THE UGANDA BUDGET: CLOSING OLD GAPS, OPENING NEW OPPORTUNITIES

Uganda’s 2025/26 budget, clocking in at sh72 trillion—approximately $19 billion, or nearly five times the size of the country’s $4 billion economy in 1986 is a striking symbol of how far the country has come. It reflects three and a half decades of relative macroeconomic stability, revenue growth, and ambition to deliver public goods and spur transformation.

The budget’s scale is a response to both promise and pressure. It seeks to expand infrastructure, finance social programmes, repay debt, and support livelihoods. It also continues a long-term strategy to bridge historical gaps—especially in public infrastructure, created by decades of neglect during the 1970s and 1980s. Those years of political instability and economic decline left Uganda with little to show by way of roads, power plants, or functioning institutions, even as the population doubled.

Successive budgets in the 2000s and 2010s have attempted to address this backlog, and the 2025/26 budget is no exception. With sh4.5 trillion allocated to roads and sh2.3 trillion to energy, the investment continues—reflecting an understanding that without strong infrastructure, the goals of industrialisation and regional trade competitiveness will remain elusive.

The commitment to infrastructure is not new.

In 2011/12, infrastructure spending was just under sh3 trillion. A decade later, in 2021/22, it had more than doubled. In contrast, allocations to education and health— sh4.2 trillion and sh 2.8 trillion respectively in this year’s budget—have grown more slowly, often falling behind both inflation and population growth.

Infrastructure’s share of the development budget has consistently outpaced social sectors, underscoring government belief in its catalytic role. But the imbalance raises a fundamental question: are we building structures faster than we’re building the people to run and benefit from them?

Even so, legacy gaps cannot be solved with money alone.

Uganda’s Achilles’ heel has been the long and inefficient project execution cycle. Major projects such as Karuma Dam have taken far too long to complete, delaying their contribution to growth. If project timelines were shortened and efficiency improved, the country could begin to realise returns on investment faster.

At over sh96 trillion—roughly 52 percent of GDP—public debt is still within sustainable bounds by international standards. Yet the trend is worrying, particularly because of the increasing share of commercial and non-concessional loans. This year, sh19.8 trillion, or 28 percent of the national budget, will go to debt servicing alone—resources that might otherwise have gone into education, health, or job creation.

Even more pressing is the growing mountain of domestic arrears, now estimated at sh14 trillion. That figure has more than tripled since before the COVID-19 pandemic and represents unpaid obligations to suppliers, service providers, and contractors. These arrears starve the private sector of liquidity, especially small and medium enterprises that are often ill-equipped to wait months—or years for payment. Tackling this backlog must be a priority if government spending is to translate into economic activity.

On the social front, the government is pushing ahead with the Parish Development Model (PDM) and Emyooga programmes as vehicles for inclusive growth. While the national impact of these initiatives has so far been limited and uneven, green shoots are beginning to emerge.

In some districts, SACCOs have started to disburse funds effectively, with early signs of increased incomes and improved household resilience. The challenge now is to consolidate these gains and scale best practices across the country, ensuring that these programmes are not just disbursement vehicles but agents of lasting transformation.

Education and health continue to be under strain. Despite gradual budget increases—sh4.2 trillion and sh2.8 trillion respectively in this cycle, these sectors face growing burdens from a rising population, ageing infrastructure, and underpaid personnel. While the numbers suggest progress, the systems themselves remain overstretched.

On the revenue side, URA’s digitalisation and enforcement drives are projected to bring in sh32 trillion in domestic revenue. That’s a significant step up from previous years. Yet the challenge persists: the tax base remains narrow. Much of the informal economy still lies beyond the tax net, meaning the burden continues to fall disproportionately on the formal sector—already under pressure from high compliance costs and limited access to affordable credit.

Importantly, the budget allocates sh7.1 trillion to defence and security—more than the combined allocation to health and agriculture. At first glance, this might seem misaligned with social and economic priorities. But Uganda’s history offers context: without stability, development is impossible. The investment in security has underpinned the growth we see today. It has enabled long-term planning, encouraged investment, and facilitated regional trade. In a volatile neighbourhood, Uganda’s relative calm is a competitive advantage—and one that must be maintained.

That said, the balance of spending still invites scrutiny. Agriculture—the backbone of the economy and the largest employer receives just sh1.8 trillion. Tourism, a top forex earner, gets sh220 billion. Government has argued in the past that all the allocations in security, infrastructure and social services aid agriculture, but it is also true we need to ramp up investment in extension services, water for production and access to quality inputs.

The allocation to science, innovation, and digital transformation remains small relative to their potential impact. If Uganda is to harness the productivity of its youth bulge, more deliberate investment in high-growth sectors will be needed.

The 2025/26 budget reflects a country still in the thick of transition. It attempts to correct for the past, meet the demands of the present, and chart a path toward the future. The ambition is evident. The implementation, however, must improve. Without faster project execution, stronger accountability, and a more productive use of borrowed funds, the gains of today may not be enough to sustain the Uganda of tomorrow.

UGANDA BUDGET BETS ON BRAINS OVER BRUTE FORCE

In a world where the taxman is never far behind and the budget speech is often a catalogue of fresh levies, new charges, and revised rates, Finance Minister Matia Kasaija’s decision to announce no new taxes in the Sh72.1 trillion budget for FY2025/26 was—dare I say it—a minor fiscal miracle.

Now, let’s not kid ourselves. The government still needs money. The deficit is a chunky 7.6 percent of GDP. The debt clock keeps ticking. But this year, instead of reaching deeper into the same old pockets, Treasury took a more strategic route—don’t tax more, tax better.

It’s a position as rare as it is refreshing. And in this economic moment, it’s also very, very wise.

After all, Uganda is still nursing its wounds. COVID-19 may be a distant memory, but its economic scars aren’t. Businesses—especially the small and informal—are still playing catch-up. Add to that a volatile global economy, rising debt servicing costs, and soft consumer demand, and it becomes clear: this is not the time for new tax burdens.

Instead, the government wants to fix the system. URA is doubling down on digital tools—EFRIS, DTS, automated audits, the whole alphabet soup—to bring more efficiency into tax collection. Compliance gaps in rental income, digital commerce, and high-net-worth individuals are in the crosshairs. The informal sector, long treated like a rounding error, is finally getting structured attention.

It’s the right call. Not just because it spares the taxpayer some pain, but because it signals a subtle shift in philosophy: that revenue is a function of trust and efficiency, not just compulsion.

All this is happening against a relatively sunny economic backdrop. Growth this year is clocking in at 6.3 percent, inflation has eased to 3.4 percent, and the Ugandan shilling has defied the odds to become the most stable currency in Africa, at least according to the IMF’s International Financial Statistics. GDP now stands at Sh226.3 trillion—up from Sh203.7 trillion last year—and is expected to touch Sh254.2 trillion next financial year.

There’s a new swagger in our export numbers too. Coffee earnings doubled to $1.83 billion. Industrial exports are taking up more space in the basket. And the country is finally getting serious about monetising what it grows. In the Harvard Economic Complexity Index, Uganda is becoming more sophisticated, more “complex,” punching above its income level. For once, the story of economic transformation is more than just speechwriter flair.

But scratch the surface, and a few uncomfortable truths peek through.

"Domestic arrears, remain a festering sore. By conservative estimates, government owes its suppliers north of Sh14 trillion—money that many SMEs will never see in full or on time. The budget speech mentioned them, sure, but not in the tone of urgency the crisis demands. You can’t talk up private sector-led growth while stiffing the very businesses you contract. It’s like pushing someone off a cliff and then offering them climbing gear.

