UGANDA'S HARD RESET: THE POLITICS WE WANTED, BUT MAY NOT LIKE

Recent events in Uganda should give every Ugandan pause for thought.

Veteran opposition leader Dr. Kizza Besigye has now spent more than a year in custody on treason charges. The government has indefinitely suspended more than a dozen NGOs accused of pursuing a regime-change agenda. Senior politicians including Erias Lukwago, Muwanga Kivumbi and Miria Matembe have been arrested and later arraigned on charges ranging from computer misuse to misprision of treason. Meanwhile, opposition leader Robert Kyagulanyi, popularly known as Bobi Wine, remains in self-imposed exile.

Taken individually, each case has its own legal and political context. Taken together, however, they suggest Uganda is entering a different political era.

Many analysts see these developments as part of General Muhoozi Kainerugaba's efforts to consolidate authority ahead of an eventual succession from President Yoweri Museveni. Whether or not that proves correct, the direction of travel is becoming difficult to ignore. Uganda appears to be moving away from the relatively laissez-faire politics that has characterised much of the last three decades towards a far more disciplined—and less permissive—political order.

Museveni's Contradiction

Ironically, that shift may be the inevitable consequence of President Museveni's greatest political achievement.

For nearly four decades, Museveni has successfully managed a chaotic political elite. Rather than eliminate competing centres of power, he balanced them. Patronage, accommodation and political flexibility became instruments of survival.

It worked.

Uganda has enjoyed political continuity unmatched in its post-independence history. The economy has expanded several-fold. Exports have grown from less than US$1 billion in the mid-1990s to over US$13 billion today. Electricity generation, roads, telecommunications and financial inclusion have all improved dramatically.

But flexibility came at a cost.

A system held together by personalities rather than institutions inevitably breeds patronage. Patronage breeds impunity. Impunity breeds corruption.

Many of Uganda's frustrations—from delayed infrastructure and procurement scandals to ballooning domestic arrears—reflect a political order where maintaining coalitions often mattered more than enforcing discipline.

Museveni mastered managing disorder. His successor may conclude that governing Uganda now requires creating order.

The Political Elite's Biggest Mistake

It would be a mistake to see the current moment simply as an assault on the opposition.

The bigger story is that Uganda's entire political elite has reached the limits of its usefulness.

Across both government and opposition, politics has increasingly become personality-driven rather than programme-driven. Politicians have become experts at attracting headlines but remarkably poor at building durable institutions capable of mobilising citizens around coherent agendas.

The opposition, in particular, has fallen victim to a dangerous illusion.

It has mistaken popularity for power.

Large crowds, social media engagement and favourable public sentiment create the impression of overwhelming support. But political power is built much like wealth—it compounds slowly through years of disciplined investment.

Successful political movements recruit village by village. They organise polling agents. They raise money continuously. They train leaders, build local structures and remain active between elections. Above all, they require enormous sacrifice—of time, comfort, careers and resources.

Too much of Uganda's political class has assumed that public frustration would somehow translate into political change without making those long-term investments.

The consequence has been predictable.

Instead of building organisations capable of compelling government to respond to national priorities—or ultimately convincing it to step aside—they have relied on momentum, emotion and hope. Hope is not a political strategy any more than wishing is an investment strategy.

Meanwhile, those within the ruling establishment have devoted increasing energy to succession politics and patronage instead of confronting Uganda's structural challenges.

The conversation should be about improving schools, raising agricultural productivity, eliminating domestic arrears, industrialising exports and preparing Uganda for a post-oil economy. Instead, politics has become consumed by personalities, arrests and intrigue.

A fragmented political elite that cannot marshal disciplined constituencies around ideas is far easier to control than one rooted in strong institutions.

We Want Rwanda's Results Without Rwanda's Discipline

Ugandans frequently admire Rwanda's clean cities, efficient public institutions and ability to implement policy.

What we rarely acknowledge is that discipline did not emerge accidentally.

Whether one agrees with Rwanda's methods or not, its achievements rest upon an uncompromising insistence that rules matter.

Yet many Ugandans want the outcomes without paying the price.

We condemn corruption but resist enforcement. We demand efficient institutions while opposing tighter regulation. We admire Singapore and Rwanda but forget that order always requires discipline.

There are no free lunches in economics.

There are none in governance either.

The Foreign Guardrails Are Fading

There is another reason this moment feels different.

For years Uganda's political freedoms existed partly because foreign donors possessed considerable leverage. Aid dependence gave Western governments influence whenever governance concerns arose.

That leverage is weakening.

Domestic revenues have grown substantially. Oil revenues are approaching. Alternative geopolitical partners have reduced Kampala's dependence on traditional donors.

The uncomfortable truth is that some of the freedoms we assumed were permanently guaranteed rested less on strong domestic institutions than on external pressure. As those pressures diminish, governments inevitably become more willing to define political boundaries on their own terms.

The Hard Reset

Uganda is approaching a hard reset.

Many citizens have long demanded a more effective state—one that implements projects on time, punishes corruption and delivers better services. Achieving those goals will almost certainly require a more disciplined political system than the one Museveni spent four decades managing.

