The press is awash with stories of the economy in decline and I guess everybody is blaming everybody except themselves. Take a close look at yourself and ask yourself what have I produced in the last one year but is possible that you earned money without any output let alone any input. It is also possible you didn’t earn any and you are still waiting for “government etuyambe”. It is also possible that you are one of those endless people asking government to give you things because you fought. It is also possible that you were a Kazinda accomplice or you were a beneficiary of the UNRA funds. Most economies around the world are in recession, Uganda inclusive. This explains the slow growth in the economy especially in the recent months. The current downturn in the economy is a result of lack of investments. The decisions that were made about more than a year back by foreign investors who wanted the elections to go away to be able to take a decision whether to continue to invest in Uganda or not. As a result, production has been low.
The Uganda economy is a victim of itself. We are own enemies because we don’t produce and expect things to happen. We want free things and we await the President to give us some money. At the recent Independence Day celebrations in Luuka, everybody who went there went to see if the president could give them some money. Every one among those Luuka people who got medals (500 of them) wanted to get a chance to tell the President how they fought or how badly off their families are. Museveni had to push away the medalists by force to enable him complete the task. I am writing this article motivated by my earlier article on how America was knocking out the Deustche bank. In that article I make some reference to the Ugandan economy. For that matter why are we perpetually poor? Why do we expect free things? Why do we expect others to solve our problems? There are many factors that drive economic growth and socio-economic transformation.
What is wrong with the Ugandan economy? Why is business slow? To me it is very simple, there is not production in the economy. Uganda’s policies are excellent. Under the Governor Mutebile Macro- Economic policies in the country have been super. They liberalized that economy attracted foreign investment but failed to get Uganda off their backsides to work and increase local production, not surprising the country has a dearth of local investors. Uganda may have some of the best policies in Africa but implementation appears to be the problem. There are also some areas where according to me Policy is not right. I cannot elaborate all these issues.
The growth of the Uganda economy over the last twenty years has come mainly through industrial production. A large number of industries in the country have grown by over 2000% over the last 15 to 20 years. An industry like communication has become so huge in Uganda taking over from the oil companies all that is growth in the economy and while it is good for the economy it is not good for the ordinary people who only pay for airtime. The telecommunication business has a multiplier effect, but it is mainly in the service industry and is a challenge for the country’s balance of payments. Uganda needs to start producing things to sell and if it doesn’t, the economy will grow but poverty will continue
80% of people live on subsistence farming and are in agriculture. This is where our attention should be. Agriculture production contributes less than 20 % to the country’s GDP. This simply means that about 80% of the country’s GDP is distributed over the 20% of the population. Even that is a little too high, of the 20% of the people in urban areas, it is likely that over 90% of these are poor people. So who is contributing to the production in the economy? Industrial production contributes less than 30% also and yet it is industrial production that has been growing over the years that has reflected on the high growth of GDP in the country.
President Museveni rightly identified that for the economy to grow you needed investments. He has been on the lookout for investors and his effort has paid off in many areas. Unfortunately Uganda has no local investors to talk about. The key people have been Mukwano, Madhvani who have invested in production. The other investors have put money into mainly service industries which have a smaller job multiplier effect. The Uganda economy has a large telecom and oil sector and their growth creates the impression that the economy is performing very well. When you add infrastructure development, it gives a higher growth prospects for the economy. Unfortunately no serious effort has been put into agricultural production (the NAADS story aside). If Uganda is to transform, this 80% of the population must be able to make a contribution through production.
