KEITH MUHAKANIZI: HOW WOULD UGANDA HAVE TURNED OUT WITHOUT ECONOMIC REFORM

Prompted by the recent passing of Keith Muhakanizi I got to thinking what would have happened to Uganda if we had not bitten the bullet and made the hard decisions in the 1980s and 1990 required to resurrect the economy?

First of all what did Uganda look like in 1986, when we can safely say the real recovery of the economy begun.

"Going by the first budget read by then finance minister Professor Ponsiano Mulema it is hard to tell objectively what Uganda was like...

“It was, however not possible to get reliable statistics. Such figures as we now have are rough estimates based on the few statistics available and lots of assumptions,” Mulema siad in the budget speech he read in August 1986.

He however managed to report that the industry had broken down due to poor management, inadequate working capital and was unable to get enough hard currency to buy raw materials, spares and other inputs. Coffee exports amounted to about 2.5 million bags but he suspected this was an understatement of the true production as a lot of coffee was being smuggled by individual and official agencies. Mulema also told the National Resistance Council (NRC) that sh402.5b in revenues were collected that year at the official rate of sh1400 to the dollar this came to about $287m or just over a trillion shillings at today’s rates. PS Ramathan Goobi would be unreachable if he had a resource envelope that light today.

Total budget that year was sh514.3b or $367m or about sh1.4trillion in today’s money. The 2023/24 budget is set to touch sh50trillion and we will still have a cash squeeze.

Numbers aside the anecdotal evidence draws a better picture. Everything was in short supply.

"It was not uncommon for grown men and women to cut work, on a predetermined day, to line up outside the Resistance Council I (RC1) chairman’s house for a piece of a bar of soap, a liter of kerosene or a kilo of sugar. While driving, your main preoccupation was to fall in the porthole that would cause least damage to your car, you couldn’t dodge them all (sound familiar?). Keeping left was a luxury car owners could not afford. At Makerere University when water run out, you went to Katanga to fetch from the protected well there. Being run over by a car as you crossed Bombo road wasn’t a concern as there was little traffic in those days. There were several wells around Kampala for this purpose. (Do you know he well nearest your home today?) Electricity was a rumour and we didn’t even have generators or power inverters...

I am sure living in today’s Uganda you cannot get the picture.

At a macro level as described by Mulema there was little economic activity – of the 80 factories surveyed at the time only 10 were working at 30 percent capacity, therefore there was little tax revenue -- Revenue collections to GDP stood at around five percent and therefore government had little to no leeway to provide public goods.

Government therefore had to suck up to the money men – The World Bank and the International Monetary Fund (IMF) for a start, who had the resources we badly needed. But in order for them to open the money taps we had to bring government expenditure under control, privatise the inefficient public companies and liberalise the economy, by for one, breaking up government monopolies. That was the cost of their money more painful than the few percentage points of interest that would be due on some of those funds.

There were some idealists and armchair economists who thought we need not suffer the pain of the reforms to get the economy back on its feet. That if the donors want to help us it should be unconditional aid, they give us the money, don’t ask for repayment and let us spend it as we saw fit. The naivete of these people boggles the mind.

So, let us say we had taken that route, what would have happened?

Chances are in lieu of tax revenues the government would have printed more and more money – it was already doing that. Mulema reported that currency in circulation had grown 90 percent in the preceding year. And then inflation would have taken off. Inflation is a disincentive to business because you can not plan and discourages lending. The net effect of which would be that the government would be unable to provide essential services, services critical for lifting people out of poverty. Shortages of everything would persist and we would continue with our sub-human existence and we would be worse off than we were in 1986.

"We would be a cross between Eritrea, with its scarcity commodities and services and Zimbabwe, with its hyperinflation and useless currency....

What people don’t know or choose to forget that the economic reforms that pulled us out of the hole were not only necessary to unlock the donor vaults but at the heart of then they were good economics – control government spending and the let the private sector be central to economic growth.

While it is true that no country has developed using aid, the initial aid is useful to get the economy up and running. To take us to the next level, to transform our economy will require to improve the productivity of our labour, land and mobilise more of our own resources, which arguably will need the next level of policy beyond monetary discipline.