These arrears distort more than just balance sheets. They ruin creditworthiness, lead to layoffs, and undermine tax compliance. Worse, they fuel a quiet despair among entrepreneurs who once believed doing business with government was a ticket to growth.

And then there’s the not-so-quiet elephant in the room: corruption.

The budget offers the usual playbook—digitise procurement, automate tax systems, roll out e-whatever. That’s all good. But what’s missing is the political spine to back it all up. What good is an electronic audit trail if the audit ends in a dusty drawer? If prosecution is selective? If impunity is routine?

We’ve seen too many grand digital tools defeated by small brown envelopes.

Even more concerning is the rise of off-budget mechanisms—special funds, trusts, "strategic investments"—that increasingly escape the traditional accountability radar. If the public purse is leaking through side doors, it won’t matter how tightly you lock the front gate.

And yet, there is some hope.

The budget’s Shs2.43 trillion investment in wealth creation—through PDM, UDB, Emyooga, and others—is a continuation of the government’s bet on grassroots economic transformation. It’s an effort to turn more Ugandans into producers, not just consumers of the economy. The Sh1.86 trillion earmarked for agro-industrialisation, the big push in infrastructure (Sh6.92T) continues, and the funding for science and technology (Sh835B) all point to a state that wants to do more than just spend—it wants to build.

But none of it will work unless the state starts paying what it owes, curbing what it leaks, and collecting what it’s supposed to—fairly, consistently, and transparently.

So yes, let’s cheer the absence of new taxes. It’s a bold political decision and a clever economic one. But let's also not forget: doing nothing is not the same as doing enough. Tax reform without public sector reform is just clever accounting. A bigger budget won’t mean better lives unless the money reaches the intended beneficiaries.

The best part of this budget may be what was left unsaid: no new taxes. Now let’s hope it’s followed by no more arrears, no more excuses, and maybe—just maybe—no more corruption.

 

UGANDA'S BUDGET PLAN FACES HARD TRUTHS

Today, June 12th, 2025, Finance Minister Matia Kasaija will rise before Parliament to read Uganda’s national budget, weighing in at a hefty sh72 trillion. 

That number alone is staggering. Two decades ago, Uganda’s national budget stood at just over sh4 trillion. This represents a compounded annualised growth of about 15 percent  or more than twice the average annual growth of the economy duing the same period. 

In 2005, the government operated with a modest financial envelope largely dependent on donor aid and constrained by a narrow tax base. Fast forward twenty years, and the budget has grown more than seventeen-fold—an extraordinary leap that reflects both inflation and a genuine broadening of the economy.

This growth tells a story. Some of it is positive: domestic revenue collection has improved, the private sector has deepened, and public infrastructure has expanded. But it also tells of our growing appetite for debt, recurrent expenditure, and a state machinery that has ballooned over time—sometimes without matching output.

The National Budget Framework Paper (NBFP) that underpins this year’s budget is heavy on aspiration. Its theme—“Full Monetization of Uganda’s Economy through Commercial Agriculture, Industrialization, Expanding and Broadening Social Services, Digital Transformation and Market Access”—ticks all the right boxes. It is a bold vision of structural transformation, if ever there was one. The question is: do the numbers, and more importantly the execution, match the rhetoric?

On paper, government aims to propel the economy past  growth next year, en route to double-digit expansion once commercial oil production comes onstream. The economy is projected to hit sh250 trillion by 2025/26, with per capita income rising to $1,339. The macro outlook is buoyant, inflation is below three percent, and exports are rebounding. But if Uganda has learned anything over the past two decades, it's that development does not reside in GDP forecasts. It lies in tarred roads that go somewhere, school roofs that don’t leak, and health centres that have medicine and staff. That’s where the real audit begins.

The NBFP places infrastructure front and centre, as it always does. Roads, electricity transmission, the Standard Gauge Railway, and the near-complete Kabalega Airport all receive top billing. These are necessary investments, no doubt. But Uganda has a troubling history of building things that don’t work—or that work only after years of delays. The Karuma Dam still haunts our planning psyche, completed on paper yet underutilised . Projects are announced, budgeted, and even launched, but coordination and oversight remain our Achilles’ heel. The issue is not money. It is follow-through.

Meanwhile, agriculture—the lifeline of the majority of Ugandans—remains scandalously underfunded. Just 2.5 percent of the budget is earmarked for a sector that employs over 70 percent of the population and contributes 24 percent to GDP. The NBFP speaks earnestly about agro-industrialisation, value addition, irrigation, and warehouse receipt systems. 

But the numbers don’t back the talk. 

Farmers still lack extension services, affordable credit, and basic infrastructure. If we are serious about lifting people out of poverty, especially in rural areas, this imbalance must be corrected. You don’t monetize an economy by starving its core.

Then there’s the issue that quietly cripples every budget cycle—youth unemployment. Uganda is the second-youngest country in the world. Every year, over half a million youths enter the job market, and most find no foothold. The NBFP gestures at solutions—the Parish Development Model, Emyooga, UDB credit—but these are fragmented interventions. What’s missing is a national employment strategy that connects education to opportunity, apprenticeships to actual jobs, and the informal sector to scalable enterprises. We keep trying to solve a structural problem with project-level fixes. It hasn’t worked before, and it won’t now.

But no problem is more corrosive to our fiscal credibility than the domestic arrears overhang. 

As the Finance Minister delivers his sh72trillion speech, it’s worth remembering that over sh13.8 trillion in unpaid government bills lurk in the shadows. This includes overdue payments to contractors, suppliers, pensioners, and court awardees. The NBFP proposes to clear sh1.4 trillion this financial year—an improvement from the laughable sh200 billion previously allocated. But even at that rate, it would take a decade to clear the current stock, assuming not a single new shilling is added to the arrears pile—which, of course, is fantasy.

This isn't just a bookkeeping issue. Domestic arrears are strangling the private sector. Businesses that trusted government contracts are folding. Banks are tightening lending. Job creation is stalling. It’s a silent crisis—one that the government has so far been unwilling to confront head-on. The fact that we continue to accrue arrears even as we trumpet revenue growth speaks to deeper issues of fiscal discipline and accountability. If Uganda were a company, it would be on the verge of default.

And yet we lose just as much—if not more—to corruption. According to estimates, Uganda bleeds over sh2 trillion annually through procurement fraud, ghost payments, and tax evasion. That’s nearly equivalent to what we spend on the roads budget. Every year, the Auditor General uncovers the same rot. Every year, we shrug. Until we make examples of the corrupt—not through commissions of inquiry, but through convictions and asset recovery—our budgetary ambitions will remain castles built on sand.

There are bright spots. The government’s push for digital transformation is timely and potentially transformative. Fintech and mobile money are already revolutionising access to financial services. If supported by smart regulation, public investment in digital infrastructure, and robust consumer protections, Uganda could leapfrog decades of development barriers. But again, the follow-through must be real. It’s not enough to build an app or lay fibre optic cable. We need to ensure that farmers, traders, students, and health workers can actually use these tools to improve their livelihoods.

And then, of course, there’s oil. With Tilenga and Kingfisher past the halfway mark and the EACOP progressing, first oil is a real prospect in the coming financial year. But this is a double-edged sword. Oil can lift us, or it can wreck us. If we allow oil revenues to feed bloated bureaucracies and politically driven consumption, we will have wasted the opportunity of a generation. If, on the other hand, we invest in human capital, infrastructure, and industrial transformation, we might yet chart a different course. It’s a choice—not an inevitability.

