As EAC Integration Picks Up, Inequality Worsens

Written by Isaac Mwangi

Were the East African Community a single country today – which is the ultimate goal of the region’s integration process – the wealthiest 10 percent of the population would be two-and-a half times richer than the lowest-earning 40 percent.

A report released in Dar es Salaam in November paints a gloomy picture of growing inequality between the haves and the have-nots in East Africa, and shows how this has resulted in increasingly negative perceptions of citizens against their governments across the region.

The report, “The State of East Africa 2013: One People, One Destiny? The Future of Inequality in East Africa,” examines inequality in Kenya, Uganda, Tanzania, Rwanda and Burundi.

From the combined $83 billion income of these five partner states in 2011, the report says, the share of the top 10 percent of the population is more than a third of the total — a whopping $29 billion. The poorest 40 percent of the region’s population, by contrast, were left to share $11.4 billion.

This means that while the rich received almost $2,100 each, the poorest segment of the population got $225, less than Burundi’s per capita gross domestic product of $271 in the same year.

Quite unexpectedly given Rwanda’s good showing in other global economic indicators, the country has the dubious distinction of being the most unequal in East Africa.

“In 2011, the richest 10 percent of Rwandans earned 3.2-times the income of the poorest 40 percent of their compatriots,” the report said. “Income inequality rose between 1985 and 2006, taking Rwanda from the most equal to the most unequal country in the region.”

Kenya, which follows next on the inequality ranking, has seen the gap between the richest and poorest of the population widening from 1995 to 2005, ending up with the richest 10 percent earning 2.8-times more than the poorest 40 percent.

Uganda, the next most unequal country, has seen the level of income inequality being almost identical to that of two decades earlier. “By 2009, Uganda’s richest 10 percent earned 2.3-times more than the poorest 40 percent of their compatriots,” the report says.

Next is Tanzania, where in 2007 the richest 10 percent of the population earned 1.65 times more than the poorest 40 percent of their compatriots. This represents a rise in income inequality, with this statistic – called the Palma ratio – shooting from 1.36 in 1992 to 1.41 in 2000.

Burundi is credited for being the “least unequal” country in the region.

Says the report: “In 2006, the richest 10 percent of Burundi’s citizens earned 1.35 times the income of the poorest 40 percent. The trend shows Burundi’s income inequality rising from 1992 to 1998, after which it returned to its level of a decade earlier.”

A number of social factors are behind the rising inequalities. Education plays a critical role.

“Women living in East Africa’s poorest households have a lower chance of having had any schooling compared to their male counterparts. Almost 60 percent of Burundi’s poorest women have never attended school, which is the highest proportion among both sexes in poor households,” the report says.

Men in the wealthiest households in the EAC have fared well, with a relatively small percentage never having attended school. Burundi’s men, the report says, have the lowest educational achievement in East Africa, with up to 13 percent of the men in the richest households having never attended school.

But even where education is available, a wide disparity exists between the facilities available to children from rich households compared to those from poor households.

Access to medical insurance, nutritional quality, vaccination coverage, and child (under 5) mortality rates are some of the other factors the report details as defining differences between the richest and poorest East Africans.

“We cannot address inequality in East Africa without tackling these other social factors,” said Aidan Eyakuze, the associate regional director at the Regional Office for East and Southern Africa of the Society for International Development (SID), which produced the report.

Its principal co-authors are Eyakuze and Ahmed Salim, SID’s program manager at the SID East Africa Regional Office. The organization’s regional office is based in Dar es Salaam, Tanzania.

Concerns that unequal development levels may be worsened by regional integration have tended to slow down the process, with weaker economies fearing that Kenya – the region’s economic powerhouse – will benefit at their expense.

This fear has been particularly pronounced in Tanzania, which has sometimes been accused of being an unwilling partner. Kenya enjoys distinct advantages over its neighbors, including hosting a good industrial base and skilled manpower.

This has partly contributed to the erection of non-tariff barriers to trade across the region.

It is this state of affairs that recently led Tanzanian President Jakaya Kikwete to criticize the “coalition of the willing” bringing together Kenya, Uganda and Rwanda, which have decided to forge ahead in various initiatives without the participation of Tanzania.

The findings of the Inequality in East Africa report contrast sharply with those of other economic indicators, providing a good comparative base for an all-round view of East Africa’s economies.

For instance, Burundi was among the world’s most active economies in implementing regulatory reforms in 2011-2012, according to the report, “Doing Business in the East African Community 2013: Smarter Regulations for Small and Medium-Size Enterprises,” a co-publication of the World Bank and the International Monetary Fund.

According to the report, “If a hypothetical EAC economy were to adopt the region’s best regulatory practices in each area measured by Doing Business, it would stand at 26 in the global ranking on the ease of doing business.”

This means that the gains being made by East Africa’s economies are not trickling down to the most vulnerable sections of the region’s population. While Rwanda performed dismally on the inequality index, for instance, the Doing Business report praised the country.

It said that between 2005 and 2011, its real GDP per capita grew by 4.5 percent annually, “reflecting a sustained expansion of exports and domestic investment, with inflows of foreign direct investment also increasing substantially.”

EAC Secretary General Richard Sezibera praised President Paul Kagame’s government for its poverty eradication efforts. “Rwanda has lifted five million people out of poverty in the past five years and this can be replicated throughout the EAC,” he said during the opening of the Academia-Private Sector Forum in Nairobi recently.

Burundi, East Africa’s least unequal country, ranked 159th out of 185 countries. It was the worst ranking for ease of doing business among East Africa’s economies.

Ease of doing business is a critical consideration for investors, and governments in the region who want to reduce inequality through growth that can then be redistributed will have to seek to improve their rankings.

Despite existing challenges, however, the EAC, “has been among the fastest-growing regional blocs in Africa in the past decade,” according to the Doing Business report.