The risk is that discipline imposed from above can easily become coercion if it is not restrained by strong institutions and the rule of law.

The opportunity is that Uganda finally addresses the disorder that has allowed corruption, inefficiency and weak accountability to flourish.

Whether this transition ultimately strengthens or weakens the country will depend not simply on who holds power, but on whether order is used to build institutions instead of merely consolidating authority.

One thing, however, seems increasingly clear.

The Uganda of the next decade is unlikely to resemble the Uganda of the last four.

A hard reset is coming.

Many of us have spent years demanding a more disciplined state. We may soon discover that history has answered that demand.

The only question is whether we will like the answer.

 

UGANDA NEEDS TO STOP PRETENDING ITS DEVELOPING

When Kenyan President William Ruto observed recently that Kenya’s paved road network exceeds the combined total of its regional neighbours. That stung.

Not because Uganda has no roads. We do.

But because the remark exposed an uncomfortable truth. For all the money we have poured into infrastructure over the last two decades, we are still playing catch-up.

"Uganda’s paved road network, at just over 6,100km, is not small because we lack ambition. It is small because too many good plans are suffocated by delayed implementation, procurement games, bureaucratic inertia and land acquisition disputes. In the public eye, all euphemisms for corruption...

In infrastructure, lost time is lost wealth.

Which is why the recent arraignment of Works ministry officials, as part of the probe into the delayed completion of the Busega–Mpigi Expressway, should concern us beyond whether the accused are guilty or innocent.

That is for the courts.

The larger issue is economic.

How many development dreams have we postponed, inflated or quietly killed because we cannot implement projects on time and on budget?

The Busega–Mpigi Expressway was not a bad idea. In fact, it is exactly the kind of project Uganda needs. It was conceived as a strategic road link out of Kampala towards Masaka, western Uganda, Rwanda, DR Congo and Tanzania. It was meant to decongest the Kampala–Masaka corridor, one of the most important trade and passenger routes in the country.

Depending on the section being discussed, the project has been described as a 23.7km to 27.3km four-lane expressway from Busega to Mpigi, with interchanges, bridges, drainage works, service lanes, tolling facilities and links into the wider road network.

Construction started in 2020. The promise was simple enough: cut travel time between Busega and Mpigi from as much as two hours to under 45 minutes.

That is not a small saving.

Multiply that by thousands of vehicles, traders, workers, buses, trucks and farm produce movements over a year and you begin to see why infrastructure matters.

"This is a point Shillings & Cents has made before. The heavy spending on roads, rail and energy is not the problem. In fact, it is the right thing to do. No country has transformed itself by balancing neat little budgets while its people sit in traffic, its farmers cannot reach markets, and its factories cannot get reliable power.

Infrastructure is not consumption. It is economic oxygen....

Roads reduce the cost of moving goods. Rail lowers freight costs. Power allows industry to run. Urban infrastructure saves working people from spending their lives in traffic jams. A tarmac road is not just a strip of bitumen. It is a market access tool.

The farmer in Masaka who gets pineapples to Kampala before they rot, the exporter who can predict delivery times, the manufacturer who can plan logistics, the bus operator who can do more trips in a day — these are the real beneficiaries of infrastructure.

So let us be clear. Uganda is right to bet big on infrastructure.

The problem is that big bets require big discipline.

The Busega–Mpigi Expressway has now become a case study in how good intentions are subverted. The cost has reportedly risen from the original hundreds of billions of shillings to more than a trillion shillings, while completion dates have kept shifting.

A project that began in 2020 and should by now be unlocking one of Uganda’s busiest corridors has instead become another reminder that we are very good at launching projects and much less good at finishing them.

This is not merely an administrative inconvenience.

It is an economic loss.

As Africans, we often behave as if time is elastic. A year lost here. Another year lost there. A project pushed from 2023 to 2026, then to 2027, maybe even beyond. We shrug and move on.

But time works whether we value it or not.

Interest accumulates. Costs rise. Contractors submit variation claims. Land values change. Equipment sits idle. Investors move on. Children grow older.

The lost savings are not theoretical. They are the money a trader never saves on transport. They are the expansion an entrepreneur postpones. They are the taxes government never collects because growth that should have happened did not happen.

And because taxes are not collected, one child — or thousands of children — does not get the classroom, textbook, desk or teacher that should have been provided as their right as Ugandans.

This is where the real scandal lies.

"A delayed road is not just a delayed road. It is delayed growth. Delayed taxes. Delayed services. Delayed dignity...

Infrastructure generates its return only when it is completed and put to work. A road earns its keep when vehicles move faster on it. A dam earns its keep when power reaches homes and factories. A railway earns its keep when cargo shifts from expensive road haulage to cheaper rail.

Until then, the country is carrying debt, paying interest and waiting for benefits that remain theoretical. For example we started repaying the Karuma dam debt long before it had produced a watt of electricity.

This is why project delays are so dangerous. They attack the economics of infrastructure from both sides. First, they raise the cost. Second, they postpone the benefit.

