Tuesday, June 12, 2018


At the beginning of the state of the nation address President Yoweri Museveni pointed out that over the last decade or so expenditure on infrastructure has been ramped up significantly following a decision by the government to take over the development budget from the donors.

He reported that the expenditure on roads had jumped to sh4.78trillion in the current budget from sh398b in 2005/06. A similar movement was seen in funding electricity, from sh176b to a peak of sh2.858trillion last financial year to now sh2.77trillion.

During the same period revenue collections have grown to sh12.7trillion from sh2.23trillion.

What is interesting about these numbers is that the rate of growth in the budgets of roads and infrastructure far outstripped the rate of growth in tax revenues or even the general economy....

The GDP of the country grew to $25.53b in 2016 from $9.01b in 2005.

The budget on roads and electricity grew by a compounded annual average of 25 and 28 percent, while the budget grew 17 percent and the economy at a compounded rate of 10 percent.

When national budgets grow faster than the economy it is an indicator that someone is playing catch up.

In our case the deficit in infrastructure caused by the two decades of turbulence during eth 1970s and 80s needs no explaining.

What it also suggests is that while the new investments played some role in pushing up GDP numbers that when they are all commissioned, up and running we can expect a sustained jump in economic growth over the next few decades.

The caveat of course is that we cannot continue at the same rate of growth in GDP, until we bridge the deficit, which we are not about to, and that we maintain effectively what we have already built.

Infrastructure enables economic activity and unlocks suppressed demand. The experience in our life time of mobile telecommunications and even the uptake of generated power is testament enough.

When we were trying to get funding for the 250MW Bujagali dam, which would have double our power generation capacity when it came online, then finance minister Syda Bumba was made to jump through hoops by the donors, hopping from capital to capital to get written commitments that the Kenyans, Tanzanians and Rwandese will consume the “excess” capacity of Bujagali.

But with little help from our neighbours we have consumed all Bujagali’s power and when the 183MW of Isimba dam come on line later this year it will not have been a moment too soon.
Of course this emphasis on infrastructure development has kicked up a lot of criticism. The major criticism being that it was responsible for the cash crunch in the economy, with a lot of the contract fees going abroad.

In the “good old days” when most construction was on schools and health centers, our local contractors got their fair share of the business and the money was very much in evidence. But the bigger infrastructure projects are beyond their scope and understandably not as much money as previously is flowing in.

We can write this down to “There is no gain without pain”.

Another major criticism has been that this new infrastructure may prove redundant as there is little economic activity to justify their construction, hence the joke about building roads to dry cassava.

What comes first, the economic activity or the infrastructure? Is it a chicken and egg situation?
I want to believe that when the infrastructure in place the economic actors will appear to take advantage of it and with them will unlock the aforementioned suppressed demand.

Another caveat is in order. This assumes that we get value for money in our infrastructure, that they are durable and of good quality to facilitate existing and new economic activity.

And that has got be a greatest challenge. That corruption is delaying projects, inflating their costs and affecting their quality.

The China situation is a good one to look to.

"When Deng Xiaoming declared that “To be rich is glorious” kicking off the China’s economic boom they committed as much 8.5 percent of its GDP on infrastructure development...

From 1978 to 1990 when the GDP eventually took off the economy grew at about nine percent a year.  This was when a lot of infrastructure was being laid down. In the following 20 years when the infrastructure was commissioned the economy grew at compounded average of 15 percent. It has since slowed to about six percent from 2010 to 2016. This can be attributed to the larger economic base.

Because the truth is there can be no industralisation without infrastructure development. Like sinking a foundation of a building you will have to pour down a lot of material before you can even lay the first course of bricks.

Infrastructure is not everything, there is the quality of the human resource and the institutions, infrastructure issues are probably the easiest to resolve, but little happens before you have infrastructure.

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