Monday, October 16, 2017

WHAT IF UGANDA HAD DONE THINGS DIFFERENTLY AT INDEPENDENCE

Fifty years ago at independence the economic challenges of the founding fathers were clear – to accelerate and sustain economic growth and spread the benefits around equitably.

At current prices the GDP per capita of Uganda was $62 and the total economic output was $449m, according to World Bank figures. The economy was biased towards agriculture with just over half of all GDP coming from agriculture with services accounting for 36.18 percent, industry 12.61 percent and manufacturing 7.56 percent.

The structure of the economy has changed since. In 2016 services assumed pole position accounting for 55.8 percent of GDP, agriculture’s share plummeted to 24.4 percent, industry is up to 19.7 percent and manufacturing saw some growth to 8.8 percent.

During the same period the economy has grown to $25b from $449m in 1962. The population too has grown more than fivefold to 41.5 million from 7.2 million at Independence.

"Clearly one goal has been met with economy growing about 55-fold during the period or at about 7.7 percent growth per year on average. The argument can be made that the economy would have grown even faster were it not for the chaos of the 1970s and 1980s....

Kenya which has been relatively stable during the same period saw its economy grow more than 80-fold to $70.5b in 2016 from $868m in 1962. This makes for an average annual growth of about 8.4 percent.

A 0.7 percentage point difference between the growth averages may look insignificant but when you stretch over half a century it’s the difference between the size of the Kenyan economy doubling six times while ours only doubled five times.

So we not only started from a lower base but also because seeing as our economy fell below 1970 levels by 1986, new growth was only seen around the late 1990s, when the economy recovered to its previous heights.

The economic prescriptions in 1962 would still obtain today – increase agricultural production to not only raise rural household incomes but also to serve as a base from which to launch industrialisation; boost school enrollments to prepare the future workforce for industry; expand the infrastructure to support these ambitions among other things.

Even if Idi Amin had not upset the apple cart with his cop in 1971, we were already toying with centralising the economy – a disincentive for private initiative, and like other sub-saharan African countries would have taken us till the 1980s to liberalise the economy and attract private capital.
The motivation was purely political and not based on hard economics. The idea that the government should control the commending heights of the economy in order to foster development for Ugandans rather than continue to feed the “imperialists” insatiable appetite for profit.

What ended up happening was mismanagement and corruption as government used state enterprises as avenue for patronage and looked the other way as their allies gutted them for personal gain.

Using the same method we put a halt to productivity gains in the agricultural sector to the point that the proportion of agriculture to GDP suggests not only that we are not producing very much more than we were per capita at independence but also indicates that we have failed to launch a credible agro-industry sector.

Kenya probably shows what would have happened to us had our momentum not been interrupted by the messy 1970s and 1980s.

But even better is the island nation of Mauritius, which had a smaller economy than either Uganda or Kenya at $213m. With no natural endowments expect the weather and the soils it has grown its economy to $12.2b in 2016. The World Bank’s figures for Mauritius GDP start in 1976 at $706m, so it safe to say that 14 years prior their economy may have been around the size of Uganda’s at Independence.

Given the figures the Mauritian economy grew by a factor of 17 in 40 years from 1976 to date, representing an annual average growth rate of 7.38 percent.

But while the size of their economy is nothing to write home about the per capita GDP of $9,627 – their population has grown to 1.2 million from 700,000 in 1962, set them apart from most on the continent.

How did they do it?

"The graduated from a monoculture economy that grew only sugar, went into textile manufacture —importing cotton from Madagascar and further afield, following the same principle became a hub from small industry by exploiting Export Promotion Zones, promoted themselves as a premium tourist destination – they have more than a 300 five-star hotels, and have set themselves up as an offshore financial hub – they have more deposits in the banks than the GDP of the country....


Maybe it helped that they were an island nation isolated from the madness of the continent, but clearly there was a clearness of purpose by its founding leaders in 1968, which allowed even encouraged  private industry and a democratic traditional that has ensured the sustainability of their economic model.

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