Tuesday, April 4, 2017

UGANDA NEEDS TO TACKLE INEQUALITY URGENTLY

Last week Oxfam released a report we showed that income inequalities were widening instead of narrowing and as a result the top ten percent earn about 36 percent of incomes while the bottom ten percent take home a paltry 2.5 percent of national income.

It does not take a serious understanding of numbers to work out that there is something badly wrong with that picture.

From a moral point of view the question has to be asked, how a small number earn so much more compared to the rest of the population.

"But morality is not where you should be looking for the answer. It’s possible that most of the high earners do it through legitimate jobs and businesses, to blame them for their success would be to ignore basic economics and to pander to unuseful populism...

But the question still needs to be asked, how do a small number of us command the biggest amount of the country’s economic gains, leaving the rest to pick up he scraps?

The answer lies in how money is earned and how our economy is structured.

People get paid according to the value they bring to the market, their negotiating power and the size of that market.

Value is created through knowledge and experience. How much does one know and what can they do with what they know. That’s why it’s been observed that the more educated you are the higher income you can expect. Of course this depends on what you are educated in and its relevance to the market.

But you might be the best in a field where skills are in demand but your negotiating position is weak, either because you do not have a fair understanding of the demand for the value that you possess, extraneous circumstances such as issues about your credibility or health are such that you can’t ask for top dollar or there is a mismatch between your knowledge and experience and the job you are in or seeking.

And finally you van be the best at what you do and a good negotiator to boot but you are playing in a small market and therefore cannot be paid up to your true value. For instance Ugandan soccer player earning are not about to compete with the remuneration of their couterparts in Europe, China or even South Africa because there too few people who appreciate your skill.

Drilling it down to our current situation as described by Oxfam. Most low income earners are in the village rather than the urban areas. The majority of our farmers are using rudimentary farming methods – hence building little value into their output, have weak bargaining positions because of their low out put at individual level and their ability to aggregate their harvests and finally their immediate markets do not offer them much pay for their effort...

An urban worker on the other hand is more likely more educated and even specialised in what he does, leverages tools that maximise his out put, probably have some bargaining power – given the demand for their unique talents and play in a more concentrated and higher output market.

So to a plan start to redress our income inequalities is quite simple, though not easy to execute.

One, you need to increase the knowledge, the farming methods of our rural cousins. Quick wins can be managed by showing them better ways of planting their crops, maintaining their gardens, reducing post-harvest losses, forming groups to bulk their produce and increase their bargaining power with suppliers of inputs. This even before we start talking about irrigation, green houses and improved genetics.

This the job of extension workers. Studies done by the World Economic Forum in our region show that the returns from extension services can be as high as 80 percent. So if your farmer has been earning a million a year an improvement in extension services can see him earning an additional sh800,000.

As it is now according to a survey by the agriculture ministry of the four million households in Uganda on 700,000 have come in contact with an extension worker. Using Kakira Sugar Works as an example where they have one extension worker for every 90 outgrowers, we should have about 45,000 extension workers scouring the rural areas offering advice to farmers.

Once farmer productivity is up the rest of the value chain can kick in much easier that it would be to elevate our farmer.

Its amazing our the neglect our farmers suffer despite the fact that seven in ten Ugandans derive a livelihood from the land, they provide about half our export earnings and they are the natural platform from which we can stage our own industrial revolution.

The growth of the last 30 years has come primarily from rehabilitation efforts of the 1980s and 1990s and explosion in services and construction in recent years. Agriculture which we pay lip service to as the back bone of the economy has seen its importance dwindle from more than 70 percent in 1986 to under 30 percent of GDP today.

This would be ok if manufacturing was carrying the slack. But the truth is that our agriculture has continued to be subsistence, even our agricultural exports are of raw commodities and growth in the sector has remained firmly in the single digit range over the last three decades.

"Manufacturing has seen some progress but totally underwhelming seen against a 30 year horizon. This is sad because manufacturing and agriculture are the labour intensive industries that would smooth out income inequalities...

They say that the definition of madness is doing the same thing over and over again hoping for a different outcome.

Our inequality will persist, even widen in future as long as we do not address the issue of low rural incomes in a sustainable way.


The answer is not to give them fish but to show them how to fish.

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