They say you know who was swimming naked when the tide falls.
The financial crisis continues to deepen despite the best efforts of western central banks. There has been some recovery on world stock exchanges in reaction to pledged rescue packages and slashing of central bank lending rates to banking industry, but observers think more has to be done before we have a sustained rally.
The tag team action by world central bankers means the crisis will be shorter than it would have had world markets been left to their own devices, but the crisis may not play itself out in a few weeks or months or even years.
Central Bank governor Emmanuel Mutebile said last week that a global recession would hit Uganda's export earnings, foreign development aid, remittances and foreign direct investment.
He went on to project that the economy will fall short of an eight percent growth target set by the finance ministry and suggested that five to six percent growth will be more realistic.
Many observers expected that there would be some time lag before the crisis washes over our shores but have since reassessed their thinking.
The dollar has gained strength against the shilling to sell at as much as sh2000, levels previously seen in 2003. The spike in the dollar is attributed to an global strengthening of the dollar and more specific to our circumstances, foreign investors pulling out of our treasury bill and bond market and repatriating their money.
The immediate effect of this is a rise in fuel pump prices, despite the fact that world oil prices have fallen by more than half from the record $147 a barrel registered in July.
And as day follows night an increase in pump prices will soon be seen in everything else and not help our inflation, now in double digits for the first time since the early 1990s.
But two concerns listed by the governor -- the threat to foreign development aid and remittances concern me most.
As it is now the donors carry 90 percent of our development budget – this includes infrastructure development, building school and hospitals and capacity building.
When the world economy was booming these same donors were unable to meet an agreed target for aid as a proportion of their GDPs .
The third world will fall even further down their things-to-do list when western economies are scrambling to patch together hundreds of billions of dollars to prop up their own financial systems.
Going by the development model we have been flogging for the last 20 years, if western interest in the rest of the world’s problems fizzles out who will pave our roads, build our schools, construct our dams and immunize our children?
And it is almost inconceivable that foreign private capital will continue to flow into Africa once there are severe cuts in official aid. It is official aid that has kept our infrastructure barely intact when it would have totally collapsed years ago.
But closer to home if our brothers and sisters in the diaspora find themselves out of work because businesses are closing and jobs are being lost, who is going to pay our children’s school fees and medical bills, build our family homes and send us a few dollar to boom at Christmas?
The tide is out and it seems we were swimming naked.
It has been hard to wean ourselves off donor aid because there seemed no end to it. We committed every crime in the book, including steal money for vaccinating babies and the aid still rolled in.
It would take a very focused man to build his own capacity to generate income with all these donations flowing in.
In the event that donor taps dry up, however briefly, the development model of the last 20 years will need to come under serious scrutiny.
We need to ask ourselves what other means are available to us – other than groveling before the still liquid Chinese and Arabs, to raise money locally.
We will need to ask whether we can continue to carry our huge parliament, a huge public sector, riddled with duplication of services and irrelevant positions.
We will need to look at corruption more critically, because without donor largesse every coin will count.
We will have to rethink our tax system as the current one seems unable to widen our tax base any further than it currently can despite the fact that up to 70 percent of our business community is not paying taxes.
So there is a silver lining to the current global meltdown. This could be the trigger we need to rise to the next level of development and despite the short term pain it will necessitate will not be such a bad thing in the long run.
Published November 2008, New Vision
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