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.
