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Uganda’s strategic dilemma Part3

Why Uganda’s economy is dominated by multinational capital and what cannot be done about it

THE LAST WORD | ANDREW M. MWENDA | So we come to our third and last instalment on how post-1986 Uganda cultivated groups and interests hostile to local firms. First to be discredited were local banks, followed by locally owned construction firms. They were accused of doing “shoddy work” at a high price. New procurement laws requiring international competitive bidding effectively locked them out of key contracts.

The same fate befell local manufacturing firms. The old arguments of infant industry protection were labelled “corruption and favouritism.” Museveni could be heard saying it does not matter who produces a product; what matters is its quality and cost. But how could a young and small local construction or manufacturing firm fairly compete against big multinational firms?

Yet an indigenous/national/local/domestic business class did grow during this period; especially in trade and real estate. This was not by design. Multinational capital, with its footloose approach, is least interested in real estate as it ties down working capital. With trade and foreign exchange liberalisation, traders could fly to Dubai or China and import goods at low prices. This undermined local manufacturing.

Capitalism is at its core an ideology of greed: that everyone should go to the market and pursue that which is to their best monetary advantage. Hence as the ideology of money and riches as the supreme value took root, corruption became an attractive and large economic sector. Multinational firms lack social ties with local officials to negotiate bribes. So they began hiring local intermediaries as the bridge. There emerged a large class of what Marxists call compradors but whom we call commission agents – wheeler-dealers who make money connecting foreign firms to local politicians and bureaucrats.

Hence, the business groups that consolidated under this reform process i.e. the traders and compradors were those that have no interest in, and are hostile to local/domestic/national/indigenous capital in manufacturing and construction.

Traders make money by importing high quality products at low prices for the domestic market. So they are enemies of national/local/domestic/indigenous manufacturing firms. Commission agents make money by acting as agents of multinational construction firms to local power-holders. So they have a vested interest in continued reliance on multinational construction firms. These became the local business magnets. They contribute to NRM’s electoral campaigns and hence have the most effective local voice in policy-making circles – alongside donors.

The results are obvious today. Uganda is investing large sums in energy and transport infrastructure – railways, roads, bridges, airports, dams, transmission and distribution lines, water treatment plants etc. However, there are hardly any local firms winning tenders in these multi-billion dollar contracts. Why? They were either killed and/or stifled by reforms emphasising international competitive bidding over local ownership. Today, local construction firms, if they exist at all, lack political clout to influence public policy.

Local manufacturing firms are in the same boat. They are finding it difficult to supply Chinese firms that are winning these contracts for the same reason. On the face of it, locals look like they lack better quality steel at competitive prices. The real reason, however, is they lack political clout to influence public policy. So when Museveni complains that Uganda is a supermarket for foreign manufactures, he is unaware of how he has spent 33 years promoting policies that undermined local manufacturing.

This is not a moral judgement on the President. Rather it is to explain how the policies of the last 33 years effectively weakened, displaced and stifled the growth of local manufacturing and construction firms. And this did not happen to them just as businesses. Rather the biggest problem is that they were killed as a political force within the decision making structure. Instead the reforms gave economic and, therefore, political power to traders (importers) and commission agents (the comprador capitalists).

But this ensemble of forces is beginning to choke the country. For example, the failure to grow manufacturing has made it difficult for Uganda to close her trade deficit in absolute terms. While since 1991 Uganda’s exports have grown faster (at an annual average of 70%) than growth in her imports (at an annual average of 31%), Uganda’s trade deficit has reduced in relative terms but grown in absolute terms. This is contrary to East Asian countries like Taiwan, South Korea and now China whose growth was characterised by huge trade surpluses.

Consequently, the contradictions of Uganda’s growth trajectory are becoming increasingly manifest. For instance, as the country invests tens of billions of dollars in infrastructure, it is also losing a lot of foreign exchange through paying international contractors. At the beginning of every year, the shilling comes close to collapse as foreign firms repatriate profits. These contradictions are forcing a discussion on local content within policy-making circles. However, this is largely as an intellectual exercise. Without a strong vested local interest with a politically weighted voice backed by the correct ideology in decision-making circles, it is difficult to design and sustain the right policy responses.

