What rest of the region must do to join Tanzania, Kenya in middle-income league

Friday July 17 2020

income

Kenya and Tanzania’s rise to lower-middle-income countries raises the bar for fellow East African Community (EAC) member states. ILLUSTRATION | JOHN NYAGAH  

By Johnson Bosco Rukundo

The World Bank on July 1 categorised Tanzania as a lower middle-income country (MIC), becoming the second country in the East African region to achieve this milestone after Kenya.

The World Bank categorises a middle-income country as one with gross national income (GNI) per capita between $1,006 and $12,235. Tanzania’s GNI per capita was reported at $3,140 in 2018, according to the World Bank collection of development indicators.

Becoming a middle-income country reflects the hard work and sacrifices of citizens, and sustainable, people-centred development programmes by the Kenya and Tanzania governments. It requires a quantum of resources and discipline in the governments’ expenditure pattern.

Kenya and Tanzania’s rise to lower-middle-income countries raises the bar for fellow East African Community (EAC) member states.

I would argue that we should not be thinking of when Uganda, Rwanda, Burundi, and South Sudan will become middle-income countries, but how: How they effectively implement their development plans, and if they strategically identify the key priority sectors they can massively invest in to accelerate growth based on each country’s comparative advantage.

Several factors contribute to attaining the middle-income status. Kenya and Tanzania’s long-term political stability provided a solid foundation for growth and development, providing the impetus for citizens to focus on and achieve individual growth that generates collective growth for a state.

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Tanzania is the second-largest economy in East Africa after Kenya. In addition to having stable economies, the two countries boast a coastal touch and infrastructure that facilitates trade.

ganda, Rwanda, Burundi, and South Sudan are all landlocked, which hinders their trade with high transport costs to the coast. This increases tariffs on goods both imports and exports, impacting on their final prices.

Further, numbers contribute significantly to growth and development. Kenya and Tanzania have high populations estimated at 51 million people and 56 million people, respectively.

igh population, as long as it is skilled and in the labour force, contributes significantly to growth; it forms the market and tax base of goods and services.

The other East African countries should focus on key sectors that contribute to their gross domestic product (GDP) growth consistently. Nearly all these countries depend heavily on agriculture, which employs majority of their citizens.

According to World Bank collection of development indicators 2019, employment in agriculture as a percentage of total employment in Uganda was reported at 72.7 percent; in Rwanda 72 percent, Burundi 92 percent for and 56.8 percent in South Sudan.

The inherent characteristic of these countries is that the agriculture sector is predominantly subsistence, which limits production for agro-processing industries. Efforts to revamp the agriculture sector and turn it into a high production sector for industries will partly shift the large numbers employed in agriculture to industries-mainly agriculture industries.

The turnaround, if achieved, will scale down low incomes in agriculture and generate increased incomes in a two-fold; one through higher individual disposable incomes, and two through increased tax receipts by governments.

The agriculture sector should be backed by improved industrial and services sectors. The medium terms emphasis should be oriented to processing industries, as capacity is built to enhance long-term establishment of manufacturing industries.

The tourism and service sectors have contributed greatly to Kenya and Tanzania’s growth, relative to their EAC neighbours.

For example, in Rwanda the services sector contributed nine percent to GDP in 2018/19 as per the National Institute of Statistics for Rwanda, in Uganda services averaged 7.6 percent in 2018/19, as per the World Bank, while for Burundi it was one percent in 2019 (World Bank) and 14.9 percent in South Sudan (African Development Bank).

It is, therefore, important that these low-income countries, analyse sectors such as services, tourism, industry, or mining where they possess a comparative advantage, and hold them as ripe fruits for growth to supplement agriculture.

These countries should use the already available EAC treaties, including non-trade barriers to increase their degrees of openness to trade. Whichever sectors these countries choose to accentuate, they will yield anticipated contribution to growth based on how consistent they are.

The low-income EAC countries have set timeframes when they envisage being middle-income countries. This will require heavy investments in human capital, infrastructure, economic reforms and consistent development plans and political stability.

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