External Involvement in Uganda’s Economy

Pre-colonial comparative advantages enabled communities in Eastern and Central Africa to produce surplus agricultural and manufactured products that were exchanged in local and regional markets to meet their needs.

Colonial regimes changed these mutually reinforcing and complementary arrangements. The colonial comparative advantage demanded that all African countries specialize in the production of raw materials for export in exchange for manufactured products from the metropolitan countries such as Britain, France and Belgium.

In Uganda as elsewhere pre-colonial manufacturing enterprises were outcompeted by imports and disappeared. The production of cotton, coffee, tea and tobacco for export took away Uganda’s fertile land and economically active labor particularly of male workforce from the production of balanced food for domestic consumption.

The eating of unbalanced diets that followed dominated by bananas, maize and cassava has led to serious nutritional deficiencies which surfaced in the 1930s. Thus colonial intervention in favor of exports at minimum cost and taxation as well as free labor on public works translated into poverty and food insecurity in Uganda.

Hunger and malnutrition, in turn, reduced resistance to disease, increased morbidity (illness) and mortality (death) rates and further constrained food production and aggravated hunger. 

Although attempts were made to improve the nutritional situation through the development of fisheries to provide an affordable source of protein to low income families and the establishment of nutrition clinics to treat malnourished cases and train mothers in hygiene and preparation of balanced diets, the level of food insecurity remained relatively high because accessing balanced food remained problematic. (This negative development was subsequently blamed on rapid population growth to be solved by birth control).

Beginning in the 1940s, the colonial administration attempted to change Uganda’s economic structure by promoting industrial development which would also provide jobs and ease pressure on agriculture. The administration embarked on infrastructure programs such as the hydroelectric power station at Jinja, institutions such as the Uganda Development Corporation (UDC) and a legal framework such as the Industrial Development Charter. A wide range of activities were undertaken in agriculture, manufacturing and tourism. These positive developments suffered a major set back as independence approached.

Before independence in 1962, a number of expert missions visited Uganda and wrote reports with recommendations on the way forward. While acknowledging the importance of manufacturing in Uganda’s development and economic restructuring, the Uganda Development Committee and the World Bank recommended that Uganda’s strength and comparative advantage lay in agriculture with an emphasis on exports especially of cotton.

 The first national development plan (1961/62 to 1965/66) was modeled on these recommendations. While introducing the plan, the Prime Minister stressed that it was based largely on World Bank’s recommendations. Uganda like other African countries which had hoped that industrialization would underpin its development, transform its economy and society and narrow the gap between it and the developed world was dealt a heavy blow because foreign experts advised otherwise.

Attempts by Milton Obote to restructure the economy and prepare for an egalitarian society were interpreted by foreign interests as an introduction of socialism including nationalization of foreign businesses. They helped Iddi Amin to overthrow Obote’s government in 1971 who subsequently ran the economy into the ground including foreign businesses.

In 1976, in the middle of Amin’s chaotic rule, the United Nations Industrial Development Organization (UNIDO) visited Uganda to assess the industrial situation and make recommendations for government consideration. The report noted that one of the major constraints in the industrial development process was lack of foreign exchange. Noting that the contribution of manufacturing and minerals to earning foreign exchange was small, UNIDO recommended concentration on agricultural export commodities of coffee and cotton in particular because there was little scope for import industrial substitution.

After the collapse of Amin’s regime in 1979 the Commonwealth Secretariat in London sent a mission to Uganda to study the situation and recommend a rehabilitation program. The mission noted that foreign exchange was a major constraint that needed to be dealt with first and foremost, hence export of raw materials. Cotton and coffee continued to be king in Uganda’s economy.

When Milton Obote returned to power in 1980, he stressed industrial development to meet consumer and intermediate needs of Uganda. However, to achieve this goal, his government needed foreign assistance to the tune of $800 million immediately.

By the 1980s, the world economy was under the sway of neo-liberalism or Washington Consensus which promoted economic liberalization and comparative advantage. At the same time, developing governments needing external assistance had to reach an agreement with the International Monetary Fund (IMF) one of the sponsors of the new economic ideology. The IMF required inter alia that Uganda should focus on promotion of exports to earn foreign currency. Thus, through IMF’s intervention Uganda’s development policy shifted from industrial development to a concentration of primary production for export. 

