Economic cost of ‘Gen Z’ protests over corruption

From what Prosper Magazine has gathered, the youthful peaceful protesters intend to carry out routine protests until their demands are met.
The question is: What is the economic impact of these protests?
And what are the implications of regular youth-led protests on the country’s image as an investment destination?

Whenever there is an incident as small as a peaceful protest, it affects the country’s image among potential visitors.
According to the Private Sector Foundation (PSFU), capital hates noise. They also say investment doesn’t augur well with uncertainty and negative surprises.

But can the peaceful protest by the young people looking to end public corruption in the country and potentially save nearly Shs10 trillion per year, which translates to nearly 25 per cent of annual government budget, according to the Inspectorate of Government report, titled: The Cost of Corruption in Uganda, tantamount to noise?

Research studies, such as the Fourth National Integrity Survey in Uganda and the East Africa Bribery Index, reveal that Ugandan citizens often only access essential public services if they pay a bribe to the public servants who function as gatekeepers of these services.

 As such, corruption not only contributes to the worsening of poverty and inequality but also the high cost of doing business in the country. According to the report, corruption further leads to the loss of trust in government, poor infrastructure, delays in project implementation, low investments and insufficient service delivery.

According to Transparency International’s 2023 Corruption Perceptions Index, Uganda scored 26 on a scale from 0 (“highly corrupt”) to 100 (“very clean”). When ranked by score, Uganda ranked 141st among the 180 countries in the Index, where the country ranked first is perceived to have the most honest public sector.

Keeping it tight and clean                                                      
So far, the youthful protesters are steering clear of trouble. They have largely been peaceful until or unless when forcefully arrested by the security personnel.  
As long as it remains a peaceful protest, economists, investment and governance experts, and economic sector players interviewed for this article, say the impact on the economy will remain minimal if not negligible. 
But should it go haywire – resulting in unrest, there will be a knock-on effect. 
According to a publication titled: The Economics of Social Unrest by IMF economists, there is a tight link between unrest and subsequent economic performance. On average, according to the analysis, Gross Domestic Product (GDP), which is the value of production generated within the country annually, remains about 1 percentage point below its pre-shock level a year and a half after a major protest.

 Further, unrest motivated by socioeconomic factors is associated with sharper GDP contractions than unrest associated with political motives. Yet events triggered by a combination of both factors correspond to the sharpest GDP contractions, revealing the findings of the IMF economists’ analysis.

Impact on  investment
Director of research and policy, Bank of Uganda, Dr Adam Mugume on Tuesday said: “When the economy is large, localised protests have minimal effect on the economy.
“It is only when they broaden, like the Arab Spring protests in 2010 and 2011, that the economy can be damaged. What we are seeing in town is a minor incident that shouldn’t have any impact on the economy.”

As to whether the protest could soil the country’s image as an investment destination, he said: “An investor intending to invest in Uganda, looks at a long-term horizon when the investment should pay off rather than short-term glitches which occasionally occur in all countries.”

He continued: “Corruption indeed, deters private sector investment and growth. An investor has to look through particular corruption incidents and what the government is doing to curb it in the process of investment decisions. Only when corruption is endemic and state-sponsored does it derail the economy.

“Nonetheless, protests have the potential to scare away tourists, especially because of negativity in African countries which is prevalent in Western countries. In addition, uncontrollable violence arising out of protests can cause delayed private investment decisions.”
For instance, the death of the tourists killed in the national park, there were so many cancellations.
“Äny disruption like a strike, or protest, and terrorism in town affects tourism bookings,” Ms Lilly Ajarova, the chief executive officer of Uganda Tourism Board says. 

In an interview with Dr Fred Muhumuza, a policy analyst and former advisor, at the Finance Ministry, it became clear that protests of any sort are more likely to scare capital and investment regardless of the cause, especially in the short to medium term.

 Dr Muhumuza who is also the director, Makerere University Business School Economic Forum and senior lecturer in the Department of Economics, argues that certainty is a deciding factor for many serious investors looking for long-term investment. For that, the will and commitment of the government in ending corruption will be crucial in persuading an investor to invest in Uganda or find elsewhere to do business.   

Although the protest by the young people is for a right cause, Dr Muhumuza believes it will raise eyebrows – and for the case of investors, it could culminate into a wait-and-see pause, impacting jobs that could have been gotten out of such investments.

Overall, Dr Muhumuza believes that addressing the issues resulting in such protests is important. He notes that for as long as social and economic conditions of the majority of the population remain wanting, while a group of influential individuals who hold significant power mostly due to their positions in government, political parties, or even other influential institutions continues to have it all at the expenses of the masses, these youth-led protests will only get worse no matter the amount of suppression that comes their way.       
Sign of confidence

As for Dr Paul Kyalimpa, an investment and governance expert, the protest by the young people against corruption is an indication of a brighter future for the country. He says this means that Uganda as a country is sensitive to corruption and has chosen to deal with the vice by fighting it.

He said: “For as long as the protest doesn’t get out of hand, it is a sign that the country’s future as an investment decision is bright. The young people are saying corruption is not accepted here.

“We must address the root cause of corruption by identifying how it is perpetuated, who are involved, and how to close the loopholes. This is because exposing corruption and holding the corrupt to account can only happen if we understand the way corruption works and the systems that enable it.

“Once we do that, the investors and investment will not have to deal with issues that eat into their capital but instead commit it fully to the cause – investment resulting into good jobs for our people,” he said.   

Fingers crossed
The tourism sector whose return on investment is high is the most fragile. Efforts to be recognised as the best tourism destinations can easily be shuttered by a single event generating bad press.

 Despite the industry last year seeing international tourist arrivals increase by 56 percent to 1.274 million tourists compared to 814,085 arrivals in 2022 and the peak of 1.52 million in 2019, resulting in international tourism receipts reaching $1.03 billion in 2023, the industry players are keeping their fingers crossed – hoping the protest doesn’t get out of hand, resulting into cancellations.

“We are wary of the situation, hoping it doesn’t escalate to violence because of the damage it will cause to tourism industry,” the chief executive officer of the Uganda Hotel Owners Association,  Ms Jean Byamugisha, says when contacted on Wednesday last week.

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