Ugandans in the VIP seating area at a recent Sean Kingston concert. Credit: Will Boase/IPS

By Fred Ojambo
KAMPALA, Dec 26 2012 (IPS)

Rising investments in Africa’s service sector, the unlocking of its vast natural resources and the sound economic policies pursued by African countries in the last two decades are spurring the rise of the continent’s middle class at a faster rate than population growth.

Investments in the key areas of banking, telecommunications, information technology, transport, tourism, housing and real estate have lifted the continent’s middle class, Lawrence Bategeka, a principal researcher at the Ugandan-based Economic Policy Research Center, told IPS.

“Liberalisation of African economies resulted in improved efficiencies and saw rapid growth in the service sector. Private sector-led growth has resulted in the growth of the middle class on the continent,” he said.

The African middle class is characterised by a per capita daily consumption of two to 20 dollars, although this class has a high concentration at the lower end of consumption, according to an African Development Bank (AfDB) report titled “The Middle of the Pyramid”.

According to the AfDB, by 2010 Africa’s middle class had risen to an estimated 34 percent of the continent’s population or nearly 350 million people – up from about 126 million or 27 percent in 1980.

“This represents a growth rate of 3.1 percent in the middle class population over the period 1980 to 2000, compared with a growth rate of 2.6 percent in the continent’s overall population over the same period,” the AfDB report said.

The middle class is widely acknowledged to be Africa’s future, the group that is crucial to the continent’s economic and political development. But it is difficult to determine exactly who falls into this key group and even harder still to accurately establish how many middle-class people there are in Africa, according to the AfDB.

In Uganda, being middle class is determined by having a good education, being able to rent or own a good home, having access to the internet, making frequent visits to a supermarket and spending the equivalent of 15 dollars a day, Stephen Kaboyo, the managing partner of Uganda-based research company Alpha Partners, told IPS.

Joseph Nsubuga, a land dealer near Kampala, the Uganda capital, saw an opportunity to be part of the rising middle class and grabbed it.

“Rising incomes for many people in the country sparked off demand for land where I saw an opportunity to advance my own fortunes. I started by selling what I inherited from my parents but it is now my fulltime job to buy and sell land. My fortunes have improved and I am able to send my children to good schools,” Nsubuga told IPS.

James Babalanda, a Kampala-based educationist, also saw an opportunity to improve his quality of life. “Since people with increased incomes wanted good electronic equipment, I decided to open a number of shops dealing in these items in the capital and, believe me, I am living a fairly good life. My business is ever growing because of a ready market,” he told IPS.

Bategeka said that room for further growth of Africa’s middle class abounds,but is dependent on increased government investment in infrastructure.

“Uganda is a good example of how economic reforms are enhancing people’s incomes, and this growth would have been higher if investments in infrastructure were higher. Most countries have been slow in providing faster private growth because of deficits in infrastructure, which is key to growth,” Bategeka said.

By ditching state controls and embracing private sector-led policies, African economies stimulated the growth of the middle class, and there is room for further expansion with more public sector investments in infrastructure projects, Bategeka said.

In the 1990s African economies embraced the World Bank and the International Monetary Fund’s (IMF) structural adjustment programmes, which advocated free market policies.

“The introduction of liberalisation, which focused on private sector-led growth, is key to the growing middle class on the continent,” said Bategeka. “Countries introduced sound economic policies which controlled inflation, benefiting investments in their economies.”

“Investments in the service sector are some of the drivers of middle class growth on the continent. The sound macroeconomic policies at the same time attracted foreign direct investments which helped to grow the middle class,” he said.

North African countries have a higher concentration of middle class society, with Tunisia having the highest proportion at 89.5 percent, followed by Morocco with 84.6 percent.

Liberia has the lowest concentration of middle class among the countries surveyed, with only 4.8 percent of the population falling into this category, followed by Burundi at 5.3 percent.

“Africa’s middle class is a key source for private sector growth in Africa, accounting for much of the effective demand for goods and services supplied by the private sector,” according to the AfDB.

Sub-Saharan Africa remains insulated from the negative factors affecting growth in developed countries and the economic activity in the region is generally robust with growth in 2012-2013 expected to remain the same as it was a year earlier, the IMF said in its October 2012 regional outlook for sub-Saharan Africa.

The Bujagali Hydropower Project, Uganda’s 250 MW power-generating facility, came online in January. Credit: Samson Baranga/IPS

By Fred Ojambo
KAMPALA, Oct 24 2012 (IPS)

Uganda is facing the unwelcome possibility of increased costs for building a projected 600-megawatt hydropower plant at the Karuma Falls, on the Victoria Nile, owing to construction delays.

