{UAH} Rising inequality tests EAC growth prospects and integration agenda - News - www.theeastafrican.co.ke

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Rising inequality tests EAC growth prospects and integration agenda - News

By CHRISTABEL LIGAMI, Special Correspondent
Posted  Saturday, November 23   2013 at  15:00

The East African Community's integration project has helped more than double economic growth in the region, but inequality has worsened over the past five years.

In fact, the gap between the rich and poor in the region is so stark that the two are literally living in different worlds.

The richest 10 per cent of East Africans are living a lifestyle similar to a moderately well-off country in Latin America, while the poorest 40 per cent may as well be living in Somalia or the Democratic Republic of Congo — at the lowest points of the two countries' conflict-ridden past, according to the State of East Africa Report 2013, published by the Society for International Development (SID) on Friday.

Experts said the widening inequality, mainly in incomes and gender, presents a dilemma for policy makers as it could compromise the economic gains achieved over the past few years.

Weakened households dogged by inequalities where education, health and other crucial services are a preserve of the rich, have far-reaching implications for the economy as only a small proportion of the total households have enough disposable income to drive growth.

A common characteristic of developing economies is the falling share of the agricultural sector in the overall economy, but the trouble in East Africa is that the speed of change is overwhelming the capacity of the industrial and services sectors to provide the needed jobs and alternative opportunities.

"When you take a macro view of the state of East Africa, everything looks rosy, East Africa is rising, there's economic growth, potential and promise of mineral discoveries. But the reality is that there are three East Africas," said Aidan Eyakuze, the associate regional director of SID.

"We talk a lot about integration, but integration is not an end in itself. It's a tool to improve the welfare of the people of East Africa. We can have a perfectly integrated East Africa, which is falling apart on the real issues — education, health, opportunities. The issue of inequality is becoming a major challenge to integration and if not well addressed will hinder a smooth integration process," he said.

Economists said inequality was widening due to the failure of the benefits of recent growth to trickle down to lower income groups, leaving household incomes lagging far behind the rate of inflation and the cost of living.

While East African economies are growing adequately by global standards, they are not creating enough jobs or making life significantly better for the region's poor, the data shows, calling into question the effectiveness of the bloc's economic policies.

Hence the level of risk in East Africa is high due to the surging dissatisfaction among households and business people, a situation made worse by the rapid population growth, high levels of inequality and widespread poverty, says the latest Afrobarometer study titled Africa Rising? Popular Dissatisfaction with Economic Management Despite a Decade of Growth.

SID researchers argue that if the East African Community were a single country — call it the "Federal Republic of East Africa" — and its combined $83 billion income in 2011 were distributed between wealth quintiles (the richest, upper-middle income, middle, lower-middle and the poorest) the richest 10 per cent of the population would share $29 billion, or a hefty 35 per cent of the region's total income among themselves — receiving almost $2,100 a year.

With that level of per capita income, their lives are comparable to a lower-middle income country.

The poorest 40 per cent — almost 57 million East Africans — would have shared $12.7 billion among themselves, just 15 per cent of the region's total income, giving each $225 a year. This is less than Burundi's per capita income of $271 in 2011.

"They would live in rural areas or in the slums around the towns and cities. Those lucky enough to find work would receive a wage below the poverty line, let alone the minimum wage," says the report.

‎"They would have no health insurance and their children would face a 40 to 80 per cent higher chance of dying before their fifth birthday, compared with their richer compatriots. Those who survive would be likely to be stunted. They would attend schools lacking basic utilities such as power, water and sanitation and where they would be taught for only a quarter of the recommended time."

This combination of poor nutrition and negligible schooling leaves the poorest unable to operate in East Africa's modernising, service-oriented economy and guarantees that they will bequeath their poverty to their children and grandchildren.

East Africa's "middle majority," about 71 million people or half of the region's population, experience a lifestyle that lies somewhere between these two extremes.

This middle majority shared $41.5 billion (50 per cent of the region's total income) among themselves in 2011, ending up with $586 each for the year, an amount equal to the average income of the wealthiest fifth of Burundi's population.

Burundi is ranked the least unequal country in the East African region, followed, in order of rising inequality, by Tanzania, Uganda and Kenya. Rwanda is East Africa's most unequal country.

The trends present a mixed picture, with Rwanda and Burundi showing signs of reducing inequality, albeit from a very high level in Rwanda.

Kenya and Tanzania seem to be expanding the gap between rich and poor, while Uganda has kept it mostly stable for two decades.

Analysts say that inequality promotes tension and unrest, reducing the social cohesion and trust that are intangible elements of the social capital crucial for progress. Inequality deepens religious, ethnic and class divisions in society.

"In the political arena, inequality results in the concentration of political power and ultimately the capture of the state by an unelected wealthy elite. Such state capture is perhaps the most dangerous and insidious risk posed by inequality," said Joseph Kieyah, principal policy analyst at the Kenya Institute for Public Policy Research and Analysis (KIPPRA).

For the region to ensure a level field of opportunities available to all from the very beginning, Mr Eyakuze said, partner states should ensure that the poorest, especially children during the first three years of life, have access to good nutrition.

Although it does not get much attention, malnutrition is one of the most damaging threats for a child's development; it often has serious and often irreversible impacts on a child's future prospects, and even costs a country in terms of GDP growth.

A malnourished child has on average a seven-month delay in starting school, a 0.7 grade loss in schooling, and potentially a 10-17 per cent reduction in lifetime earnings — damaging future human capital and causing national GDP losses estimated at 2-3 per cent.

The report also shows that formal wage-paying jobs are the privilege of a tiny minority of East Africa's working population. "Just 1.6 per cent of Uganda's youth, four per cent of Burundi's, five per cent of Tanzania's and six per cent of Kenya's working populations are formally employed," says the report.

Eric Musau, a research analyst at the Standard Investment Bank, Kenya said those aged 20-24 are the least likely to find that elusive job — formal employment in East Africa accounts to less than 15 per cent of youth employment and between 85 and 90 per cent of the youth are employed in the informal sector.

The youth unemployment rates in East African region are estimated to be 40 per cent. But just going by their sheer numbers, youth should be the priority of governments — East Africa's population is overwhelmingly young.

The age that divides the population exactly into two equal halves above and below it — ranges from 15 years in Uganda to 19 years in Kenya and Rwanda. More than 62 per cent of East Africans are younger than 25.

Rising inequality tests EAC growth prospects and integration agenda - News - www.theeastafrican.co.ke
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