Tuesday, October 11, 2022

UGANDA ECONOMY 1962-2022: WHAT A RIDE

The story goes that an official Ministry of International Trade & Industry (MITI), responsible for the rehabilitation of Japan after the second world war, was asked what he thought were the effects of the French revolution on world history.

He thought for a bit and then answered, “Its too soon to tell”. The French revolution happened around 1789.

The anecdote may or may not have happened, but was used to show how farsighted Japanese planning is.

Yesterday we commemorated 60 years of Uganda’s independence from colonial rule. While 60 years is not as good a psychological divide as 50, it’s a good time to take stock of progress or lack of thereof.

According to World Bank figures the Uganda economy has grown to a GDP of $40.43 billion at the end of 2021 from $450m in 1962. This is an average annual growth rate of just under eight percent....

If you break it down into 20-year segments the fastest economic growth recorded was between 2002 and 2022 at 9.84%. The next fastest growth period was between 1962 and 1982 – 8.21% and finally the 1982-2002 period which grew by 5.34%.

Drilling a bit more under the surface makes for interesting observations, conclusions.

The first two decades of independence had as its major economic events were the declaration of independence to begin with which saw the expansion of services and unleashed a suppressed initiative from Ugandans. Obote’s attempts to “move to the left” – embrace socialism did not gain traction partly because they were not thought through but also because he run out of time with the 1971 coup which brought Idi Amin to power.

The descent into chaos under Amin seemed not to have dented the post-independence growth momentum, with GDP per capita peaking at $258 in 1977 before collapsing to $100 in 1980. This suggests that the economic foundations set up by the colonial administration and the first Obote administration were robust enough to hold for about five years before terminal decline set in. The reality on the ground of course was economic hardship was already being felt.

The expelling the major commercial class and the descent into widespread insecurity meant businesses were operating below their full capacity or shutting down all together. This is important because it’s the private sector that grows wealth and not the government. So, if you hobble the private sector, even the government fails to play its distributive role of using taxes to uplift the living standards of its people through provision of law & order, social services and infrastructure.

Saddled with an economy that had regressed into subsistence and the breakout of the bush war in 1981, the 1982 – 2022 period started off on a false note. The last contractions of the economy happened in 1984 and 1985.

The return of stability in central and western Uganda after 1986 allowed the pullout from the decline of the previous 15 years to begin in earnest...

During this period major economic shifts came with the currency reform, the liberalisation of the exchange rate, the liberalization of commodities trade, brining inflation under control, the opening up of the telecommunications sector to introduce mobile phones and the sale of Uganda Commercial Bank (UCB). This among other initiatives unleashed individual initiative and attracted foreign direct investment.

The breakup of the state monopolies and the subsequent liberalization of the economy, underpinned by increased stability led to sustained growth of the economy. During this period too there was a coffee boom in 1994, with the failure of the Brazilian crop, which did a lot to boost coffee production and exports. In one year, the 1998 season Uganda exported more coffee than it produced, with the coffee from DRC making up the difference.

A period of dramatic rethink of our economy nevertheless only managed to bring us past the 1977 GDP per capita $248 level in 2004...

The next 20 years after 2002 as has been mentioned the economy raced to its fastest average growth rate as the liberalization policies begun to kick in, but probably more importantly the northern Lord’s Resistance Army (LRA) insurgency came to a close, allowing the northern region’s economy to reintegrate into the national economy.

Despite the war on terror, global financial crisis and more recently the Covid-19 pandemic the economy has continued to grow, with GDP per capita at $858 at the end of 2021 and poised to cross into the middle-income nation status. It helps that GDP was rebased twice during the period 2014 and 2019.

Growth is a given in this economy, as there remains a lot of untapped or unrecorded potential.

The challenge for the next 60 years is to ensure that this growth is more equitably. A situation of high growth and high inequality like Uganda is an indictment on the government. The business community builds the wealth and the government distribute it. Distribution is not by some brainless mathematical allocation of cash but by using taxes to spread the opportunities around.

Improvements in and spreading of education and health services raise the earning capacity of the population; infrastructure development opens up opportunities to more people and law & order ensures that what we work for we can keep. In as far as government is failing or unable to provide this is the extent to which income and wealth inequalities persist in an economy....

One last thing, assuming we can maintain our growth momentum on GDP per capita from the last 20 years – 6.44% by 2082 our GDP per capita will increase to over $36,000.

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