Share the report

THE STATE OF EAST AFRICA REPORT SERIES

Setting the Scene

Any economic model that does not properly address inequality will eventually face a crisis of legitimacy’ Nouriel Roubinii”

This report opened with an overview of the current status of the East African Community in its human, economic and political dimensions, followed by a deeper exploration of the issue of inequality, arguing that East African citizens are experiencing very different life circumstances from the point of view of generating and sharing in the region’s wealth and sharing in its benefits.
By placing a question mark at the end of the motto of the East African Community, it interrogated the very idea that the EAC is truly ‘One People, One Destiny’. What might the future look like?

This section is intended to provoke the imagination by taking this exploration into the future to look at a set of three plausible alternative outlooks for the region from an inequality perspective.
Two fundamental and policy-influenced driving forces are shaping the future of inclusiveness and equity in East Africa. One is the inclusiveness of growth – a measure of how much the most disadvantaged East Africans are participating in generating economic growth. The continuum ranges from a low level of inclusiveness in which the poor are marginal to the process of growth, to a high degree of inclusiveness in which they participate more fully in generating economic wealth.

The second driving force is the degree of equity, which describes how the benefits of economic growth are shared among the region’s citizens, and particularly the share of income and wealth that accrues to the poorest members of society. At one extreme of low levels of equity, the poorest get a tiny fraction of the income – a third or less of their proportion of the population- while the richest 10 per cent get a disproportionally large share of income, three of four times their share of the population. At the other end of the spectrum, a more equitable income distribution would see the poorest enjoying a share of income that is equivalent to at least half of their share of the population.

Outlooks on Inequality in East Africa

iNEQUALITIESThe diagram shows the interaction between these two driving forces and locates three possible outlooks for inclusiveness and equity in East Africa.

Starting with the bottom left quadrant, the Winner Takes All outlook describes a future in which the poorest are excluded from participating in East Africa’s growth process. In an economy based on the extraction and export of oil, gas, unprocessed precious metals and agricultural commodities, there are few opportunities for them. Furthermore, not only is the regions’ physical and financial wealth concentrated among the rich few, but the disparity widens dramatically over time as the poor get a shrinking share of the expanding income. As a result the majority of East Africans exist in conditions of deprivation and desperation, while a select few enjoy a lavish but fear-filled lifestyle.

The Social Bribery outlook outlines a possible future in which much is promised to the region’s poorest citizens, and on the face of it, delivered. But it actually does little to improve their welfare. It is about the illusion of growing personal prosperity based on expanding debt-fuelled consumption of modern conveniences. The people’s participation in the economy is rewarded with wages that are suppressed just enough to protect profit margins, but not enough to kill their purchasing power. The poor consume a little more, but never catch up with the richest of their compatriots. Indeed, the wealth gap widens imperceptibly and inexorably.

The Transformation outlook highlights a future in which the region’s underlying economic strategy changes its outward orientation following a youth-led protest that chokes the regional economy at its most vulnerable points. The resolution of the crisis turns the economic policy inwards to nurture domestic demand, supporting an ecosystem of local value-chains to meet the growing demand and ‘upgrading’ the skills of ordinary East Africans. At its core is a deliberate effort to directly tackle inequality head-on, and it is led by a re-purposed and revitalized East African leadership.

The fourth quadrant is improbable. It is highly unlikely that the region’s future will combine the absence of inclusiveness in the generation of economic wealth with a high degree of equity in the distribution of whatever wealth that is created. Such a combination would imply either that the economy had crashed due to the absence of input from the poorest 40 per cent – an equitable distribution of destitution – or that it would be an extreme form of a humanitarian economy, where all economic growth and wealth creation is produced by the richest 10 per cent who then transfer almost all of it to the poorest forty per cent.