If a road is supposed to save transporters money for 20 years but is delivered seven years late, the country has lost seven years of savings. If the cost doubles along the way, the return on investment falls further. If corruption, poor supervision or needless redesigns are involved, then the public is robbed twice — once through inflated costs and again through delayed development.

The Busega–Mpigi case also points to a deeper institutional weakness.

We need fewer launch ceremonies and more project dashboards.

There must be penalties for contractors, consultants and officials who cause avoidable delays. Independent technical audits should precede major scope changes. Land acquisition should be substantially resolved before works begin.

Uganda cannot afford to abandon infrastructure spending. That would be foolish.

We are still far behind what our ambitions require. But infrastructure without execution discipline is a very expensive way of pretending to develop.

A TAX CUT, A REVENUE BOOM AND UGANDA'S MARCH TOWARDS SELF-RELIANCE

There was a line in this year’s Budget Speech that deserved far more attention than the usual debate about roads, oil, industrial parks and public spending.

Domestic revenue is projected to jump from Shs35.7 trillion this financial year to Shs45.6 trillion in FY2026/27, an increase of nearly 28 percent. Even more importantly, Uganda’s tax-to-GDP ratio will rise to 15.9 percent.

At first glance, it sounds like just another budget statistic.

It is not.

It may well be one of the most significant economic milestones in Uganda’s recent history.

For decades, Uganda has been building the foundations of economic growth. Since the late 1980s, the economy has expanded more than tenfold. Tax revenues have grown more than sixtyfold. Exports have diversified from coffee and a handful of commodities into gold, manufactured products, fish, cocoa and services. The country has liberalised its economy, tamed inflation and built critical infrastructure.

Yet despite all this progress, Uganda has often struggled with one persistent challenge: raising enough domestic resources to finance its ambitions.

The consequence has been dependence on borrowing and, historically, donor support.

That is why Finance Minister Henry Musasizi’s revelation that domestic revenues funded 80.9 percent of the discretionary budget this year is so important. Uganda is steadily moving towards financing its development from its own resources.

"The minister correctly described domestic revenue mobilisation not merely as a fiscal objective but as a sovereignty objective...

He is right.

A country that pays its own bills enjoys greater policy independence than one dependent on lenders and donors.

The generation that lived through the Structural Adjustment Programmes remembers that economic assistance often came with conditions. Many of those reforms proved beneficial, but the lesson remains the same: when someone else finances your priorities, they inevitably influence them.

When you finance your own development, you retain the freedom to chart your own course.

That is why the projected 28 percent jump in domestic revenue matters.

Yet perhaps the most politically significant measure in the entire budget was not the revenue target.

It was the decision to increase the Pay As You Earn (PAYE) threshold for the first time in more than three decades...

For years, Ugandan workers have quietly borne the burden of what economists call fiscal drag. Salaries increased, prices increased and inflation steadily eroded purchasing power, but the tax-free income threshold remained frozen in time.

Workers found themselves paying more tax even when their real incomes had barely improved.

The government has finally acknowledged that reality.

The increase in the PAYE threshold is long overdue.

It means workers will retain more of what they earn. It provides additional spending power for households grappling with school fees, rent, healthcare costs and transport expenses.

In practical terms, the change amounts to a salary increase.

A worker who was previously paying tax on the first Shs500,000 of monthly income will now retain an additional Shs30,000 every month because that portion of income is no longer taxed. Effectively, government has delivered a Shs30,000 monthly pay rise to many formally employed Ugandans without requiring employers to increase wages.

Over a year, that translates into Shs360,000.

The Treasury estimates that the measure will cost about Shs96 billion in foregone revenue. But that is a small price to pay for a reform that was overdue by more than three decades. In truth, the adjustment could—and arguably should—have been larger. Inflation has steadily eroded the value of the original threshold over the years. Had the tax-free band been adjusted periodically to reflect changes in the cost of living, today's threshold would likely be significantly higher.

Yet the symbolism matters. Government is effectively sharing some of the gains from stronger revenue performance with taxpayers. At a time when domestic revenues are projected to grow by nearly Shs10 trillion, foregoing Shs96 billion to provide relief to workers represents less than one percent of the additional revenue being raised. It is a modest concession, but a welcome one.

More importantly, it signals a welcome shift in thinking.

"The purpose of taxation is not to maximise taxes. The purpose is to maximise economic activity...

A growing economy ultimately generates more revenue than an overtaxed one.

That is one reason this budget deserves credit for focusing more on expanding the tax base than imposing new taxes.

The distinction is critical.

For too long, Uganda’s tax debate has focused on how much more government can collect from the same formal-sector taxpayers.

Yet the formal economy remains relatively small.

Millions of Ugandans remain outside the tax net, not because they are evading taxes, but because their economic activity remains informal, subsistence-based or too small to tax effectively.

The answer is not squeezing existing taxpayers harder.

The answer is monetisation.

That is precisely why the budget theme remains focused on commercial agriculture, industrialisation, expanding services, digital transformation and market access.

The logic is straightforward.

A subsistence farmer generates little taxable activity because little income enters the formal economy.

A commercial farmer purchasing inputs, accessing finance, processing produce and selling into organised markets creates taxable economic activity throughout the value chain.

