Last week the central bank took over Crane Bank. Bank of
Uganda (BOU) said the bank was significantly undercapitalised and was putting
its depositors’ money and the entire financial sector in danger.
Industry sources say all stops were pulled out to prevent
Crane Bank’s eventual fate but they came to nought.
There is little else you can say about that story without
making a bad situation worse, but if there was any doubt about the shakiness of
this economy, the bank’s takeover should put these to rest.
It is true that the economy has become more sophisticated in
the last 30 years. In 1986 coffee exports accounted for more than 50 percent of
taxes and more than 80 percent of export receipts. Today coffee exports provide
little revenue to the treasury and accounts for less than half our exports of
goods and services.
It is also true that the economy has been growing
consistently over the same period but this growth has been lopsided towards
construction and services, with agriculture the biggest employer, growing at
relative anaemic rates to the economy as a whole.
The net import of this is that the created wealth is being
concentrated increasingly in to a few hands.
The national household survey carried out in 2013 showed
that under two in every ten Ugandans or about 7.2 million Ugandans earn more
than a million shillings a year or about sh80,000 a month.
Think about that!
"Our ability to speak passable English, wheeze around in second hand cars and wear suits to work is but a thin veneer for an economy that is actually not very deep...
What this means is that all our thousands of businesses are
scrambling for a small piece of a small pie. So when there is any stress in the
economy – a slow down or disturbance the fall out is bound to felt by more
people.
A few months ago when the debate about bailing out
businesses struggling under the cloud of a underperforming economy were muted
Ash Mukungu, formerly of the African Development Bank warned that the business
failure will soon lead to bank failures. I thought he was hyperventilating.
And clearly our bureaucracy does not feel a sense of urgency
around this subject. According to the finance ministry report for the first
quarter of the financial year sh68b was budgeted for debt arrears but only
sh28b was released.
The main cause of stress for our businessmen is the
government not paying for supplies and services it has contracted. As at the
last financial year this figure stood at sh1.3trillion. Other sources say
however that even this figured cannot be nailed down.
So you have an economy that is barely trudging along and a
government biting off more than you it can chew and you wonder whether Crane
Bank’s woes are not just the tip of the iceberg.
One can expect that as a result of Crane Bank’s fate, it is
the third largest bank by assets, there will be a slowdown in lending by mere
virtue of the bank’s situation and as other managers make sure they are not
haemorrhaging cash at a time when BOU is on the prowl. This does not help the
economy’s growth prospects.
Clearly the need to return to the drawing board came
yesterday, but today will do.
"We need to include more people into this miraculous economic growth we have been enjoying for the last three decades, if only so that businesses can stop depending on the small pool of Ugandans who earn more than a million shillings a year...
In the short term you focus on increasing agricultural
productivity in a more systematic way than empty sloganeering. Invest in
extension services so that our farmers can improve their practices. In the
medium to longer term improve our health, education and other social services,
its common sense that a better educated, healthier population will be more
productive and earn more.
Secondly we need to take the burden of driving this economy
off the backs of commercial banks. Commercial banks ideally should be financing
going concerns not dominating the lending to startups, agriculture and
development financing none of the latter do they do well. We need angel
investors, venture capitalists, small business grants, trade financing and
development financing.
Greater specialisation at these different levels will ensure
better support for various sectors of the economy, more credit dished out and
at lesser risk.
And finally there is no getting around it, we need to be
more determined against corruption. Not only do the corrupt take money from the
mouths of babes but they distort the business environment -- inflating asset
prices and undercut genuine businessmen. But they also overturn the incentive
system with people uninterested in innovation and focusing on being commission
agents and rent seekers.
We need to be more interested in boosting the substance
rather than shining the form of his economy. Crane Bank’s fate is our wake up
call.
