Why we need to think of how to develop national capacity to manage our economy
By Andrew M. Mwenda
Uganda is going through the worst economic performance since 1987 when the government of President Yoweri Museveni began liberal economic reform. In the first quarter of this financial year, the economy contracted by 0.1%; the second quarter it grew by 0.8%, far below projected growth of 5.5%. Given a population growth rate of 3.12%, per capita income has contracted by 2.3% between July and December, the reason The Independent last week reported that Ugandans have grown poorer.
Evidence of distress is everywhere. Last year, Uganda’s fourth largest bank, Crane Bank, went burst. The real estate market, an important measure of economic vitality, is sluggish. Non-performing loans as a percentage of total loans have increased from 5.29% in December 2015 to 10.47% in December 2016. Because the real estate market that underwrites loans is in distress, banks are stuck with collateral they cannot dispose off to recover their money.
Outside of the banking sector, many companies are saddled with unsold inventory while others are suffering declining sales. Some are laying-off workers. I am aware that most people don’t care about the statistics I have outlined above in large part because they are just numbers. However, behind these numbers are important factors that foster economic wellbeing of people. So what has happened to Uganda’s economy that has run a good 30 years marathon at an impressive average growth rate of 6.74%?
Before government critics can jump on these numbers to score points, let us note that across the board, African economies are doing badly. This is because of the slowdown of economic growth in China and continued sluggish growth in Western industrialised nations all of which have led to a decline in the demand for commodities that constitute most of Africa’s exports. According to the IMF Regional Economic Outlook for Africa of October 2016, the best ten growth performers for 2017 were projected to be Ivory Coast at 8%, Ethiopia at 7.5%, Ghana at 7.4%, Tanzania at 7.2%, Senegal at 6.8%, Kenya at 6.1%, Rwanda at 6%, Burkina Faso at 5.9%, Uganda at 5.5% and Mozambique at 5.5%.
But even from these figures we can see a problem. Seven years ago, the economies of Ethiopia, Rwanda, Tanzania and Ghana were growing at a rate of 8% and above; and Uganda was close to that figure. So the current IMF projections show a significant decline in the performance of Africa’s best performers as well. And for Uganda’s perennial skeptics who argue that growth figures are cooked, this is a reminder that public institutions like Uganda Bureau of Statistics, in spite of their weaknesses, still do a good professional job.
Uganda’s growth, however, has been made worse by a draught that hurt agriculture. Secondly, there has been a significant reorientation of the budget towards greater development spending and reduced spending on consumption. While spending on huge infrastructure projects like roads and dams as Uganda is doing is a great thing, our problem is that most of the contracts are going to foreign firms with little or no enforcement of local content rules. Thus foreign contractors, especially the Chinese, import large numbers of semi-skilled workers and other inputs. And when paid they repatriate their profits back home. This imposes a severe strain and drain on our foreign exchange.