THE LAST WORD | ANDREW M. MWENDA | Since the NRM government fully embraced neoliberal reforms in 1992, Uganda has witnessed the growth to dominance of multinational capital in our economy and with that the equal decline to near-insignificance of local/national/domestic/indigenous capital. But this has only been successful because the ideas we so easily embrace help undermine the development of local/national/domestic capital and facilitate its takeover by multinational capital. Many of the economic woes Uganda suffers spring from this disease.
On August 4, I was visited by two bankers from one of our leading multinational banks, which I will not name out of curtesy. I wanted to borrow some money from this bank. They told me that they could only lend me up to 70% of the value of my assets which I was willing to mortgage to them. They were shocked when I told them that I want to borrow up to 200% of the value of asset I was willing to mortgage. They asked in shock: how is that possible? I told them that given my long credit history with their bank, they had every reason to trust me. They could not digest this.
Many Ugandans believe that to borrow you need security in form of land or house. This is actually not the case in many countries. I told the Ugandan bankers who had come to my office that I have a black American Express (AMEX) card which has no credit limit i.e. I can spend on it as much as my appetite for consumption can allow. Yet I have never visited an AMEX office, I have never met an official of the company. The closest I have related to them is via an anonymous person on a telephone call, itself handled by a call center based in Bangalore, India.
Then how did you get the AMEX card, they asked me. When I was living in Palo Alto, a very rich part of California and capital of the Silicon Valley, I got a letter in mail offering me an AMEX gold card, which I promptly accepted. Later it was upgraded (at my request but based on my credit history) to platinum before upgrading me to black. So, a company whose managers don’t know me, whose employees have never seen me, and a company based in USA that knows that I live in a remote part of the world called Uganda, basing purely on my credit history can allow me to spend an unlimited sum of money without any security.
Meanwhile a bank in Uganda whose CEO is personally known to me, where I have had five mortgages previously and paid all of them on schedule without a single default for 15 years; a bank whose branch managers and nearly all employees know me well, cannot lend me any money except after producing a mountain of documents and proof of income. And more than that, it can only lend me up to 70% of the value of the asset I am willing to mortgage with them. What explains this irony?
There are two problems with the Ugandan banking sector but they are closely interconnected. One is central bank regulation. The rules that govern commercial banking regulation under the FIA of 2003 were picked from an IMF and World Bank rule book. They are designed to literally eliminate local banks and Ugandans from borrowing in any meaningful way. The others are rules multinational banks have instituted at their headquarters to manage their subsidiaries in Uganda. Both rules are self-reinforcing as they are based on the belief that Africans are not trustworthy and should thus be subjected to tight controls on borrowing.
This is where President Yoweri Museveni, in his naïve embrace of neoliberal policies, missed the point. The colonial state had instituted such rules that excluded Africans from meaningful participation in the economy largely because of racist bias. The anticolonial struggle for independence was actually a struggle to reject this kind of exclusion. Because there were no local capitalists to open banks, the state took over this role using such institutions as Uganda Commercial Bank (UCB).
By mid 1990s, UCB like many other state enterprises was suffocating under the weight of mismanagement, corruption, incompetence, etc. and was technically bankrupt. Although this was part of the wider institutional crisis facing Uganda whose state and economy had collapsed, the international financial institutions convinced Museveni that this was because of state ownership. The solution was therefore to sell it. And who could buy it? Multinational capital in form of Stanbic bank.
It was an ideological but also a self-serving argument. Sadly, I admit I was one of the zealots in support of blind privatisation, liberalisation and deregulation – including of UCB. Looking back, one can see how wrong we were. The army in Uganda had performed much worse than UCB. Could the solution have been to privatise it to some private company like Executive Outcomes (as Sierra Leone did) or to the UN? If we could reform the army, the civil service, the police, why not UCB? The case for neoliberal reform was so well crafted that we never asked these questions.
Thirty years later, we can only see the consequences. Uganda’s business graveyard is littered with tombstones of local banks, insurance firms, manufacturing companies, construction corporations, some owned by the state others by the local businesspersons. In their place, the lords of multinational finance have taken control. Reform either displaced or stifled local firms. Thus, while Uganda has sustained impressive rates of GDP growth for more than three decades, there has been little or no structural transformation. One reason is that most of the profits made are shifted as dividends to shareholders abroad. This is not to mention transfer pricing, tax evasion, smuggling – the benefits of which all go abroad.
To return to foreign owned commercial banks that control 90% of Uganda’s credit market: many of them do not even need to lend to the local business community. They can just buy government treasury bonds at 15%, make huge profits and ship the money abroad. Essentially Uganda government’s persistent fiscal deficit means that these banks are made fat, not by growing local businesses through lending, but for buying government paper. We pay them to take our money abroad. Their rules and those of our central bank reinforce this behavior. But all this works because ideologically, we the local elites believe it is the right thing to do.