Tuesday, July 13, 2010

UGANDA’S HAZARDOUS BUSINESS ENVIRONMENT

Last Week Energy minister Hillary Onek lambasted the Bujagali Hydro-power project as “A bad project”.

“There were mistakes in the Bujagali project,” Onek said.

“It is a bad project, over-delayed, and over priced. If I had been there (as minister of energy), I would not have allowed poor negotiations for this project.”

In more developed economies when a minister speaks, he speaks on behalf of the government and if he was speaking out of turn, he apologises and resigns. Onek is still in office so western backers of the project must be baffled by events.

As a condition for the financiers coming on board government confirmed in writing that they were happy wit the project and how it was structured and gave it a green light. This was the last requirement for the money taps to come open. So two years down the line the same financiers must be in a panic, fearing that this government must be about to renege on the deal. And understandably so.

Its déjà vu all over again. And if the Bujagali project is put on ice it will be such mixed signals that will be to blame.

In another incident British real estate developer OPEC has an understanding with government to redevelop the Naguru-Nakawa area. Government commits the 56 acres of land, but no sooner do the investors start formalizing their affairs that they find that other people have been allocated the same land, after it was committed to them.

Investors are fast learning that the saying “My word is my bond” does not apply in this country.

The World Economic Forum Global Competitiveness report 2009/10A showed that Uganda has climbed 20 places up the rankings to 108 out of 183 countries. However it points out that corruption and an inefficient government bureaucracy remain major concerns.

Old economists put more emphasis on building infrastructure and factories however recent research has drawn a very close correlation between trust and per capita incomes. In more trusting countries – Scandinavia most of the western economies, the economies are more productive while countries in which there is less trust – South America, Africa and the Arab countries, the economies are not only less productive but the general welfare of the people is very poor.

If you think about it how long would it take you to carry out a simple transaction such as buying sugar if you had to lag along a chemistry set to make sure you are actually buying sugar? Trust quickens and smoothens transactions and boosts economic growth.

It is ironic that we continue to pander to western capital without fixing our soft issues – trust, work ethic, which western investors take very seriously as opposed to the hard issues – infrastructure, which we are no good at fixing either.

We are playing in a global economy and regardless of our allegedly prodigious rates of return, investors would rather take a lesser return than suffer the risk of loss of their entire investment altogether.

And what’s good for the goose is good for the gander. Our local businessmen may complain about expensive credit and no tax relief but they continue to persist at the subsistence level because there is no trust in the system.

This country has got to decide. Are we going to have our political classes engaging in uncoordinated troop movements, shooting ourselves at every turn or are we going to keep our eyes on the ball and deliver development and improved livelihoods for our people through deliberate, unified actions informed by well thought out strategy?

Is it impossible?

Well Rwanda is showing us the way. In aforementioned report Rwanda was the top reformer jumping nearly 80 places to 67 from 147 in the previous year.

When asked how this happened Claire Akamanzi of the Rwanda Development Board said it begun with the leadership identifying the necessary reforms to improve the country’s business environment and make them a priority.

They have reduced the time and cost it takes to register a company, legislation was written to bolster commercial laws and incorporate a commercial court, access to credit was eased and worked hard to protect investors and their investments.

Its not rocket science.


Published October 2009, New Vision

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