Monday, November 25, 2013

UGANDANS ARE RICH BUT CASH POOR



The recently released Uganda National Household Survey 2012/2013 showed that Ugandans living in poverty has continued to fall but the income inequalities are rising.

The survey showed that proportion of people living in poverty, or on less than a dollar a day, had fallen to 22% from 24.5% in 2009/10. Nearly a decade ago the same measure stood at 31.1%.
However the income inequality as measured by the Gini coefficient rose to 0.43 in 2012/2013 compared to 0.426 in 2009/2010.

The devil is in the detail but these contrasting developments  on one hand are consistent with the continued growth of the economy but on the other hand point to a disproportionate benefit from this growth by certain segments of society over the others...

It is not difficult to see why this is so. 

According to official statistics our economic growth over the years has been driven mainly by telecommunications, finance and transport services and construction.

But the national survey reports that the proportion of the population engaged in these sectors is about 12%. The bulk of our workforce 73% are in agriculture, forestry and fishing. Even manufacturing, which is more labour intensive only accounts for 6% of the workforce.

Meanwhile the growth in the economic output in the agricultural sector has been consistently under five percent for the last decade or so.

It is true of course that growth in the services sector aids agriculture but clearly something else needs to be done to see the agricultural community benefit more from its sweat.

Clearly there is a question of productivity. A classic 80/20 situation with the majority of Ugandans generating much less than the other three tenths of the population. 

It is not for lack of land. It is not for lack of labour.  The answer maybe in a shortage of capital but more importantly entrepreneurship – the ability to take advantage of opportunities to generate profit.
The survey suggests as much.  

The household survey shows that the 78% of all houses in Uganda are owned by their occupants and this has been more or less consistent in past surveys.

So how does one explain that more than seven in every ten Ugandans own a house but a significant proportion of them are existing on less than a dollar a day and a quarter of the working population is not gainfully employed?

"In his book The Mystery of Capital, Peruvian Economist Hernando de Soto suggests that the reason that capitalism – the manipulation of land, labour and capital in the quest for profit,  does not work in the third world like it does in more developed economies, is because of the ambiguity of or inadequacy of land rights...

All wealth is derived from the land he argues, making it the underlying asset of all assets. So if there are any doubts about the credibility of land ownership you will be building your economy on a shaky basis at best or not have a functioning economy – in the text book sense, at worst.

With proper titling of the land and verifiable property rights land assumes a value recognised by businessmen and financial institutions allowing its value to be unlocked. So if a land owner can prove ownership he can sell his land for its market value or mortgage it to finance the development of his land or other income generating activities.

If we agree with De Soto this has to be at the heart of Uganda’s poverty equation. The National Household Survey reports there are seven million households or about six million households can lay claim to their homes and the land on which they seat.

But recently the land’s ministry said that about half a million land titles had been issued and this includes titles on which factories, office buildings and stadiums seat. It will not be a stretch of imagination to assume five million of these owners have questionable claims to their land and can therefore not unlock the full potential.

So it’s true not true that Ugandans are poor, in fact they are asset rich – going by their land holdings, but cash poor.

"This government has worked out how to generate growth -- the economy has grown higher than five percent in all but one of the last ten years, peaking at 11% in 2006, according to official numbers. What we seem to be struggling with is how to distribute this wealth more equitably...

The usual suspects, corruption, poor health and education services and lack of market access can be blamed for our poverty but this scandalous inability to unlock the full value of our land has to be major drawback.

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