SELL MABIRA TO SAVE IT

Mabira forest is back in the news.

Four years ago it emerged that the Sugar Corporation of Uganda, Lugazi (SCOUL) had wanted a piece of the forest to expand their sugar production. This sparked off angry protests that culminated in a failed demonstration and a few deaths. The government backed off the issue. And so did the protestors. Until now.

President Yoweri Museveni has once again sparked off angry debate by declaring his intention to cede some of the forest to the Mehta family’s company.

The environmental lobby has jumped on this and has even threatened to sue the government if it attempted to do as planned.

Putting our natural resources to optimal use for the benefit of Ugandan citizens on the one hand and the need to conserve forest cover and our natural diversity on the other seem to be the underlying principles of the two positions.

I don’t think these positions need be diametrically opposed as they are being presented now.

In fact Ugandans’ best chance of saving the natural endowment that is Mabira forest is to privatize it...

As it is now Mabira forest like many other forests around the country is being encroached upon and its trees being felled for a variety of reasons most especially for firewood.

National statistics show that Uganda is losing its forest cover by almost ten percent annually at this rate of doing things it is estimated that in 20 years we will have no forest cover to think of.

There is no reason to believe Mabira is not being decimated at all.

The reason for this plundering of the natural resource is not hard to find. To begin with we get most of our energy from firewood and charcoal and secondly, the public stewards of these natural resources are not up to the task of warding off the pressure for fuel – mostly for lack of resources but also because they – the forests are public goods.

There once were four men Everybody, Somebody, Anybody and Nobody. There was work to be done and Everybody thought Anybody would do it but it turned out that Nobody did it instead of Somebody.

That is the way public goods are treated. The truth be told we are frothing at the mouth because it is a big company – Asian at that, that wants to take over the forest for their business. We are however not emotionally charged by the smalltime encroachers eating away at the forest year after year, maybe because they are black Africans?

Twenty, thirty even fifty years from now if things continue our children and grandchildren reading history will look at the bare land that was once Mabira and wonder what the farce was about. It will be gone anyway.

The solution and it’s not an original one, is to concession off the forest to private operators. These maybe tourist, pharmaceutical, research, conservation or any enterprise
that at once conserve the natural environment and show return on their own investment.

So for instance if you concessioned off a quarter of the forest to hotelier. It would be in the best interest of the hotel to keep the environment intact and doing so would have to invest resources in the protecting, regenerating and even expanding it.

SCOUL need not be disqualified from this process as well as long as they can show how they conserve the environment.

Understandably there will be some clearing involved to make way for the infrastructure to support any enterprise but this would be nothing compared to the saved forest cover from creeping, unplanned human activity going on.

The concession would be audited every so often against the conditions laid down by government and it would be renewable every few decades or so.

"We all know that our public enterprises are ill equipped – materially and morally, to conserve our environment, so let us not fool ourselves that because it is in government hands it is safe for all eternity...

We need to weed ourselves of this knee jerk reaction against private interests and look for creative win-win solutions if if we are to secure not only Mabira but also other pieces of our natural heritage.

URA SPEARHEADING TRANSFORMATION OF THE ECONOMY

The Uganda Revenue Authority(URA) has lurched onto a new way to collect income tax.

Starting in June this year URA has taken advantage of property transactions – cars, land and buildings to collect income tax. How it works is if you want to buy a property, when paying stamp duty to effect the transfer URA will check whether you are tax compliant if not the y will deem the sum you paid for the property as undeclared income and will slap a 30% tax on it. This is for transactions over sh50m.

It is estimated that up to 70% of the Ugandan economy is in the informal sector, meaning a lot of transactions are done under the radar, mostly done using cash, whose source is also hard to pin down.

Our money makers to secure this money in solid assets, buy land and houses, explaining Kampala’s property boom of recent years.

Personally I think this initiative is long overdue. URA’s overreliance on international trade to meet its targets was not going to be sustainable in the long run. Of course URA is one of the major beneficiaries of a depreciating shilling but that is a short sighted approach to taxes.

In order to become a middle income country by 2020 we must widen our tax base and rely more on income tax than import duties.

One benefit of taxation that is rarely discussed is its impact on a nation’s productivity.

Fortunately we have recent history to call on. In 2006 government scrapped graduated tax. The arguments that it was too expensive to collect and was regressive won the day. It also helped that it was an election year. When political expediency comes up against economic good sense, the former often wins the day, to the long term detriment of nations. Ask the US.

Five years down the line the fall out is a reduction of productivity, as villagers feel no compulsion to produce more than they eat and city youth with no incentive to work, resort to stone throwing as a welcome past time.

We forget why graduated tax was introduced. In order to get us to grow cash crops for British industry the colonial government introduced poll tax, payable by every able bodied man. The only way to get the money to pay the tax was to grow coffee, cotton or tea. That is how we became a big coffee and cotton growing nation. Do not believe that our forefathers grew these crops out of the goodness of their hearts.

