ARE UGANDA’S DEBT NUMBERS WORRYING?

In the last five years or so Kampala Capital City Authority (KCCA) has been laying tarmac on the roads around my home. Their work is extensive that between home and work my exposure to unpaved road is at most 100 meters most of which is within our communal compound.

This development means travel time to work has been from 30 minutes to just under 15 minutes without traffic, it has reduced visits to the mechanic considerably and beyond raising the average property prices has served to increase the economic activity in area. New construction, schools, shopping centers, bars are among the economic activities that have either sprouted up in the area or been boosted by the new paved road network.

Our own health serves as a good analogy for the health of economies. An economy is only as dynamic as the coverage of its transport network. The easier people and goods can get around the more efficient the economy is and therefore the more work that is done.

Since the body’s basic circulation infrastructure is laid out from birth, improving transport and communication networks can be analogous to how much water we take in. Adequate water intake means circulation is eased as waste is evacuated and build up of cholesterol and other blockages is minimised. Improvements in circulation show themselves in our lives in increased vitality and less ill health.

We have forgotten that when the roads are bad you cant move and the economy cannot grow.

"An indication of how far behind we are on average a middle income nation had at least 88.74 km of paved road for every 1000 square km of land area. In Uganda assuming about 4,000km of paved road our equivalent figure comes in at 16 km for every 1000 square km...

Averages can be deceptive but this means we need to increase our stock of roads at least five times to get to middle income status.

The 1970s and 1980s when little to no new roads were laid means that we are playing serious catch up and the need for speed is of the essence. And this goes for all other infrastructure – power generation, railway and water transport. Only in telecommunications are we ahead of the curve given international averages.

In appreciation of this deficiency government has gone out on a borrowing binge to finance the infrastructure development.

The Karuma and Nsimba dams will account for almost $3b between them, the standard Gauge Railway another $9b , this before you add all the road developments going on around the country which can account for easily another few billion.

The concern gaining momentum is how will pay for all this. Valid concern.

Given my localised experience it is clear that increased economic activity will follow their commissioning, and with increased economic activity the debt repayment sums will not look as daunting as they do now.

A sh500,000 monthly loan repayment requirement when you have sh2.5m salary looks more manageable when your salary doubles.

In 1986 our total debt was $1.4b which was more than half the GDP at the time and more than 3.5 times our export receipts. In that year we had debt repayment obligations of $45m. Today according to the latest IMF figures we estimate debt repayments will come in at sh1,682b or just under $400m this against exports of $2.7b.

But concern is in order given stories of over inflation of costs on all our major projects currently under way.

"If we do not get value for money for these infrastructure projects whether they come in at too high a cost or don’t deliver as they are supposed to, they may not generate the increased economic activity required to pay their way...

Even though I may be comparing oranges with fene, I choose to be optimistic about our prospects.

Between 1992 and 2011 China spent almost nine percent of its GDP on infrastructure development the net result of this – in addition to other things of course, is that the economy grew seven fold.

One, given our infrastructure deficit we are already underspending and secondly, that this sustained infrastructure spending will have to go on for at least another decade if China’s experience is to be considered.

Everyone wants to go to heaven but no one wants to die. The current cash crunch has a lot to do with our huge outlays on infrastructure. As they begin to come on line we can expect that more cash will start to flow.

Using China again, a graph of GDP against time shows that from 1978 when Deng Xiaoping declared “I don’t care whether a cat is a black or white one as long as it catches mice” to launch the country’s economic miracle it took 14 years up to 1992 before the graph got off the floor. During that time they were laying the foundation in infrastructure, training their people and getting over their communist hangover.

The process of development does not follow an exponential curve, at least at the beginning.