So as the Finance Minister delivers the sh72 trillion budget this afternoon, we would do well to listen not just to what is said, but to what is not. We should scrutinise not only the allocations, but the arrears. Not only the promises, but the history. Because ultimately, budgets are not about figures. They are about faith. Faith that when government says it will build a road, the road will be built. That when a contractor finishes a job, he will be paid. That when money is allocated to a school, children will learn.

Until we restore that faith, even sh72 trillion won’t be enough.

MAKE SETTLING DOMESTIC ARREARS A CAMPAIGN ISSUE

Last week it was reported that government has allocated an extra sh1.4trillion to settle domestic arrears, monies it owes to the private sector.

This is a very welcome move considering that domestic arrears are about sh14trillion and in the last few years government has been earmarking about sh200b towards the budget line.

However, we will be forgiven for asking for more. Because, assuming by some miracle arrears are held steady at sh14tr it would still take at least a decade to clear the current stock, assuming the current rate of redemption. Totally unsatisfactory...

But let us take this out of the realm of the abstract. Let us have a businessman, call him Jack, who wins a tender to supply goods, say cement to government. Let us assume the deal is to supply 10,000 bags of cement to a unit of government over three months.  Jack chases the paper work gets the contract and the accompanying documents to start servicing the deal, which among other things stipulate that he will be paid within 90 working days of delivery or about five months.

But he does not have the money on hand to procure the cement, a few hundreds of millions, so he goes to his bank with the paperwork in hand and gets a loan. He gets the money, buys and supplies the cement to government.

Then suddenly he cannot be paid. Stories galore. His five months turns to a year or two or three. He services the interest with whatever other cashflow he has, but this proves unsustainable and soon the bank auctions his home and other property, he had put up as collateral. All the while there is no evidence the government will make good on their commitment to him soon. Tomorrow never comes.

This is the fate of thousands of suppliers to government.

The pages of our newspapers are filled daily, with the adverts of auctioneers taking this or that businessman to the cleaners. A big part of the reason is the government...

Finance minister after finance minister has admonished his officials not to contract new supplies if there is no money. The bureaucrats on their part blame the shifting priorities of government on the state of affairs – budgeting for one thing but changing its mind when monies are due for payment. The mushrooming arrears have been a perennial lament for the last four decades.

"It has become so bad, that banks are no longer willing to discount government invoices. There is a general lack of confidence in government. Which is a problem since government remains the single largest consumer of goods and services in the economy...

So while the economy continues to grow (do they record arrears as government expenditure when computing GDP?) there is gritting of teeth in the hills of Kampala. It all seems a fiction.

Whichever way you look at it this is not a sustainable situation. It threatens the economic gains of the last four decades – when businesses continue folding, tax revenues dwindle and government continues to accumulate arrears, it will not be long before the economy collapses.

The challenge of course is that our government and its bureaucrats have entered (or have been for some time) in a dangerous phase where it is everybody for himself, God for us all and the devil take the hindmost....

They don’t care. The above is really text book economics, so it would not be a revelation to them. They don’t care.

It is self-destructive. Its shooting ourselves in the foot. What would it benefit a man to accumulate the whole world while his neighbours are scrambling for crumbs? He will soon be fair game.

So thank you very much finance ministry but the sh1.4tr is not half enough. We need to up that number, but more importantly tighten our procurement procedures so these recurring theme is brought to a halt. I will not hold my breath for it.

But I know what would move the needle on this issue. Somebody needs to make it a campaign issue and government will move. Like they did with universal primary education, the abolition of graduated tax and the scrapping of property rates on residential houses. Let someone include the wiping out of domestic arrears in their campaign manifesto and you will see.

 

THE IDEA WAS GOOD BUT FOR THE EXECUTION

This week the government was finalising paying out the Covid-relief monies to the 500,000 eligible households.

First off this was a better intervention than the posho and beans that were dished out last year, which benefitted a few connected people more than the intended beneficiaries.

I was shocked to learn recently that

of the sh59b that was earmarked for the distribution of that posho and beans, easily half of it went into logistics...

On this front alone, that the sh53b will get to the intended beneficiaries, this has been a succcessful intervention. Going by this logic more people have benefitted frrom the sh100,000 than those that benefitted from last year’s food handout.

Of course there was also the argument that, what if I don’t need or want or like posho and beans? Your relief is more a poke in the eye than help to me. With money I can decide to buy charcoal instead or pay for medicine or send it to a more needy relative, that is more meaningful relief than the photo opportunity of distributing food.

But now that the intervention is coming to a close, it’s a good time to look back and assess whether it met its intended goals and how can we do it better in future.

First off notice that we are completing the process at the end of the 42-day lockdown. Talking about shutting the barn door after the horse has bolted. This is a major failure and that is where the assessment has to start. I would like to give the government the benefit of doubt, but previously we know that delays heighten crises, allow for ignoring established procedures leaving room for grubby fingered opfficials to make a killing.

We urgently need to invest in data gathering and management. A lot of time was spent trying to find out the intended beneficiary because we were using 20th century, manual processes like asking village chairmen who their vulnerable are. Also the delays came as result of verifying the intended beneficiaries, a discrepancy between their names, phone numbers and ID numbers  led to rejection. No suprises that the most discrepancies were in the Kampala area. This data should be at the end of a button click, gathered and updated in real time. It would have meant that by the end of the first week of the lockdown we would have sent the money.

Also with this we would have a real assessment of who the vulnerable are. While we were constrained by finances, the 500,000 families were not arrived at scientifically – be suspicious of round numbers when dealing with human situations. Also sh100,000 handout was not arrived at scientifically, it just sounds like a nice number to dish out, how do we know the real need was not sh78,000 or sh111,000 per family.

There have been suggestions that to speed it up even more a voucher system should have been employed. Under this scheme beneficiaries would have vouchers acceptable by everybody to buy what they want. But knowing our government’s reputation as a bad dedbtor, this would only stress local economies more. So forgoing speed for efficiency is a good idea. Also it means that even informal businesses, like your neighbourhood rolex seller will be a beneficiary.

In the long term with better data collection and management government can extend this to other relief interventions. In other places such interventions are targetted at single mothers or out of work people or invalids and are ongoing. The telephone system has shown to be a cost effective way of distributing this, we just need to smoothen the means of identifiying beneficiaries.

Related to that the importance of the ID has been shown. People were reluctant to get IDs for all sort of funny reasons, never mind the usual suspects who hold all government programs in suspicion. But even more mindboggling is the number of IDs,  thousands of them that lie unclaimed. Sometimes in this country you don’t know whether to cry or laugh.

We criticise government for poor service delivery but refuse to show up for even the poor services...

These shortcomings not withstanding government took the right route in dishing out cash, but there is a lot of room for improvement in getting out such relief in a timely and appropriate manner.

 

TO BELIEVE OR NOT BELIEVE THE BUDGET

In last week’s budget we heard that the economy grew by 3.3 percent in this financial year compared to last year when the economy grew by 3.0 percent.

This is pitiful given that, prior to the covid-19 pandemic it was projected that this year the economy would grow by more than 6.0 percent.

During the Absa Bank Uganda post budget forum held on Friday it was interesting to hear various experts note that while the economy had been badly hit it was still showing growth, which has a lot to do with the way our economy is structured.

"It helps of course that we can feed ourselves as a nation. Despite the restrictions on movement and congregation the agriculture sector kept us afloat in this important aspect...

But beyond feeding us our farms also produce our biggest tradables among ourselves and in the region.