Textbook theories tell us little about Uganda’s current situation. Rather, it is in understanding the specificity of Uganda’s reform process and interplay between politics, institutions and the economic policy-making that we can explain why our country is in the situation it is in now.

The reconstruction process in post 1986 Uganda was driven by local and international interests with a very definite ideological orientation. The policies they pursued empowered (both economically and politically) particular business groups and individuals (traders and commission agents). It also empowered civil servants, civil society actors, journalists and academics with a particular ideological bias. The process also weakened, displaced and/or stifled particular groups and individuals; most especially local manufacturing and construction firms.

The resultant political settlement imposes constraints on the ability of Museveni or his successor to successfully pursue a project promoting local content policies. The dominant business and political groups are hostile to local content laws. Equally, the ideology of key players in politics, the civil service, mass media, academia and civil society is hostile. No amount of altruism can change this. Only a change in the dominant ideology, accompanied by a change in the social groups that dominate political power and influence public policy can bring about a real change in Uganda’s economic direction.

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7 comments

  1. ejakait engoraton

    LIKE I said before, M 7 was not a socialist/marxist/communist by conviction. He just hated those he felt were better than him, whom he felt , they had no right to be.

    His “ideology” was borne out of intense hatred and jealousy. And this has over the course of time dictated his actions and the government policy towards local firms.

    Unlike the previous regimes and the leaders, say the much abused IDI AMIN, he wanted Ugandans to be well off, misguided as he was in the means he used. Amin, right from his early days for instance, had no qualms in passing on a deal to TOM KATTO even if effectively TOM became richer than him. Under the OBOTE regime for instance, ministers were happy to give deals to locals , the likes of Wavamunno, Mukalazi, Opoka etc without the ministers the likes of Rwakasisi etc feeling jealous about the people they had made rich.

    The rulers of today do not want to see anyone local equal to them, let alone better than them.They feel at ease if a Chinese firm ( with a faceless owner); because after all who knows who the owner of SIETCO or any of the Chinese firms is, or who knows who the owner of STRABAG so as to feel jealous towards them.

    And moreover if and when these faceless firms give a bribe, it is the chief executive of such a firm who will give the bribe, an person who will most likely be transferred at any moment, and who will not go around telling what happened, and who if need be, can be deported if involved in any mischief.

    Such is , sadly what informs our position towards local firms.

    • Perhaps that explains why Masaka town and greater Masaka generally, look like the war with Tanzania ended yesterday but Mbarara which was equally destroyed in 1979 is shining today.

  2. It is all about ‘colonial mentality’ which has been inextricably embedded in our DNA. Yours truly still buy and use Parker, Imperial Leather, (dying to get) John White boots, would drive a Range rover if I could afford it and still respect (secretly) all and anything with writ ‘Made in England’ and I am younger than the visionary…..imagine those ‘ancient’ decision makers. Colonialism was meant (and it succeeded) to wholly own us, body,mind and soul. As for preferring foreign to local firms, besides their expertise and discipline, they also give a better and bigger kick-back and reciprocating benefits than a local firm would ever do. If I marry a British prostitute, I gain ebigenderako in social and political benefits that a British passport affords me worldwide while if I marry a Munyoro post-graduate princess, not even a drop of that prospective oil will I smell. As for shoddy work, it is partially true but not wholly because the schools we went to are still standing 60 years after they were built and you the maintenance and housekeeping of the visionary. The furniture was mvule and it would still be as were if it had not been vandalised by ‘you-know-who’.

  3. 1.@Ejakait: So your yardstick for rating Amin highly is when he confiscated Property owned by Asians and located them to Ugandans?Thank heavens that the industries he stole from the Indians were run down Ugandans in less than a month.
    2.All the ethnic tribes in Uganda have stinking rich fellows its a matter of who gets it right.
    3.Some business have failed coz of small basic issues like poor customer care.
    4.@ Rwasubutare: There is nothing wrong with colonial mentality.
    5.Multinational firms build the social and economic profile of 3rd world Nations.for example Barclays,KLM,Emirates,Stanbic Bank.
    6.Africa is still a difficult continent to market for example; why do you think the the rich Arab nations like Saudi Arabia,UAE have few business ties with Africa?
    7.It makes business sense for nations like USA to invest in the 3rd world coz we r prone to war so they benefit by selling war equipment to us.

