UGANDA MP INDEBTEDNESS COMPROMISING DEVELOPMENT, NATIONAL SECURITY

The level of indebtedness of MPs raises serious questions about the effectiveness of parliament in carrying out its mandate and the long term health of democracy in Uganda, observers have said.

A special report in the Sunday Vision revealed that one in every ten MPs takes home no salary, with all their earnings going to service their debts. MPs earn a minimum of sh22m in salary and allowances after taxes.

"The total indebtedness of members is sh20b according to parliamentary sources, with sh7b of that due to money lenders who charge interest of as much as 25% a month. The remaining sh13b is accounted for by mortgages, car and salary loans....

New information shows that an additional 85 or 22% of the 385 member house take home less than sh2m and as little as sh18,500.

The Sunday Vision also revealed some MPs are resorting to desperate measures in their desperate times to evade their creditors and retain their dignity.

Some MPs have taken to going to parliament before dawn and leaving long after dark to evade their creditors. Inside the precincts of parliament MPs cannot be arrested.

“That is why they are easily blackmailed,” said Yona Kanyomozi, a former Member of Parliament who said the current situation has arisen out of a number of factors.

“Politics has become too commercialised and government has abdicated its role in service delivery leaving MPs to shoulder the burden. If government was doing its duty MPs would not be so beleaguered,” he said.

On a recent radio program MP Betty Amongin said that MPs are being forced to do things like own ambulances to ferry their constituents to hospital. MPs also find themselves contributing to education expenses, providing medicine, constructing roads and paying for power to be extended to their areas.

“The pressure an MP comes under is unimaginable … contributing to the welfare of constituents is seen as pay back from them having voted you into the house, and there is no limit to their demands on your time and resources,” said one former MP who says she is relieved to be out of the house.

Apart from the personal discomfort this indebtedness may cause the MPs, it has serious national ramifications.                                                  

The roles of parliament include passing laws, scrutinize and pass government expenditure, monitor government projects, vet appointments of public officials and to debate issues of national interest.

“The whole issue of their indebtedness has ended up compromising them and  the decisions they make, in the process they have lost the moral authority to hold the executive accountable,” said Cissy Kagaba, executive director of the Anti-Corruption Coalition of Uganda.

“Maybe that is why some of these serious issues and probes are not followed to their logical conclusion.”

Kagaba said the situation has altered the concept of the people’s representative and deprived citizens of social services.

“And if an MP is taking up next to nothing he has to find ways to make money hence the recent increases in allowances and they can make money from trips and special probes.”

The MPs have voted themselves a 38% increase in salaries and allowances for this year to sh148b with the increase in allowances alone accounting for sh30b. Parliament’s salary bill has jumped sh5b since last year.

“Many MPs are essentially bankrupt. The danger it poses is that they are easily influenced due to their desperate need for cash. I have always said that if I had $2 million I could buy Parliament and make it do my bidding. State and non-state actors know this,” said a well-connected social and political observer.

“Their effectiveness and independence are definitely compromised! This has grave consequences for democracy, development and national security.”

As an example, last year the suspension of oil exploration activity was funded by external sources. The frustration of the first Bujagali dam was also allegedly funded by foreign money. Government contracts in infrastructure development are worth millions even billions of dollars and parliament has oversight over them, it is not unthinkable that in search of leverage parliament would be a prime target.

In other countries the issue of setting MPs pay has been taken away for them to insulate them from their own greed and protect them from compromise.

In the UK the Independent Parliamentary Standards Authority (IPSA) was set up in 2009, largely in response to the expenses scandal that rocked Westminster that year. The IPSA sets MPs’ salaries and verifies their expense claims. Last year due to the poor economic environment it froze MPs pay until 2013.

In 2009 it was revealed that some British MPs were abusing the system, claiming expenses for private costs like landscaping, borrowing videos, furnishing second homes

and animal veterinary bills.

Given the pressures on their pay checks it’s unlikely that MPs will cede the power to determine their own pay.

