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Economic bliss in 2013?

By Agather Atuhaire

Private sector hails new budget but worries persist over poor implementation

For the first time in many years, the private sector has welcomed the new budget, saying it was what the country needed to revitalize it battered economy.

At a post budget meeting in Kampala on June 15, the private sector, under its umbrella body, the Private Sector Foundation Uganda (PSFU), praised Finance Minister Maria Kiwanuka’s budget, saying it was “the best” Uganda has had in a long time.

However, analysts warn that given the perennial problem of poor execution, implementation and low absorption of funds by government departments and ministries, only time would tell if the budget speech under the theme, Priorities for Renewed Growth and Development, would amount to more than the usual rhetoric.

For instance, the infrastructure projects such as Bujagali, Karuma and Ayago power dams, have appeared in the budgets of the last four years but with very little show as achievements on the same. In her 2009/2010 budget speech, then finance minister Syda Bbumba said Karuma dam would be complete by 2014. It is now 2012 and construction is yet to begin. The same applies to major roads such as Mbarara-Masaka, Kampala-Entebbe highway, the Kampala-Gayaza-Zirobwe Road, the Soroti-Dokolo-Lira road among others.

But despite that, the private sector players were happy because their pleas to the government to reduce the cost of doing business appear to be bearing fruit.

Even happier was former Finance Minister Gerald Ssendaula, currently the PSFU chairman, who said he never had the opportunity to deliver a brief but spot-on budget speech like the one Maria Kiwanuka delivered.

The members boasted of having 80 per cent of their issues catered for in the budget and attributed that to having Kiwanuka – one of their own – in charge.

Kiwanuka is a business woman while her husband is a prominent manufacturer.

Every year, the private sector submits proposals to government, which they refer to as ‘The Platform for Action,’ for consideration in the budget.

PSFU Executive Director Gideon Badagawa described the budget as the “private sector’s budget,” adding that finally the government was starting to appreciate the important role played by the private sector. “The Minister only fell short of dedicating the budget to the private sector,” said Badagawa, “but this is the private sector’s budget and we will not disappoint.”

In her speech, Kiwanuka said government recognises that its own resources were not enough and that it had decided to leverage its resources to support private sector growth by lowering the cost of doing business.

“It is the first time the minister of finance is concerned with the cost of doing business,” Badagawa added.

Over the years, the government has been singing about a private sector driven economy but with very little being done to lower the cost of doing business – made worse by poor infrastructure, low energy supply, corruption and high cost of registering a new business. These have been a concern as they have blamed for the poor competitiveness of Ugandan products and services in the local, regional and foreign markets.

Kiwanuka acknowledged that the economy performed badly last financial year with real GDP growth estimated at 3.2% this financial year due to the poor global economic environment and the domestic challenges that Uganda has faced.

But some people are optimistic that this year’s budget could change the economy for the better. The newly elected East African Legislative Assembly speaker Margaret Zziwa said the budget was very specific and good to have put a lot of emphasis on the business environment. “We have been assured that inflation is being managed back to single digit and there are measures to stabilize the exchange rate,” said Zziwa. “At least Ugandans can now relax knowing that things are being put back in order.”

Bunghoko South MP Michael Werikhe described the new budget as an “ordinary person’s budget” with its focus on agriculture, roads and raising the Pay as You Earn (PAYE) threshold from Shs 130,000 to Shs 235,000.

By raising the PAYE threshold, employees who earn less than Shs 235,000 will not be subjected to tax. Even those who earn more will benefit as the tax will be subjected only to the excess on the threshold.

But Sam Watasa, the Uganda Consumers Protection Association director, argued that the main focus should not be on the promises of the government but on the execution and implementation.

“A budget as a mere expression of intent can sound good but only implementation makes a budget good,” he said.

What would benefit the private sector, Watasa argued, is if they benefited from infrastructural development in the short term, which is not possible in a country like Uganda where all construction companies are foreign.

In other countries that have huge construction companies, an allocation of Shs 1.6 trillion to roads would translate into a direct economic boost arising from new jobs, new equipment and construction materials. Unfortunately, the bulk of such money in Uganda goes to foreign countries where many of the international companies that contract such projects come from.

Analysts are therefore skeptical as regards this the capacity of the new budget to achieve a growth rate of at least 7 percent per annum, returning inflation to single digit and increasing Uganda’s Balance of Payments.