The same applies to manufacturing, tourism, ICT, logistics and financial services.

This is where the budget’s emphasis on the ATMS sectors—agro-industrialisation, tourism, minerals and science, technology and innovation—becomes important. These are not merely spending priorities. They are future tax bases. They are the engines that will generate the jobs, incomes and enterprise growth necessary to sustain higher revenues without imposing higher tax rates.

The challenge now is to maintain momentum.

A tax-to-GDP ratio of 15.9 percent represents significant progress, but it remains below the levels achieved by many countries that successfully transitioned from low-income to middle-income status. Most sustain tax ratios above 20 percent.

Uganda still has ground to cover.

Fortunately, technology is making that journey easier.

The rapid growth of digital payments, e-invoicing, mobile money and integrated government databases offers opportunities to broaden compliance while reducing the cost of collection. The ideal tax system is one where paying taxes becomes seamless rather than adversarial.

There is another reason why stronger domestic revenue mobilisation matters today.

Uganda stands on the threshold of commercial oil production.

Many resource-rich countries have made the mistake of becoming dependent on oil revenues while neglecting their domestic tax systems.

The wiser approach is the one this budget appears to embrace: build a strong domestic revenue base first and treat oil revenues as an accelerator rather than a substitute.

Oil wells eventually run dry.

A productive economy driven by farmers, entrepreneurs, manufacturers, innovators and exporters can sustain prosperity indefinitely.

Ultimately, the most important story in this budget is not the size of expenditure, the roads being built or even the coming oil revenues.

It is a subtle but profound shift in philosophy.

For much of the last four decades, Uganda’s economic story was about stabilisation, liberalisation and growth.

The next chapter is about transformation.

Transformation requires resources.

Resources require production.

Production requires people participating fully in the money economy.

That is why the jump in domestic revenues and the increase in the PAYE threshold are two sides of the same coin.

One reflects a government becoming financially stronger.

The other reflects citizens being given a little more room to breathe.

A successful economy requires both.

As the new cabinet settles into office and implementation of the NRM manifesto begins, the real work starts now. As the budget itself notes, Uganda’s challenge is no longer merely growing the economy. The challenge is ensuring that growth translates into jobs, enterprise development, rising household incomes and prosperity for ordinary Ugandans.

If Uganda can continue expanding its revenue base while simultaneously improving the lives of its citizens, this year’s budget may be remembered not for how much government spent, but for how much closer the country came to paying for its own future.

STANBIC 2025: A MASTERCLASS IN PROFITABILITY — BUT WHAT IS IT SAYING ABOUT THE ECONOMY?

Stanbic Uganda Holdings’ 2025 results are, on the surface, exactly what investors want to see: profits up 23.6% to UShs 591 billion, dividends up 20% to UShs 360 billion, and return on equity pushing 26.8%. It is the kind of performance that reinforces Stanbic’s reputation as the most reliable money machine on the Uganda Securities Exchange.

But as we have discussed in previous analyses—particularly in our recurring theme around “where banks are making their money”—these results are as much a commentary on Uganda’s economy as they are on Stanbic itself.

The Trend: From Lending to Positioning

The most important structural trend remains intact: banks are still earning disproportionately from government securities and trading income rather than private sector lending.

Yes, loans grew 16.4% to UShs 5.1 trillion, which is encouraging. But look beneath that and you see the real driver of income:

• Net interest income growth was modest (+3.7%)

• Non-interest revenue surged (+21%)

This tells you Stanbic is increasingly behaving like a financial platform, monetising flows (payments, trade, forex) rather than just taking credit risk.

This aligns neatly with the broader shift we’ve observed in the sector—from balance sheet banking to ecosystem banking—a trend also evident in MTN’s fintech dominance, albeit at a different layer of the financial stack.

The Concern: Crowding Out Still Alive

Here is the uncomfortable truth.

When a bank delivers 26.8% ROE with NPLs at just 1.7%, it suggests one thing:
it is not taking much risk.

And in Uganda’s context, that often means:

• Preference for government paper

• Selective lending to top-tier corporates

• Limited appetite for SMEs

This is the same concern we raised in discussions around domestic arrears and bond market distortions:
why lend to a struggling manufacturer when you can earn double-digit yields risk-free from government?

The danger is subtle but profound:
capital begins to flow toward certainty rather than productivity.

The Promise: The Positive Impact Agenda

And yet, Stanbic seems aware of this tension.

The Positive Impact Agenda—targeting women, youth, and farmers—is not just CSR branding. It is a strategic attempt to reposition capital toward productive sectors:

• UShs 5 trillion deployed in loans

• SME financing scaling through the incubator

• Agricultural and community finance expanding

If executed properly, this could be Stanbic’s next growth frontier:
turning inclusion into profitability.

The Investor Takeaway: Still the Dividend King

For investors—especially in the “Bush Fund” logic we’ve discussed—Stanbic remains a classic:

• High ROE

• Strong earnings growth

• Predictable dividend (UShs 7.03 per share total)

This is not a speculative growth stock.
It is a cash flow compounder.

The Bigger Question

Stanbic is doing everything right.

But the real question is whether the economy around it is.

