Why Shs40.5trilion may not deliver government promise of inclusive growth and shared prosperity
Kampala, Uganda | JOSEPH WERE | Uganda on June 13 announced its biggest budget ever which, at Shs40.5 trillion (Approx. US$10.7 billion), has been described as ambitious and upbeat. But its promise it not matched by its offer.
According to the Minister of Finance, Economic Planning and Development, Matia Kasaija, approximately 600,000 job seekers enter the formal labour market every year. But the cumulative employment in the country is 700,000 in industry, 1.3 million in services, and 170,000 in ICT. Up to 4 out of every 5 people who should be working are unemployed. The mismatch is wider because 80% of jobs in Uganda are in the informal agricultural sector.
Manufacturing, which the government has been pushing as the source for jobs in the last five budget cycles, grew at just 2.8%. It was an improvement from 1.7% from last year. But it is far lower than the industry sector growth of 5.8% which includes mining and quarry, manufacturing, construction, and electricity and water supply.
As the minister noted, most of Uganda’s economic growth came from the services sector which comprises 50.3% of the economy, employs 50% of the labour force, and grew highest in FY 2018/19 at 7.2%.
The services sector includes jobs in trade, communication, education, financial services, transport, real estate, professional services, hotels, accommodation, and food, arts and entertainment, and domestic work.
Commentators have focused on the ambitious expenditure targets (a 23% increase on last year and the biggest in the East African region), aggressive borrowing, the doubling of the budget deficit, sector expenditure allocations, revenue targets and taxes and their likely impact.
But what if we shift the analysis to the strategy behind the budget? The budget focuses on a one-year financial period, but is it in line to deliver on the government’s promise of inclusive growth and shared prosperity? The concern is raised because, despite budget theme proclamations, Uganda has not been performing well on these two fronts over the last five budgeting cycles.
This is partly because the behavior of the government; especially by President Yoweri Museveni and his inner circle, differs completely from the pronouncements in the budget and work plans of government ministries, departments, and agencies.
The economic transformation path chosen by the government and indicated in the budget; through industrialisation – agro-processing, light manufacturing, and mineral processing – is being questioned. Together with how the expected resultant prosperity will be shared.
Within the same state apparatus are technocrats trying to implement empirical interventions expected to spur economic growth, and on the other are politicians pursuing prestige projects and perpetuating a handout culture that has proven unsustainable.
At the budget reading, for example, President Museveni stepped outside of the presented financial plan and announced that he would set up three new additional wealth and job creation funds.
Typically, these so-called wealth and job creation funds involve the President or a trusted aide like his brother, Gen. Caleb Akandwanaho aka Salim Saleh, driving around the country with bags of money and handing cash to lucky groups or individuals as a booster or start-up capital. Sometimes the money is offered as a loan but a culture has emerged that there is no requirement to pay the loan.
The new handouts have this time been promised to practitioners of 13 trades; including carpenters, salon operators, welders, mechanics, tailors, taxi drivers and even media people. Other beneficiaries will be politicians at lower government level and lower level ruling party officials.
The culture of handouts has been criticised because it is done without proper preparation of recipients, and breeds a belief among recipients that they do not have to work to earn money. In the long-term it complicates the government’s ability to monitor and evaluate the performance of various interventions in the fight against poverty.
Observers point out that when the country got a bumper harvest of maize and cereals in the 2017/18 FY, for example, Salim Saleh’s Operation Wealth Creation programme claimed it had caused it. But so did the Ministry of Agriculture, and the National Agricultural Advisory Services (NAADS).
In reality, according to some commentators on the budget, the bumper crops were a result of `God’s blessings’ of adequate rain and not any direct interventions of the government.
While delivering the budget to parliament, Minister Kasaija also noted the contribution of “improved weather conditions” to the country’s economic growth in FY2018/19. Other factors were increased private and public sector activities and a relatively stable global economy.
Based on such, observers want to assess more systematically the impact of proposed government intervention to spur inclusive growth and shared prosperity.