Commissioner General John Musinguzi who was a panelist at the Absa Bank forum, which was themed “Implications of the budget proposals on trade and manufacturing” said the two sectors accounted for just over half of the revenue collections.

While both sectors took a hit in the last year they still dominate the revenue collections, which suggests that it was wise for government not to restict the movement of cargo, never mind that truck drivers caused us a lot of grief in hte first pandemic wave.

While Absa mananging director Mumba Kalifungwa along with others were glad to hear governmnet maintained its commitment on the infrastructure development, Damalie Ssali, coutry director at Trademark East Africa however, pointed out that we also need to improve the roads within the country.

She reported that

Uganda loses $1.5m (Sh5.2b) daily from cars idling in Kampala traffic...

They are all connected – agriculture, higher trade volumes and manufacturing revenues and the traffic jams of Kampala.

The losses due to traffic are not just numbers, somebody has to pay for them. Beyond the increase in hypertension among drivers,  its the poorest who bear the burden of these losses in terms of poor service delivery. Because that is money that is disposable income that would have gone into buying goods and services, increasing demand for our products, keeping people in jobs or creating more altogether.

I suspect even the $1.5m daily loss is understated.

The finance ministry’s director of budget Ken Mugambe in speaking about the parish development model said at least sh5trillion has been earmarked for the programs, flowing down to the 10,000-plus parishes. While there are seven pillars of the model, government will focus on three – financial inclusion, beefing up the parish administration structures and data collection.

On one hand people see this as an attempt o byass the middlemen and get resources nearer the household, the critics however, point to the inadequate administration structures as the loophole, which will not only frustrate the program’s inception but also provide an avenue to enrich a few bureaucrats who take advantage of the confusion.

Other critics wonder whether the same work can not be executed through existing government structures and that the parish development model may be a duplication of functions.

"The intention is good, it may be failed by the implementation...

In the parish development model among other things they have provided for extension services, irrigation and bulking of products, which are useful if we are to bring agroindustrialisation into reality.

The truth is

while we can feed ourselves as a country, we do not produce enough surpluses to sustain a robust agro-industrial complex....

Production in the agricultural sector has to make quantum leaps before agorindustrialisation and its benefits of improved farmgate prices, higher export receipts and job creation can be a reality.

Increased agricultural production can increase jobs by more than the million jobs government looks to create by building industrial parks and free trade zones.

Increased production requires a market to absorb it. The East African Community now account for about a quarter of all our trade and the promise of the Africa Continental Free Trade Area look set to snap our increased production. But Uganda Manafacturer’s Association (UMA)  executive director Daniel Birungi, worried that if we do not have robust trade dispute resolution mechanisms as we have seen wth our dealings with Rwanda, where our common border has b een closed for two years, what hope is there for trading efficiently with countries far afield on the continent?

"So while we are feeling the pain of the covid pandemic in our pockets, continued macro economic stability, the improved business environment due to infrastructural improvements and the promise of increased agricultural productivity give us hope for the future....

Time will tell.

THE UGANDA PARISH MODEL AND THE TRICKLE DOWN EFFECT

Last week the finance ministry were biting their tongues in parliament to justify the near sh500b they had provided in the budget for the parish model.

The parish model of development, a pledge in the NRM manifesto, is as the title suggests the intention to have the parish - the LC II, as the unit of delivering development to the people. The NRM has decided that in their drive to shift the population, mainly the rural population, away from subsistence to commercial production, they need to oversee the process from closer than the sub-county level.

According to the NRM proposal this will be driven by the Parish Development Committee (PDC) which will be led by the parish chief and peopled by the LCI and II chairpersons, a member from the local cooperative society, elders, religious and cultural leaders.

Initially they will be charged with removing production and productivity constraints by helping manage logistics, dissemination of research findings, providing high yielding inputs and helping with pest control.

"The devil is in the detail, but one can see an attempt to transmit more determinedly the macroeconomic growth that the country has enjoyed over the last three decades to the rural areas. This is long overdue, but one wonders whether there aren’t analogous structures in the government that can do the same? We leave that for another day.

When the NRM came to power in 1986 the GDP – the sum total of economic activity, stood at $4b. On the ground the reality was worse than the number indicated, nothing worked – there were more potholes than tarmac on our roads, electricity was an urban myth and lining up for sugar, paraffin and bar soap was an improvement on commodity shortages; the formal economy was in terminal decline and more than 50 percent of our export receipts and tax revenues came from the export of coffee.

Today the economy stands at $35b, not much to write home about given per capita income is less than $1,000 but shows that the economy has grown more than eight fold or about three percent compounded annually over the period.

Unfortunately, this growth has only been concentrated in the urban areas. By some estimations Kampala account for 22.5 percent of GDP with only five percent of the national population, that means the per capita GDP of our capital city is about $3,500. And what is the capita GDP of Uganda? About $800.

And why should we be surprised, the concentration of infrastructure and services in Kampala by geographical area or per person is so much higher than any other place in the country. Hence the economic disparities we see in our country.

One can blame Uganda’s fast population growth rate – the number of Ugandans has tripled since 1986, but more importantly if there are economic inequalities are widening it’s an indictment on the government. The government has either failed to facilitate economic growth, which is far from true in Uganda or if the economy has been growing the government has failed to facilitate the equitable distribution of this growth...

Equitable distribution does not mean we will all equally benefit, but everyone will have a fair chance at improving their living standards and be able to take advantage of available opportunities to do so.

However, without government intervention to create market access, educate and keep the population healthy, ensure peace and security, the economic growth will be concentrated in a few hands.

Government does this by fast creating an enabling environment for business to thrive, tax these economic actors and then by providing security, infrastructure and social services enable the rest of the population to become productive and hopefully wealthy citizens.

Enter the parish model of development as proposed by the government. In principle this is an attempt – not the first and most definitely not the last, by government to facilitate the trickle-down effect. That if we teach our small producers to fish rather than give them the fish, the country will be better from the effort and the billions will have been put to good use.

Since seven in ten Ugandans derive their livelihoods from agriculture, which has not grown as much as construction, services or industry, this is a laudable initiative.

Especially as part of increasing productivity it will facilitate agricultural extension and irrigation, the two interventions with the highest rates of return in agriculture...

If executed well, this can be a real game changer. It is a scandal even criminal that the agriculture sector has the lowest rates of growth over the years and yet the majority of Ugandans derive a living from it. By increasing production and productivity of our farms, not only will the economy grow even faster but the good growth numbers we keep drooling over, will make sense for more and more people.

 

UGANDA SHOULD WORRY ABOUT THE NATIONAL DEBT, BUT FOR DIFFERENT REASONS

Last week we learnt that our national debt has risen to sh66trillion and inching dangerously towards 50 percent of GDP.

Fifty percent of GDP has become a psychological barrier beyond which we should not cross to maintain debt sustainability.

What caused jaws to drop was that 40 percent of this debt or about sh19trillion was contracted in the last year, a lot of it as Covid-19 relief. But we also continue to invest heavily in our infrastructure development mainly roads and in the electricity sector.

More fuel was thrown on the fire when it was reported that finance minister Matia Kasaija is considering going to the lenders to ask for a suspension of servicing, presumably until we get over the Covid-19 hump.

American billionaire Warren Buffett put it best when he said, you shall know who is swimming naked when the tide goes out. In good times everyone looks good but when a crisis comes along we will be able to see which people have more style than substance.

Uganda’s growth record has been good by any standard over the last three decades during which time the size of the economy has seen a near nine-fold growth to $35b to day from about $4b in 1986.

