Although I have written a lot about Uganda’s economy, I continue to get requests from readers to write more and elaborate on issues that remain unclear to some. In doing so there is a risk of repetition. As I have observed before, I am not writing for professional economists but the general public that wish to understand some economic concepts and how they impact on their quality of life. This brings me to the notion of economic growth. In any economy economic growth is necessary but it can have meaning only if it contributes to tackling poverty and improving the standard of living of the population. Thus, economic growth in Uganda or elsewhere is not an end in itself although NRM has treated it as such. As a minimum, growth must meet the basic needs of education, healthcare, food, clothing and housing. So are sound economic fundamentals.
In its press statement issued on March 9, 2012, Uganda Media Centre proudly announced that Uganda “had graduated as a mature reformer in 2006 with sound economic fundamentals [which were not mentioned] and much improved governance”, meaning that Uganda had more freedom to manage its economy without IMF and World Bank conditions including presence of foreign experts and, ipso facto, would no longer benefit from the Poverty Reduction and Growth Facility (PRGF), the IMF’s lending program. However, by signing IMF’s Policy Support Instrument (PSI) to receive IMF advice, monitoring and endorsement of her policies, Uganda remained essentially a captive of the IMF. Action Aid International, an anti-poverty group, conducted a comparison of PRGFs and PSIs in Uganda among other African countries and found little differences between the two programs. “In Uganda both programs set similar targets on inflation and antipoverty spending. … the PSI appear to carry over PRGF standards, but with incrementally more ambitious targets. Basically … IMF continues to play a major role in managing the economies of these poor countries, something it does not attempt to do in wealthier nations” (Africa Renewal April 2008).
Although the press statement did not specify the sound economic fundamentals I believe they include low inflation, free-floating exchange rates, balanced budget and export growth and diversification. The graduation was accomplished in 2006 and the press statement was issued in March 2012. One wonders whether the fundamentals are still sound. Be that as it may, let us briefly examine the impact of each fundamental on Uganda’s economy and society.
Take inflation control first. At one stage in the early part of NRM administration, inflation hit triple digits. There was too much money chasing too few goods and services. Since goods and services could not be produced and distributed fast enough to match demand, excessive money had to be withdrawn from circulation (30 percent service charge was perhaps part of this strategy). One of the instruments used was raising interest rates to encourage saving and reduce consumption. However, keeping interest rates very high for a very long time has discouraged borrowing and investment especially by small and medium-sized industries that create jobs especially for low skills and inexperienced young graduates, and boost economic growth. The president has expressed concern about high interest rates on many occasions to no avail. The central bank needs to do something about it because the market forces appear not to be the appropriate instrument for reigning in on high interest rates.
Free-floating exchange rates or currency devaluation has made Uganda exports more competitive in international markets. At the same time imports have become very expensive. Uganda being import dependent, expensive imports have constrained rehabilitation and expansion of existing manufacturing industries as well as starting up new ones. Some industries have closed down, others are operating below installed capacity and yet others have moved out of Uganda, resulting in loss of jobs and limiting economic growth. The central bank needs to recast this instrument and strike a balance.
Regarding balanced budget and accumulation of surplus, Uganda introduced austerity measures including retrenchment of public servants, high indirect taxation, reduction or elimination of subsidies on productive and social sectors including education, healthcare and agriculture. Infrastructure including roads and energy and institutions such as research and extension services and health and education systems were starved of resources, leading to failure to train skilled and relevant human power, provide modern infrastructure and institutions thereby undermining investments, job creation and rapid economic growth.
Finally, export growth and diversification. NRM government has worked hard to increase and diversify exports to generate hard currency with which to retire external debt, import essential consumer and producer goods and generate surplus as reserve. Although the volume of exports has increased, it has not been matched by commensurate export earnings because of low unit value of commodity exports in exchange for expensive manufactured imports. Uganda has thus continued to rely on donations and loans with conditions attached. Increased export production and diversification based on agriculture has meant clearing more vegetation including ranches to permit areal expansion of production. De-vegetation has become a serious problem resulting in soil erosion and reduced fertility due to strong winds and rainfall that have washed away top fertile soil and caused local climate changes with adverse hydrological and thermal regimes accompanied by frequent destructive droughts, floods and landslides. Fisheries and forests have been over exploited and wetlands extensively drained. The export of foodstuffs such as beans, fish, sim sim and maize traditionally produced for domestic use have resulted in shortages and rise in food prices beyond the means of many households.
It is also important to realize that opening Uganda markets so widely to cheap imports and keeping the state out of the economy has left Uganda industries unprotected against unfair competition. De-industrialization and the associated loss of jobs as well as reduced economic growth has been the result. Additionally, stabilization program was expected to restore sound economic fundamentals in three to five years after the launch of stabilization and structural adjustment program in 1987 to create a platform for rapid and sustained economic growth, increased investments, job creation and poverty reduction. But sound economic fundamentals were realized in 2006 and structural adjustment abandoned as a failure in 2009. Thus, sound economic fundamentals, achieved and maintained or not, failed to translate into sufficient economic growth, job creation and poverty reduction. What Uganda reaped is a failed economy and disoriented society characterized by insufficient economic growth (Uganda needs to grow at a minimum of 9 percent per annum), skewed income distribution, spreading and deepening poverty, sprawling urban slums, poor nutrition, resurgence of diseases that had disappeared, ecological disaster, youth unemployment and a breakdown of social fabric. This is not a record that the Uganda Media Centre and indeed the NRM government should be proud of.
What Ugandans need to do urgently is to sort out the land problem: Its owner and how it should be utilized as a springboard for rapid and sustained economic growth to eliminate poverty in Uganda. The encouragement of rapid urbanization and land commoditization as another product for sale is stripping Ugandans of land which at the moment is the only asset we can claim to be ours. You could lose your job tomorrow without pension. However, you can survive if you still own a piece of land. That is what happened to many Ugandans who drifted from urban to rural areas in the 1970s. Don’t accept persuasion to sell land and drift to towns where you cannot find work. You will end up landless and jobless and above all a nuisance to the public.
In the end, Uganda’s march on the right path to peace, security, prosperity and happiness for all will require a new leadership. NRM has not passed the test on all issues of interest to Ugandans. Uganda has everything except capable, patriotic leadership.