‘I think it is up to civil society to keep harping on the issue and not waiting for the elections, we need to let our leaders know we are watching them and that their actions have a direct impact on our lives. Outside of that I don’t see anything changing,” ACCU’s Kagaba said.

UGANDA'S DEVELOPMENT CHALLENGE

-->

The numbers are pitiful whichever way you look at them. Our road coverage is barely 20,000km. Our power generation is under 1000 MW. We have one working railway network that is barely 300 km.

These woeful figures fly in the face of any pretensions we may have to being half a developed country. These figures – of infrastructure development are important, because without infrastructure there can be no development to speak of.

Another set of figures paint and even more abysmal picture. There is one doctor for every 11,000 Ugandans. The pupil-teacher ratio is just under 50 pupils to one teacher in primary school

These figures probably represent the main challenges of the development, where development is the general upliftment of the living standards of the people. Both e figures are indicators of not only how much progress a country has made towards development but what its potential is.

A country that has invested billions in developing its roads, railway and energy resources is an attractive place to invest but not without the other side of the picture. Without a healthy educated and empowered population your potential for development as a country is severely curtailed.

Economic growth is relatively easy to achieve, because it’s a measure of the increased economic activity within an country. So for instance if you spend a billion dollars building a dam it could represent significant growth in a country with a small economic base to begin with.

To see development there has to be economic growth. Development is the harder of the two to achieve, because it requires a distribution of the gains from economic growth.

Distribution is not through handouts but through improvements in education and health sectors and in encouraging business which create jobs and pay taxes, which lead to improvements in education and health. A virtuous cycle.

Failures of development especially in an environment of economic growth, means the gains are being concentrated in the hands of a few with the vast majority missing out on economic growth.

"In Uganda’s case a low revenue base in past years means we kow towed to donor demands for increased spending in social services and less than our required share in building transport and energy infrastructure....

The result as the recent loadshedding, poor road network and less than inadequate railway network.

As result whereas we have pushed up our human development indicators – primary school enrollment, infant mortality and general access to clean water our infrastructure has not kept pace.

The net effect is that the cost of doing business in this country remains prohibitive, therefore jobs are not being created at the rate at which we are churning our graduates meaning there are more and more people disgruntled with life.

Government realizing this in recent years and emboldened by high tax revenues has decided to focus on infrastructure development.

Unfortunately because they are scrambling to bridge cavernous gaps in our infrastructure they have deemphasized human development relative to growth in infrastructure investments. Unfortunately that has political consequences.

All more developed countries have made these decisions at one time or another and most likely they made them in less than democratic circumstances. From the events of the last few weeks we clearly do not have that luxury in Uganda.

Government is not coming out smelling of roses in this situation but to postpone plugging the holes in our infrastructure will only worsen the process.

The MPs are onto a nice populist cause and thankfully many of them are speaking on the record, so we will look back years from now and hold them accountable.

In his book “The Elusive Quest for Growth” William Easterly charts the meanderings the aid community has made over the last half century of the industry and it makes you realize that engineering development is messy business.

"I think it is so because development is an evolutionary process that involves governments creating an enabling environment for people to explore and exploit their full potential. The fallability of men gets in the way all the time making the process look like two steps forward and three steps back....

UGANDA'S KARUMA DAM: ANATOMY OF A DEAL GOING BAD

Last week the $2.2b Karuma dam tender process was suspended by the government’s procurement authority and a court injunction slapped on the deal, throwing the crucial 600MW project into jeopardy.

A, trail of intrigue, outright disregard for procedure and insubordination against the President has brought to a standstill the deal, which should have been consummated by March and seen construction start by now.

This is the single largest investment in Uganda's history.

In the late 1960s a dam was proposed at the Murchison Falls, further downstream from Karuma, a plan that was scuttled by concerns about environmental damage and not followed through in during the Idi Amin era.

In 1988 government tried to revive the project but again came up against environmental concerns and shelved it yet again.

With the power deficit becoming even more urgent in the in the late 1990s, the alternate site of Karuma falls was mooted.

