Wednesday, May 28, 2014

GOVERNMENT SHOULD STAY OUT OF BUSINESS BUT ….



It seems that Uganda has demystified the concept of economic growth, registering an average of about six percent annual growth since 1990.

What this means is that the economy has doubled twice or quadrupled during the period. Of course this achievement came off a low base – it’s easier to double one shilling than it is to double a million shillings. That notwithstanding there is still a long way to go and given our underutilisation of the human and natural resources available to us the potential is mind boggling.

The major policies that has driven this growth has been government privatisation and liberalisation policies of the 1990s. By first liberating assets from the inefficient private sector to the more profit oriented private sector we have seen their productivity shoot through the roof – when Nile Breweries was returned to the Madvhanis  it was producing 2,500 crates of beer a month and with a workforce to match. Today it has the capacity to produce 2.4 million hectolitres of beer a year which is roughly the equivalent of 16 million crates of beer a month.

Beer production is not an ideal example but similar gains have been registered in fuel distribution, banking and even electricity distribution.

Liberalisation has also spawned the explosion of telecommunications, education, health and transport services.

There have been other government interventions, not least of all maintaining law and order, that has underpinned the growth of the economy.

It is all very nice for the economy to grow at a gallop but it means little when these gains are not more equitably distributed among the population. The statistic still stands that up to two in three shillings in economic output (GDP) is generated in Kampala.

Kampala has a daytime population of about two million people, so less than five percent of the population accounts for 70 percent of the economy? That statistic alone is cause for alarm.
Government does not ensure equitable distribution of economic gains by dishing out money at street corners but by creating an environment where everyone has a fair chance of tapping into the economy and improving their individual lots.

You educate and keep your population healthy as a way to increase their productivity and then you facilitate job creation to absorb the skills of your improved population.

Government did he correct thing to divest itself of the businesses it was involved in, in which it was performing dismally. It has provided a semblance of regulation in the liberalised sectors as well. What seems to be lacking is the government’s ability to direct the economy to generate the desired outcome of decreasing income and wealth inequalities.

An attempt has been made to address this weakness with the creation of the National Planning Authority and the Vision 2040. Next beyond the ministries the government needs effective overarching agencies to drive he dream.

Interestingly we already do have these agencies – to a degree, Uganda Development Bank (UDB), National Social Security Fund (NSSF), Uganda Investment Authority (UIA) and Uganda Development Corporation (UDC) – which was disbanded in the 1990s but is in the process of being revived.

The first two would provide the financing and the last would identify or provide the vehicles to be financed.

UDB is getting back on its feet, despite rear guard action from other institutions, NSSF too is in the midst of a change of leadership but its ability to be at the center of transformation could be hampered by a lack of clarity on how liberalisation of the pension sector may happen (we shall revisit that story soon).

Financing is less than half the story. The question would be how would government deploy the resources at its disposal to keep the economy ticking or vault it to the next level.

Singapore’s Temasek, a kind of sovereign fund, would be a useful benchmark for ourselves. Created in 1974 the company manages a $215b portfolio which was initially seeded by government’s interests in various companies. They serve as a giant investment company, which while driven by profit is also motivated by government’s determination to transform the everyday Singaporean’s life. So among other things they may identify projects with long term benefit to the economy but which are not yet attractive to the private sector, they would attract partners using the strength of their balance sheet and work to open this untested projects.

But to do this effectively they need to be guided by a sound national strategy, run by professionals unencumbered by politicians.

Temasek is a super agency. In Uganda its roles can be carried out by the four aforementioned agencies and therefore a national strategy and aforementioned autonomy will be required to generate similar results.


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