Professor Augustus Niwagaba, the Makerere University Economics don, said the budget was fairly balanced and flag shipped the economy in the most critical sectors but warned about poor implementation and monitoring.

This budget, Nuwagaba said, would achieve those objectives if implemented because for the first time, attention had been given to infrastructure, agriculture and education – the main drivers of the economy.

Last year, spending on critical sectors of the economy was lower than budgeted on account of low absorption of resources by spending agencies and more transfers of funds to other government units.

“We don’t need just a good budget speech,” Nuwagaba said, adding that there was a need for a budget plan, execution, strategic objectives, monitoring, identifying facilitating factors and identifying the inhibitors and devising ways of addressing them.

The analysts therefore said it would be safer if the budget focused on the problems affecting implementation and more so on this year’s budget, which is is too ambitious thus making execution even harder.

But Nuwagaba was largely positive about the budget saying government was finally putting attention where it mattered most – as the experts have been advising all along.

“I have always advised that we focus on agriculture, infrastructure and education,” he said, “I am happy government improved its prioritization.”

However, there was a general feeling that the allocation of Shs 585 bn to Agriculture was still on the low side, which means that the country’s economic problems would persist. “There is still a huge gap on the issue of agriculture and government has continued to deem other sectors more important,” she said, “but agriculture is our only salvation.”

The critics also went in overdrive in their blaming of the government for re-instating the 18% VAT on piped water, which Parliament had scrapped saying this could increase the incidence of waterborne diseases as poor people would abandon piped water in preference for cheaper but unsafe water.

Nuwagaba said for a country that has Millennium Development Goals to achieve, taxing piped water is the least thing it could do because that means people will opt for unclean cheap water. He says this would also have a negative impact on the cost of business since most of the water is used commercially. However, Watasa argued that it was a brilliant move for the government to revisit the tax, which he said would affect present consumers minimally. He reasoned that removing tax on a utility only benefited the few people who are already using piped water, yet the Shs 21 bn revenue expected from the tax if well-utilised could enable tens of thousands of the urban poor and rural communities to get access to safe water.

“So to me there is nothing wrong with reinventing VAT on water,” he said, “but the question is where that 18% would go, whether it would be invested properly or would end up in some wrong hands.”

But as the private sector was celebrating, critics had another view, arguing that the only positive in this year’s budget speech was that the government was for the first time being honest. Shadow Minister for Finance Geofrey Ekanya said that at least this time President Museveni and his government did not present “false figures” about growth like they have always done. “The President and his minister have finally realized that the bubble of 6 and 7 percent economic growth is not sustainable and are accepting reality,” he said.

Dokolo Woman MP Cecilia Ogwal said the minister regurgitated much of what she read in last year’s budget speech. “She has talked of the same programmes she talked about last year and that kept me wondering what happened to the money already allocated to them in the last 12 months,” said Ogwal.

If or the situation will be different by this time next year is what remains to be seen.

Pro-business proposals in 2012/13 budget

  • The Public-Private Partnerships Bill will be presented to Parliament to streamline the framework for project appraisal and contracting with the private sector.
  • Government to implement contractor facilitated financing policy as a means of raising resources for infrastructure projects.
  • A review of business licenses has been completed to simplify registrations requirements, reduce discretionary powers, and eliminate redundant procedures. An electronic licenses registry that will serve as a repository for all approved business licensing in Uganda will be established.
  • Government will also establish a one stop centre to provide online business registration services.
  • Business Guide has been developed to provide SMEs with information on available financial, business development services (BDSs), and business licensing information.
  • Commercial bills now before Parliament, which include the UNBS Bill and Counterfeits Bill, to be expedited.
  • Government to work with the private sector to expand skills development to match labour market requirements.
  • New Graduate Venture Capital Fund has been established and given a Shs. 16 billion kitty.
  • PAYE threshold raised from Shs 130,000 to Shs 235,000 –  more take home for private sector workers, hence no need to increase salaries to cater for inflation.
  • To facilitate smooth transition from analogue to digital terrestrial transmission import duty on Set Top Boxes reduced from 25% to 0 percent for a period of one year.
  • Import duty on vacuum packing bags reduced from 25% to 10% to ease packaging by the manufacturers.

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