Because when your most efficient allocator of capital earns best returns from the state rather than the private sector, the issue is no longer banking.

It is structure.

And until that shifts, Stanbic will continue to thrive—
but Uganda may grow slower than it should.

UGANDA BUDGET 2026/27 IGNORES DOMESTIC ARREARS --AGAIN

These days Hajji curses the day his friend Jack walked into his workshop with what looked like the deal of a lifetime.

Jack had a contact in a government agency that needed thousands of desks and chairs for public schools. The Local Purchase Order(LPO) carried the authority of the state. The volumes were large. The opportunity seemed obvious.

Supply the furniture. Deliver the desks. Get paid.

What Hajji did not know then was that he had just stepped into one of the most dangerous transactions in Uganda’s economy: supplying government.

The banks had already learnt the lesson the hard way. They no longer discount government LPOs. Too many suppliers had walked into branches with official paperwork only to discover that payment might take years.

So Hajji financed the contract himself.

He drained his savings, borrowed from friends, sold part of his inventory and rolled the rest through expensive overdrafts. By the time the desks were delivered, he had sunk hundreds of millions of shillings of his own money into the deal.

That was five years ago.

He is still waiting to be paid.

His workshop is barely surviving. Expansion plans have been shelved. Machinery upgrades postponed. The only way he has kept the doors open is by shrinking the business — cutting staff, closing one production line and focusing on private clients who actually pay their bills.

Hajji’s story is not unusual. It is simply the human face of one of the least discussed problems in Uganda’s public finances.

Buried deep in the recently released Medium-Term Expenditure Framework (MTEF) for 2026/27 is a number that should worry anyone interested in the health of the economy.

"The government plans to allocate about Shs200 billion to clear domestic arrears estimated at roughly Shs8.4 trillion...

If you owed your suppliers Shs8.4 trillion and planned to repay them Shs200 billion a year, it would take more than 40 years to clear the bill — assuming you stopped accumulating new arrears tomorrow.

That assumption is heroic.

Domestic arrears are one of the most persistent structural weaknesses in Uganda’s fiscal system. Every year contractors build roads, firms supply medicines, manufacturers deliver furniture like Hajji’s desks, and small traders supply food to schools, hospitals and barracks.

But a significant share of those bills is not paid on time.

Instead they accumulate quietly in ministry ledgers until they become arrears — unpaid obligations sitting on government’s balance sheet like sediment at the bottom of a river.

And the problem has been building for more than a decade. Ten years ago domestic arrears were estimated at roughly Shs2 trillion. By 2018 they had crossed Shs3 trillion, prompting repeated directives from the Ministry of Finance warning accounting officers not to commit expenditure without cash backing. Yet the numbers kept rising. By the early 2020s the stock had climbed to around Shs5 trillion.

Today the figure stands at about Shs8.4 trillion — roughly four times what it was a decade ago.

In effect, government has allowed arrears to grow faster than the economy itself...

The Budget Framework Paper acknowledges the scale of the problem and outlines a multi-year strategy to eliminate the stock, even allocating Shs1.4 trillion this financial year toward the effort.

Yet the Medium-Term Expenditure Framework that follows suggests the effort quickly reverts to a token Shs200 billion annually.

In fiscal terms, that is not a strategy. It is an accounting gesture.

To understand why domestic arrears matter, think of them as the government’s hidden tax on the private sector.

When government fails to pay suppliers on time, those suppliers must finance the gap themselves. They borrow from banks, delay paying workers and suppliers, or scale back investment.

A contractor waiting years to be paid for a project is effectively extending a loan to the state — except the interest rate is whatever his bank charges him.

In Uganda’s case, that rate easily sits between 18 and 22 percent.

At the current arrears stock of Shs8.4 trillion, the business community is effectively financing the government to the tune of roughly Shs1.5–1.7 trillion every year in interest costs alone. And because arrears are not cleared on a strict first-in-first-out basis, some suppliers wait far longer than others, pushing their financing costs even higher...

So what begins as a government cash-flow problem quickly becomes a private sector solvency problem.

You can see the consequences across the economy.

Banks complain about non-performing loans from contractors whose payments have stalled. Businesses become reluctant to bid for government contracts unless they price in the risk of delayed payment. Smaller firms simply avoid government tenders altogether.

The result is predictable: higher project costs, weaker competition and slower growth.

And yet the irony is striking.

At the same time government struggles to pay suppliers like Hajji, it continues to borrow aggressively on the domestic bond market.

Interest payments next year are projected to reach about Shs12.7 trillion, with more than Shs10 trillion going to domestic creditors.

Put differently, Uganda will spend many times more servicing interest than clearing arrears.

That tells you something about our fiscal priorities.

We pay the bond market religiously. We pay suppliers when we can.

And this creates a dangerous incentive.

If government bonds offer 15–16 percent risk-free returns while productive businesses struggle with unpaid invoices and borrowing costs above 20 percent, what stops genuine producers from abandoning expansion altogether?

Why struggle with factories, machinery and payrolls when the state itself is offering double-digit returns for simply buying its paper?

"The risk is that capital slowly migrates from production to speculation...

