Several multi-national companies have exited Uganda in recent years. These include Africell, Game, Shoprite, Gems schools international, and many smaller companies that exited under the radar. While several analysts have been quick to blame the pandemic, this exodus has been ongoing for a while and Covid-19 simply accelerated the processes. The problem lies in Uganda’s middle class or the absences of one.
In 2016 the government promised that Uganda would attain a lower middle class by 2020, needless to say, the target was missed. Entering the middle class seems impossible for many young people in Africa. The income gap grows wider as many of the traditional avenues for leaping into the middle class are closing.
The loss of middle-class economic power has been driven by dismal income growth in the lower classes compared to the upper class. At the same time, the cost of many goods and services key to the middle-class lifestyle has risen much more rapidly. This is especially true of housing which now accounts for almost half of the middle-class spending.
Hillary Bamulinde recently tweeted “Most full-time jobs in Uganda pay part-time salaries”. This, coupled with a lack of other social goods like free medical care, cheap housing, cheap education, and a constant introduction of higher taxes on the middle-class lifestyle, has left these households with little or no disposable income. Living hand to mouth. It is this erosion of a strong consumer base that has driven out most companies that are consumer-driven. The pandemic is simply a convenient scapegoat
Like most governments, in Uganda politicians see the middle class as something to create with the gains of economic growth. But the opposite is the case; the middle class is the source of economic growth. There is a link between the strength of the middle class and rapid economic growth.
A strong middle class provides a stable consumer base that drives productive investment. Beyond that, a strong middle class is a key factor in encouraging other national and societal conditions that lead to growth. It is a prerequisite for robust entrepreneurship and innovation. Infrastructure, education, or manufacturing are important priorities but can only lead to economic growth if created around an economic narrative centered around the middle class.
In his 1936 book, “The general theory of employment, interest, and money”, John M Keynes described one of the core connections between the middle class and economic growth; that a stable middle-class consumption is needed to spur investment. One of Keynes’ central insights was that consumption needs to be sufficient to dispose of the current output of industry to make new investments profitable. Yes, investment drives growth but sufficient levels of consumption are needed for the private sector to make those investments.
The lesson is clear; to spur sustainable economic growth, the middle class needs to consume, and to do that, they need to see their incomes rise.
I can understand why most African governments are reluctant or simply fear to create a vibrant and strong middle class. Modern political scientists have noted that a strong middle class fosters better governance by helping ensure institutions are well run, increasing citizen participation in elections and policy formulation, promoting policies for the benefit of all society rather than special interest.
In contrast, economic inequality and the weak middle class make the political system imbalanced discouraging the political participation of the non-wealthy, reducing voting and interest in public policy.
Policies aimed at increasing consumer power are needed to reverse the current trends of companies closing shop and leaving Uganda; Lower taxes on the middle class and the goods critical to their lifestyles coupled with higher taxes for the rich to pay for that, as well as free healthcare and steps to limit housing and education costs. A strong middle class helps ensure that government works well, fostering favorable conditions for the economy to prosper. The very foundation of inclusive growth.