Assessment of NRM record and the way forward

As preparations for 2011 elections enter the final phase, it is appropriate to examine NRM’s successes and shortcomings and make recommendations for the next government.

NRM government dropped the ten-point program in favor of stabilization and structural adjustment program (SAP) following an agreement with the IMF in 1987. Prior to the signing of the agreement, the government ran the economy without external support and faced tremendous problems including inflation which ran into triple digits. In this environment, the government had no bargaining power and swallowed all IMF and the World Bank conditionality including employing external staff and advisers to direct the design and monitor the implementation of SAP.

From the start it was known that the first three to five years of structural adjustment would be very costly in social terms as the government adjusted its resources to make savings and repay its debts which were the main objective of the program. The comforting rhetoric was that the costs would disappear and benefits of economic growth would trickle down equitably to all Ugandans. Meanwhile Ugandans were requested to tighten their belts even tighter having lost thirty percent of their savings through the conversion of the old into the new currency. It was also understood that the role of the state in the economy would be significantly reduced to permit unhindered operation of the private sector. Resource allocation would be determined by the invisible hand of the market forces. In short neo-laissez-faire would drive Uganda’s economy and distribute the benefits.

In the short run (three to five years), the focus would be on macro-economic stability including low and stable inflation through controlling money in circulation and raising interest rates, promoting economic growth and diversifying exports into non-traditional commodities, balancing the budget and reducing public servants, eliminating subsidies and accumulating foreign reserves as well as promoting savings and privatizing public enterprises. Government activities would be confined to areas where markets fail such as infrastructure, education and healthcare. A new conditionality of governance was added so that international assistance would be extended to governments elected through multi-party politics.

The assessment of the SAP has produced diametrically opposed outcomes. The proponents of the program, mostly donors and officials in the ministry of finance, planning and economic development and central bank pass Uganda’s performance as a success story. They point out that inflation has been tamed and confined to single digits, the public civil service has been downsized, subsidies have been eliminated or significantly reduced, exports have been diversified, economic growth has increased, and privatization of public enterprises has gone well. The proponents see structural adjustment as an end in itself and congratulate the government for a job well done in adhering to the terms and conditions of adjustment. They rarely address the adverse social and environmental impact.

The critics, on the other hand, argue that structural adjustment failed to fulfill the medium to long term promises of creating jobs, transforming agriculture, promoting small and medium businesses and manufacturing enterprises, improving education and healthcare and nutrition security and reducing poverty. Far from declining, poverty has increased. To them, SAP failed to put Uganda’s economy in order so as to pave the way for sustained and equitable economic growth and sustainable development. The critics have concluded that structural adjustment has made matters worse for the majority of Ugandans and Uganda has lost its sovereignty by handing over the economy to foreigners. To substantiate their conclusions, they have pointed at the following failures and made corrective recommendations.

First, small, medium and large enterprises have been severely constrained by high interest rates which make it difficult to borrow, devaluation of Uganda currency which makes imported intermediate goods expensive, and liberalization of Uganda’s market which permits the import of cheap and subsidized products. Consequently many enterprises downsized their operations and dismissed workers while others closed completely adversely impacting forward and backward linkages.

On August 30, 2010 New Vision (Uganda) reported that Uganda has the highest enterprise failure. By way of confirming harmful effects of SAPs in other countries, critics have observed that liberalization policies destroyed the cashew nut processing industry in Mozambique throwing 10,000 people out of work, and undermined production of rice, tomatoes and poultry in Ghana. To regain lost ground in Uganda, critics recommend that the state needs to create an enabling environment including training of skilled entrepreneurs and protecting enterprises against unfair external competition.

In revamping the business sector, lessons need to be drawn from the United States where the vast bulk of businesses are small-scale. The sector creates jobs but most significantly employment opportunities for unskilled, unemployed or those just entering the labor force for the first time. The next Uganda government should pay particular attention to small and medium enterprises given Uganda’s high unemployment and under-employment level of unskilled people and those entering the job market for the first time including university graduates.

Second, agriculture which remains the pillar of Uganda’s economy in employment creation and production of food and industrial commodities has been grossly neglected notwithstanding the formulation of an excellent blue print for the modernization of agriculture which has remained largely unimplemented. The budget allocation to the sector has remained far below the 10 percent of Uganda’s budget as agreed at the African Union Summit in Maputo, Mozambique in 1993. Additionally, the removal of farm subsidies has undermined agricultural productivity and transformation from subsistence to commercial agriculture. Studies conducted in the country have confirmed that farmers want subsidies back. The government’s current focus on services located in towns especially the capital city of Kampala needs to be recast in favor of agriculture and agro-processing enterprises.

Third, the poverty reduction strategy adopted in 1997 to eradicate poverty in 20 years has not worked as expected. Critics argue that the reduction of poverty from 56 percent in 1995 to 34 percent in 2000 (and subsequently to 31 percent) is based on vague assumptions. For example, during the Consultative Group meeting for Uganda in Paris in November 1996, a World Bank representative commented that “assessing the impact of adjustment on poverty is more difficult, given paucity of reliable data. Nevertheless, available data indicates that hard-core poverty has been reduced as economic growth has accelerated”. However, other reports including FAO (2005), Development Cooperation Seminar in Japan (1998) and Geography against Development (2006) have recorded higher poverty levels, the latter report recording a level above 80 percent between 1990 and 2001.

Fourth, the failure in the operation of market forces and trickle down mechanism is reflected in rising mortality despite high economic growth rates that reached 10 percent in mid 1990s. Between 1995 and 2000 infant mortality, an indicator of society’s overall health, increased from 81 to 88 deaths per 1000 live births. Under-five mortality increased from 147 to 152 deaths per 1000 live births during the same period. And maternal mortality increased from 527 in 1995 to a staggering 920 per 100,000 live births in 2005. Government needs to re-enter the economic field and work in partnership with the private sector to correct the imperfections of the market forces.

This analysis of successes and failures leads to the conclusion that while structural adjustment succeeded in controlling inflation, retrenching public servants, removing subsidies, privatizing public enterprises and promoting economic growth, it failed to translate economic growth into social gains for the majority of Ugandans especially the 20 percent in the lowest income bracket. It also failed to protect the environment which has been badly eroded. Consequently Uganda is defined by failed businesses, diseases of poverty and ecological degradation. Blaming population growth for high unemployment and poverty and recommending birth control will not solve an economic policy problem.

The next government will need to make a concerted effort to combine the benefits of macro-economic stability and economic growth with equitable social gains and sustainable development. Hopefully development partners will extend a helping hand.