Monday, November 5, 2012


Last week it was reported that the British and Irish government had suspended aid to Uganda following the revelations of widespread graft in the prime minister’s office.

The Danes followed close behind.

Donor monies, while they often go towards alleviating humanitarian situations, are tax payers’ money and must be accounted for to the donor nations’ citizens.

The tax payers of those countries have every right to insist that the monies be spent on the things they are meant for and especially not to line the pockets of grubby fingered public officials.

In the event we don’t comply the funds can be diverted to country’s who know how to put them to their intended use.

Over the last 26 years as local revenues have grown, the dependence on donors to fund our budget has reduced. Which is as it should be.

No country ever developed on aid and there is a reason for that. For a country to develop it has to develop its own capacity to mobilise local resources. This is important not only for the treasury and the economy but also for democracy. More about that later.

To mobilise its own resources it needs to focus energies on creating the structure to collect taxes, which we have done quite well with URA. But that is the easy part. 

The harder part comes in facilitating taxable businesses and individuals to emerge and grow.

Donor money can finance the setup of the administrative structure to collect revenues but can simultaneously frustrate the growth of a local taxable base.

The World Bank’s 2013 Doing Business report shows that Uganda slid back one place and is ranked 120 out of 185 countries polled. Basically we are not a very nice place to do business.

The major impediments to doing business in Uganda according to the report were in starting business, getting construction permits, connecting electricity, registering property, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. There was improvement in access to credit and one can expect after the introduction of Bujagali’s 250 MW, connecting to the grid will be improved.
In large part the issues holding business back in Uganda are bureaucratic impediments.

This should not come as a surprise. Because we could always fall back on donor monies to finance projects and balance our budgets there really has not been any incentives to get rid of these barriers to doing business in Uganda. It is easier to negotiate loans and grants in western capitals of the world than it is to mobilise local bureaucrats to alleviate the plight of the local businessman. It helps also that a trip abroad comes with per diems all around.

It explains why our revenues as a percentage of GDP at about 13% continue to lag the region.

Officials will argue that our economy is largely informal and presents unique difficulties in taxing.

But the reason why the economy is predominantly informal is because of the high price of going formal, in the way of onerous licensing procedures and numerous bureaucratic requirements for doing business.

So the corrupt individuals who have awoken the righteous indignation of the donor community and prompted the recent aid cuts may in the long run have done us all a favour.

Now government will have to think harder. Because donors or no donors their obligation to provide services to the public does not go away.

Of course things can go badly wrong. Government can resort to printing money to meet its local obligations pushing up inflation and flushing the economy down the toilet.

As for democracy donor dependency stifles it rather than enhances it.

Forced to negotiate with its own people for revenues to meet increasing social needs, the government’s attitude will be different towards its own people for fear of them withholding their labour or taxes if they feel hard done.

As it is now if Ugandans don’t pay taxes there will always be a donor somewhere willing to pick the bill.

But personally I would not count on donors staying away too long.

It’s not as if they woke up one morning and hands-over-their-mouths in stark horror found out Ugandan bureaucrats were plundering the bank. Suffice it to say we are not the only beneficiaries in the aid circus, so the party must go on.

But that is a story for another day.

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