Inequality is a threat to capitalism in East Africa

January 11, 2014

One of the principles of capitalism is that economic growth should benefit all members of society. The yawning income gap between the poor, middle class and the rich has become common phenomenon. Income inequality is rising in East African countries and the widening income gap is hurting social stability and slowing overall gross domestic product growth that many say should be double figure. According to a study, the wealthiest 5% of East Africans are expected to enjoy 20% of the region’s GDP in 2014, while the poorest 5% will only be able to enjoy 1%. In cities across the region like Kampala, Dar es Salaam, Nairobi, Mombasa, Arusha, moshi, Nakuru, Entebbe shopping malls are being built, people are buying more cars and fast-food restaurants are opening faster to meet the growing appetite of an emerging middle class with Kenya and Uganda leading the way. With shift in the population, rural areas are losing out, being passed over for development. Traditionally, research has shown that any growing economy in Africa, agriculture, service and mining sectors have played a key role in this demographic shift, and the youth tend to flock to cities for better-paying jobs but that is not always the case as most end up doing low paying manual jobs. Various government schemes and welfare programs like the Brazilian and other Latin American countries cannot work for East African region because their economies are still donor dependent and taxation collection is still very low and any such venture would mean borrowing more and burdening the taxpayers.

Most likely it will end up keeping them in state of desperation and poverty and that is why I think inequality cannot be defeated in capitalist societies, East African governments should find ways to provide rural population with a sustainable means of living like supporting their farming activities. As the region aspires to have among the biggest regional economies in Africa within a generation, policy makers should follow the advise of IMF chief Christina Lagarde who made it clear during her visit to Kenya earlier this week that East African countries infrastructure development in both rural and urban areas should guarantee economic prosperity benefits to all people and not just the metropolitan elites. The solution for the region is enhanced economic opportunities, including greater access to credit, especially for small businesses. Studies have shown that currently the banking sector in East African only reaches about 15% of the population although mobile money transfer platforms reach about 30% of the population with mobile phones estimated to be 80 million. This means that the vast majority of East Africans are excluded from the financial system and must be included if the region is to narrow the income gap. Growth with equity has long been the stated objective of all East African governments but the problem is easy to solve. There is plenty of work to be done in order to help those in poverty to improve their lives.

Contador Harrison