A decision taken at the beginning of the last century to keep Uganda as a small holder farm economy as opposed to a settler economy, has reverberated down the years ensuring food sufficiency on one hand while at the same time stifling private capital development.
Commissioner of Uganda between 1901 and 1907, Sir James Hayes Sadler, decided that unlike neighbouring Kenya, Uganda was not suited to European settlement. The hot humid climate that came with malaria infestation and the Tse Tse fly, which spreads sleeping sickness, he thought should be best left to the Africans.
This one decision was a blessing and a curse, because unlike
in Kenya, Zimbabwe or South Africa, European possession of the land and eviction
of the locals was minimized, but also means that the country’s land tenure
system is convoluted and difficult to maneuver discouraging large scale
investments.
But to get Ugandans to produce the cash crops – cotton,
coffee, tea and tobacco to feed British industry, the colonial administration
instituted a number of taxes aimed at encouraging production. The hut and poll
taxes, were levied on every hut and adult man to raise revenues to administer
the colonial project and to incentivize the local population to grow crops for
export.
To the current day in central and southern Uganda families
have a few trees of coffee on their small holdings, as an income earner, while
the rest of the holding is dedicated to food crops for subsistence. The average
land holding in Uganda is about five acres
These small holder farmers made Uganda a major exporter of
coffee, cotton and tea. Not to thumb their nose at the small holder farmer, it
is reported that favourable commodity prices in the first half of the last
century financed the building of the Owen Falls dam (now the Kiira dam) and the
Kilembe copper mines, with some left over to help the UK fund the war effort
during the Second World War.
The Indian community, many of whom were descended from the
railway workers who built the Ugandan railway, inserted themselves as middlemen
– because of their access to capital, bulking the produce from the smaller
farmers, often employing cooperative unions, for export to the UK.
The railway reached Kampala in 1931 and was extended on to
Kasese by 1956. It was funded by British government grants and loans, some of
which came from the locally generated revenues.
This separation of roles caused tension, as the Asians had lobbied the colonial government to shut Africans out of key economic activities like cotton ginning and became the spark for pro-independence agitators in many parts of the country.
This animosity played into post-colonial governments,
offering the opportunity for first President Milton Obote to put in motion
efforts to nationalize foreign businesses, which President Idi Amin followed
through by expelling the Asians in 1972, in a desperate effort to shore up his
already floundering popularity.
By gutting Uganda’s commercial class, Amin set the stage for
at least two decades of economic decline. It has been reported that the
Madvhani family alone by 1972 controlled about a third of the economy through
their investments in the sugar industry and supporting industries.
The expulsion of Asians also denied local entrepreneurs much
needed mentorship, which their Kenyan cousins benefitted from to build a more
robust indigenous capital base. The cronies and local entrepreneurs who took
over the Asian assets have nothing to show for the free-lunch they got, with
many of the businesses collapsed or failed to transcend the generation of the
original beneficiaries.
Amin’s reign of terror also triggered a brain drain, forcing
the middle class to flee the country. A few hundred thousand Ugandans
disappeared or lost their lives during his rule from 1971 to 1979.
It was also during his reign that the East African Community
(EAC) a promising project of economic integration that would lead to political
federation, was scuttled.
Obote’s return to power in 1980 while setting in motion plans to resuscitate the economy, the recovery was hobbled by insecurity driven by local insurgencies, the major one being the National Resistance Army (NRA) rebellion, centered just north of the capital, Kampala.
When the current administration led by Yoweri Museveni took
power in 1986, inheriting an economy that had regressed into subsistence, had
shrunk to less than half its 1970 size in real terms, was short of cash and had
major deficiencies in infrastructure and human capital.
Buoyed by the good will that came with restoring a semblance
of peace and security in most of the country, Museveni’s government initiated a
spate of donor sponsored reforms that liberalized the economy – freeing the
exchange rate, privatizing state enterprises and disbanding commodity marketing
monopolies, triggering the longest stretch of economic growth in the country’s
history.
The reforms caused some trauma as thousands of civil
servants lost their jobs with rationalization of the civil service and
privatization of state enterprises, fiscal discipline cutoff the freeloaders
and increased competition led to the closure of many businesses that had
previously benefitted by the huge margins they enjoyed in the situation of
scarcity that had prevailed for years.
On the flip side the reforms has attracted billions of
dollars in foreign direct investment, unlocked indigenous business initiative,
all which have resulted in a quantum leap in revenue collections. The
government collected about sh400b in revenues in 1985/86 but is set to collect
sh31trillion in this financial year.
This increased revenues has helped government increase
literacy rates, longevity of the population and expand service provision. While
gaps still remain in everything from security to infrastructure and human
capacity, that progress has been made is undeniable.
The reforms also facilitated the return of the Asians, who
have once again recovered their place as the pre-eminent commercial class in
the country with interests in retail. Real estate, manufacturing and other
services. A few years ago it was reported that their businesses account for
more than half the revenues collected annually by the Uganda Revenue Authority
(URA).
Every so often calls for a nationalization of the economy
are mooted, with the main champions arguing that the economy has been hijacked
by foreigners, who repatriate their profits abroad rather than reinvest in the
country. It is feared that these calls
can gain currency as the Museveni regime reaches the evening of its run and
their inability to narrow local inequalities can conveniently be blamed on
foreign capital. A more sinister motive
is that a group of connected elite want to appropriate these assets using the
state before the Museveni era comes to a close.
Over the last four decades of Museveni rule the reforms have shown dividends as the economy has diversified away from agriculture – coffee accounted for nearly all export receipts and revenue collections in 1986. Services, construction and manufacturing now account for two thirds of economic output today.
It helped too that in 2000 the EAC was revived and has done
a lot to promote regional trade by providing demand for industry in the EAC.
The EAC has now expanded to seven nations beyond the initial three. Progress is
being made, it is now a customs union with the free movement of goods and
services across the borders but not without teething problems. Progress towards
the more demanding monetary union, whose main feature will be the adoption of a
single currency, has been a bit labored and slow in coming.
However, endemic
corruption and a growing debt service burden means Kampala finds itself unable
to, more equitably spread the economic gains of the last four decades, improve
service delivery and bridge major infrastructure deficits that would help vault
the country to its next level of development.
The country waits with bated breath for the first oil from
the fields in western Uganda to alleviate current economic challenges that
include a cash squeeze, resulting from a holding back of donor financing over
displeasure at a recently passed Anti-Homosexuality law and growing official
corruption. Commercial viability of Uganda’s oil reserves – booked at 2.5
billion barrels, was established in 2006 and development of the fields begun in
2022, following the passing of enabling laws for its exploitation and the
arriving at final investment decision, that would unlock the funds needed.
The recent census showed that seventy percent of the population
is under 30 years old, or were not born when Museveni came to power. An aging
leadership – Museveni will be 80 in September, finds itself scrambling to keep
up with a youthful population’s demands for better and widespread social
services, jobs and hope, complicating an eminent power transition.
At independence the hope that Uganda, with its huge natural
endowments – it has at least half the arable land in the region and growing
educated class, was a guaranteed economic success, was squandered by tribalism
and factionalism, whose after effects continue to hobble the small east African
nation’s progress.
