By Hashim Wasswa Mulangwa
It requires the GDP per capita to double in the next four years; from current US$500 to US$1,000
President Museveni, in his State of the Union Address today on June 6, made the same claim he has made numerous times before; that Uganda will be a middle income country by 2017. The President made the same promise during his swearing-in speech on May 12, 2011, only then he said that Uganda would be a middle income country by 2016.
Given the significance one attaches to any such proclamations from the head of state, because they in essence tend to drive the agenda of government going forward, I think we all need to take a minute and examine the possibility and validity of the President’s proclamations.
So what is Middle income status? The World bank classifies middle income status in two categories- lower middle income- ranging from US$996- US$3,945, and upper middle income- which ranges from US$3,945 to US$12,000.
To be fair to the President’s ambitions, I will take the lower band of this scale- and say that what he probably meant is that Uganda will have attained a GDP per capita income of about US$1,000 by 2017. GDP per capita is a measure of the total output of a country that takes the gross domestic product (GDP) and divides it by the number of people in the country.
The per capita GDP is especially useful when comparing one country to another because it shows the relative performance of the countries. A rise in per capita GDP signals growth in the economy and tends to be translated as an increase in productivity.
To achieve middle income status by 2017 means that Uganda’s GDP per capita levels would have to double in the next four years; from current US$500 to US$1000. What the President is essentially saying is that while it took his government 10 years to double Uganda’s GDP per capita – from US$230 in 2002 to US$490 in 2012, this time he and his government will achieve the same fit in less than half the timeframe.
To achieve middle income status (US$1000 per capita) in the next 10 years, Uganda would have to grow at an average rate of about 7%, expand its GDP by about US$12 billion in nominal terms (from about US$16 billion currently) and maintain the same level of population growth.
Achieving the same target in the next four years (2017) means Uganda’s GDP would somehow suddenly double to US$32 billion. Day dreaming doesn’t even begin to explain how the futility of contemplating such an idea! Where would such expansion in economic output come from?
The first obvious explanation for what is behind the President’s thinking is that he believes that an oil revenue windfall will propel Uganda’s GDP to a level that will make us middle income by 2017. First of all, away from the fact that Uganda cannot possibly earn US$12 billion in oil money in four years, I think it’s doubtable that we will be pumping, processing and exporting oil by 2017.
Current indications show that a refinery of the size that has been agreed by all parties will take at least three years to build, and a pipeline to export the oil to take the same time. But what kind of revenues are we expecting to make such income projections?
And when the oil finally starts flowing, — how much of it will we be exporting? Initial Oil commercialisation plans were for at least 120,000 barrels per day, which would give the country revenue of about US$ 2 billion a year.
After the government realising that no investor is willing to pay for a refinery of that size—a smaller size capacity refinery of 60,000bpd, starting at a level of 30,000bpd, has been agreed. At this level therefore, the country would probably only manage to garner about half of the original revenue estimates.
Best case outlook scenario? US$ 4 billion in oil revenues starting 2018. That is a fraction of the output gap that we would need to get anywhere near the US$1,000 per capita target.
That Uganda should aspire to achieve such a milestone is not the issue here. President Museveni himself often likes quoting such economic transitions from East Asia (and now South Asia), but often ignores the fact that the thinking and structure of state systems upon which such economic transitions were built is totally alien to the Uganda that he has led for the past 27 years.
We can achieve such transformation, but we are just not currently wired and built for it. Doing so calls for our economic planners going back to address the fundamentals of economic growth in a systematic manner.
We need huge investments in Health and Education, Infrastructure, Technology and innovation, and more importantly in my view, institutions and systems that would be the backbone of such a transformation.
We basically need an overhaul. Identifying the gaps in the President’s thinking around these issues is not just “ignorant and subversive talk” or “self-deception” (words he used at the state of the Nation address).
If the numbers show that there’s no way Uganda can attain middle income status by 2017, and double its GDP in four years (even with prospects of Oil revenues), then why does the President keep propagating such a `wobbly’ idea? Your guess is as good as mine!
Hashim Wasswa Mulangwa is a development economist and practitioner