Economic model has failed Uganda

By Ndinawe Byekwaso

No wonder Uganda has been turned into a gambling economy by the likes of Sports Betting

In his annual State of the Nation address on June 7, President Museveni pointed out that Uganda’s fast economic growth has been in non-vital parasitic sectors, which promote imports. These comprise banking growing annually at 17.2%; transport and communication services including mobile phones at 14.3%; hotels and restaurants at 8.8%; real estates at 5.6%; other businesses services (saloons, stationery sales etc at 9.7%.  Museveni said:  “This is where Uganda is now – high rates of growth but in sectors that create little employment, bring in little or no foreign exchange and, actually, sometimes squander the little foreign exchange we earn from coffee, etc, in the form of inputs imported for their operations”.

It can be added that the above-mentioned sectors are not only parasitic but also create a false impression of high economic growth rates. Generally, the service sector, which currently contributes more than 50% to the GDP, gives misleading figures of economic growth rates because the rates can be computed when actually there is no tangible economic growth.

For instance, when money is borrowed from foreign sources and lent to the people in Uganda by the banks operating in the country (local or foreign), then economic growth is recorded because a financial service has been provided, calculated from the value of transactions made in the country. And when the money is used to buy imports sold in the country through wholesale and retail trade, the economic growth is recorded derived from the sales made. If the imports are transported by imported vehicles, then economic growth is recorded. If people are transported from one area to another even when they are going to bury, also economic growth is recorded because a service has been provided. When airtime is sold and telephone calls made to talk about love affairs, also economic growth is also recorded. When people make love in lodges, economic growth is recorded. Absurdly, when Ugandans squander money on sports betting, economic growth is recorded because it assumed that a good service has been provided.

Surprisingly, President Museveni does not link the shortfalls within the economy to the neo-liberal policies his government has been uncritically implementing for more than 20 years. On the contrary, he states them as the achievements of his government. For instance, “macro-economic stabilisation and liberalisation”, which are said to have enabled the government to “control inflation for a long time and to free the private sector from bureaucratic interference”, are mentioned as factors that have led to the recovery of the economy. Unfortunately, the mentioned economic measures, if critically examined, are responsible for the growth and dominance of the parasitic service sector in the economy.

It is claimed that the rationale for macroeconomic stabilisation is to prevent price instabilities as a way of encouraging investments within the economy. In theory it makes sense but in practice it has undermined the development of vital sectors. What is the essence of macroeconomic stabilisation when the majority private investors who are peasant farmers are greatly affected by price instabilities?

The full package of economic reform Uganda has undertaken has in its kit the policy of attracting foreign investors. The mentioned full package, if critically examined, is to promote trade in imports and the consumption of foreign associated services while at the same time facilitating foreign investors to make money from the economy without any inconveniences or interruptions.

To unsuspecting Ugandans, the policy of liberalising the economy is to allow the people do business unhindered. Currently, the policy is not only concerned with allowing people to business without restrictions but also encouraging free trade both internally and externally. As a result, short-term trade in imports is encouraged at the expense of long-term agricultural and industrial development; enslaving the country to become a perpetual importer of manufactured goods while exporting raw primary commodities. Investors, whose attraction President Museveni is obsessed with, are interested usually in getting quick profits unless they are directed into priority long-term vital areas by carrot and stick. No wonder Ugandans complain of foreign investors for getting involved in petty-trade which would be performed by the ordinary indigenous private individuals. No wonder Uganda has been turned into a gambling economy by the likes of Sports Betting.

Consequently, for the period Uganda has been attracting foreign investors, it still imports simple items like matchboxes, socks, stationery etc, from outside the country.

The foreign investors President is fond of courting are either mainly involved in the colonially oriented extraction industries like BIDCO or in assembling industries that do not add much value to their products, liking Roofings Ltd which imports rolls of steel from Japan, puts on ridges and galvanizes pieces cut to claim the manufacture of iron sheets in Uganda.

Apparently, the policy of macroeconomic stabilization is designed to prevent instabilities in the price of foreign currency so that the foreign investors do not make any loss. It is not only meant to ensure that the value of investment made within Uganda does not lose value over a time but also a stream of profits from the unhelpful investments constantly remains attractive. No wonder when the Ugandan Shilling depreciates against the US Dollar, Bank of Uganda intervenes but when the price of agricultural produce fluctuates to unbearable levels, as has already pointed out, the government is least concerned. Again no wonder UMEME wants the price of electricity to be tied to the price of the dollar.

Moreover, as President Museveni notes in the address to the nation, when the price of the dollar goes high, imports become more expensive while exports become cheap. This is is good because people are encouraged to consume goods produced locally while exports are being encouraged. So why does Bank of Uganda fight it so much? It is clear that its policy of macroeconomic stabilization while controlling inflation at all costs is to promote imports into the country while hurting the export sector.

Further the policy of liberalising the economy and allowing cheap imports from mature economies out-competes and kills local infant industries. The idea of free competition under the liberalisation of the economy falsely assumes that all economies and people are at same level of development and have equal capacity to race for profits.

If the economy is to be put on the right path, the economic policies of neo-liberalism should be abandoned and replaced with the policies of economic nationalism, which will be discussed at another opportune time.

Ndinawe Byekwaso is a lecturer of Development Studies at IUIU and a Political Economist by training  E-mail: ndinaweb@yahoo.com