IMF representative speaks on Uganda economy and EA integration

While addressing NRM members of parliament at Kyankwanzi National Leadership Institute, Dr. Thomas Richardson, senior IMF representative to Uganda observed that Uganda has one of the fastest growing economies in the world. Uganda’s future economic growth was recently lowered to about 5 percent because of the difficulties being experienced in the country.

Five percent growth rate falls far short of the 8-9 percent growth rates required as minimum to meet Millennium Development Goals (MDGs) by 2015. Countries like South Korea that transformed their economies and graduated to developed country status grew at 9 percent for many decades. Dr. Richardson observed correctly that agriculture has played a small part in Uganda’s economic growth. Given that some 90 percent of Ugandans earn their livelihood in agriculture, the sector should receive top priority attention.

The government with external support has focused on services and industry which are located mostly in the Kampala area and are capital-intensive, creating virtually no jobs. It’s no wonder that some 70 percent of Uganda’s GDP is generated in the Kampala area.

When we talk about industry we need to specify whether we are talking about manufacturing industries or industries in general like tourism industry. Uganda needs manufacturing industries to contribute to structural transformation and transition to a middle income nation.

The IMF representative is not in favor of subsidizing agriculture. With rising prices of agricultural inputs Ugandans have very little chance of improving productivity and agro-processing to add value and reduce losses because they cannot afford high prices of farm implements, high yielding seeds and fertilizers as well as manufacturing equipment. Therefore the application of selective and smart subsidies is in order which the IMF should support otherwise Uganda will remain a low productivity and raw material producer and – by extension – a poor country.

The Fund representative focused on inflation control through high interest rates. But high interest rates together with high level of devaluation of Uganda currency make it very difficult for micro, small and medium-scale enterprises that create jobs to access capital necessary for investing in labor-intensive activities. Uganda has had low inflation rate of around 5 percent for a long time but investment has remained very low, implying that inflation control alone while necessary is not a sufficient condition for attracting investors. During times of economic trouble such as high unemployment as Uganda is in now, a neo-Keynesian type of economic policy to generate aggregate demand and employment is what is needed.

Dr. Richardson praised Uganda for resisting pressure to regulate food exports. But when you have over 8 million Uganda citizens going to bed hungry and school children dropping out of school in large part because they are hungry while you are exporting mountains of food to feed citizens of other countries then there is something morally wrong. We need to put a human touch to Uganda’s economic models. A balance between food exports and domestic supplies through temporary regulation is the right thing to do. Eating adequate and balanced diet is a human right enshrined in international and domestic instruments.

How do you create human capital when citizens are food insecure, undernourished mothers are producing underweight children with permanent physical and mental handicaps? How do you expect brain to grow to maximum capacity within three years from conception when undernourishment is highest at those delicate ages? How do you build infrastructure such as roads and energy that require a lot of money when you are operating a tight fiscal policy as the IMF representative has advised?

The IMF representative apparently did not say a word about high levels of poverty, unemployment and disguised unemployment (under-employment) especially among youth including university graduates as well as the adverse social and human rights outcomes such as domestic violence which have been brought about in large part by implementation of structural adjustment program which turned out a big failure.

The Fund representative also skipped mentioning that pursuit of diversified agricultural exports such as cut flowers and fish has resulted in massive de-vegetation, deforestation and fisheries overexploitation with serious ecological and food security outcomes.

The Fund representative blamed external factors for Uganda’s ills quietly skipping rampant and endemic corruption that is the single most development constraint in Uganda as well as allocation of large sums of money to non-productive sectors such as air force jets. In short, the IMF representative focused on the glass half full, leaving out completely the half that is empty. And herein lies the weakness of his presentation. He should have given a balanced picture with reference to the Millennium Development Goals being or not being met.

The Fund representative’s speech was couched in Washington Consensus (WC) language. But WC is dead. At the G20 meeting in April 2009, the then British Prime Minister, Gordon Brown observed that “… this G20 summit marked the end of the ‘Washington Consensus’” (Peter Clarke 2009). Later that year Uganda government officially dropped WC or Structural adjustment program (SAP) as Uganda’s development model and launched a five-year development plan. The IMF representative needs to adjust as well.

The National Recovery Plan (NRP) which was launched on October 8, 2011 at the Boston conferences of Ugandans opposed to the NRM regime has presented an alternative development model with a focus on agriculture and rural development, infrastructure development, manufacturing industries, a balance between urban and rural development, sustainable development, human capital formation and liberty, democracy and good governance with special attention to Uganda’s regional characteristics. The plan was submitted to IMF through its office at the United Nations in New York.

Let me end on a note where I agree with the Fund representative. Like him I support economic integration in principle in east and central Africa. But you cannot build economic integration starting with a political federation as Uganda is pushing. That project is bound to fail because no house is ever built starting with the roof. You start with the foundation and go up step by step. Let us look at and learn something from European Union and Southern African Development Community experiences using the example of the European Union. The two institutions are doing it step by step through building institutions and infrastructure.

Europe’s ultimate goal is a political union but it began with economic sectors step by step as follows:

1. Coal and steel community treaty;

2. Agriculture and commerce through the Rome Treaty;

3. Environmental regulation and research and development through Single European Act;

4. Transport, training and immigration policy and measures to bring about full economic and monetary union through the Maastritcht treaty; etc.

“Step by step with these developments has been the march toward political unification …”(Foreign Affairs March/April 1995). This is a useful lesson to learn from.

Regarding Africa’s integration agenda, Ndegwa and Green (1994) stressed the importance of coordinated development of basic infrastructure including transport, communications and energy as well as standardization and simplification of procedures in economic integration efforts. Coordinating joint institutions such as research and development and programs like sub-regional tourism and River or Lake Basin programs would create a foundation for lasting economic integration leading ultimately to political federation or union without – let’s be clear – ending nation-states of Burundi, Kenya, Rwanda, Tanzania and Uganda.

Ndegwa and Green further advised that “Imported common market models do not work, either politically or economically and their continued promotion ….gives cause for concern”. That is another piece of good advice to keep in mind as we march towards economic integration and ultimately political federation in east and central Africa.