12 December 2012

Uganda's GDP Figure Misleading - Hausmann

Uganda's Gross Domestic Product - a figure government likes to flaunt as a measure of its success - is more of a smokescreen than a clear indicator of what's on the ground, says Prof Ricardo Hausmann, the director at the Centre for International Development at Harvard University.

He believes there's a lot more that needs to be done to deal with the country's poverty levels. With the country recording a commendable average of at least 6% GDP growth over the last decade, up until this year, Uganda has been praised as an African star performer.

But Hausmann believes the GDP figure - a measure of the goods and services produced in a given period - only tells half the story.

"In the past two decades ,Uganda has been among the top 10 countries with the fastest growing GDP in the world. But this is not reflected in its GDP per capita - average income of citizens, which is the most important development indicator," he said.

He added: "Positively, this country has a growing GDP, but with low income per capita, high fertility rates, high dependency ratio and low urbanization rates, something needs to be done."

Hausmann was speaking at the ministry of Finance's National Competitiveness Forum. Hausmann finds particular fault with Uganda's explosive population boom, which is partly the reason the country struggles with a high number of jobless youth. Uganda's population increases at a rate of at least 3% a year, one of the fastest in the world.

And yet much of the country's GDP is driven by more capital-intensive sectors like energy, limiting employment opportunities to the youth. With a patchy power industry, investments in this particular sector have tended to be Uganda's key economic boosters. A new kid is on the block, though - oil. Touted as the country's latest Holy Grail, oil is being seen as the country's game changer for the next three decades. Key investments and crucial policies are being shaped around the country's biggest mineral find.

Even then, Hausmann believes it's an error to pay so much attention on oil.

"Uganda's oil [currently 3.5bn barrels] is about a fifth of Nigeria's oil and over 1/200 of Norway's and it will not provide as much direct employment," he says. He added that the discovery of oil should not excite Ugandans and distract them from investing more in tradable activities.

In any case, the oil industry, especially the upstream activities, are not labour intensive and there are not many jobs being created there. That leaves agriculture, where more than three quarters of Ugandans depend for a living, as the most crucial option for the country to close the wide income gap between the rich and the poor.

Roberto Ridolfi, the head of EU delegation in Uganda, says "Uganda has to improve on direct agricultural financing, promote entrepreneurship that will enhance innovation as you develop tradable activities."

However, Hausmann feels agriculture alone cannot solve Uganda's unemployment problem. He says there is a need to create other opportunities. Uganda's unemployment, according to the Uganda Bureau of Statistics, is less than 10%, but that is if you consider such manual labour like carrying merchandise in downtown Kampala as a job!

A perfect solution would be for Uganda to concentrate on improving manufacturing and producing its own products in order to be competitive. Hausmann says the country should not wallow in the excuse of being a landlocked country, which adds up to its transportation costs to the Kenyan port of Mombasa.

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