In the country’s rehabilitation effort we only managed to attain 1970 levels in terms of per capita GDP in about 2000 and so for the last 20 years we have been adding extra capacity. Put another way we are now where we should have been in 1991 if it wasn’t for the instability of the 1970s and 1980s, which just goes to show how much work there is to do.

But while there has been growth this has not been equitably spread around the population, which should not come as a surprise for two reasons.

The way GDP – the sum total of a country’s economic activity in a year, is measured, the main drivers of the economy have been in services, construction and manufacturing. The main beneficiaries of these have been in the urban areas where most of the schooled population lives.

The explosion in school enrollments since 1997 when UPE was introduced means that more people than ever before are coming into the workspace and competing for jobs in those same sectors. Unfortunately, we are not creating near enough formal jobs to absorb the half a million Ugandans joining the workforce every year.

This calls for more investment by government especially in creating a business friendly environment. It is business that will create jobs not government.

To the extent that we are behind schedule is the extent that we need to accelerate investment...

As an example the average middle income country has a road coverage of about 88 km per square km while us in Uganda with our 5000km of paved road our figure is about 16km. That means to catch up we would have to increase our investment to bring us to 25,000 km of paved road. The additional 20,000km of road would cost – at about a million dollars a km, about $20b or about sh72trillion or about one and half time our entire budget today. Even if we spread this outlay over 10 years it would cost us sh7.2trillion annually at today’s prices.

And this is only roads, there are just as big or bigger deficits to be bridged in electricity coverage or number of doctors, engineers or teachers we need to move to the next level of development.

Given that we are only collecting about sh20trillion in domestic revenue explains why we have to borrow.

Maybe we should slow down on infrastructure development until we can afford it? A real chicken and egg situation.

It would be bad politics and economics to try and develop using only our domestic revenue collections. Bad politics because population growth is not going to wait and bad economics because as shown above, we are already way behind schedule....

So the real question is not why is our debt ballooning but why we are not shouldering more of our own cost of development.

As it is now domestic revenues are coming in at about 14 percent of GDP as compared to a sub-saharan average of just under 20 percent. We are struggling to increase our revenues because it is much easier to negotiate loans than it is to rope in more people to pay taxes.

The truth is the donors will not always be around but Ugandans will always be around. Common sense would suggest that we get more people paying taxes, if only as a guard against the day when the donors withhold their money for one reason or another.

We have anecdotal proof of this. Over the last decade a shift of the budget towards infrastructure development and away from consumption is what has kept the growth figures ticking up in difficult circumstances. The shift was not necessarily popular with everyone but it will pay dividends well into the future.

"Improved infrastructure improves the business environment which increase the revenue collections which in turn makes our debt management much easier....

We have done well raising our domestic revenues over the last three decades – sh5b to the current sh20trillion, but it is not time to rest on our laurels.

SOMETHING IS GOING TO GIVE

A week or so ago, it was reported that parliament had earmarked a budget of sh165b or sh300m for each of the 520 MPs to buy a car.

Understandably there was a public uproar. In this time when we are trying to recover from the Covid-19 related down turn in the economy, when many are seeing lower incomes or loss of jobs altogether, when businesses are shutting down up and down the street,

this shameless show of public gorging at the trough was worse than a slap in the face of Ugandans....

History shows that among the main  reasons for economic collapse, is when countries starve or eliminate the productive sectors of resources in favour of consumers.

We saw it in the 1970s with the expulsion of the Asians by Idi Amin.  The Asians at the time dominated the commercial space – as they did all over East Africa. You might not like the Asians, business skills are passed on through mentorship not through presidential edict. It is the reason why some of our most respected businessmen have learnt their skills at the feet of Asian businessmen, and why too, Kenya’s indigenous business community is more robust than our own.

It happened more recently in Zimbabwe, where Robert Mugabe in a last desperate attempt to hang on to power dispossessed white businessmen of their land. The result was that Zimbabwe went from a net exporter of food to a recipient of food aid today.

In the 21st century less brutal means are being used but work nevertheless. 

When MPs get sh165b for cars to whizz around the country, sectors like tourism – our largest foreign exchange earner, have been allocated sh176b in the 2021/22 budget. Gold has overtaken coffee as our largest export earner, but only sh81b has been allocated to mineral development.  

The winner has to be that government has allocated sh102b to digital transformation. 

Last year if there were any doubts that this country needs to fast track the adoption of ICT technologies, the Covid lockdown removed all doubt. Businessmen were forced to adopt electronic payment systems and online delivery to stay afloat. We need more government investment in infrastrucure and training as well as forward looking policies that will ensure we keep up with modern trends. Consumers need faster internet speeds and those who don’t have, should not be left behind.

Maybe the sh100b earmarked for digital transformation is enough but it speaks to what our priorities are.

Parliament, which has grown to an ungainly 520 members while our revenues are expected to fall short of the projected sh21.8trillion by sh3trillion. It is common sense – or at least it should be, that when your incomes is falling you have to cut your expenses, but clearly not in Uganda.

It would be funny if it weren’t frightening...

People forget that the reason we had to suffer the Structural Adjustment Programs (SAPs) of the 1980s and 1990s, at the heart of it, was that we were not collecting enough revenue to meet our costs. So we were forced to cut back on our costs as a condition to borrow the money to jump start the productive sectors of the economy.

If we are not careful we may find ourselves back in the same place and not because of war and destruction...

As it is now one in every three shillings of the budget – sh15trillion is going to go towards debt repayments. This would not be a problem as long as the economy is growing and tax revenues are following suit, but that is not the case.

And since we don’t want to tighten our belts we have to borrow more to cover the deficit, and who approves government loan requests? Parliament. What a racket!

To be fair there are other questionable expenditures up and down the budget – did you hear about the sh481b the Bank of Uganda did not want?

So God forbid one day we will wake up a we can not service our debt and the foreign lenders will  return us to SAPs. Hopefully one of the fist things they will insist on, is to take an axe to parliament’s ballooning budget. And of course parliament will mobilise us lemmings to protest against the “imperialist” agents, yet they are the ones through their own profligacy, that will have sunk us into the hole. Unfortunately health, education and infrastructure budgets will be cut slowing down our development ambitions.

Some may argue that the sh165b is to cater for cars over the next five years, but it is still a one off hit on next year’s budget.

Ok given that the MPs need transportation to carry out their “important” duties in their constituencies, but there are much more cost efficient ways to do this.

For instance government can lend the MPs the money to buy their cars. Even if they gave them interest free loans that would be much cheaper than what is currently happening. One advantage of this is the MPs would be forced to cut their coat to fit the cloth and we might have a more  rational distribution of cars, not all fuel guzzlers as it is likely to be now.

But even cheaper for government is if it got a fleet management company that would own  and maintain the cars. Also in addition they would rationalise the fleet, there is no reason why the Kampala Central MP should have a car of the same capacity as the MP from Arua, Kabong or Kisoro.  This will have real cost saving implications not only in the cost of the cars but also the cost of running them. 

And those are a but a few options we should, no, must adopt, in order to come out of the current economic crisis standing.

Unfortunately this is not going to happen.

Our public servants and officials see the treasury only as means for accumulation and self aggrandisement and to hell with the rest of us....

Imagine where this country would be if those same MPs set their minds to building enterprises that can sustain them in the lifestyles – sh20m a month salary, they have now become accustomed?

LESSONS FROM 2020, A YEAR TO FORGET

Last year was supposed to be the year that everything fell in place and we would take off to greater heights.

