Lifting lockdown not enough for economy

The available efforts to support Small and Medium Enterprise (SMEs) through stimulus packages are still on paper as bank loans crunch down businesses day by day.  If nothing is done, the dividend of easing the lockdown might not be realised, yet President Museveni’s decision to ease the 42-day lockdown was premised on reviving the economy.

For the lockdown to be eased, the National Planning Authority (NPA) presented three options to the President.

The modules included fully opening-up measures (zero lockdowns). According to NPA projections, under zero lockdown measures, new cases would average about 500 per day with a weekly average of around 2,000 within 28 days.

This was the first measure to be eliminated from the equation as it would take the country directly into the third wave.

No opening-up measure (continue with full lockdown).  With this option, the country would have 30 new daily infections and a weekly average of 246 new cases in the coming 28 days.

The measure had strong and positive health benefits as the cases would reduce drastically. The negative impact is on the economic and social well-being of the people.     

Lastly, was partial opening-up whereby some economic sectors are allowed to operate. It projected an increased number of cases in the first week to an average of 309 new cases per day and these would eventually come down to 85 new cases by the third week.

While making a case for each module, the President settled with the latter, clearly showing that his decisions were vested in the interest of the economy unlike before.

However, business appears normal, foiling the purpose of allowing movements. 

To realise the benefits of easing the lockdown, government has to quickly work out clear policies for economic recovery.

Stimulus package

Top on the list of key policies is prioritising the issuance of stimulus packages, according to policy analyst Mr David Walakira.

“Stimulus spending is something that needs to continue as a policy because it helps to pull up consumption,” he says.

In the recent Covid-19 presidential address, President Museveni directed Ministry of Finance to allocate Shs200b Covid-19 stimulus package to support business.

In addition to increasing consumption, Mr Walakira says the President’s nod to allowing National Social Security Fund (NSSF) mid-term access will increase money in circulation hence boost consumption.

But government modalities on how to access the aforementioned funds are still in discussions which if not expeditiously resolved, the economy will continue to face a slow and painful turnaround.

Similarly, Shs53b Covid relief fund for vulnerable Ugandans described as a stimulus package to Micro, Small, and Medium Enterprises (MSMEs) was another government intervention.

However, Shs242m was wrongfully sent to Covid-19 relief beneficiaries.

To rightly manage stimulus packages, he says, government has to water-tighten such targeted interventions to avoid leakages (corruption). 

BUBU policy

Uganda’s private sector is dominated by MSMEs comprising approximately 1,100,000 enterprises and employing approximately 2.5 million people equivalent to 90 per cent of total non-farm private-sector workers.

This crucial sector, however, was heavily affected by the pandemic restrictions.

To jumpstart the economy, Mr Walakira says focus on private sector is paramount especially targeting businesses in arcades.

“Some people have been locked up for more than 50 days yet they are accepted to pay rent,” he says.

Only 73 arcades have so far been reopened while 68 are still closed awaiting clearance.

Under private sector boost, riding on Buy Uganda Build Uganda (BUBU) policy is a quick economic recovery plan to lean on.

Already, government plans to procure about 46,000 beds from local manufacturers. Government has also been procuring facemasks and sanitisers from local companies.

This demonstrates efforts by government to employ import substitution using BUBU across the whole distribution chain through medical supplies induced by Covid-19

BUBU policy was introduced by government to promote the consumption of local goods and services through use of standards, government introduced.

At the moment, BUBU, is a quick economic result of easing the lockdown.

However, the policy is continually being crippled with poor quality of locally manufactured products. 

On this backdrop, Mr Walakira says addressing quality issues widens market access.

“I will not buy a substandard shirt just because it is manufactured in Uganda,” he notes.

Although lockdowns have proven to be a solution to curbing the spread of Covid-19, they should be temporary.

“Government was right on the lockdown because you cannot have an economy where people are dying,” Prof Augustus Nuwagaba, a seasoned economist, said in an interview.

Nevertheless, he said government must now focus on good economic policies to avoid a contraction.

“There is no economic policy that is rosy,” Prof Nuwagaba says while contending that continual provision of stimulus packages especially to small businesses will spark economic activity and ease tax collection.

Taxation

On taxes, Prof Nuwagaba is among the many who propose tax waivers as a quick remedy to realising dividends from easing the lockdown.

Recently, city traders under their umbrella Kampala City Traders Association (Kacita) asked government to implement the latter for six months for business recovery.

Amidst the pandemic, government introduced new tax measures that came into force on July 1 as part of an emergency response to recoup.

“First, it was wrong for government to introduce taxes such as the 12 per cent Internet tax yet several SME businesses rely on Internet,” he says.

Despite that, he continues: “There is a need to negotiate with landlords over rental tax because the landlords will pass it on to already ailing small businesses.”

SME financing

In regards to financing SMEs through Uganda Development Bank (UDB), Prof Nuwagaba says there should be a policy to decentralise government support across the private sector.

As such, government will be creating competition such that people can choose where to borrow from with low interest rates.

Current economic status

Covid-19 has faded the country’s hopes of attaining middle-income status by 2020.  Uganda’s real Gross Domestic Product (GDP) grew at 2.9 per cent in the 2020 Financial Year (FY), less than half the 6.8 per cent recorded in 2019 FY, due to the effects of the Covid-19. GDP is expected to grow at a similar level in the 2021 financial year.

To recover, government should unveil a feasible economic recovery plan to the population to get back on the road to recovery.

Mass vaccination of the population also remains key in realising dividends of easing the lockdown. If business continues as usual, experts warn of a possible economic downturn.

Dr Adam Mugume, the director of research, at Bank of Uganda cautioned of a triple threat to the economy if the lockdown was extended.

He said Uganda will have imported inflation, resulting from the speed at which advanced economies recovered from the pandemic’s negative effects.

“Business in advanced economies is normalising due to vaccination. Once they realise economic stability, they can tighten their monetary policy which spills over in terms of depression of the exchange rate,” he explained.

Economic recovery will take longer

According to Bank of Uganda’s monetary policy statement for August 2021, economic growth is projected to return to 6 to 7 per cent in financial year 2024/25, indicating that economic activity mis expected to remain well below the pre-pandemic path for an extended time. A rebound of economic activity will be sustained by an acceleration in private consumption due to pent-up demand and strong growth in external demand which should contribute to a solid pickup in exports.