The Independent Uganda: You get the Truth we Pay the Price
How our country lacks the policies and institutional rules to achieve its ambitious development goals
THE LAST WORD | ANDREW M. MWENDA | The Ugandan government has set itself a very ambitious goal: to expand the economy by 1,000% in 15 years. This means the economy must grow at an annual average rate of 16% per year. Over the last 40 years of the presidency of Yoweri Museveni, Uganda’s economy has grown at an annual average rate of 6.7%, making it the 11th fastest-growing economy in the world over that period, according to the IMF. Can the new target be realized?
Uganda is investing in exploiting oil by building production facilities, rigs, a refinery, etc. This is the phase when economic growth gets a big jump, about 12 to 15%. Therefore, if there was not ongoing investment in the exploitation of oil, economic growth would have been around 2%. When oil production begins, economic activity will slow down. Unless the government is expecting oil revenues to drive this projected growth, I do not see any sector of the economy that will drive the projected growth.
Secondly, Uganda’s GDP today is $64.5 billion, according to the IMF. This means the government aim is to grow it to $645m by 2040. Our current installed electricity capacity is 1,800 MW after 40 years, with peak consumption at 1,200 MW. This means we need to grow our electricity output to 20,000 MW in 15 years. How can Uganda achieve this?
Uganda’s public procurement systems make it difficult for the government to execute major infrastructure projects within set timelines. For instance, the Karuma Dam project, with 600 MW of installed capacity, began in 1998. It was completed in 2023, after 25 years. The idea of building a 250 MW dam at Bujagali began in 1992 and was completed in 2012, i.e., after 20 years. Today, Uganda is rapidly running out of electricity, but we have not yet procured anyone to build the 700 MW Ayago Dam. The country has not yet even done feasibility studies. Hence, given the delays that characterize the development of major infrastructure projects, we can predict that Ayago will come online in 2045.
An economy of $645 billion will also require massive investment in its infrastructure, especially in the transportation sphere—airports, roads, highways, railways, seaports, etc. Yet 40 years of Museveni’s rule have not seen any investment in the railway or water transport. Instead, the rail line collapsed, and the ships are rotting at Port Bell. Only the Entebbe-Kampala Expressway of 51 km, a minor expansion of Entebbe Airport, and Karuma Dam have been done, i.e., three major projects in 40 years. How does the government plan to build 30 major projects in 15 years?
I chaired the investor roundtable on the Jinja-Kampala expressway in 2015. The project was meant to begin in 2019 and be completed in 2023. We are entering 2026 and it has not yet started. The Standard Gauge Railway (SGR) was launched by East African presidents with fanfare in 2012. Kenya and Tanzania already have SGR. Uganda has not yet started construction. Although the contract was awarded, it is not clear if it will be implemented smoothly given our chronic land disputes, court injunctions, wheeler dealings, rumors and intrigues at State House.
Worse still, the Ugandan government stripped itself of the ability to influence economic investments in priority sectors when it liberalized, privatized and deregulated. The most effective instrument for the government to direct investments in priority sectors is the control of credit. This is because we lack a well-developed stock market to raise equity for major investments. The other is the absence of financial instruments to mobilise long-term household savings that can finance transformative investments, a point I will return to in my conclusion.
In the heydays of the neoliberal reform process, the government deliberately sold off state-owned commercial banks and closed locally owned ones. Consequently, Uganda’s commercial banking sector is 90% controlled by multinational capital with little knowledge of how businesses work in the country. Most local CEOs of multinational banks cannot approve a loan of more than $1.2m dollars without the approval of headquarters in London, Johannesburg, Dubai, etc. Headquarters in these cities have little knowledge of local business practices and realities. Instead, they are filled with prejudices that make them highly risk averse, thereby constraining the subsidiaries in the decision-making that can grow local businesses.
During their intense period of transformation from poor agricultural societies into rich industrial giants, Japan and South Korea controlled 90% of their banks either directly through the state or indirectly through the private sector they controlled. The same applies to China today. This gave the state considerable leverage. It could identify sectors that it considered critical for its project of transformation—textiles, electronics, automobiles, semiconductors, steel, etc. and then direct credit to them. What tools does the Ugandan government have to direct credit in commercial banks to priority sectors when 90% of such credit is held by multinational banks?
To make matters worse, Uganda reformed the central bank and gave it a narrow mandate to perform only two functions: first, to rigorously pursue macroeconomic stability by controlling inflation below 5%. Why not 10%? The other is to ensure a ridiculously strict regulation of commercial banks that prohibits them from exploiting even the little space they have to make risky bets on investments. To call it the Bank of Uganda is a misnomer. The appropriate name for our central bank would be Bank of Multinational Capital. Its policies, regulations, and its staff’s ideological inclinations are disarticulated from the realities of Uganda as a developing country. They may be appropriate for a developed economy like that of the USA and Switzerland, from which they were borrowed.
Finally, the Ugandan government has done nothing, and I mean NOTHING, to put in place policies that can mobilize household savings to finance long-term transformative investments. First, most of our people are in the informal sector. We need to create incentives for them to enter the formal economy. Second, given that we have a poorly developed stock market, the most effective vehicle for mobilizing household savings is home ownership. One such incentive is to create mortgages that are affordable. The other is to make interest payments on mortgages tax deductible.
Hence, people in the informal sector would be incentivized to formalize their businesses to benefit from low-interest loans sponsored by the state to own homes. Salary earners would be able to convert what they pay as rent into savings via mortgages. Consequently, the country would have long-term savings to finance long-term investments that are transformative. I have not seen anything by the government that would make Vision 2040 possible.
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amwenda@ugindependent.co.ug
Boy, you’ve really been on a roll with those last two. Could it be that you are still bitter about the campaign PR and advertising money you wanted take all so badly but ended up not getting as much as you hoped? We know the campaign-money bonanza is a big deal for you. Late Tamale Mirundi was always on you how when the 5 billion PR money came up, you appeared like a mafia and suffocated him. Watch this space
“….the Ugandan government has done nothing, and I mean NOTHING, to put in place policies that can mobilize household savings to finance long-term transformative investments. First, most of our people are in the informal sector. We need to create incentives for them to enter the formal economy.” What could explain government’s doing “NOTHING” here, is it deliberate, an omission or lack of shrewd thinking? In whose docket does this fall and what is he or she doing instead?
Is there a way that we can relate the fledgling PDM to this i.e bringing the hitherto unbanked into the money economy? If they invested the Shs1m well, grew “parish banks”, wouldn’t that raise household savings from which a new consolidated pool could be created out of the interest accrued, to fund long-term transformative investments?
Ugandans will never experience peaceful elections so long as the Uganda Police Forces chooses to operate as cops of brutality against the law permitted opposition political parties. The entire security forces pay allegiance to NRM but not Uganda as a state.
We are living in a situation of lawlessness. The EC chief is nothing but the one who will defend himself tomorrow as ‘I was acting in accordance of the order from above’. It’s shame to talk of democracy.