Which brings us back to Hajji and his desks.

For him, the cost of supplying government was not just delayed payment. It was the freezing of capital, the shrinking of a business and the quiet death of expansion plans.

Multiply that story across thousands of suppliers and you begin to see the real economic cost of domestic arrears.

Until government pays its bills, the talk of private-sector-led growth will remain just that — talk.

THE UGANDA ECONOMY: INEQUALITY IN A SUIT

Jack a SACCO member from Soroti, remains unimpressed by the latest lofty figures issued by the finance ministry.

“GDP grew by 6.3 percent… the shilling is the most stable in Africa… we’ve climbed two places on the Human Development Index…”.

 Jack, who runs a small grain aggregation business and is still paying interest on his loan, just shook his head. “Sounds nice,” he muttered, “but who’s this economy working for?”

The Minister’s statement was full of shiny numbers.

"The economy’s size has grown to Sh226 trillion. Per capita income is up. Inflation is low at 3.8 percent. Exports have surged by 64 percent. Uganda’s HDI has improved farom 0.550 to 0.582, pushing us up from 159th to 157th globally. Life expectancy is now nearly 69. And fewer Ugandans are officially poor. On paper, we are making progress.

But for many ordinary Ugandans, that progress feels like it’s passing them by.

To paraphrase the Bible, man was not made for the economy, but the economy was made for man

. If rising GDP doesn’t translate into shorter clinic queues, more school meals, working street lights and clean water in Kyenjojo or Bukedea, then the numbers are just decoration. The true test of an economy isn’t how much it grows but who it lifts.

Uganda’s economy is rising, yes. But it is also concentrating. Growth is increasingly captured by the urban elite, the formal sector, and those already connected. Meanwhile, the boda rider in Kamwenge still can’t get a working health centre. The teacher in Adjumani still spends half her salary on rent and sugar. The graduate in Nebbi is still unemployed three years on.

The Minister pointed to falling income inequality—measured by a drop in the Gini coefficient from 0.413 to 0.382. But inequality has a way of hiding in plain sight. We see it in who gets government contracts. Who lives near a tarmacked road. Who has electricity. Who qualifies for financing without collateral.

And inequality isn’t just an unfortunate side effect—it is an indictment. An indictment of a government that still collects too little revenue, misallocates too many resources, and often fails to deliver value for money.

It is one thing to secure credit for roads, dams and hospitals. It is quite another to ensure those roads are pothole-free, the dams functional, and the hospitals staffed. Better distribution of the benefits of growth will only come when government projects are implemented more efficiently—by minimising corruption, for one, and prioritising actual delivery of public goods.

You see the disconnect in credit. Yes, private sector lending has grown to nearly Sh24 trillion. But ask a cassava farmer in Kumi how many banks are competing to finance her operations. Most of that credit flows to the same old sectors: real estate in Najeera, trade in Bugolobi, construction deals in Nakasero. The new economy is expanding, but too many are still locked out of it.

Even the celebrated fall in poverty—from 20.3 percent to 16.1 percent needs context. One bad harvest, one illness, one funeral, and a household can slip back. Development isn’t just about moving people above the poverty line, it’s about building buffers so they stay there. And that requires investment in things like universal healthcare, decent education, rural roads, and low-cost electricity not just GDP growth.

The diaspora sent back $1.4 billion last year. A lifesaver. But it’s also a warning sign. If the economy is rising, why are so many Ugandans still fleeing to wash dishes in Dubai or guard malls in Doha? Remittances are helpful, but they should be a complement—not a crutch.

The Minister did mention the Parish Development Model, Emyooga, Uganda Development Bank (UDB) and other wealth creation funds. Good tools in theory. But ask a youth group in Nwoya how long it took to get the money. Ask a SACCO in Pallisa how many times they were sent back for new documentation. For these programmes to work, they need to be streamlined, depoliticised, and corruption-proofed. Implementation is not a footnote. It is the difference between transformation and tokenism.

The macro numbers may be humming, but the micro reality is often grim.

Of course, we should be proud of our achievements. Uganda is growing. But growth without equity is a recipe for disillusionment, social strife and political instability. If we want a $500 billion economy by 2040, we must build it on a foundation of inclusion—where prosperity isn’t gated in Munyonyo but visible in Masindi, Kabale and Kitgum.

Because in the end, economic growth that fails to reduce injustice is simply inequality in a suit.

 

THE UGANDA ECONOMY 2025, GET A GRIP ON DOMESTIC ARREARS

Various observers predict good things for the Uganda economy this year. The Bank of Uganda maintained their projection of a 6.5 percent growth for the financial year, but ballooning domestic arrears, monies owed by government to the private sector, could dampen these and future prospects for the economy.

With the budget cut by at least 25 percent and the date for first oil pushed back at least another year, one can expect that government will not have its huge stock of domestic arrears, touching sh7trillion at last count, at the top of the agenda.

We all need to appreciate that domestic arrears are not just a number, but have real implications on people’s lives and livelihoods.

"While the economy is reported to be going from strength to strength, suppliers to governments are having to jump through hoops to stay alive, as payments are often delayed for months and even years. It is so bad now that many banks will not accept invoices to government for working capital facilities...