It is the year, we found out about a place called Wuhan in China, we forwent shaking hands and hugging without being branded anti-social, sneezing was taboo and we almost went bat crazy being in isolation.

They say,

"If you want to make God laugh tell him your plans...

In the best tradition of turning lemons into lemonades, here are some lessons learnt from a year we would all love to forget.

1. You never know when the rainy day is coming

It is a fact of life that things will be going well until they don’t. And like a thief in the night the bad times never announce themselves. Who would have though that a flu-like disease would shut down the world – literally?

So if there is one thing that 2020 showed us is the importance of saving. We don’t save for lack of cash or lack of willingness but because we don’t know how to save. When we get our paycheck, we intention to save something after we have catered for all our expenses and inevitably we don’t save. The trick is when you get your paycheck save some predetermined amount first and spend what is left. 

This simple, but not easy, shift in perspective will make a world of difference in beefing up your savings, and therefore readying us for the inevitable rainy day.

2. Multiple streams of income became real

With paychecks being cut or lost altogether, the old say about keeping all eggs in one basket took on a new importance.

Beyond your major income do you have other income streams you can count on, on a regular basis? Are they diverse enough that if some dry up others will be there to take up the slack?

And how do you build up these income streams? You can earn income from your selling your expertise – consulting or from a hobby you pursue in your free time. The trick is to provide value and make known what you do – marketing. Once you build a reputation guard it with your life.

With your savings you can start investing to build these income streams. Do it like the banks, build your asset base from near cash assets –  savings and fixed deposits, to treasury bills and bonds to shares in companies and eventually to more fixed assets like real estate. 

"The mistake many of us make is to jump straight into fixed assets, which while a good store of value, return very little cash-on-cash and can often leave us asset rich and cash poor...

Systematically building this pile of cash generating assets, may make the difference between returning to your parents house at the next crisis or weathering the storm with a smile or at least a grin.

3. The personal brand takes work

In our office space, working in a functioning organisation, doing what we do best, can be deceptive. No one but your immediate colleagues and boss know or appreciate your value. That is all very well as long as you are in the job you are in. As soon as you lose that job you realise you are not so hot as you thought. Not that your expertise or experience disappears in a puff of smoke, but because not enough people in the wider world appreciate your value.

Just because you have all the letters of the alphabet after your name doesn’t mean you deliver value.

So personal branding became important in 2020. The market will pay you according to the perceived value you can deliver. The market can not divine your value. You need to communicate your value deliberately, systematically and consistently for it to be fully appreciated.

This takes work, work we should be doing every day and especially in the good times when hakuna matata.

4. Social capital was key

When things are going well – the money is flowing in, we are covering our bills, with some left over to have a good time we forget the value of social support systems. The people around us – at home, at the office, our alumni became useful in getting us through the darkest, loneliest periods. The extent to which they were useful depended on how we had watered these relationships in the good times.  

Ironically despite the world being more connected we are actually more detached from our social networks. 

We need to invest in these more ahead of the next crisis. In the words of Dale Carnegie, “be interested to be interesting”. Speak to our people, find out what makes them tick, be available, help when you can, accept help where you can (a friend in need is a friend indeed) and generally be more friendly, even if to two other people in your life.

5. Invest in your inner resources

But when all was said and done, regardless of if you had a village supporting you or you were alone, it was really up to you to struggle through the year.

There is a case for building your inner resources – mental and spiritual during the good times so that your inner peace is not easily disrupted when the hard times come along.

Mentally you need to keep learning and that means you have t o maintain an open mind that is easily teachable. Hanging on to fixed positions for security, means that when the upheavals come we will not have the  mental flexibility to adjust.

A continued quest of self discovery will eventually bring one to the universal truths that religions have tried to codify down the ages. Finding ones own truth – not the turnkey solutions parroted by charlatans, is a continous and arduous journey. The end benefit is that the journey grounds you, more than any religious dogma does and when the hard times come along you will have an anchor. 

Otherwise Happy New Year to you all and may 2021 be more easy on you – on us all,  than 2020.

WHILE YOU WERE AWAY, THE ECONOMY HELD UP

While we were all fixated on the drama surrounding the presidential campaigns this week, the World Bank released its Uganda Economic Update, a forward looking report that rose above the noise of the day.

The bi-annual report titled “Investing in Uganda’s demographic transition,” addressed itself to the ongoing demographic transition from a largely youthful population to one, which in a few years will have a much huger workforce that can either be a loadstone on the economy or a force for continued growth.

But while that was happening a report from financial information services provider, Bloomberg filtered through, which said that Uganda’s economy is set to grow by 2.1  percent in 2020. Much lower than in 2019 when the economy sprinted to a 6.7 percent growth, but still amongst the fastest growing economies in the world.

The report said that Uganda will  be the fifth fastest growing economy this year, behind Bangladesh, Ethiopia, Vietnam and China and ahead of Cote D’Ivoire, Egypt, Ghana, Rwanda and Kenya.

The report gave no details about Uganda’s growth outlook but noted that

African countries, which made up seven of the top ten fastest economies, had seen the shift away from raw material exports to becoming ICT hubs accelerated by the COVID-19 crisis...

Local observers pointed out that ICT output grew 33 percent compared to contraction in the last two years, driven by an increasing reliance on e-commerce and mobile money.

It was also reported that agriculture was among the sectors that grew, as rural-urban supply chains were left open and recent initiatives to push up farm production continued to pay off.

However, while this macroeconomic resilience is cause for celebration but will mean nothing to the everyday man, if they don’t trickle down to the man on the street. 

"The trick to doing this is building an economy that not only fosters economic activity but also uses these gains to ensure continual improvement of the business environment and invest in its citizens, through education and health services to make them more productive....

Unfortunately for Uganda, after years of neglect and mismanagement, we have huge deficits in infrastructure and human capital.

This is a dilemma because we have the choice to try bridge all these deficits simultaneously or on the other hand try and sequence the investments.

We don’t have the luxury of doing either. In the first instance because of our wanting resources and in the second instance, because it cant be an either or question – do you let school enrolments stagnate as you build transport, communications and energy infrastructure or the other way around.

Truth be told we have leaned towards the latter rather than the former.

The World Bank counsels though, that a better balance has to be found if we are to reap a demographic dividend in coming years.

The demographic dividend refers to the benefits from a huge working population that is skilled and productive and contributing to the country’s growth.

Uganda will have to double its annual investment in education and health over coming decades if it is to reap this dividend.

Given our current population growth rate the population is doubling every 25 years, which means beyond the doubling growth in these investments, these will have to at least match population growth rates.

The World Bank doesn’t say it but

a huge youthful population without gainful employment is a recipe for social unrest and chaos...

The challenge is financing these investments – at the same time ploughing money into infrastructure.

We have to collect more taxes. The existing tax payers are already overstrained and hence a need to rope in more people into the tax base. Taxing land – all land, can not be put off much longer. With one stroke we will collect more, while making the land more productive.

Secondly, we have to plug the leaks. We cant have a connected few plundering state coffers to finance their first world lifestyles while the vast majority cant get quality health care or a decent education, ensuring that income and wealth disparities are perpetuated down the generations...

And then we must save more, by force if necessary, as a way to increase domestic long term funds to finance this same development.

Our ability to feed ourselves as a nation has continued to  support us in our hours of need – our lockdown experience would otherwise have been worse, but

if we do not take a long view and make the hard decisions that need to be made to ensure sustainability, even quack prophets can see the future.

