Economic Dimensions of Inequalities in East Africa

Income inequality in a ‘Federal Republic of East Africa’

If the East African Community were a single country – a Federal Republic of East Africa – and its $83 billion income in 2011 was distributed according to the most recent income shares obtaining in each constituent state, the richest 10 per cent of the population would have shared $29 billion among themselves and received almost $2,100 each. This would place them in their own lower-middle-income countryii. The poorest 40 per cent, almost 57 million East Africans, would have shared $11.4 billion, giving each $225 for the year, or less than Burundi’s per capita GDP of $271 in 2011.

The Federal Republic of East Africa’s Palma ratio would be 2.30, a level of inequality similar to that of Madagascar, which had a Palma ratio of 2.32 in 2010, Malawi (2.30 in 2010) or Mozambique (2.49 in 2007).

income-distribution-in-fedral-republic-of-EA

East Africans work informally and young people are un(der)-employed

Burundi

In Burundi, formal sector workers made up less than 4 per cent of the working population. The African Development Bank notes that the private sector is ‘overwhelmingly informal’, quoting ‘recent trade ministry data showing 3,000 firms, mostly small and medium enterprises, employing about 40,000 people (less than 2 per cent of the working population) with more than 80 per cent in Bujumbura.’

In 2009, youth unemployment was three times higher than in the 25-64 age group. It is also a mainly urban phenomenon, given that a large part of the rural population is declared as engaged in farming. In 2008, the unemployment rate was estimated at 14.4 per cent in Bujumbura, 9 per cent in Gitega and 6.5 per cent in Karusi, and the average age of the unemployed was 29 years.

More optimistically, Burundi’s national social security institute estimated 5,000 registered employers and 165,000 insured employees in 2011. Assuming that all 40,000 private sector workers mentioned above are insured, the remaining 125,000 are presumably public sector employees.iii 

Kenya

According to the Kenya Economic Update 2013, the number of new private sector jobs created in 2012 was 52,900, a 19 per cent increase from 44,400 in 2011 and more than double the 24,500 jobs created in 2008. The public sector employed 12,000 new people in 2012, just half of the 23,500 positions it filled in 2011. The informal sector is estimated to have created 591,400 new jobs in 2012.iv

A World Bank report published in 2012, stated that two out of five wage sector jobs (40 per cent of total wage sector jobs), are formal. While these are a part of the overall wage employment numbers, they are what are considered by many as ‘good’ jobs.

In absolute numbers, there were 2.1 million formal wage sector jobs out of a total of 5.2 million wage jobs. They include approximately 800,000 in services, 350,000 in industry, 290,000 in agriculture, and 680,000 in the public sector. These jobs are growing by only about 50,000 each year, against an increase in the labour force of about 800,000 annually. ‘In other words, at the current rate of job creation in the modern sector, barely 6 per cent of those entering working age are finding modern wage jobs.v

In this context, it is Kenya’s youth who face the most daunting odds of finding formal wage employment. According to a UNDP report published in January 2013,

‘…in proportional terms, 80 per cent of Kenya’s 2.3 million unemployed are young people between 15 and 34 years of age. Working-age adults, aged between 35 and 64 years, represent 20 per cent of all unemployed people. The largest proportion of unemployed people occurs… among youth aged between 20 and 24 years.’vi

Rwanda

The African Development Bank has noted that ‘in spite of the marked improvements in labour- market efficiency, the number of jobs created in Rwanda annually, estimated at 74,000, has not expanded in tandem with the approximately 200,000 job seekers joining the labour market each year. Limited value addition in the agriculture sector and the inability of the private sector to respond to the improved investment climate by creating remunerating activities outside the agriculture sector are key factors that perpetuate high unemployment, especially among youth. In 2011, 66 per cent of Rwanda’s population was under the age of 25 years and 38.6 per cent was aged 14–35.’

A major determinant of youth unemployment in Rwanda is that they lack the skills that the labour market is looking for. In 2012 a skills gap analysis by MIFOTRA revealed wide gaps in key sectors. In 2011 about 28.5 per cent of modern firms identified an inadequate skilled workforce as a major constraint, compared to 14.7 per cent in the East Africa Community (EAC). Almost 24.2 per cent of higher education graduates are either unemployed or underemployed, and 14.7 per cent of upper secondary graduates prefer to be unemployed when they fail to secure paid jobs. Labour productivity remains low, with 67.8 per cent of the workforce being underemployed.vii

Tanzania

In her budget speech for fiscal year 2013/14, Tanzania’s Minister for Labour and Employment stated that more than 274,000 jobs had been created in 2012 of which almost 57,000 came from the public sector, 8,603 were advertised by the private sector and 208,681 were generated by various development projects.viii

The number of formal sector employees in Tanzania was 1.36 million in 2011, a 6.7 per cent increase from 1.28 million in 2010. The private sector absorbed 63 per cent of formal sector workers with the public sector making up the balance of 37 per cent.ix The 1.36 million formal employees represents slightly more than 5 per cent of Tanzania’s estimated labour force of 25.6 million people. The African Development Bank reports that just 3 per cent of the labour force is covered by a mandatory formal social security systemx.

Quoting Tanzania’s Integrated Labour Force Surveys of 2001 and 2006, the African Development Bank notes that youth unemployment rates in Tanzania remained stable between 2001 and 2006, at just under 9 per cent. The rate for young people not in education and not in employment, however, fell from 12.1 per cent to 9.0 per cent over this same period, suggesting some improvements in enrolment rates and increasing employment-to-population ratios among the youth. During that period, young women faced higher unemployment rates than their male counterparts (10.1 per cent to 7.4 per cent in 2006). The population most at risk of unemployment is generally the educated youth entering the labour market for the first time (the youth unemployment rate of 8.8 per cent in 2006 is just under twice that of the total labour force, 4.7 per cent).xi

Uganda

According to Uganda’s Statistical Abstract 2012, the total labour force in Uganda increased from 10.9 million people in 2006 to 13.4 million in 2010. The majority of the working population (66 per cent) was engaged in agriculture in 2010, compared to 72 per cent just four years earlier. The manufacturing sector has the lowest share of working Ugandans with only 6 per cent of the labour force in 2010, although this was an improvement from 4.5 per cent 2006. The country’s services sector expanded its share of Uganda’s jobs from 23 per cent in 2006 to almost 28 per cent in 2010.

The country’s overall official unemployment rate worsened from 1.9 per cent in 2006 to 4.2 per cent in 2010. However it was worse in urban areas where the rate increased from 6.4 per cent to 9.5 per cent during the same period. Almost 80 per cent of Uganda’s working population were self- employed. Paid employees constituted only 21.7 per cent of the work force in 2010 compared to 16.3 per cent in 2006.

Out of the 3.8 million Ugandans who worked outside agriculture, 2.2 million (58 per cent) were in the informal sector. The proportion was higher for women (62 per cent) than it was for men (55 per cent). It was also higher in rural areas (61 per cent) compared to urban areas (54 per cent).

The African Development Bank notes that ‘employment conditions for Uganda’s youth are not good. Youth unemployment, at 4.3 per cent, is slightly higher than for the labour force as a whole, 3.8 per cent, with unemployment being somewhat higher for young women (4.9 per cent) than for young men (3.6 per cent). Moreover, a large majority of young workers (73.3 per cent) are self-employed, with this share’s being particularly high for young women at 76.5 per cent compared to 70.3 per cent for young men. Also, only a small fraction of young workers (1.6 per cent) earn a regular wage, while up to 7 per cent of them are engaged in unpaid family work. ’xii 

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