Tuesday, April 10, 2018


By the time the NRM took over government the economy was on its knees and a shell of its glory days two decades prior.

The economy had been so gutted that most of it had reverted to subsistence and in our desperation to collect revenue, we were taxing coffee exports, which accounted for nearly 80 percent of export receipts and revenues to the treasury.

Faced with this reality NRM had very little room for manoeuvre.

More than half a century prior, Europe was also coming out of the Second World War. Their productive capacity was either all geared towards production for the military or was destroyed totally.
In both instances there was little alternative than to go pan handling abroad to find the resources to jump start their respective economies.

And there the parallels diverge.

"While in Europe the aid was used to rehabilitate a previously strong industrial base, in Uganda the aid money was used mostly to rehabilitate infrastructure and revive social services under poverty eradication programs...

It can be argued that the needs in Uganda were so dire that the alleviation of social distress was critical but the same can be said for Europe.

While in Europe some resources were channelled to jump start social services, more resources were targeted at reigniting the continent’s industrial capacity. The resultant economic activity was then taxed to finance improved social services and the welfare state

What if Uganda had gone the same route, what would have happened?

For starters we kicked off at a decided disadvantage. Our entrepreneurial class, the Asians had been expelled 14 years prior, so there was no real capitalist class aside from the trading locals, who specialised in importing and speculation.

While capital is important in helping businesses grow, what is even more important even beyond the entrepreneurial spirit, is the ability to run and grow business.

If an entrepreneur can’t grow his business, the enterprise would be a black hole in which pumping more and more money would be an exercise in futility.

But we see it all around us. How many local businessmen have benefited from state largesse and where are they now?

Secondly our aid was channelled through do gooders, who even at the end of the last century determined that our debt levels were unsustainable and wiped out a sizeable portion of our obligation.
These same aid agencies found it easier to mobilise resources for poor Uganda to build classrooms, kit health centers and provide tap water, than to support local entrepreneurs develop capacity.

"The net effect of the coincidence of these two factors is an economy whose productive sectors – agriculture and industry are still crawling or dominated by foreign concerns...

The first is a challenge because we are running out of rope in our bid to nail a tax on anything that moves and the second, because there is an annual haemorrhage of resources which if they had remained here and reinvested would help move the development needle much.

Some people have come up with the solution that government needs to get back into business. They have derived this conclusion from the faulty analysis that its only government that has the resources to support major concerns of the types we need to create jobs, generate revenue and trigger a ripple effect of economic activity.

Faulty because they think that the major challenge of Ugandan business is a lack of capital.
So what to do?

We first need to vastly improve the business environment by lowering the cost of doing business and follow a national strategy that goes beyond the knee jerk reaction of throwing money at the problem or taxing existing players to death.

That strategy should include a robust, nationwide program of training our entrepreneurs to understand and do business; deepening the financial industry, because as it is there are no products tailored to support start-ups, small & medium enterprises and government support in the way of supporting research and development.

In the meantime we can help the existing players – foreign and local with incentives to produce for export rather than import substitution. This is important because export led industries will produce the much needed jobs we need in the economy.

And as a quick win, government need to lean more heavily on our biggest companies to list on the exchange, in a way that ensures the local middle class get first bite at the cherry. This important because not only would it help develop a shareholding class – important for local resource mobilisation, but also we can help retain some of those repatriated profits.

"Foreign controlled companies left to their own devices will not list. For one their capital requirements can be met easily by their head offices and secondly, opening up the company to new shareholders could adversely affect their growth plans as they may not be able to retain as much profit as they need to grow organically...

There are no shortcuts.

To move this economy to the next level we need to focus on growing an indigenous capital class, but not through cronyism, and then manage the fine balance between incentivising the productive sectors and ensuring they leave more crumbs on the table.

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