Monday, July 16, 2012


In the 1980s Uganda like many African economies, was in big trouble.

Revenues were low, meaning the government could not provide much needed social services and other public goods. This had the effect of depressing private sector activity, killing any hope of tax collection. Meanwhile even the little revenue government was collecting wasvanishing into the black hole that was parastatal sector. The only thing that was thriving was the black market in hard currency as exports had slowed to a dribble.

To sort out the mess the government needed to raise production and then capture the taxes from this increased output. It was a simple formula but not easy to execute.

Government needed to jump start the private sector by first reining in inflation and rehabilitating the infrastructure. In addition government needed to stem the public sector hemorrhage by reforming and privatizing parastatals, as well as taking away their long held monopolies.

Twenty odd years later the private sector is more vibrant, revenues are up to the point that government is financing two thirds of the budget. However the benefits have not been enjoyed equitably across society, a situation which still needs to be redressed without jeopardising economic growth.

Understandably it was always going to be a politically expensive operation but there really was no plan B.

What is going on in Europe – more specifically Portugal, Italy, Greece, Spain mirrors our situation in the 1980s with the slight variation that their debt load has reached unsustainable levels – the last I saw Greece’s public debt was at 165% the size of the economy.

The proposed prescription to their predicament is much the same as the one we painfully swallowed.

The electorates of southern Europe, it seems are not willing to take the pain, protesting at every turn against the proposed austerity measures, pushing the Eurozone to the point of disintegration.

A case of the doctor not willing to take his own medicine?

The stakes are much higher of course – after all who cares if some poor African country falls off the face of the earth?

Europe will serve as a perfect test case for the saying what is popular is not always right and what is right is not always popular.

The old world has got itself into this situation through populism and to extricate themselves they are going to have to force through some hard reforms.

It’s no time to be smug. The Euro zone crisis is affecting us too, with lower demand for our exports, lower remittances from our relatives abroad and the less aid.

Which might not entirely be a bad thing.

Living off the fat of the west slowed any progress towards developing and mobilizing our own resources, cultivating internal and regional markets and nurturing meaningful continental alliances.

They say that when the tide falls you will know who was swimming naked. This crisis will show how far along our economy has grown by how it reacts to the crisis. But more importantly it will focus planners’ minds as they learn to live with lower handouts from the west.

And just as important, we are going to have to pay more attention to the markets around us to sustain us for the next several years. As it is now all our transport infrastructure is designed to extract from the hinterland and evacuate through the ports – a  colonial hangover. Now we will have to build roads which reflect the new appreciation of our own local and regional markets.

The long and short of it is this a crisis we should not let go unexploited.

1 comment:

  1. I like the analysis. Very great truths therein. Looking forward to many more of this kind. Cheers!