However its development was again frustrated by the World Bank conditionality that only one dam could be developed at a time. At that time government had committed to developing Bujagali dam.

The Bank argued that developing the two sites simultaneously would put too much of a financial burden on the country and besides there wasn’t enough demand locally to support the dams.

Karuma took a back seat to Bujagalai and eventually failed to take off because of the global financial crisis and its attendant credit crunch.

Three years ago government decided to resurrect the project using internally generated resources. This was prompted by the recognition that even when the entire 250 MW at Bujagali came on line it would only a matter of months before rising demand snapped it up and the country returns to “loadsheding”.

Fast forward to last year when government invited bids for the project and received just under 40 bids, a number that was trimmed to 28 before a final five companies were prequalified.

THE CIRCUS BEGINS

A six month time table from issue of the bid document in September 2012 to the taking over of the site by the winning bidder in March 2012, was announced to all the bidders.

The energy ministry closed the bidding at the end of November to pave the way for the evaluation of the technical proposals, which determines whether the bidders have the capacity in terms of experience and technical knowhow, to carry out the project.

It’s at this point that things started going awry.

The next stage was for the energy ministry to notify all bidders of the results of the technical report and announce when the financial bids would be opened, which would determine who the winning bidder would be, often times the least cost bidder but government is not bound to choose the cheapest bid.

However there was no word to the bidders from the energy ministry months into the New Year and all enquiries were rebuffed by a wall of indifference.

It did not help that disturbing rumours made it onto the grapevine that indicated that the delays were to facilitate a scheme to ram through a company favoured by ministry officials.

Meanwhile the bidders waited for any information about the tender as the day the contractor was supposed to take over the sight according to original timetable, March 28^th came and went.

A whistleblower within the energy ministry then unleashed a dossier that revealed that the alleged favoured bidder China International Water & Electric (CWE) had misrepresented its competencies – grounds for immediate disqualification.

The dossier got to the president prompting him to write to energy minister Irene Muloni in July, pointing out the inability of CWE to technically carry out the project.

“These facts should have been clear in the documents but apparently they were not and it took the whistle blowers to discover this and inform us,” Museveni wrote.

While disputing claims that CWE had built China’s 22,500 MW Three Gorges Dam and pointing out that the Meroe Dam in Sudan in which they claim to have played a part in building, has serious design problems Museveni wrote,

“Therefore in my last letter I directed you to ensure that the more credible Chinese companies, like the one that built the Three Gorges Dam agree to guarantee the quality of the Karuma dam.

If that is not done as soon as possible, I will be forced to oppose the whole poorly done effort,” Museveni said.

It seems the ministry officials did not advise the president that a guarantee of the nature he proposed would be flouting procurement procedure.

But it got worse.

In reaction to the President ministry officials went ahead to facilitate the much needed guarantee from Three Gorges Corporation.

In a letter to Daniel Wang the general manger of CWE on 17^th August, Attorney General  Peter Nyombi made reference to a meeting between himself, the president, Muloni, state minister Simon D’ujanga, permanent secretary Kabagame Kalisa and officials of CWE and Three Gorges Corporation in which it was agreed that the guarantee to the project would be supplied by China Three Gorges Corporation.

“The purpose of writing this letter is to request for the following;

The legal instruments of both China Three Gorges corporation and china International Water & electric corporation related to the registration of the two companies, especially those showing the relationship between the two companies; a description of the work  to be executed under the contract; a copy of technical  designs of the dam to be constructed and the terms and conditions that should be included in the contract,” Nyombi wrote.

A lawyer familiar with government procurement procedures said this was highly irregular since the tender process was still ongoing but clearly the government was already negotiating with one bidder.

“The process is ongoing how do you go to the president with one bidder … you are hijacking the process, this a fraudulent act, it is unethical, unlawful and irregular” the legal expert said.

“And the technical officers who were in that meeting they should take responsibility for drawing the president into such a scheme.”

Given that the financial bids were not yet opened what would happen if they were opened to find the bid was ten times higher than they want and yet government has already gone into agreement with the party, the lawyer asked.