Arguably we are unproductive because we are not taxed enough.

I know URA is going to come under a lot of heat from the urban elite to drop this initiative altogether and I will be impressed if the tax authority gets any overt political backing. But they are just scratching the surface in potential collections they can extract from the people.

For example we have a few landed families wallowing in poverty despite the square miles of land that have been passed down the generations. The land which is encumbered by unlawful occupants is a dead weight on both parties for the similar reason that neither can unlock the full potential of the land’s value.

In the west all landowners are taxed. The net effect of this is that as a land owner you need to make a choice, does it make financial sense to hold on to the land or not. If it doesn’t you sell it off to someone who can put it to productive use and pay the tax.

With this single move the supply of land in the market will increase lowering prices and increasing national productivity – since all land will be productive or at least more than is now.

And what will happen to the now landless masses? With their “new found wealth” the y can go and rent land or rent housing either way there will be more incentive to work.

This move will be even more politically explosive than what URA is currently implementing, but if we are serious about graduating into a first world country, these tough decisions have to be made yesterday.

As a country we are poor not for lack of resources but because we do not put our resources to optimal use. URA can help us with this by taxing everything that can be taxed, and when history is written the URA like the IRS in America, will be go down as having been a major driver of Uganda’s future prosperity.

FIX THE INCENTIVES TO FIX THE ECONOMY

If there was any doubt the economy was in trouble the doubling of sugar prices last week dispelled them.

While just a symptom of a larger problem, the sugar price hike was loaded with symbolism.

"The older generations will remember the days when sugar granules were as big as rice grain, not as sweet on the tongue and was a luxury more than a staple at the breakfast table. A queue formed instantaneously outside the neighbourhood shop (there were no malls or supermarkets then) on the rumour that the owner had just got sugar...

Sugar shortages would remind us of those days.

The sugar price hike has its roots in the expectation of a lower than projected sugar production at Kinyara Sugar Works, the second biggest sugar producer in the country.

A refusal by some outgrowers to grow sugar cane this season on account of poor prices for their cane has dampened Kinyara’s projected output for the year, that may lead to a shortfall of up to 21,000 tonnes this year. It is estimated that as a country we consume about 370,000 tonnes of sugar annually.

Looking to cash in on this development some traders moved in to corner the market, buying large volumes and hoarding it in anticipation of higher prices. President Yoweri Museveni put paid to this little scheme when he announced last week that in light of the shortages his government will reduce restrictions on sugar importation to bridge the gap.
Since then we have seen a normalization of prices.

But as I said the shortage is only a symptom of major structural problems in the economy.

Our economy is geared towards consumption and away for from production. Its basic common sense that if you keep consuming all you produce or you consume more than you produce, disaster is not far away. Ask the US.

"As an illustration we have a 140 megawatt (MW) electricity deficit at night as opposed to a 50 MW deficit during the day. This statistic is very telling because it means that when our factories are working during the day we need less power than when we are cooking, watching TV or boiling tea at night...

Its not a straight correlation but an indicator of what ails this economy.

Compare this with the electricity utility in the UK where the power consumed by factories is more than the power consumed by commercial offices, state schools, hospitals and domestic use combined, with some to spare. This despite the fact that the UK’s economy is largely dependent on its financial services sectors.

Despite our posting laudable economic growth figures over the last quarter century on closer scrutiny services – financial, telecommunications and transport and the construction sectors, manufacturing growth trails all these.

Some people may argue that the manufacturing-driven economic model is obsolete but they would be wrong.

The beauty of manufacturing is that it can create many low skill jobs quickly, while at the same time pushing up the productivity of the work force. To try and leap frog the industrial age and into the information age is a stretch for a country like Uganda. To begin with the information age work is better educated and secondly the ICT industry does not create as many jobs as the factories. So there is no getting around it we have to start manufacturing to benefit from increased job creation and improved productivity of our workforce.

"Given that over the last quarter of a century we have been rehabilitating our economy, the low capitalized service industries were bound to take off first. But it is also true that during the last 25 years there structure of our incentives have been tailored towards easier things like services and rent seeking rather than more durable, capital intensive manufacturing...

All over the world it takes less money and effort to set up a bank or telecommunications company or consultancy service than it does to set up a factory, which will require major concessions on land, importation of capital equipment and financing to get off the ground.

In addition the management of this process by the bureaucrats will require dedication to a long term vision and attention to detail, unlikely in this part of the world where the incentive is for extracting rent and commissions from investors.

It’s unnecessarily too much trouble establishing durable industry, see the fate of the Bujagali dam, which would have been running at full capacity four years ago, or the BIDCO oil palm plantation on Kalangala or the Madvhani’s attempts to grow sugar in northern Uganda.

As a country we need to embrace big industry within limits of course, if we are to avert such incidentals as sugar shortages in the 21st century!!!