GOVT NEEDS TO FIND ITS LOST COURAGE, STOP FLIP FLOPPING ABOUT

Last month we looked over the budgets of the last 33 years. The budget which is a plan of how government will spend money and make it, is a good indicator of a government’s priorities.

Inheriting empty coffers, the NRM in the 1980s had to make hard, unpopular decisions to jump start the economy. They understood and rightly so, that without an economy all their talk of restoring peace and order, democracy and lifting the Uganda society out of its perennial cycle of poverty, disease and war would just be hot air.

First they got the National Resistance Council members, the equivalent of our MPs to pay taxes on their incomes. For the first two years in the house their allowances were going untaxed. Imagine trying to get our current crop of MPs to pay taxes.

The government went against other interest groups – removing taxes on coffee exports, liberalizing trade in all commodities, licensing forex bureaux, privatizing state enterprises, the 1990s bank closures.

 "Everyone of these initiatives took bravery, as they were vested interests in their perpetuation, who fought hard and dirty to maintain the status quo, even if this would be detrimental to the economy....

Government, thinking that because it was in power it could subvert the laws of economics, tried printing money to jump start the economy. This triggered an inflationary spiral that sent the economy into a tail spin. Thankfully commonsense prevailed and the madness was stopped only when inflation hit 240 percent.

With that kind of inflation, prices were doubling every three months. To give you a sense of this, if your kid’s school fees was a million in January, it would have doubled to sh2m for second term and doubled again to sh4m by third term!

If they had remained on this treacherous course we would have ended up like Zimbabwe.

In November 2008 inflation hit 79.6 billion percent per month (who was counting?). What this meant is that if you went to the ATM to withdraw money, by the time you completed the transaction the money you had requested would have lost all its value  – prices were doubling every two thousandth of a second!!!!

If Zimbabwe, which in 1982 already had a per capita GDP of 1,105, could be brought to its knees by political expediency, imagine if Uganda with a per capita GDP of $258 in 1986 had listened to the popular opinion and continued to print money as if it was going out of fashion, where would be now?

To cut down inflation government had to cut its spending. The groups interested in government continuing to let the taps flow, fought back criticizing the move as an IMF imposed policy that was bad and would cripple the economy irredeemably.  We are still here.

Government decided that in order to drive coffee exports Coffee Marketing Board (CMB), which had a monopoly to buy and sell all Uganda coffee had to be shut down. Another vicious fight ensured with the CMB beneficiaries warning of a collapse of the coffee industry and by extension the economy. Coffee accounted for more than 50 percent of tax revenues and 80 percent of exports then. We are still here.

Government decided that in order to unleash the economy’s full potential and save it some much needed cash, the state owned enterprises, only a hand full of which were operating at 50 percent capacity let alone making a profit or paying taxes, but a constant drain on the treasury, had to be cut loose. The naysayers stayed with the IMF line, complaining that the new owners would asset strip the new companies and take off leaving us with the shells. We are still here and many of the companies that were sold as going concerns are key drivers of the economy.

What is popular is not always right and what is right is not always popular. Government will do well to remember this.

"The Tenant & Landlord’s Bill awaiting presidential ascent is one search capitulation to populism, which will cause us immeasurable pain, avoidable pain...

The provisions that caught my eye were that landlords be restricted to charging in shillings and that they will not be allowed to raise rents by more than 10 percent a year.

Whichever way you dress them these are attempts to introduce rent controls, which if followed through will lead to disastrous outcomes, as night follows day.

These rent controls will serve as a disincentive to much needed investment. As it is now we have a shortage of quality housing of about a million houses. There is a shortage in commercial property too.

Contrary to popular opinion our real estate developers are still playing catch up. So with this discouragement they will slow down and create the very conditions the honorable members were trying to avert, which are a continued shortage in the market that will inevitably lead to higher rent.

The rules of the market are like any other natural laws. You can be successful at subverting them but only for a short period and at very high cost.

Take the law of gravity for instance, what goes up must come down. But airplanes – tons of steel and rubber take off every day and stay in flight for hours at a time, but this is at great energy cost. The designers of planes however, understand the laws of gravity and work with them and several others – the Bernoulli principal for instance, to keep the plane in flight. They do not ignore these natural laws and hope to attain their aims, rather they work with them.

"Our honourable members have good intentions, but we also know that the road to hell is paved in good intentions....

If MPs really wanted to help the “suffering” tenants, they should be focused on how to help increased supply of housing or commercial properties.

They could exercise their minds on how government can help lower developer costs and mortgage rates.

But even in that they need to understand market dynamics.  It is not rocket science.