Monday, July 30, 2012


-->Last week it was reported that government is resorting to more creative funding methods to bridge our infrastructure gap.

According to the report in an attempt to have 44 priority roads, which will cost about sh10 trillion, done as soon as possible government has mooted the possibility that contractors will be able to source financing for the projects themselves.

Under the arrangement the contractor will cost the project source the lender who government will approve of and take over the debt.

As it is now all funding comes from the consolidated fund and it would take forever to have these roads done if we continue to rely on this model of funding. As it is now the government’s total budget is about sh10 trillion a year of which roads accounts for about a tenth of that total.

The major challenge with this is that it will be mostly foreign contractors who will win these contracts given their contacts with banks with cheaper funds abroad. But also it should be a wakeup call for local contractors to build up their capacity to compete.

Resorting to the private sector for funding is a time tested formula, its only poor countries like ours that resort to concessionary lenders.

The private sector’s motives are more transparent – the profit motive, compared to donor agencies’ assistance, which often has political and ideological undertones attached to it.

It is true of course that if the Uganda government fails to develop the capacity to scrutinize these projects we could find ourselves up to our eyeballs in unwisely contracted debt for decades to come.

To avert a recession in their economies western governments have forced borrowing rates to all time lows and that cheap money would always be more attractive to borrowers, but there is no reason we shouldn’t be more determinedly mobilizing our own resources locally to at least contribute to financing our own roads.

The anecdotes are a dime a dozen about how city traders, untrusting of the banking system and the state choose to dig holes in their shop floors or install vaults in their bedroom to store their cash. Billlions and billions of shillings.

One bank manager in the 1990s in trying to pitch his bank services to one trader was shown in to a vault in the back room of the traders shop that had more money than he had in his branch’s vault. True story.

Mandatory savings with NSSF for employees – five percent of gross salary with a employers pitching in with twice that amount, has seen the fund grow into the largest financial institution in the country. It is the biggest single lender to government and business, through the billions the fix in banks which are then on lent to the private sector.

Beyond this initiative at mandatory savings government has done very little over the years to compel us to save more of our own income. Some will argue in order to boost production we need people’s disposable income to remain unencumbered so as to boost demand. But that is short term thinking.

Mobilising more of our own resources will increase bank liquidity, force lending rates down, allowing for more credit to the productive sectors, which require more long term financing.

The cost of money may still not be lower than the near zero percent lending rates we are hearing about in the west currently but the spinoffs in developing a mechanism for local resource mobilization will be well worth the cost and hold us in good stead in the likely event of future aid cut offs from abroad.

It is an illusion perpetuated by others that we do not have enough resources locally to help ourselves more.

Relatedly and to get into the prevailing mood the London Olympics will cost an estimated ₤11b (sh42 trillion), of this sum the National Lottery will provide ₤2.18b, TV broadcast rights an additional ₤350m, company sponsorships another ₤700m with ticket sales racking in another ₤600m.

The organiser’s of this year’s Olympics – while a national event, were not averse to bring in g in private sector sponsorship not only to ease the burden on the national coffers but to also enhance the Games experience.

It makes sense. A lot of the public funding was used in infrastructure development, which will have far reaching benefits to the London economy, outside of this the private sector has shouldered most of the costs.

We need to wean ourselves from the tradition of government as the main benefactor and government too should look to the private sector to finance its projects, with the long term benefit of triggering alternative fund raising mechanisms.

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