 In the daily workings of business, one may not have all the money at hand to meet various obligations. The banking industry can however provide working capital against invoices for work done. Basically if someone has done work and is due payment of say sh100m in future the banks can lend you money against that promise of future payments.

So if banks are not taking government invoices you can imagine how squeezed our businessmen are for liquidity.

This has the knock on effect of limiting businesses ability to invest, expand or even just stay alive. Given that government is the biggest client to the private sector most, if not all businesses are affected by this ever increasing inability of government to honour its obligations.

The deafening silence around this issue in government communication makes one wonder.

"An economy is only as vibrant as its private sector, as the former communist countries showed us, government’s mounting debt to the private sector in contravention of all measures to guard against this can, only spell doom for the private sector and by extension the economy...

But one can not help but wonder about certain contradictions in the economy. Given how government is squeezing life out of the private sector, it came as a surprise when Uganda Revenue Authority (URA) reported it had beaten the half year revenue collection targets by sh300b.

This should be welcome news for any economy. It suggests that revenue administration is improving, that URA is not only plugging the holes but also widening the tax base. The worry may be as the domestic arrears continue to bite even URA will struggle to collect.

The worrying thing for URA and the economy as a whole is that many of these businessmen will not just roll over and die. They will seek to survive by any means necessary. It is not a stretch to imagine that many of them will revert to informality if only to stay one step ahead of the tax man.

But beyond that these unmet obligations will erode confidence in government with far reaching implications for things like the cost at which we can contract loans in the open market. Lenders will not be averse to adding a point or two on interest rates to provide for government’s risk of default.  

Again this rising number is not one we can hide under the carpet.

The remedies seem obvious. For starters government really needs to rein in its accounting officers. The Public Finance Management Act not only provides a legal framework for managing government resources, but in addition in the Charter of Fiscal responsibility mandates timely payments to avoid arrears accumulation.

The government’s laissez faire attitude to accumulating domestic arrears flies in the face of this and clearly no one is being held accountable...

With that we can at best stop the accumulation of domestic arrears or at worst slow down their accumulation.

Which still leaves is with almost $2b of domestic arrears to grapple with.

 A policy needs to be drawn up if it hasn’t been, to prioritise the clearing of these arrears and regular audits to confirm and validate outstanding obligations. And there need to be credible sanctions against officials who ignore these initiatives. Up to now it seems they are not even getting a slap on the wrist for their impunity.

It is inconceivable that government can clear these in one budget cycle. However, government can go to the bond market and borrow money to be paid over years. While this will increase our domestic debt, which now stands at about sh55trillion, it would revitalize the private sector and the economy. We can not continue hoping for first oil in the hope it will give some much needed impetus to the economy.

Last week government raised sh990b from the bond market. Imagine we could ring fence a bond auction a month for clearing domestic arrears, we would have done commendable progress by the beginning of next year.

The privatization of the state enterprises and the liberalization of the economy starting in the 1990s, unlock individual initiative making the economy more robust and vibrant. As a result we have been able to shrug of many shocks – local, regional and international.

It is in our best interest to make sure our private sector is strong and able to continue bringing us through these tests.

Resolving our domestic arrears issues would be a good place to start.

 

SPEEDING TOWARDS A CASHLESS SOCIETY

Two weeks ago the Bank of Uganda released the quarterly ”Financial Stability Risk Assessment Report” for the last quarter of 2023.

Long story short most risk in the banking industry is under control and the sector is generally in good shape and has come some way from Covid-lockdown crisis.

That  should be a relief to any one who has an interest in the economy. More interestingly for me is the rate at which cashless payments are  increasing every quarter.

In the last three months of 2023 debit card payments rose to sh581.1b from sh532.9b in the previous quarter a near ten percent jump. In the meantime mobile money transactions  increased in value to sh62.2trillion from sh60.5trillion. To further emphasise the point of the shift away from cash mobile banking transfers increased to 2.4 million

  from sh1.9 million transfers in the previous quarter.

Even more interesting is that over the year  mobile money transactions crossed the sh200trillion mark up from the 2022 figure of sh190trillion transacted on all mobile money platforms.

This trend is a useful one because it means more and more of our cash is being liberated from our pockets, socks, mattresses and other dark, dank places we have been storing our money. This money is finding its way into the formal financial system where it is not only beneficial to you but also  is made available to others who have need for resources when you don't. It would be interesting to track the uptake of mobile money loans, despite their eye-gouging rates.

Basically the more of currency in circulation is in the formal financial sector the better for an economy.

The mobile phone is accelerating this process in Uganda.

If you think about the sh200trillion-plus in mobile money transactions is about $52b or bigger than the economy of Uganda. We can expect this trend to continue as more people  appreciate the convenience and businessmen allow it as an option for payment.

Speaking for myself I save on a fintech app, which gives me seven percent on savings, posting the  interest daily. I borrow the savings of other users from my mobile money provider and I virtually walk around without money in my pockets, because I can pay for anything using mobile money and if the worst comes to the worst reach into my bank account using my phone to meet other needs.

