Thursday, January 2, 2014

THE WORLD BANK, UGANDA EVOLVING RELATIONSHIP

This week the World Bank commemorated its 50th anniversary in Uganda, a relationship that has been sometimes tense, many times cordial but always with an eye to a better future.

The Bank, originally formed to aid in the reconstruction of war torn Europe, has extended its mandate around the world, it's history a treasure trove of experience of how-to, but mostly how-not-to intervene in economies.

The Ugandan experience has had it's ups and downs but when the balance sheet is tallied there will be net positive in the half-century long relationship, with most of the benefits accruing in the last three decades or so.

And that last point is important because accumulating evidence shows that aid works only to the extent that it is handled well by the recipient government in meeting the limited goals that it is targeted at.

The Bank has been critical in the rehabilitation of infrastructure, bolstering the financial sector, boosting social services among other things since 1986 and improvements in these sectors are there for all to see.

One of the unique things about the relationship between the Bank and Uganda's relationship has been the political class' adoption of the Bank and other donors' prescriptions as their own.

This made sense since most of the recommendations were good economics anyway -- keeping inflation down, unshackling the private sector and focusing on infrastructure development.

Both sides have not always had the same appreciation for the challenges of the day -- universal primary education and the rapid development of our hydropower generation capacity leap to mind, but through reason and negotiation a happy mean has been established.

The net result has been a relationship that has evolved from one tinged with suspicion and wariness to one today of respect and symbiosis. In addition this relationship has demystified the issue of generating economic growth as the country has managed 26 years of consecutive growth.

Looking to the future the relationship may serve as a case study of how countries can go from reconstruction to transformation.

But not just yet.

The history of the aid industry and the Bank, is patchy at best, with no country --at least on the continent, having transformed itself employing the aid.

Part of the problem being a failure to stick to good economic policy by the relevant governments, signing onto the prescriptions but jettisoning them when the going got hard and politically expensive.

But also there are inherent flaws in the aid industry, which has laboured under the thinking that the challenge of the underdeveloped world is one of lack of money, rather than an unfair trade environment or poor governance and have funneled billions of dollars with an embarrassingly low return on investment if at all.

In addition the Bank and its counterparts, many of them bureaucracies, which pay more credence to inputs rather than outputs, are still grappling with the challenge of turning economic growth into widespread improvements in living standards -- development.

The politics of a country has direct bearing on whether economic growth and by extension development happens or not.

It is undesirable that the Bank gets involved in the politics of its clients, but inevitable.

By bridging government budget deficits to help them build infrastructure or provide health and education lowers the incentive for those governments to collect taxes. For governments to collect taxes they need a legitimacy, which will allow it to tax it's productive sectors to generate funds to bankroll public goods --security, social services and infrastructure, that will drive the economy. A virtuous cycle that is at the heart of not only he development but the democratization process as well.

This is the challenge going into the next half century and will make the difference between us seeing economy's transformation or not.









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