Monday, August 1, 2016

BAILOUTS ARE OPTIONAL, ECONOMIC STIMULUS IS NOT

To bail or not to bail out our local businessmen is the story that has been burning the wires this last week.

"A clever communication trick slanted the narrative towards “bailouts”, was a message guaranteed to raise temperatures, with previous billion shilling bailouts to connected businessmen fresh in our minds. The public’s knee jerk reaction on the matter should not have come as a surprise...

The other night I was watching “The Godfather” – a must watch for any serious student of leadership and power.  In the film, derived from Mario Puzo’s classic novel of the same title, a rivalry between the Mafioso families is threatening to blow up and Michael Corleone, the godfather, is being urged by his nephew Vincent to take pre-emptive action against the other families.

“Never hate your enemies it affects your judgement,” Corleone tells his spirited charge.
The idea that a handful of fat cat businessmen will be getting “bailouts” from government is clouding judgement and diverting from the real issue, that there is a problem in the economy that needs to be addressed.

In fact the discussion should be shifted from talking about bailouts to one about stimulating the economy – which may or may not include bailing out businessmen or sections of the economy.

"The evidence is there for all to see. While the economy remains on a growth path it is not growing as fast as it should, which is around seven percent annually. The economy grew 4.6 percent in the last financial year and has not touched the magic number since the 2010/11 financial year when it came in at 9.7 percent, since then growth stayed stubbornly under five percent...

Many reasons have been advanced for this underperformance not least of all are the delay in oil production, the loss of South Sudan as a trading partner, the depreciating shilling and reductions in foreign direct investment of aid over the last five years or so.

At personal level this has seen slower rate of job creation, lowering of incomes in real terms leading to less demand for goods and hence business closures and back into the vicious cycle.

In short the economy needs a shot in the arm – a stimulus, to jump start it again.

Suggestions have been made, whose net effect would be to inject cash into the economy. Among these clearing of all domestic arrears owed by government to its suppliers. The auditor general says these amount to at least sh1.3 trillion. A capitalisation of the Uganda Development Bank by at least the promised sh500b to allow business men access much needed long term credit, a buyback of some of the sh8 trillion in government paper from the market. 

These measures and others aimed at a wider stimulation of the economy would have an effect on the general economy and not only a few businessmen.

However we cannot get away from the issue of compensations to businessmen who were not only affected by events in the South Sudan but also the Kenyan post-election violence and even the Burundi’s recent descent into chaos.

As it is now and related to South Sudan the list of claimants is being compiled and agreed upon. Once this is dome it is expected that a memorandum of understanding will be drawn up that shows what the Juba owes Ugandan businessmen. It is then suggested that Uganda takes up this obligation and pays our businessmen and South Sudan will owe the government.

We cant ignore too the issue of the mounting bank loans that our businessmen are staggering under. A suggestion to create an agency that would take these off the books of the banks and either work at recovering them or reconstructing these assets has been suggested. This is important because the bad debts seating on the banking industry’s books is eating into their capital, constraining them from lending more to the public.

Those are all short to medium term measure that would give some short term relief to the economy. 

"But we need to think harder how we can increase the general productivity in the economy over the long term. This will require a further lowering of the costs of doing business through improved infrastructure, policies and their implementation...

Arguably government has cut its own throat with the blunderous bailouts of yesteryear, but those mistakes should not stop us from doing what is necessary to jump our economy now.

In the meantime let us steer clear of hate because it is judging our judgement.

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