The East African nation has yet to name a contractor for the two-billion-dollar project, which is situated 220 kilometres northwest of the capital, Kampala. Construction was initially planned to start in April, with inauguration expected in four to five years.

The delay to boost generation may result in future power outages as demand may surpass supply, according to Dickens Kamugisha, the chief executive of the Uganda-based NGO Africa Institute for Energy Governance.

The nation’s power demand increases by an average of 10 percent annually, according to the Ugandan Electricity Regulatory Authority (ERA). The country’s peak demand currently is 509.4 MW, while off-peak demand is 366.4 MW, ERA spokesman Julius Wandera told IPS.

“Every passing day when the project isn’t started is costly to the companies that will undertake it and the country, and delays will ultimately increase the cost of construction,” Kamugisha told IPS.

It will lead to upward revisions in costs, and demand will outstrip supply if more power is not generated in time, Kamugisha said.

But because of the delay in naming a contractor for the Karuma hydropower plant, the construction costs for the project have already been revised to two billion dollars, from the initial 1.3 billion dollars given by President Yoweri Museveni in February 2010.

“With the growing need for power, demand may outstrip supply in approximately three years if more investment into generation isn’t done,” Kamugisha said. But if the delays in commencement of construction can rid the project of irregularities, then the delay would be worthwhile, he said.

Similar delays in the construction of the Bujagali hydro power plant resulted in the final costs rising to 900 million dollars, from an initial projection of 580 million dollars, according to Kamugisha.

The generation capacity in this landlocked country in East Africa rose to 810 MW after the inauguration of the Bujagali Hydropower Project on the Nile, a 250 MW power-generating facility, in January.

Bujagali has helped to eliminate the country’s daily power rationing. It started supplying 50 MW of power to the national grid in January and reached full capacity, 250 MW, in June.

Inadequate power supply hurt economic growth by one to 1.5 percent in the last financial year, according to the Ugandan government.

The nation’s economic growth in the 12 months ending in June 2012 slowed to 3.2 percent from 6.7 percent a year earlier partly due to inadequate power supplies and the Eurozone economic crisis, according to the Ministry of Finance.

“The coming into operation of Bujagali has been a major boost to my business as I have a regular power supply,” Richard Ssemanda, a welder in Kampala, told IPS.

“Initially I would spend a whole day without work or even had to go so far as to work at night if that was the time when power was available,” he said.

“I am happy that there is a steady supply of power but I am only using it for lighting because I can’t use it for cooking due to the high costs,” James Senfuka, a builder in Kampala, told IPS.

Tariffs remain high, limiting household use to lighting and ironing, according to some of the users. In January the ERA approved an average 47 percent increase in rates to reduce subsidies to the sector.

But the minister of state for energy is keen to avoid a repeat of the 2011 loss in economic growth.

“From experience we saw costs for Bujagali rising because of the delays, and if we delay this process we can be sure the tender price will go up,” Simon D’Ujanga, the minister of state for energy, told IPS.

“We are concerned about the delays in the (Karuma) project and we want these issues to be resolved quickly so that we don’t suffer further power shortages which would impede economic growth,” D’Ujanga said.

Power demand may rise from the current peak of 509.4 MW to more than 700 MW in two to three years, D’Ujanga said. The nation has an installed generation capacity of 810 MW, but the capacity can drop to just over 600 MW when water levels decline, he said.

“Small projects may start supplying power to the national grid, but we are worried that if Karuma doesn’t start soon we shall face future power shortages,” said D’Ujanga.

“It is good to always prepare for the worst by starting on the project early,” he added.

The project was delayed when pre-qualification losers for the Karuma hydropower plant lodged appeals in court and with the state procurement agency.

China’s Sinohydro Corporation and China International Water and Electric Corporation as well as Perlite Construction Company of Iran were pre-qualified for the project in February. Italy’s Salini Construttori SPA, Egypt’s Orascom Construction Industries and a consortium of construction companies from South Africa were the other bidders.

“We were supposed to start on the project in April, but the process has been delayed by complaints by some losers in court and whistle-blowers who petitioned the Public Procurement and Disposal Authority,” Matovu Bukenya, a spokesman for Uganda’s Ministry of Energy, told IPS.

Italy’s Salini Construttori SPA petitioned the court on grounds that the bidding process was marred with irregularities, and asked that it be reviewed.

The country has potential investment sites for 2,000 MW of major hydropower plants, mini hydropower sites with a total of 200 MW, 200 MW of solar power, 1,650 MW of biomass, 800 MW of peat, 450 MW of geothermal as well as wind energy, according to the government web site.

Museveni has said that increased power generation will spur industrial growth and enable the country to become a middle-income economy “in the next few years,” and ultimately transform it into a high-income country in 50 years.