Middle Income Status: Should Ugandans Get Excited?

The World Bank, on Thursday, gave a contrary view to that of President Yoweri Museveni about Uganda’s status, reigniting the debate on the country’s economy.

The debate on whether or not the country has attained the Middle-Income threshold figures also comes alongside the question; what’s in it whether or not a country is a middle income?

First, there is no size required for a country’s economy to be accorded a middle-income status, but rather the size of the economy as compared to the size of its population.

According to the World Bank methodology, the status of a country’s economy is derived by getting the total output of the citizens of a country, including their economic activities outside their country, it excludes incomes earned in the country by foreign nationals.

This is then divided by the total number of the citizens of the country to get the per capita income.

And if the average income derived is between 1,036 and 4,045 dollars for a country to qualify for lower-middle-income status, while between 4,046 and 12,535 dollars per person, qualifies a country to be in upper-middle.

While Museveni put Uganda’s per capita income at 1,045 dollars, the latest World Bank report on the status of the country’s economy put it at 850 dollars, having improved from 840 dollars last year.

When a country joins the MIC club, it is assumed that its population has attained a level of spending power, strong enough to be a market for bigger volumes of goods, and therefore it attracts more investments.

But also, it is assumed that the lifestyle, consumption behavior, or demand patterns have shifted to the kind of products for a wealthier population.

This can easily attract investors into the country, for products that have otherwise been imported. The country’s middle-income status also influences the way the World Bank and other global financial institutions deal it, from a recipient of aid to a partner.

“The World Bank Group continues to evolve its partnership with MICs, working with them simultaneously as clients, shareholders, and global actors,” the Bank says in an explanation. 

However, this comes with a shift in the type of financial products that the Group extends to MICs.

The low-income countries are guaranteed grants and concessional (no-interest loans) from the WB and the International Monetary Fund, but this reduces as the economic status grows.

These, according to the Bank are replaced with financial services like non-concessional loans, guarantees, risk management products, and knowledge and advisory services.

  The World Bank Country Manager for Uganda Mukami Kariuki says, therefore, that as Uganda strives to join the club of MICs, it should be aware that it will miss out on some considerations. 

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Just as it is easier for a higher-income country to attract bigger investors and more advanced industries, so it is for it to attract bigger lenders and bigger debt because of the assumed better creditworthiness. 

Because, in simple terms, the status of an economy is derived by getting the income of an average citizen, it does not matter much for the person who is below that average.

They remain in the low-income earning or poor category, while their counterparts above the line get even wealthier.

If there were only two people in a country, with one owning nothing and all and the other owning investments worth 100 billion dollars, the country's per capita income would be 50 billion, and the country a high-income country. 

Kariuki says even when a country attains Middle-Income status it might not make sense for a common person unless their general welfare, including public services like education, health, and food security benefits.

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Makerere University Business School Principle, Juma Wasswa Balunywa says there should be no cause for excitement whether or not Uganda attained middle-income status, for as long as the poor remain poor.

According to the World Bank, there are about 110 middle-income countries out of the 185 members of the Group. 

However, these account for 73 percent of the world’s poorest people, according to the World Bank. 

So, almost three-quarters of the world’s poor people are found in the Middle-Income Countries, and not in the 28 low-income countries where Uganda currently belongs.

“Poverty is pervasive in some middle-income countries, while in others the problem is one of the major concentrations of poverty in backward areas. And recent crises have revealed the fragility of some of the gains against poverty in these countries,” experts say on the Bank’s website.

According to the World Bank, for example, Zimbabwe has been in the Middle-Income bracket for years and still is, despite half of the Zimbabweans being below the poverty line. 

While declaring Tanzania Middle Income Country last, the World Bank reported that the poverty rate was 27 percent, having dropped from 28 percent the previous year, meaning it accounts for about 4 percent of the Sub-Sahara African poor community.

On the other hand, Uganda’s poverty rate is at 20.3 as of December 2019, which is nine million people. 

In its 2022 economic outlook, the World Bank put Kenya’s extreme poverty rate at 34.4 percent by the end of 2019, meaning the country had 19 million people in extreme poverty. 

Kenya is Africa’s ninth-largest economy estimated at about 99 billion dollars, more than twice the size of Uganda.

Balunywa agrees that the size of an economy or its per capita income, however high, will not matter until all the people have some fair share of the country’s wealth. 

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Instead, experts advise that countries should consider improving on the Human Develop Index, HDI, which takes into account the aspects that touch all individuals in a country. 

The HDI, compiled by the United National Development Program, UNDP, considers the people’s access to services like clean water, health, education, and energy, among others, and also notes the life expectancy of the country.

Considering the HDI, Uganda ranks 159th out of the 189 countries, behind Kenya which is 143rd globally and highest in East Africa. Rwanda lies 160th and Tanzania 163rd, according to the HDI 2019.