It has been a tough eighteen months for the business community and the general economy as a whole.
Recent stress maybe traced back to the Bank of Uganda’s move to raise its policy Central Bank Rate (CBR), which banks look to, to determine their lending rates, in April last year. The central bank anticipating huge depreciation in the shilling against major currencies made the pre-emptive move to reduce money in circulation and head off anticipated inflation.
"While the central bank were largely successful in this, restricting inflation in the last year to single digits, the move has had the knock on effect of raising lending rates, which are only now coming down, putting the brakes on private sector borrowing and, in severe cases, leading to business closures....
It has not helped too that South Sudan has imploded once again. Before the 2013 fighting our businessmen were doing at least $200m of business with our northern neighbour. And that is only the official figure. Who knows how much more was happening through unofficial channels.
The recent fighting that flared up at the beginning of the month could not have come at a worse time.
The uneasy peace was seeing trade beginning to resume and in a situation where business was struggling here, it was expected that demand from South Sudan woUld carry us over the worst.
In addition the six month electioneering period put a further damper on the economy, as investors stayed away or adopted a wait-and-see posture aggravating the log jam in the economy.
"So it came as no surprise that the issue of bailouts for the distressed business community has been mooted...
Prime Minister Ruhakana Rugunda is leading the effort on the government side and the Private Sector Foundation of Uganda (PSFU) is making presentations on behalf of the business community. A list, which it turns out is fictitious, has been published of possible beneficiaries of this government bailout.
Previous communication was that government was going to, look into the domestic arrears with renewed urgency, press for compensation for businessmen affected by the civil war in South Sudan and looking into the issue of bad loans.
People familiar with the negotiations are clear that any government intervention has to be well thought out, transparent and sustainable and discussions are far from being concluded.
Be that as it may, if a bailout is organised we need not reinvent the wheel.
Former US treasury secretary Hunk Paulson, who was at the center of the massive bailout of US companies during the global financial crisis, was quite clear about which had to be aided.
He went in support financial institutions who by the nature of their operations were not only massively exposed to the bad debts coming out of the real estate sector but had their finger in every sector of the economy by virtue of their nature.
In addition he bailed out the car industry which employed thousands and whose activities supported whole cities.
The idea being that the failure of these companies would have a ripple effect on the economy beyond their individual industries.
At the best of times and even with the best of intentions a government bailout of the private companies will always come under heavy criticism, but Paulson decided that it was better to make a bad decision than not make one at all.
His consolation as he said in his book “On the Brink: Inside the race to stop the collapse of theglobal financial system,” was that history would vindicate his actions.
The jury is still out on whether his intervention was good but the US economy is steadily recovering and were it not for a lack of similar momentum in the European Union (EU) growth would have been much more robust in the US.
The point is that no government has the resources to bailout all distressed players, however many political points this will win.
A strategy has to be adopted that allows us the biggest bang for our buck.
"In theory the failure of companies would lead to greater efficiencies in the long run, as more credible companies rise up to take their place. The political fallout from such a strategy however may be too high to stomach for the powers that be...
The move to resolve domestic arrears is a good place to start. A government owes trillions upon trillions of shillings to Ugandan businessmen which has a knock on effect down the chain as suppliers are not paid, jobs are not created or cut all together and the expansion plans are put on hold.
Helping with distressed debt would be a hot potato, as accusations of favouritism are bound to arise. Maybe a way to have a win-win situation is in that in return for government’s help either in helping write off loans or win some relief from the banks the affected companies should be encouraged to list their businesses on the stock exchange.
With one stroke we will have greater external scrutiny of these companies, which may lead to greater revenue collections and even open the doors to more sustainable financing for the companies in the future.
That would be an unpopular trade-off for many businessmen but it will be a way to hit two birds with one stone – rescue ailing companies and two ensure that the improved future fortunes of the companies are shared by a wider pool of people.