When President Museveni and his National Resistance Movement (NRM) government came to power in 1986, he was determined to make fundamental changes in colonial and post-colonial economic policies with strong emphasis on industrialization and technology development and to create a middle income and middle class society thereby pulling Uganda out of the poverty trap and underdevelopment. He was determined to avoid advice and money from the World Bank and IMF, the two institutions he had strongly criticized while still in the bush waging a guerrilla war against the Obote regime that had accepted IMF and World Bank advice and money.   

For one and a half years, the NRM government boldly ran the economy without external intervention. However, it was soon realized that external support was necessary. Finally, Museveni like Obote before him had to yield to the reality after listening to many western advisors. One of them was Linda Chalker, then a minister in Margaret Thatcher’s government in Britain. She visited Uganda and echoing the opinion of most western major creditors advised that the solution to Uganda’s problems depended on reaching an agreement with the IMF.

With a new pliable team of minister of finance and governor of the central bank, Uganda signaled a willingness to negotiate and an agreement was reached in May 1987. Linda Chalker has remained Uganda’s principal advisor to this day (in 2008). (This strong relationship possibly explains why Uganda government has resisted changes in the Washington Consensus model even when the negative social and environmental side effects are very obvious and devastating).

In exchange for money and advice, the NRM government abandoned a well articulated and relevant ten-point program and a mixed economy model (private and public partnership) and accommodated a strategy of structural adjustment which stressed economic growth, economic liberalization, deregulation, privatization, inflation control, balanced budgets, removal of subsidies and above all export promotion – a policy that is fundamentally differed from the ten-point program with an emphasis on food production for domestic consumption, industrial growth and technology development. Donors also demanded many other changes. Let us look at one of them for illustrative purposes.

In 1995 donors asked the government either to privatize or close down banks that were not performing well. The World Bank subsequently issued a strong note advising the government to take action and demanding privatization of the Uganda Commercial Bank. Some knowledgeable and experienced Ugandans resisted arguing that privatization would not make the bank any more efficient. What was needed they reasoned was not privatization but streamlining management operations. Under constant pressure, the Uganda Commercial Bank was finally privatized against public opinion.

The IMF also advised that all banks must raise minimum capital backing to Uganda Shillings 1 billion ($1.1 million) at the start of the second half of 1996. Banks that did not conform would be closed down.  

External involvement in Uganda’s economy has contributed to the current serious social and environmental challenges because social and environmental sectors have not been accorded priority in Uganda’s development discourse because they are considered non-productive.

For the sake of emphasis we shall repeat what we have recorded elsewhere. Reports from reliable sources have shown that 30 percent of Ugandans go to bed hungry, some 35 percent are mentally disabled, 40 percent of children under the age of five are undernourished, 12 percent of infants are born underweight meaning that their mothers are undernourished, up to 80 percent of children in primary schools drop out largely because they are hungry (authorities have rejected school feeding programs which have demonstrated beyond any reasonable doubt that they keep children especially girls in school and improve their performance) – all this is happening when Uganda has become a major exporter of food to earn foreign currency –, unemployment is rising at an alarming rate, Uganda is among the top ten countries in the world in alcohol consumption, trachoma which causes blindness is on the rise especially among children, hygiene is deteriorating as demonstrated by outbreaks of cholera, and the country will turn into a desert within 100 years if current economic policies such as expansive growth of export commodities and commercial herding particularly of goats are not reversed.

The free market and free enterprise model that has guided Uganda’s economy through economic growth, inflation control, balanced budgets and export growth has not served the majority of Ugandans through a trickle down mechanism. Instead income is highly skewed with 20 percent of the population in the top income bracket owning over 50 percent of national income while 40 percent in the bottom income bracket is earning a mere 15 percent of total income.

Clearly, the policy needs recasting. State intervention in strategic areas in short, medium and long-term is unavoidable if only to forestall crime, violence and possible political instability as people especially the youth become desperate and resort to all sorts of means to make ends meet.

For a start, the government needs to embark on a stimulus package to ease the immediate pain through targeting poor and vulnerable groups in rural and urban areas. The concept of a stimulus package has received global recognition as necessary to address the immense challenges in the wake of the global financial crisis.

In the long term, infrastructure and institution building will need government support to lay a solid foundation for growth, development and equity in the 21st century.

Most important of all, Uganda needs to begin to create favorable conditions for the full utilization of its wealth of human talent in policy formulation, program design, implementation, monitoring and evaluation calling on foreign experts only in a few cases as the need arises.