Uganda: 8.3 Million People Are Middle Class

10 February 2021

About 8.3 million Ugandans (22% of the population) are in the more rarefied world of middle-class.

This excludes, the floating middle-class (FMC), those susceptible to becoming poor in case of negative economic shocks. But can this middle-class deliver national aspirations of attaining middle-income status by 2040 as we advance into the third National Development Plan period (2020-2025).

The latest policy brief from the Economic Policy Research Centre (EPRC), examines whether Uganda's middle-class is capable of fostering the attainment and sustainability of the middle-income status (i.e. the strength of the middle-class), and discusses prerequisites for establishing or driving transition into a stable middle-class that the country can rely on to sustain middle-income status if achieved.

Middle-class connotes a signified secure and aspirational lifestyle. Uganda's middle-class comprises of people whose per capita daily consumption expenditure is between $2-$20 (Shs 7,300-Shs 73,000) in purchasing power parity (PPP) terms.

The brief breaks down the middle-class into three categories. First is the Floating Middle-Class (FMC), these are between the poor and the lower-middle-class.

"This class is vulnerable and highly unstable and can quickly descend into poverty in the event of economic and other shocks. The per capita consumption level for FMC is $2-$4 (Shs 7,300 - Shs 14,600) per day - just above the developing world's poverty threshold of $2 (Shs 7,300) per day."

The second segment is the Lower Middle-Class (LMC). According to the brief, this is composed of those with daily per capita consumption of $4-$10 (Shs 14,600 - Shs 36,500).

This class lives above the subsistence level and can save and consume non-essential goods. The third segment is the Upper Middle-Class (UMC). This has households whose characteristics are closer to affluent households.

The UMC daily per capita consumption ranges between $10-$20 (Shs 36,500 -Shs 73,000). The brief says that out of the total population in 2016/2017, about 8.3 million Ugandans (22 per cent) belong to the middle- class (without a floating category) and if those in the floating category are included (about 13 million), the size of the middle-class rises to 21.3 million, representing close to 57% of the population.

The FMC alone represents 34.8 % of the total population in Uganda. According to statistics from the Uganda National Household Survey (UNHS) 2016/2017, out of the 21.3 million Ugandans in the middle-class, the share of the Floating Class, Lower Middle Class and Upper Middle Class is 61 per cent, 33 per cent and 6 per cent respectively, which means the floating class - is the weakest middle-class category with characteristics closer to the poor.

It constitutes the highest share of the middle-class in Uganda. The EPRC brief notes that the floating class is highly vulnerable

or susceptible to any economic shock, and can quickly descend into poverty. It is an unstable sub-group of the middle-class that cannot be relied upon to attain and sustain the middle-income status, as well as economic growth and development.

Unlike the floating middle class, it is the upper-middle class (which is just six per cent of the middle-class), that is the source

of substantial economic power for the country, capable of providing a stable ground for sustained growth and middle-income status.

"This evidence suggests that the quality of Uganda's middle-class is wanting. It is fragile and highly unstable as it is susceptible to risks and shocks," the brief says.

The brief further reveals that there are four significant drivers of transition into the middle class; Urbanization, which increases

the likelihood of transitioning into the middle-class by three per cent to more than 90 percentage points depending on the category of the middle-class.

Urbanization is expected to drive the middle-class because of the opportunities it presents such as more paying jobs and increase in consumption because the urban class is willing to pay for more premium products.

Smaller households were also found to be vital for a sustainable middle-class since they create opportunities for growth in the middle-class. From the results, EPRC observed that when the household size is too large, the variable reduces possibilities of attaining as well as retaining upper and lower middle-class status.

Education is another fundamental tool the EPRC brief fingered for boosting the middle- class because the movement from lower to higher levels of education increases the probability of becoming middle-class by one to 34 percentage points depending on the middle-class category.

A significant positive change in educational attainment up to post-secondary level (university or tertiary education) is associated with doubling the likelihood of transitioning into the middle-class with an increase of nine to 35 percentage points.

Accordingly, investments in education stimulate higher growth or transition into the middle-class. Results show that as the educational level advances to higher levels, it no longer becomes vital for attaining floating middle-class status. Instead, it

is lower levels such as primary and secondary education that significantly drive movement into the floating middle-class.

Investing in higher educational achievement is significant for attaining higher economic status, such as the upper-middle class. Household economic activities or income-generating activities that households engage in also play an essential role in the middle-class transition.

The key economic undertakings include; commercialized agriculture and economic diversification into non-agricultural enterprises, including property income. The EPRC brief, therefore, gave a policy recommendation that in order to achieve and maintain the middle-income status, it is crucial to build a stable middle- class in the country.

Policy should target breaking the fragility of the middle class and achieving a more resilient one, by focusing on the transition of those in the floating category to lower and upper middle-class categories. Thus, investing in the drivers of middle-class change such as organized urbanization, having smaller manageable household sizes, economic activities including diversification and entrepreneurial development and quality education as a tool for human capital development is vital.

In July 2020, the World Bank declared Tanzania as a lower middle-income country five years ahead of her schedule having attained the Gross National Income (GNI), the total income earned by the country, of $ 1,080 (Shs 3.9 m) while that of Uganda is still at $780 (Shs 2.8m).

For a country to achieve the lower middle-income status, it must have a GNI, which is above $1,036 (Shs 3.7m). Uganda envisions becoming an upper middle-income country by 2040. To achieve this, according to the brief, medium-term targets are set, guided by five-year National Development Plans (NDP).

One key medium-term target was attaining a lower middle-income status with a per capita income of $1,039 by 2020. Implementation of NDPII was expected to deliver on this aspiration, but the government failed to achieve this.

As a strategy, and as we advance into the NDP III period (2020/21 - 2024/25), the government can leverage on the power of the middle-class to drive the country into the middle-income status.

For this to happen, according to the brief, there should be a sound and sustainable middle- class, given that a strong middle class is critical for achieving and sustaining the middle-income status.

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