THE CASE FOR SOCIAL SECURITY IN UGANDA

Last week Scotland became the first country in the world to make sanitary products free, including sanitary pads and tampons,   which they said was to help eliminate period poverty.

They recognized that one in ten Scottish women struggle to afford sanitary products on a monthly basis and half of the girls surveyed missed school on account of the monthly event.

In Uganda school drop out among girls were higher than those among boys, lack of adequate facilities to deal with their periods being a major contributor.

This speaks to the larger issue of social protection. The recognition that while we should all receive according to our needs, some classes can not meet their basic requirements of life. This maybe due to their low incomes or disability.

In the same week our finance ministry reported that people living in absolute poverty in Uganda had increased to 28 percent during the COVID -19 lockdown compared to 16 percent prior.

"With the effects of the COVID-19 pandemic not expected to let up for at least another year, it is unlikely that most of those who have fallen into abject poverty will be able to dig themselves out in a year....

As it is now our social security safety nets are too thin and those who are covered are largely already in gainful employment.

Hence the case for cash grants to the most vulnerable members of our society.

A few weeks ago government put a halt to an NGO sponsored scheme to provide monthly cash grants to poor they had identified and who they could afford to support.

Government is within its rights to be wary of any foreign sponsorship of such schemes, as long as it is not in control of the process. But it then has the obligation to provide an alternative solution.

The world over there has been huge controversy about welfare payments, except in countries where they work, in Scandinavia  especially.

The critics argue that it only serves to increase government spending and increase dependency of the recipients. The supporters have shown through the data that actually the handouts are less likely than thought to create dependency, they in fact are used to uplift their living standards by paying for school and health fees and even acquiring assets. 

With the recent lockdown the case for social security became even more pertinent.

With companies working at less than full capacity for lack of demand, cash grants would help keep them in business. In fact it would be a better intervention for the economy than the posho and beans handed out to the most vulnerable, because with money in their hands they could decide what their most pressing needs were, not necessarily food.

Like during the global financial crisis of a decade ago, the debate was whether to bail out the big companies or step up relief to people who were hardest hit by the crisis. The US chose to bail out the big companies, while Europe, without letting its companies fold provided a robust social security response.

"While the US rebounded faster from the crisis at a macro level, Europe’s populations were cushioned for the worst of the crisis, thanks to existing social security mechanisms which were beefed up, with differing levels of success to aid its populations....

Bailouts by the big companies were used to help restructure them – often leading to job cuts, while in Europe the money in people’s hands helped their companies stay afloat and ensure that some dignity was saved for the everyday man.

Governments don’t like these discussions because, in an earlier age it was difficult to execute and would make them more accountable to more people beyond the tax payer.

If in Uganda’s case cash grants as i describe would mean another million people would be watching government, to who government doesn’t exist in a direct way. Missed payments or other inefficiencies would trigger protests they do not need. Not to mention they would have to commit for the long term because once you start it is unlikely you can stop the process without a lot of protest.

A lot of the cash grants in western economies begun after the second world war, when western Europe had to resuscitate the economy. It is all very nice building companies but if no one is buying  the companies’ shares are not worth the paper they are printed on.

Back to the lucky ladies of Scotland. With one stroke the governmmnet has given a boost to the industry around sanitary protection, while ensuring girls can do better at school and eventually become more productive members of society in the future. One outcome – the boost to industry, is more immediate but the second is more durable and pay uncountable dividends to the country generations into the future....

 President Yoweri Museveni has pledged to bail out companies stressed by the COVID-19 pandemic. This could turn into a gravy train for a few connected individuals and the outcome will be very questionable. But if we split the bail out between the companies and providing social security recovery can be more evenly spread and sustainable.

It is not only good economics but good politics as well.

GOVERNMENT BETWEEN A ROCK AND A HARD PLACE

In last week’s state of the nation address President Yoweri Museveni announced a battery of things the government was planning to jump start the economy after more than two months of lock down.

The restriction of movement and congregation, meant to slow the rate of infection of covid-19 the diseases caused by the Cororna virus, has ground the economy to a halt not only Uganda but all over the world.

The corona crisis is a health crisis that has escalated fast into an economic crisis.

The expectation has been that there will be a wave of business collapses and the subsequent job losses that could potentially spill over into social unrest and political upheaval.

To stave off this last scenario, governments around the world have opened the taps of government spending, economic stimulus, to help support their respective economies.

Unlike another crisis since the second world war, the economic dislocation has been swift, massive and global in its reach. But it has been unique in the total collapse in demand, in a situation of over capacity.

To illustrate, while many people –

up to 80% in certain segments have lost their incomes, the capacity to produce, to feed or service all those people is still there. It has just been switched off..

.

The companies that have been shut down are facing the real possibility of closure, depending on the robustness of their balance sheets, but the most vulnerable members of our society are falling deeper into poverty and facing real existential questions.

The two are related. To the extent that people are unable to get back to spending money because of the uncertainties of the economy or because they have no money all together, is how long it will take for businesses to get back to full production and employment.

So the effectiveness of a government stimulus will depend on how well this reality is appreciated.

It is particularly important in Uganda where more than seven in ten dollars of economic output is attributed to the informal economy.

More formal economies in western Europe recognise this and their stimulus packages while shoring up big business, have emphasised support from Small and Medium size enterprises (SMEs) and individuals out of a job.

It is a lesson many learnt after the second world war. As they embarked on reconstruction they realised too that while industry was getting back on its feet they had to provide unemployment benefits. These monies provided the demand that helped spur industrial growth.

Many of them have maintained and even widened the nature of welfare benefits. While its critics have seen this as wasteful and prone to political manipulation, their criticism might be because they would rather those monies be used to support big business than disperse it among the masses.

The supporters of these “handouts” also argue that

if you give your everyday man sh50,000 he will buy from the local shops, seek treatment at the clinic and pay the boda boda....

These in turn will pay local suppliers and the local economies badly hit by this crisis will at worst not collapse all together.

If on the other hand you give a handful of suppliers sh80b, which is the sh50,000 distributed among the 1.6m families living in poverty, they will save it in his bank, import new furniture and vehicles, pay school fees for their children or seek treatment abroad and even invest abroad. True, they may also buy some land (keeping the money among the fellow rich) or build a new mansion, and even pay school fees for some village orphans.

It is hard to argue against a direct injection of cash into local communities, which incidentally, will still find its way into the pockets of big business, eventually. A trickle up effect. But

the connected don’t want these drip, drip returns, they want the money to be gushing hard and fast and to hell with the rest of us...

 

Beyond the pressure from the connected few, the idea of handing out cash to the vulnerable as part of package to jump start the economy is met with the argument that it will create dependency. We just sounds like a logical assumption to make but falls flat in the face of the evidence, which shows that most people who are beneficiaries find a way to wean themselves off the benefits to become more productive members of society.

The argument may mask the real reason. Many political disturbances have resulted when faced with worsening economic conditions, governments withdraw these benefits. 

To sustain a welfare system over generations, requires disciplined budgetary processes, so when the bad times come – as they inevitably do, you can still sustain welfare payments to your people....

The mixed Scandinavian economies could teach us a thing or two in this direction. 

In vulnerable economies like ours, financing even a minimal social benefits scheme would mean borrowing from abroad and there our fear – reasonably so, of donor interference rears its ugly head.

A running scale of benefits to small business and the poor, going from cash handouts or grants, to soft loans and all the way up would be a good idea.

NOW GIVE US MONEY NOT POSHO

In starts and fits, government has been distributing maize flour and beans to the vulnerable populations of Kampala and Wakiso.