    • Winnie, let us put this record straight once and for all. President Amin never confiscated but expropriated the property…………he paid for it in full by sovereign cheque. He is the only leader who hated and never incurred debts. The industries he allocated to indigenous Ugandans were not only mismanaged but they were also sabotaged but some still survive……by the way they were a loan of 500 years….I personally heard the invocation from the Business Allocation Committee itself when they were allocating a studio.
      If all ethnic groups may be having rich representatives but (i)what is the percentage of people who toil dawn to dusk but cannot get out of consumer debt (ii) what is the percentage of people who drop out of school because they cannot afford school fees no matter how hard they try? (iii)what is the percentage of semi-literate university graduates who are not employable? (iv)percentage of salary-earning civil servants who cannot support extended family and are eternally indebted? If you can get the figures ; even rough estimates, try to explore what happened. (v) find out from elders just 1 lie President Amin ever promised people….thereafter compare with the visionary.

  4. kambere godfrey

    As a young man in the early 90s, listening to speeches by the likes of the late major. Victor Bwana or Serwanga Lwanga it seemed economic transformation was at our doorstep sadly 32 years of NRM has made the word compradore a mark of honour. I naively expected to raid a bullet train from Kasese to Kampala in my life time but again that is politics as it was then . the only true beneficiaries of this deliberate mismanagement are the speculators , the drug dealers and the arms merchants. Cry the beloved country . such an article should guide our political discourse. thank you

  5. Richard M. Ariong

    Because I am an economist who finds Andrews arguments most of the time shallow, I don’t know how to believe this because my thinking is that it is outright corruption and carelessness that has driven the events for the last 30 years. I have studied economics purely under a global regime where capitalism is the order but with all the theories, it is just basic common sense that total liberalism and capitalism is good where there is a realization of separability in production and consumption. In agrarian economies like Uganda, no sane economist can advocate for full-blast liberal policies the way NRM technocrats and rent seekers did out of sheer rewards of corruption because before even going far with the drive, by 1995, the privatization policy was a total failure but guys just pushed on. A second pointer was the killing of cooperatives under the same drive which led to a total failure, to date, of consistent supply of quality raw materials for agro-processing industry. To day, internal big buyers struggle to meet supply and external big orders are always collapsing just because government said, things will always work out following market forces. When Uganda was hit by inflation, the biggest driver was agricultural inflation and most of the troughs in the curves are driven by agriculture sector production. To solve the recurrent sharp shifts, it just takes simple price stabilization measures which really do not distort a liberal market as may be preconceived and with such measures, private and public sector would be making insane money, by now we would be talking of billions of USD, if simple measures were perused to make sure farmers of all scale meet quality and quantity. This alone would be lessen the impact of foreign currency repatriation which also is just an immoral act that government allowed in the name of attracting foreign investors.

    I know Mwenda has labored much to explain the genesis but my argument is that the impact of all those policies were known especially if you looked how some countries do not tolerate that full-blast liberalization nonsense (say how South Africa, China, Brazil, & India to some extent). Even USA itself has lobbyists for almost every sector who will fight tooth and nail for their industry and of recent, I think every one see’s how a quasi capitalist like Trump, has been trashing free trade agreements like the NAFTA & the Transatlantic trade deals, then the Trade war with china, all anti full-blast liberal.I may forgive M7, perhaps he did not know much but for the brilliant minds like Mutebile et al., it was just sheer self seeking. Worst is they can not allow new blood in the system to inject in fresh ideas of socio-capitalism. See how an incompetent Olive Kigongo is still at the helm of Uganda Chamber of Commerce yet Rugasira wanted to take the chamber to another level – a level which understands the current social and global economic dynamics.

    Bottom line, it is sheer corruption and rent seeking that led to the triumph of foreign lobbyists rather that later realization of where we are today.

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