress that the country has so far achieved.

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