NRM economics has failed to create jobs and distribute income

Uganda’s NRM government adopted stabilization and structural adjustment program (SAP) in 1987 under the assumption that after a short period (three to five years) of austerity and debt repayment, the economy under the guidance of market forces would begin rapid and sustained growth, create jobs and distribute income to all Ugandans through a trickle down mechanism. The government estimated that by 2017 poverty would be history in the Republic.

To lay the ground work for eventual sustained growth and equity, the government focused on monetary and fiscal policy to balance the budget, control inflation, establish a realistic exchange rate; privatize public enterprises and promote exports to earn foreign currency, pay external debt and use surplus for investment in productive sectors. Government participation in the economy and funds for social sectors would be reduced significantly.

Mindful that inflation was indiscipline, NRM government worked hard to bring it down to a low and stable rate of five percent per annum. This required drastic reduction of money supply in the economy and increased interest rate to encourage savings. However, high interest rates of some thirty percent discouraged borrowing by small and medium enterprises that create most jobs and spread income.

To establish and maintain a realistic exchange rate meant devaluation of Uganda currency which made exports cheaper and imports expensive, making intermediate goods in domestic enterprises very expensive and out of reach of small and medium enterprises. The high price of consumer imports also meant that more money was spent on consumption than on investment and job creation.

Privatization of public enterprises included shedding excess labor and employment of labor-saving technologies to increase efficiency and productivity. Foreign investors’ and experts’ freedom to repatriate profits and savings respectively resulted in massive outflow of resources leaving relatively little for investment in Uganda’s economy and create jobs.

The liberalization of Uganda’s economy facilitated entry of cheaper goods and companies that outcompeted Uganda’s domestically produced goods and companies resulting in closure or drastic reduction of workers to make ends meet.

Uncertainties and shortages of one form or another such as energy and traffic jam have constrained the creation of the kind of enabling domestic environment essential for investment. Consequently, Uganda has attracted far fewer investors than it had hoped for to drive Uganda’s economy and create jobs and end poverty. Some industries have been forced to relocate to neighboring countries and beyond. Labor flexibility has allowed employers to pay below subsistence wages, hire and fire at will, keeping many workers trapped in absolute poverty.

Rampant corruption (which many think is worse than external debt) has resulted in a number of disadvantages: discouraged investment of domestic and foreign enterprises and encouraged excessive expenditure on expensive non-productive items such as private vehicles and banking abroad the looted money thereby reducing funds for domestic investment.

The above factors acting individually or in some combination have constrained investment in Uganda, limited the creation of job opportunities and resulted in high levels of unemployment and under-employment. Thus, although Uganda has experienced economic growth, it has been largely jobless growth (latest reports show that the economy provides 80, 000 jobs annually against 400,000 job seekers). Without creating adequate jobs for those who want to work, the market mechanism and trickle down principle have not worked. Over 50 percent of the country’s income has gone to 20 percent in the top income bracket while some 20 percent in lowest income bracket have got poorer. Thus, the imperfections of the market forces and private sector as the engine of growth together with an unfavorable domestic investment climate have constrained job creation and distribution of income.

With the discredited neo-liberalism behind us, government which was restricted to participate actively in Uganda’s economy needs to step in and work in partnership with the private sector to create ideal conditions for equitable and sustained economic growth, social development and environmental sustainability.

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