Wednesday, July 30, 2014


In the ten years that Allen Kagina has been at the helm of the Uganda Revenue Authority (URA) collections have gone up fivefold.

In 2004/05 when she took control the revenue target was sh1.9 trillion, and in this financial year the authority's target is sh9.5 trillion or an annual compounded growth rate of 17 percent.

While acknowledging that a decade long restructuring of the URA contributed to this she says one cannot ignore the effect of the growth in the economy during the same period, which averaged about six percent annually.

"The major economic drivers during the period were the expansion of telecommunications coverage, the repair of many the country's major highways, the ramping up of power generation and distribution. While these will go on in coming years we can look forward to additional growth as the railway to the coast gains in efficiency and takes more and more cargo...

The economy is like the human body with the circulation system or infrastructure in the case of an economy, determining the overall health of the subject.

A key characteristic of a healthy economy is the ability to move goods and services around efficiently and inexpensively, just as the key to a healthy body is the ability of the circulatory system to get nutrients around the body or waste out, quickly.

The launch of the newest international development bank by Brazil, Russia, India and China (BRIC) gave The Economist magazine last week a chance to reexamine China's phenomenal rise In the last two decades,

They noted that between 1992 and 2011 China has been channelling on average 8.5 percent of GDP building roads roads, railways, ports and dams, the result has been a sevenfold growth in the economy during the same period.

While they said it was difficult to pin down direct effects on economic growth of specific projects the long term benefits in lowering business costs and increasing productivity are self evident.

Recently criticism has risen over the number of infrastructure projects government is undertaking simultaneously. 

That the costs of these projects, which are being met by taking out debt will weigh on governments capacity to finance other priority areas like health and education. And also that the debt ratios will make us fail the East African monetary union, which has specific debt to GDP criteria that member states must meet.

These criticisms have their merits. For example if through crooked procurements these projects are too expensive the high cost will negate the benefits.

But the flip side to the argument is that these infrastructure developments are always going to be costly, corruption not withstanding, but to mitigate against this the choice of investments will be telling.

So you will have a greater return on investment in building an expressway to Entebbe or a second bridge across the Nile than splurging the same money on the Hilton or on an extension of government offices.

The interesting thing that has been experienced by the extension of telecommunication and electricity in the last 15 years is the amount of suppressed demand -- need for a good or service that is only discovered when the good is available.

We might wonder about the rationale of this or the other infrastructure development but when it is laid out you will be shocked how people rush to lap it up.

Also the simultaneous projects are an indication of how far behind we have lagged in keeping up with infrastructure demands in the last 50 years. And we are not the only ones.

According to some figures the world needs to be spending about $4 trillion annually on infrastructure but is spending a trillion dollars less.

The critics also miss an important point. In measuring the debt to GDP ratios they are only seeing them in present terms, but with the explosion in economic activity that will come when the roads, railways and dams are fully functioning the ratios will be a lot more palatable.

"Returning to China, which is serving as a useful test case for economic theory, The Economist reported an improvement in GDP per capita by as much as a third for those who had a high speed railway pass through their villages compared to those whose villages never saw the railway...

Interestingly the train in question was not built for its perceived economic viability-- the area was the poorest in China, but for its technical feasibility.

Which somehow supports the old saying that if you build the best mousetrap, the world will beat a path to your doorstep.

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