Monday, December 20, 2010

HIGH INCOME IS NOT WEALTH

Last week the finance ministry released a report on Uganda’s progress on the Millennium Development Goals (MDGs).

On the whole the progress in areas like increased primary school enrollment, access to clean water, gender equality and women’s empowerment and reduction in child mortality compared to ten years ago.

Among the findings of that report was the fact that proportion of Ugandans living on less than a dollar a day has plunged to 23% from 36% over the last five years. What this means is that as a country we have reached the target rate of poverty set out by the UN in 2000. The target date for achievement of these was 2015.

As I have argued before I think the dollar a day measure of poverty is cow manure. As far as I am concerned one-dollar-day is an easy target and personally do not doubt that we have attained these target. I think it’s a scandal that we can even have people living on less than a dollar a day or even $10 for that mater.

It is not hard to see why we struggle to meet this basic of targets.

During a conference last week the National Development Plan was criticized for its lack of clearly defined strategy for transforming the country’s economy – put bluntly our planners are involved in wishful thinking.

Also there seems to be a lack of understanding of what will make for sustainable poverty eradication. We are focusing on income from jobs or trade rather than on encouraging building income generating assets. The difference between the two is worlds a part.

Of course for political purposes raising incomes is the easier target – and hence the UN’s one dollar a day standard.

Back to first principles there are four levels of financial health. At the bottom rung is poverty, at this level one can not provide the basic necessities of life on their own income and is forced to rely on handouts to bridge their financial deficits. The next level is one of financial freedom where a regular income ensures that one can provide for self, in this category is most salaried workers, most of whom are a salary away from poverty.

Financial security, is where an individual may or may not have a regular income but his income from his accumulated assets adequately provides for his daily expenses. It is at this level that one can honestly talk of pulling out of poverty.

To be rich is an extension of being financial secure, but this time ones assets are throwing off more income than you or your family can consume.

Seen in this light you want to ask yourself whether you are out of poverty or not. And understandably this standard would be hard to attain, hence its unpopularity politically.

Let us assume as a country we aim at financial freedom for all by 2050, what it would take to attain that.

It goes without saying we have to sustain the current level of macro economic stability, especially keeping inflation rates down.

In addition we have to significantly lower the cost of doing business.

Improve our transport networks – getting the train up and running for goodness sake, eliminate power shortages, improve health services, restructure our education to provide market relevant man power and eliminate onerous licensing processes among other things.

The idea would be that not only would businessmen have a better chance of making successes of their enterprises – selling more and employing more, but the cost savings would be passed on to the consumer who would then have wider options for his money.

We would also restructure our financial sector creating incentives for more savings, liberalise the pension sector and support venture capitalists whose job it is to back start ups.

And eventually as a nation we need to be more committed to promoting entrepreneurship and financial literacy.

To take our businesses to the next level they need to be more structured and therefore our businessmen need education and mentoring. The days of hit and miss businessmen are gone as the economy becomes more formalized.

At the very personal level widespread financial literacy – the ability for instance to distinguish between income and wealth, is critical. For a long time now our salary and other income earners have been blundering through life, thinking that because they have a regular paycheck they have arrived only to be reduced to destitution at retirement.

Lets raise our sights beyond a dollar a day after all achieving arbitrary and meaningless benchmarks is not what we are here for.

1 comment:

  1. always spot on i love the wishful thinking remark.

    ReplyDelete