Monday, January 30, 2012


This week the nation commemorated the 26th anniversary of the coming to power of the NRM in 1986.

The New Vision has been running the Golden Jubilee project, which looks back on the last fifty years of the country. In addition a magazine due out soon will poll various experts on their opinion on how Uganda will look 50 years from now.

In the last 26 years the thing that stands out is the revival of the Ugandan economy. It has been interesting revisiting what this government did to turn around the economy.

"There still is a lot to do and in hindsight we could have done a few things differently but we are far better off than we were in 1986. The discontent with economy is more that our expectations have been raised and we have come to expect better and better from the economy from our government...

And that is always the danger of success for every organization or government that has shown some initial success, you eventually become a victim of your own success. Keeping up with the expectations you have created becomes the loadstone around your neck. Ask Arsenal.

It’s a hard to talk about economic recovery when the economy is going through the worst times in more than two decades, but if we step away we can discern the forest from the trees.

"Releasing the energy of the private sector by rolling back government’s role in business and creating a more liberalized environment for it to thrive have been at the center of the economy’s recovery...

We take it for granted now but making the decision to empower the private sector came up against a lot of resistance from the populists, inside and outside government, who wanted to jettison the donors and revive the economy by central planning.

What if the populists had won the day and by some miracle their thinking had held sway to the present, what would Uganda look like?

The main areas of growth over the last two decades have been services and industry which grew as a total of economic output (GDP) to 52% and 25% from about 20% and three percent in 1986 respectively.

The explosion in services came with the liberalization of the telecommunications, retail and finance sectors. The entrance of MTN, supermarket chains like Uchumi, Nakumatt and Shoprite and the beefing up of their presence by banks like Stanbic, Standard Chartered and Barclays – all private enterprises have spearheaded this boom.

If government had insisted of keeping private money out and retained its stranglehold of the telecom sector through Uganda Posts & Telecommunications Corporation (UPTC) or banking through Uganda Commercial Bank or retail shopping through Foods & Beverages it would be doubtful whether things would be the same.

Government bureaucracies are not wired to be commercially efficient deriving their raison d’etre from more than commercial considerations. The inefficiencies we were used to from government corporations were mainly structural – meaning they couldn’t help themselves but be inefficient due to the structure of incentives, there was no competition and therefore no reason to fight to increase market share.

As a result government would have continued to sustain these inefficient firms at the expense of spreading social services and building infrastructure, affecting the corporations ensuring they continue to be a drain on the economy. A vicious cycle.

"We should also keep in mind that the problems of our failed companies beyond political interference, was a lack of managerial capacity. With due respect to the respective managers at the time. Were they managerial or entrepreneurial savvy many of them who were retrenched would have started up companies that would be household names by now more than 20 years later...

The thinking that was against opening up the economy to private players feared that more liquid foreign players would overran the economy buying all the privatized firms or taking advantage of abolition of government monopolies to set up monopolies of their own.

These fears have come largely to pass with the major business concerns in whatever sector being controlled by foreign capital. However this has been largely mitigated by the wide availability of goods and services, increase in available jobs and improved tax collections.

That all being said after two decades its time to take stock and ask ourselves whether the model we have pursued still holds.

Two things can be counted as major failings – the inability to use agriculture as the springboard for industrialization and the lack of a more credible indigenous entrepreneurial class.

Agricultures share of GDP’s collapse to less than a fifth from more than a half in 1986 reflect the normal progression of economies, but in our case our farmers have remained largely subsistence. At the root of the problem is our land tenure system which in many parts of central, east and northern Uganda does not lend itself to commercial exploitation.

"The indigenous business community’s seeds of destruction were sown a lot earlier, so that by the time the NRM came to power our business community was largely subsistence, unable to aggregate into formidable concerns that could take advantage of economies of scale and shut out foreign interests – like Kenya’s business community is doing with some limited success...

In My mind resolving those two issues by government but mostly by our own entrepreneurs will determine whether this economic recovery continues or fizzles out in coming years.

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