Economic Drivers of Inequality

Burundi is the least unequal country in the East Africa, followed, in order of rising inequality, by Tanzania, Uganda Kenya and Rwanda. The trends in the last two decades point to Rwanda and Burundi reducing inequality more recently, 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.

The rapid change in the structure of the East African economy is one of the most important drivers both of the region’s economic performance and the uneven distribution of income and other benefits of growth. In 2003, Kenya’s was the only regional economy in which the services sector had a bigger share of the economy than agriculture. A decade later, all East African economies are in a similar position. While developing economies are usually characterized by a falling share of the agricultural sector in the overall economy, 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 livelihood opportunities.

The share of industry in the economy increased modestly in four of the five East African countries. East Africa’s industrial sector employed about 560,000 workers in 2012. Assuming a labour force of about 77 million in 2010, industrial employment accounted for less than 1 per cent of the region’s total labour force. In order to reach the goal of having 2.3 million people working in manufacturing, the region’s industrial sector jobs will have to expand five times in the next 20 years.

A formal, wage-paying job is a privilege reserved for a tiny minority of East Africa’s working population. Just 1.6 per cent of Uganda’s, 4 per cent of Burundi’s, 5 per cent of Tanzania’s and 6 per cent of Kenya’s working populations are formally employed. For those fortunate enough to find a paying job, the wage data highlights further the disparity in earnings. The lowest official monthly minimum wages across East Africa vary from $81 in Uganda to just $3.10 in Burundi, which is four times lower than its official poverty line of $12. The median monthly wage ranged from $176 in Rwanda to $84 in Tanzania. However, at $176, Rwanda’s median wage is lower than its own official poverty line ($192) and furthermore, less than half of working Rwandans were paid a wage that was higher than the country’s poverty line.

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