The program that has been in motion since the beginning of April is still ongoing, despite earlier plans to complete in two weeks.

Apart from a few questions of quality, most recipients seem to have been grateful for the handout.

As the government slowly lifts the lock down, it will have to contend with the economic debris left behind.

The lock down, the restriction of movement and congregation, was intended to slow the rate of infection, which for all intents and purposes we have done very well.

At the time of writing this the number of recorded infections was shy of 300, about two months since we recorded our first case. Going by the rate of infection elsewhere we should have crossed the 1000-mark by now.

The lock down’s secondary reason was to allow government improve its capacity to test, track and treat eventual infections that will occur.

 " With the lifting of the lock down infections will rise and time will tell whether government was ready enough...

The lock down also brought economic activity to a near standstill, the net effect of this is that many businesses will shut down and jobs will be lost as we try to come to terms with the after effects of the lock down.

 

We are opening up to world where there is a lot of idle capacity but little demand to take this up.

So the New Vision for instance has seen its sales fall to below 20,000 copies a day, but the machinery and people to produce the paper are still largely in place.

Ideally what should happen is that as soon as people get back on the streets our sales jump back to pre-covid-19 levels immediately. That is unlikely to happen.

This scenario is being replicated across the economy, across all industries (except the telecommunications companies maybe).

During the global financial crisis that happened about a decade ago, western economies grappled with how to handle the situation.

The US sought to bail out its giant companies in industry and finance, the argument being they were too big to fail. That if they did fail, the ripple effect across the economy of lost productivity and job losses would be catastrophic.

Europe did a bit of that but emphasised more shoring up the social security net for its people.

The result,

while the US on paper came out of the slump faster, wealth inequalities widened and the most vulnerable people in that society were badly affected...

Europe was still in recovery mode by the time the Corona crisis came around, but recovery was more spread out among the population.

Given the experience of the western economies, it seems obvious that Uganda will have to thing deeper about social security if it is to come out of this crisis with some hope of future prosperity.

This week the US, through their USAID office here announced it will be handing out cash – sh92,000 a month for three months to a few thousand people around the country.

The money is supposed to help these vulnerable people get back on their feet during these hard times.

From a purely humanitarian standpoint it  is hard to argue against helping the least of our brothers.

However, plans to do this have come against two roadblocks. One, isn’t this a sure way to encourage dependency among our people. And secondly, how long can such programs be sustained.

Thankfully we need not go on guess work. The government has been running a pilot unconditional cash grant to the elderly, SAGE (Social Assistance Grants for Empowerment) for the last decade.

The government gave people over 65 were being given sh25,000 monthly in a program that expanded to 57 districts from less than 20.

A study done by UNICEF showed that these grants had had far reaching benefits not only to the recipients but their respective communities as well.

The benefits  included more employment, improved school enrollment and better feeding.

Its an expensive endevour to carry out all year around, that’s why government has raised the age requirement to 80 to spread the initiative across the country.

Beyond the feel good factor of helping the most vulnerable members of the society there is some hard economic sense for government to be making these handouts, especially now.   

"Most welfare programs in the western economies took off after the second world war. It was a way not only to aid the people but also to jump start industry, what is the point of manufacturing all those bicycles or shoes or plates if there is no one to buy them?....

So by helping the common man back on their feet they were creating a market for industry.  

The spillover into economic growth is quite obvious. There are studies which show such grants have a comparable return on investment as infrastructure.

Thankfully the tools to make direct payments have already been tested and explored under SAGE so delivery shouldn’t be a problem if we committed to the program tomorrow.

So instead of a handful of people benefitting from government relief aid more people will benefit.

You are giving me maize and beans,  thank you very much but I might need soap or charcoal or medicine more urgently now. If you give me money I will make those decisions for myself much more efficiently.

The question though, how is government going to afford it? Given the anaemic state of our coffers now there is no doubt that government would have to borrow to support such a program, but given that these monies will be used to support  local business it would have to be considered a good spending of tax payers money.

THE MOBILE PHONES UNDERSTATED ROLE IN ECONOMIC GROWTH

A friend recently did a trip up and down the country. Having done this several times before, he was shocked to discover, this time around, that he could not roll into a town unannounced, so to speak, book himself into a hotel for a night. Like in the good old days.

Being a celebrity counted for nothing. There was not a quality room– clean linen, working shower and solid door, to be had.

This did not happen only once but in several towns in the west, north and east of the country. And he couldn’t work out what was happening.

"In 1999 Uganda’s GDP growth jumped to 8.1% from 4.9% the previous year. There was no coffee boom or bumper harvest that year. In fact El Nino, the weather phenomenon characterized by flooding and prolonged rains had ravaged the crops up and down the country. In addition we were suffering a lot of bad press for our incursion into Congo and some donors had pulled the plug on their funds in a huff...

But in that year Uganda became the first country in sub-Saharan Africa where mobile phone coverage exceeded the number of land lines.

Up to this point Uganda had about 50,000 landlines on the Uganda Posts & Telecommunications Corporation (UPTC) network. In November 1998 South African company MTN –mobile telecommunications network then, entered the market and triggered the explosion in the uptake of mobile phones.

The correlation between the near doubling in GDP growth in 12 months and the widespread use of mobile phones is anecdotal at best, but may provide useful grist for a study.

Fast forward to today and the same parallels may be drawn to explain my friend’s travails on his travels.

But before we talk about mobile phone coverage there is the improvement in trunk roads around the country. In the last few years hundreds of kilometers of trunk roads have been worked on, creating a tarmac lattice around the country, making movement that much easier.

So it’s possible that the inns around the country are full, from travelers who can begin their trip later in the day and stopover in the major towns before a final push for home in the morning.

Add to that the phenomenon that now transport is available to any part of the country from Kampala any time of the day or night.

But I would like to think too that since now mobile communication has grown beyond voice calls as it was in 1999, to now include texting, social media and even mobile money, economy is beginning to reap the benefits of these improved communication means.

The last one is particularly interesting, it has become such a part of our lives that we take it for granted.

In 1998 if someone called you and said he was hard up for money, he was in Mbale say and you were in Kampala, how quickly could you get the money if you had it on you? You could go down to the bus park and find someone to deliver the money to so-and-so’s shop. People got a bit clever and to move money over such distances they would buy airtime, text the code and the recipient would find a way to flog the airtime for money where he was.

Hard to imagine if you were not there, when today the request can be honoured in under five minutes.

Given this scenario, is it no wonder that we now have a proliferation of bars springing up around every surburb and seemingly doing a rip roaring business day in, day out? There are even Sunday night theme nights these days!

"In the 2017/18 financial year sh73 trillion or more than twice that year’s sh30trillion national budget was transacted across all mobile money platforms. This figure was up 37% from the previous year’s sh53trillion. The figures are not out yet for the last financial year but assuming the same rate of growth, at least sh100trillion moved around all mobile money platforms in 2018/19....

If money can move around faster it stands to reason that there will be increased economic activity, the production, distribution and consumption of goods and services. And this is happening in a time when it is widely acknowledged that there is an economy-wide cash squeeze.

So the nephew on campus can now send a message to his favourite uncle Ben on a Friday night for beer money or you can order for and pay for a cab to pick up your better half and deposit him/her at your location without a word said or a physical exchange of cash or if you are an operator of a night spot you can advertise it online for the cost of only a few megabytes and or probably get a better response than before.

So it’s possible that my wandering friend has come up against the underrated power of the mobile phone, its growing uptake and use that make consumption easier and forced an uncomfortable night in the back seat.