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Tuesday, March 19, 2019

HOW WILL WE FINANCE OUR DEVELOPMENTAL AMBITIONS?


Away from the news about the Uganda-Rwanda border and suspicious bullion van robberies, the issue of government’s plan to build a multi-billion-shilling specialized hospital has caused heat under some collars.

Government has contracted a consortium Finasi/Roko Construction to build the $380m(sh1.4trillion) International Specialised Hospital of Uganda. Under the deal the government will pay for the hospital over six years starting from when it is commissioned and will issue promissory notes to the contractors – as the name suggests, promising to pay them in the future.

Sections of the media reported this news as if government was borrowing money to give the contractors to build the hospital. Also lost in translation was the fact that the land on which the hospital stands belongs to the government.

"What is true is that the government is building the hospital on credit. The hospital belongs to government. As does the land....

However, this project signals the alternative financing government is going to have to rely on in coming years to bridge the country’s huge deficits in infrastructure and even human resource.

We shall require 17,000 Mw of new power generation capacity in the next ten years. At the current rate of this would cost us $51b, or twice the size of the economy to finance.

Uganda National Road Authority (UNRA) has set itself the target of paving 1,000 km of road a year, which would cost at least a billion dollars annually. And even then they will be making little inroads into our road infrastructure deficit. The average middle income country has at least 88 km of paved road per 1000 square kilometers of surface area; Uganda with its 5000 km of paved road has about 20 km of paved road per 1000 square kilometers of surface area. Simple arithmetic would suggest we would need at least 21,000 km of paved road at a cost of at least $21b.

And these numbers are reflected in everything from railway lines to housing and everything in between.

Even in our human resource capacity there is a lot of work to be done. Currently we have about seven doctors per 100,000 Ugandans, far below the World Health Organisation (WHO) recommended 17. 

It takes about sh70m to train a doctor, to bridge the gap Uganda would have to more than double its 4,000 doctors, which would not only be about training but also build facilities to exponentially increase medical training.

"Unfortunately for us, not only are we behind the curve but also the demands for infrastructure --- both physical and soft, are rising every day and becoming ever more urgent....

However, our own internally generated resources are not keeping up and will not for a long time.
Folding our hands and waiting for the heavens to fall on our heads is not an option and hence the need for alternative funding mechanisms as has been demonstrated with specialized hospital at Lubowa.

A similar model has been employed for the Jinja Express Highway for which the government is now procuring contractors. The winning bidder will be expected to source their own financing for the construction and government will top up resources from the planned toll gates to pay for the construction.

The thermal power plants in Namanve and eastern Uganda were built with a variation of the same financing model, where the owners built them and government pays for them for the budget over the duration of the concessions.

In Kalangala government is paying for a road built by a private contractor and the services of the ferry from Bukakata to Kalangala.

In the case of the Bujagali power dam the construction is being paid from the power tariff, which is spread over the 30-year life span of the concession.

It has been mooted but being fought viciously, that government should contract a company to manage its huge fleet of cars. As it is now government buys brand new vehicles and writes them off after five years.  The inefficiency of this is seen when you consider that private citizens and companies buy ten-year-old cars and drive them for another ten years.

A rationalization of the government fleet and its management some have suggested, would save the country millions of dollars a year, which savings can be directed to more effective uses than wheezing fat cats around the country.

As has been mentioned earlier thanks to the lost 1970s and 1980s our infrastructure has not kept pace with the population growth. While population doubled between independence and 1986, the economy had contracted by almost half during the same period. It’s clear we are playing catch and not doing it very well...

Since we cannot pay our way out of our pocket and our borrowing options are narrowing – our debt stock currently stands at just under the 50 percent recommended for developing nations, the use of more esoteric financial models will become the norm going into the future.

Invariably a lot of this financing will come from abroad, as we have done a less than stellar job mobilizing our own resources. It is therefore imperative that we continue to strive towards improving the environment for business to thrive in our country.

Foreign investment and financing is being courted by everyone and they are willing to settle for a lesser return on investment which is certain, than high return in a risky environment, which explains why South Africa with all its challenges is still the top destination for foreign direct investment on the continent, despite its relatively lower return on investment.

It’s not very long ago – almost 30 years ago, that some of us were ready to go to war because government was privatising the shells of once profitable companies. A few years down the road that single policy initiative has boosted production, created jobs and jump started tax collections to the point that now we want to go back to the state enterprises.

C’est la vie!