How the president’s approach of allocating favours to individual firms has undermined the development of a robust private sector
THE LAST WORD | ANDREW M. MWENDA | On August 15th, President Yoweri Museveni wrote the prime minister an instruction titled “Support of Local Companies in the Construction Sector”. He said he has met a group of very enterprising Ugandans who have built significant capacity in the construction sector employing over 2,000 people. The president listed a number of construction projects they have successfully executed and/or are executing. He then directed the prime minister to give this company specified government projects in order to “create capacity of our local construction companies.”
This is the thing that frustrates me about Museveni. Even when he does the right thing, he tends to do it the wrong way. It is very important for government to “rig” the procurement process in favour of local firms. Every developing country that seeks to build her own capacity has to protect local firms from the cold winds of international competition. This has historically been done by giving them preferential treatment to allow them time to develop capacity. Once they have matured, this support can then be removed and applied to the next generation of sectors or industries.
Uganda government has a slogan called BUBU – Buy Uganda, Build Uganda. Yet government procurement policy and law, most reflected in PPDA rules, is not designed to support this slogan. Instead, it is based on international competitive bidding where work is given to the bidder who offers the best quality at the lowest price in the shortest possible time. So, small and infant local firms are left to compete with large and international firms with deep pockets, advanced technologies, decades of experience, access to cheap credit etc.
In fact, Uganda’s procurement documents, especially and specifically in the construction sector, are always deliberately designed to eliminate local firms. This is often the influence of international financial institutions such as the Africa Development Bank and World Bank. These organisations insist on rules that favour multinational capital. This policy is driven by both self-interest and ideology. Western nations that have a lot of say in these organisations represent the interest of multinational capital. They have also cultivated a set of policy beliefs and doctrines that when followed would hand things over to multinational capital.
Let me give some specific examples. KCCA was given $280 million by ADB to repair and enlarge some roads in Kampala. Working with ADB, it issued procurement guidelines that put conditions that eliminated local firms. Only Chinese companies could qualify, put in bids and were awarded work. Yet some of the roads to be done were less than one kilometer long. Some were round abouts of 300 meters. At the end of August, I went to Kasese and was pained to find municipal roads being done by Chinese companies.
Three years ago, government of Uganda issued a tender to build a valley dam for cattle in Isingiro. The project cost was $40 million. However, one of the qualifications was that a bidder should have done a dam with 500,000 metric tons of concrete. Now only Karuma dam in the whole of east and central Africa has such volume of concrete used. Clearly this rule was put in the tender document, deliberately to eliminate local and regional firms.
Every year government issues billions of shillings worth of tenders to build roads, hospitals, schools, office blocks etc. In the vast majority of cases, local firms are eliminated by setting the bar too high. There are isolated efforts by some officials in different agencies to favour local firms. But these are very few and far in between. Most work is given to foreign firms often not necessarily based on merit but using the bidding rules to eliminate local ones. Then one wonders why and how a government can claim to promote local firms and yet design procurement laws and issue tenders that disqualify them. And why doesn’t President Museveni, if he takes the growth of local firms seriously, make policies giving them preferential treatment in allocation of government contracts?
It is difficult to read the intentions of people. Therefore, I am going to speculate. First, most interventions by Museveni are aimed at helping individual firms, not entire sectors. So, it is only those individuals who visit him at State House that get such letters. I don’t think Museveni does not understand the value of having a broad-based policy to support local firms. I suspect his approach has deeper political motivations. His choice of supporting individual firms that have access to him seems to be deliberate. It is a form of building a constituency of support within the private sector.
This approach may favour the president and individual companies and firms personally connected him. But it has been detrimental to the growth of robust local firms. It distorts the structure of incentives through which a robust private sector can be cultivated. First it makes access to the president the basis of success for local firms. This means local firms face uncertainty. Rather than build technical and financial capacity to do good work, they are incentivised build political connections to access the president.
Second, it has led to what economists call collective action failure. It undermines incentives for local firms to form associations (that is, to organise politically) to promote their collective interests. It is through such industrial associations that private firms bargain collectively for policies that give preferential treatment in government procurement to them. Without a strong voice in the policy making and orientation process by organised local firms, policy making has been dominated by international development agencies and embassies of foreign (mainly Western) countries. This is why policies in Uganda favour multinational capital.
The President’s personalised approach of granting favours to individual firms rather than to sectors has thus facilitated both the displacement and the stifling of the growth of local firms. Instead, individual local firms are now left to depend on presidential favors. This tends to sustain bad policies. How? Political organisation is costly. Forming collective associations to amplify their voice gives firms in the particular sector political weight. Demanding change of policy may be seen as hostility to government. Why suffer this risk when, on a private visit to State House, a firm is able to gain an individual exception to what is actually a bad policy environment? It is in this context that we can understand how governments (and political leaders) secure individual compliance with public policies that are harmful to the country and the specific sector.