There must be a consistent effort to increase agricultural production and I have argued elsewhere to also increase agricultural productivity, increase in production this would give incomes to peasants this would spur growth in other areas. But Uganda cannot transform agriculture with the current agricultural production techniques and policies. If 80% of the population lives off agriculture buy have to depend on the acts of God, it makes them vulnerable to inability to produce anything at all. It is not surprising that Uganda is susceptible to famines due to failure of rains. To increase agricultural production in Uganda we must be able to irrigate. We are in such a vulnerable position that we even get fake fertilizers. It is not surprising that we really can’t produce much. The current slowdown in the economy is a result of that inability to produce that much for sale internally and for export. Unfortunately as I have said earlier, people are waiting for handouts, the government etuyambe phenomenon. This begging culture where we expect to be given things is deterrence to production and will keep us in perpetual poverty. This is what I mean by being our own enemies. Policies should be evolved to support agricultural production and mobilize people to actually produce. If people don’t produce anything, there will be no way to wash away poverty.
Population growth has been said to be one of the key determinants of growth. There is a belief that a large population creates an advantage of a large market. However, if the population is not producing anything, it is a prescription for poverty. The number of the poor according to official statistics has reduced tremendously from over 50% to now about 30%. This statistic is simply a division of total GDP over the population. There is poverty everywhere in this country evidenced from the fact that many people cannot have a decent meal and cannot pay school fees for their children, where the fees have been paid like in the Universal Primary Education, they cannot afford the meal for their children and possibly 90% of the population dresses in old clothes. The population dividend is actually a nightmare. Infrastructure appears to be a big challenge for development. Without infrastructure, we cannot trade both internally and externally. There has been a lot of infrastructural development in the country roads, electricity generation, some schools among others.
Unfortunately, most of the infrastructure is from borrowed funds. The country does not have capacity to fund its own infrastructural development and must borrow externally. Unfortunately, if the cost of the infrastructure is too high due to corruption it means there is no benefit from it besides, you read of challenges of quality of construction. The Karuma dam being built on loans is reported to being constructed using substandard materials. I hope that this is not true. The other challenge with infrastructural development is if we build white elephants, things that we cannot use either well, properly or efficiently. Look at the Northern Bypass. It is about to become an ordinary street in Kampala. At certain times, people do not want to use the road and yet to was intended to reduce traffic and ease movement. We have defeated our own intentions.
Education has been another area that contributes largely to social economic development. An educated population is supposed to be more efficient in the utilization of resources and should also be able to make use of the resources around it to improve their living standards. The evidence of failure of our educational system lies in the fact that at my age of 60 I have seen the hoe as the basic instrument for production. The country has to import materials to use for construction. Despite the large volumes of materials in this country, we have failed to use science to exploit them to improve ourselves. Our education system is skewed to theoretical university outputs not putting emphasis on technical and vocational education. Today, they are about 300,000 students in universities and about 70,000 in technical and vocational institutions! It is not surprising that many graduates do not have jobs. It is not surprising that we are short of electricians, plumbers, carpenters.
Government recently put emphasis on entrepreneurship education. While I believe they are doing the wrong things, I believe this was the right policy. Uganda is one of the most entrepreneurial countries in the world but the entrepreneurs are in the wrong business with little added value like boda boda, old clothes and hawking fake manufactured products on the streets. There is need for s systematic development of entrepreneurs in the country. While I do not believe in government owning business, I think if there is seriousness on our part, decent management, and government could start businesses and invite the public to share hold. This could address some of the challenges of low entrepreneurial capacity in the country. The educational system has to change and very quickly. A lot of money is spent in skilling Uganda which should be spent in providing proper infrastructure to change the educational system. All the effort on wealth creation will be wasted if the people do not have the skills and knowledge and more importantly the entrepreneurial abilities. As part of the educational system, there is need to address technology. I have alluded to technology when talking about implements for agricultural production. The usage of the hoe. We cannot increase production and productivity without using modern technologies. We cannot use modern technology without adoption and emphasis on science in our school system.
Of course there are many factors that will drive growth. I need not to go into the details here. My intention was to explain the recession in the Ugandan economy and possibly what needs to be done. The major factor not related to the recession but key in social economic transformation is land. The current land tenure system in the country cannot promote economic development. The massive accumulation of land through corrupt practices is adding to the challenges of the tenure system as it is exploited by those who know what to do.
Professor Balunywa is the principal of Makarere University Business School.