PPDA COMES IN, COURT SLAPS INJUNCTION

To the other bidders, that the process was being rigged in CWE’s favour was beyond doubt at this point.

Salini Spa, a consortium led by French firm Vinci Construction and Chinese firm SinoHydro applied to the Public Procurement & Disposal of Public Assets Authority (PPDA) to suspend the process pending an administrative review.

PPDA boss Cornelia Sabiti granted the request lodged by Tumusiime, Kabega & Co on behalf of Salini Spa last week.

In addition the law firm filed for an injunction in the high court to stay the process until their application for a judicial review was heard at the beginning of October.

So the Karuma Dam deal has been put on halt now and it will not be surprising if it is cancelled and retendered all over again as experts say this process maybe irreparably damaged at this point.

Ministry officials apart from a tirade against “economic saboteurs” have remained tightlipped about the process and have been largely unavailable to comment on this story.

 

SAVINGS WILL REDUCE UGANDA LENDING RATES

At the end of August the statistics bureau reported that annual inflation for that month had fallen to 11.9% the lowest level in 17 months.

In March last inflation stood at 11.2% before taking off on a tear that saw it peak at 30.5% last October, the highest it had been in 19 years.

Inflation a general rise in prices caused by too much money chasing too few goods, was triggered by high food prices coupled with campaign spending during last year’s general election.

Wrestling it down to more manageable levels has taken some determined action by the central bank , which while employing the recently introduced Central Bank Rate (CBR) prompted a spike in lending rates during the period.

As a result many people have had properties they had mortgaged to lenders auctioned off to recover debts. Last year’s bank results suggested that the level of bad debt was set to increase this year from below the commendable average of the four percent of industry assets at the end of 2010.

Despite a fall in the CBR rates since the beginning of the year, commercial lending rates which had risen in tandem with the policy rate have not fallen in the same manner.

The public is understandably annoyed at the banks who were so keen to raise lending rates but are not showing a similar eagerness to reduce them. Bankers explain that they in turn borrowed money at higher rates  and those monies will have to work their way through the system before we can see a dramatic fall in lending rates.

In addition they argue that they also need to wait-and-see how the environment turns out in coming months before they can take more decisive action. Yoyoing interest rates would not only be bad for business but could trigger uncertainty whose long term consequences would be hard to predict.

One could argue that they should probably take the loss, after all the informed view last year was that the jump in inflation was a temporary blip that did not warrant the drastic action they undertook.

With a handful of banks controlling 50% of all assets means there is little competition in the sector and therefore responsiveness to the market is sluggish at best.

But then again who can blame the banks’ managers, their job is to extract as much return for their shareholders given the environment they work in.

At the risk of being accused of blaming the victim, our lending rates remain high because our saving rates as a country remain woefully low.

We save one in ten shillings of our economic output this about half of the sub- Saharan average.

The way banks work is that they collect deposits, and then on lend that money at many multiples of what they pay us in interest. The laws of supply and demand then come into play since there is an almost insatiable demand but little savings, the cost of credit is high.

In the event that we pushed up savings up by a few percentage points banks, in an attempt to on lend this money would be forced to be more innovative in the way they lend money and eventually cut lending rates.

Barely twenty years ago, banks were not lending  to the public, happy to park their billions in government paper. But as the formal sector grew and savings grew, banks had to improvise. There is no reason why another jump in savings will not have a similar effect.

There are no legislative initiatives beyond the mandatory contributions to NSSF.  There is scope for tax relief on social security savings, mortgages and health insurance that can boost savings. As it is now even our contributions to NSSF are taxed.

There really is no getting around it. The central bank may huff and puff but there is really no pressing incentive for banks to cut lending rates below a certain point. But if government can encourage savings further, our industry will be more attractive to other banking groups , who will in turn push up the competition.

This is not communist Russia where interest rates are set by the government – and it shouldn’t be. But through clever legislation government can persuade the banks to do what’s best for the country.