This means I keep my money in the bank or on mobile phone longer. I remember a time when eye watering qeueus used to form at the bank on Fridays to withdraw money for the weekend. God help if you if you did not make it to the bank on time, which used to be 1 pm, on Friday.

The counter intuitive thing is also that money is staying more in the formal financial sector because of the ease of withdrawal.

And this trend has other far reaching implications for the economy. A major reason for the high lending rates is the low savings rates in this economy. As a result the banks charge higher rates.

Banks are often walking a tight liquidity tight rope. Lending out of their capital and the few long term savings accounts. If more of us fixed our money longterm the risk to the banks to get caught in a liquidity squeeze would reduce and they would be able to lower lending rates.

This trend being pushed by mobile money is good place to start.

Of course the major reason lending rates are high is government borrowing from the public and paying double digit interest  rates. It is a no-brainer every money manager will lend to government first and then think about his riskier customers and force them to pay a premium for the  privilege.

But with oil revenues just over the horizon, one can expect government appetite for debt to reduce and the with the trend of more money finding its way into the formal financial sector and bank operational costs sliding, lower lending rates is becoming more of a reality.

To speed up the process towards a cashless society, it would help if government scrapped the larger denomination notes – sh50,000 and even sh20,000, forcing more transactions into the financial sector and even serving a fatal blow to corruption in Uganda.

It is very likely that in five to ten years the clamouring for more  branch opening by banks will be a thing of the past. The competition to reach clients will go online with the banks with the most user friendly platforms taking the day.

 

THE ATIAK SUGAR DEAL LEAVES A BITTER TASTE IN THE MOUTH

We all know someone like this. You come together as group to contribute to a business venture, but they despite their initial enthusiasm for the project, are reluctant to contribute to the endevour. The rest of you get it off the ground with the little you have managed to put together and what in patient hope for the coming of their contribution.

It doesn’t come and there is always an excuse why. It is beginning to get on your nerves because the defaulting member is benefitting from the project disproportionately to his contribution. You could have let them freeload – after all we are all friends, but the sheer injustice of the situation is beginning to poison the friendship. And the freeloader seems totally unbothered by the situation he has put you people in, oblivious to the risk of jeopardizing the project all together.

Last week the Auditor General released his report for the year that ended in June2023. Wading through the inane stuff that included air supply in local governments, our ballooning public debt, ghost works in government I happened upon a report about our interest in Atiak Sugar Company.

"If lack of capital is a reason for most business failures in Uganda there is no way, absolutely no way, Atiak Sugar Company will collapse...

The project is located in Amuru district, northern Uganda and has the potential to process 1650 tonnes of cane daily for a production of 66,000 tonnes of sugar annually on the 7,900-acre plantation.

 They have struggled to get off the ground, with production being pushed back from 2016 before limited production begun in 2020, but had to be shut down in 2022 for lack of cane to run the plant following a burning of 3000 acres of their fields. Observers think it won’t be until 2025 when they resume operations.

Industry players in private are not surprised by the teething problems the project is suffering as the promoters thought they would circumvent certain key processes in setting up an operation as they had envisaged.

For a project of this magnitude to take almost a decade after its initial commencement to take off is mind boggling.

But maybe not.

Over the last six years government has pumped sh459b into the project in equity and loans through Uganda Development Corporation (UDC). But also an additional sh69b has been received from NAADS (National Agricultural Advisory Services) for such things as slashing, weeding and planting.

But to break it down even further these monies at sh14m a classroom, build about 40,000 classrooms or almost 6,000 primary schools. This would  put a dent in our horrific number of more than 1.4 million kids dropping out of school annually....

These funds, which are more than were allocated to the manufacturing and tourism sector – sh491b, in the last budget, is five times more than government’s commitment to the project. Government is a 40 percent shareholder in the project for which they were supposed to contribute sh80b.

But it gets better.

John Muwanga the Auditor General reported on government’s partners in the project, Horyal Investment Holding Company (HIHC), “There was no evidence to confirm that the private shareholders had provided their capital contribution to the company.”

All I could say was, Wow!

But not only has government given HIHC a blank check to set up this financial black hole, but also was not adequately represented on the board. Government has only one instead of two board members. This kind of negligence is criminal.

To simplify several of us got together raised money and then handed over the money to the one among us who has not contributed to the business and we are not bothered what he is doing.

Where is the incentive for Atiak to work?  The promoters are already being paid hand over fist before the project starts, why suffer with staffing and operations, when we can just be paid for twiddling our thumbs?

I would love to be wrong but it is not rocket science to see what is going to happen.

"The promoters will throw their hands up in the air in defeat, walk away, government will take over the project to make a show of trying to recoup their investment and eventually give up as well, let the bush grow back and let the machines rust away....

It goes without saying that this country cannot afford this kind of waste on such an industrial scale.

Government actions in this project make one wonder whether they really wanted the project to succeed. If they really wanted it to succeed, the obvious thing to do would be to contract someone who has experience in this business, pay them probably a tenth of what they have already shoveled into this doomed project and just maybe we would have sugar from northern Uganda within a finite time.

And now its on to the next scandal.