The Truth: Why Income Inequality Is Increasing In Uganda

On March 29, 2017,  Oxfam International launched a report indicating that Uganda’s income inequality is on the rise. In simple terms, the rich are getting richer and the poor poorer.

The report was compiled by Prof. Augustus Nuwagaba, a senior economist who is consulted worldwide on poverty eradication matters and Dr. Fred Muhumuza, also a senior economist and lecturer at Makerere University’s College of Business and Management Sciences.

According to the report, 10% of Uganda’s population (estimated at 36 million people) own 35.7% of national income -estimated at US$s27bn (about Shs97trn).  This means that 3.6 million Ugandans own over Shs34trn of Uganda’s GDP.

The report adds that another 10% (3.6m Ugandans) of Uganda’s population composed of the poorest only won 2.5% (about Shs2.4trn) of the country’s national income.

Although the number of Ugandans living below the poverty line has declined to 19.7% in 2014, down from 56% in 1992, the report notes that income inequality has instead increased. In fact, these poverty figures were based on one dollar being enough for a person a day. However, economists and analysts say, one dollar is no longer enough to cater for one’s daily needs. They argue that for a person to live well a day, he or she needs over three dollars.

This means that poverty levels could actually be higher in Uganda than reported considering the fact that the cost of living has gone up over time.

Despite Uganda’s economy growing at an average of 6% since 2002, the report reveals that the percentage share of the national income between the richest and the poorest has been increasing and decreasing respectively.

Why Rich Get Richer

“Inequality cuts across generations. The children of wealthier people have access to greater opportunities and will themselves be richer,” the report reads in part.

“The incidence of poverty remains far higher in rural areas, at 22.8 percent of the population compared with 9.3 percent in urban locations,” adds the report.

Why Inequality Is On the Rise

In an exclusive interview with Business Focus, Muhumuza says corruption is the major reason why inequality is on the rise in Uganda.

“Corruption runs through as the main factor that is undermining effectiveness of government programs intended to empower the poor to participate,” he says.

He adds: “Then there is loss of property especially land through both market and corrupt vices.”

The Oxfam report also strongly points at corruption as a big factor in Uganda’s rising income inequality.

“Uganda is one of the most corrupt countries in the world. There have been many cases involving the loss of colossal sums of public money, and it is estimated that the country loses $500m annually in this way. However, there is a lack of political will to pursue those guilty of corruption and an absence of meaningful deterrents, and so abuses continue,” says the report.

In Northern Uganda, Muhumuza says the war and its aftermath effects can’t be underestimated.

He adds that general economic failure that creates no opportunities means that the poor have to struggle with no success.

Stephen Kaboyo, an analyst who follows Uganda’s economy closely says that growth in Uganda is skewed towards services sector yet it (services sector) employs a few people who earn highly.

“The services sector that is banking, telecoms and construction among others account for over 50% [of Uganda’s GDP], but employs a relatively small number of less than 15% of the population.

Agriculture that employs 70% of the population has continued to grow at a dismal rate. This is primary reason of income inequality,” Kaboyo says in an interview with Business Focus.

The report notes that Uganda’s tax system is unfair and exploitative. “Local manufacturers are denied tax breaks while foreign investors are treated more favourably to attract foreign capital. Exemptions undermine the mobilization of tax revenues for the delivery of public services,” the report says.

It adds: “VAT is applied at a blanket rate of 18 percent, hitting the poorest hardest. High levels of domestic borrowing have created a large fiscal deficit, requiring supplementary budgets and the issue of government securities. This has crowded out private sector enterprises and has pushed up interest rates, inflation and the cost of living.”

How To Narrow The Gap

Kaboyo says that government needs to put in place mechanisms that will encourage inclusive growth and create an environment that will support the narrowing down of gap and reduce inequality.

Muhumuza say: “Government must increase effectiveness and targeting of its programmes but most critically, deal with corruption. We can also tax the rich more and have effective delivery mechanisms to ease costs of privately funded education and health as the public will effectively cover that need.”