President Museveni. PHOTO/FILE/PPU
|People & Power
Prime
A rejoinder to Museveni’s State-of-the-Nation address
What you need to know:
- Just as the sleepy upcountry towns were declared “cities” but nothing has changed, it will soon become obvious that declarations of middle income status don’t, in themselves, make it so.
President Museveni delivered his annual State-of-the-Nation address last week and the Minister of Finance, Mr Matia Kasaija, presented the 2022-2023 budgetary proposals to Parliament a few days ago.
As is now customary, the focus of both speeches was on how to lift the population from poverty and how far government has succeeded with this. Since the budget is mainly fiscal, that focus is fitting.
However, there should be more breadth and imagination in the President’s briefing on the state of Uganda than the constant focus on “wealth creation”, and this is not just a case of idealism.
Obsession with creating wealth
In practical terms, over the last 10 or so years this focus on and obsession with creating wealth has led to a drive to construct roads between towns and within towns.
And then, over the last 30 years, there has been a general focus both by government in its policies and private citizens in their personal goals, of building or opening more and more hotels, restaurants, factories, TV and radio stations, schools, shopping malls, supermarkets, apartments and high-rise office blocks.
For the 20-year period 1979 with the end of the Tanzania-Uganda war until about 1999, Uganda was truly in desperate need of investment in infrastructure. There was just not enough of it.
However, sometime toward the end of the 2000-2009 decade, the country appears to have reached its peak investment phase.
At this stage, there was more in investment than the market had demand for.
Partly because of lack of business information and investment advice and partly because the creation of wealth is an NRM government obsession, rather than caution business people against any further large-scale investment, the opposite was true. The result is what we see in the economy today: A debt crisis.
Local investors are defaulting on bank loans in ever greater numbers and government itself is saddled with ballooning international debt.
MUST READ: Hits, misses in state of nation address
Entire office blocks, shopping malls, and apartment blocks sit with only 10 or 15 per cent occupancy.
On an average day, waiters and waitresses stand idly in restaurants, with only a table or two occupied.
Government, with good intentions, secured funding from the African Development Bank to build new central markets in Hoima, Mbale, Kabale, Jinja, Lira, Soroti, Mbarara, Fort Portal and so on.
But as with the Kampala property market, these central markets are proving to be a wasted investment.
Why? Because the vendors for whom they were intended operate on razor-thin profit margins.
Most vendors did their calculations and realised that if they were to pay rent in these new markets, they would be left operating at a loss.
That’s why there are so many hawkers in Kampala. Only by operating on foot or along the street corner can they hope to earn anything resembling a net profit.
Uganda Airlines, whose revival in 2019 was greeted with much optimism, is another example of government investments with good intentions but without much technical planning and business foresight.
Departure of Barclays, Shell from Africa
The warning signs came more than a decade ago, but few took them seriously.
In 2010, the Anglo-Dutch energy giant Shell announced that it was pulling out of the retail market in 22 sub-Saharan African countries because of insufficient demand.
In 2016, the British bank Barclays announced it was also packing up its bags and leaving Africa for similar reasons.
These decisions by two major continent-wide European operations in Africa should have caused us to stop and ask: What do they know that we don’t?
It’s not always easy to get accurate economic data on Africa and government budget and GDP growth figures are usually rosy and, many say, influenced by politics.
But we at least can trust the experienced Barclays and Shell to have detailed data on their cash flow in sub-Saharan Africa and so their data paints an accurate picture of the region’s economies.
The volumes of fuel consumption at the pump are a good way to measure the disposable income of the middle-class and the strength of the economy.
The performance of a bank such as Barclays, likewise, gives an accurate picture of the savings rate and moves toward formal investment and economic activity.
When Barclays and Shell leave Africa citing weak consumer demand, that is a warning sign, and sure enough, we now feel what these two companies recorded in their books.
This was my argument late last year when the South African supermarket chain Shoprite announced that it was exiting the Ugandan market after 21 years.
When Shoprite set up shop in Uganda in September 2000, there was pressing demand for its services and products.
When it decided to leave rather than open more outlets, that too was a warning sign.
The purpose of all this is to make the case that Uganda is now over-invested relative to the size of the economy and market demand.
As Daily Monitor reported in a headline story on May 31, the recently-gazetted upcountry cities are proving to be cities in name only.
“From Mbale in the east to Masaka in central Uganda to Fort Portal in the West and West Nile’s Arua City, political leaders...can neither break ground for new development projects or implement their manifesto because all the cities, for the second year running, are operating on the original budget allocation to them as municipalities,” this newspaper reported.
In other words, it’s one thing to declare a sleepy town a city, but it’s another for this sleepy town to find revenue to develop itself or for government to find money to fund them.
This, it has to be said, applies as much with President Museveni’s declaration in his State-of-the-Nation address that Uganda had, at last, leapt into the middle income rankings.
Just as the sleepy upcountry towns were declared “cities” but nothing has changed, it will soon become obvious that declarations of middle income status don’t, in themselves, make it so.
What the President and his government should have begun focusing on a decade ago was the task of creating internal consumer demand.
In a reasonably stable political and macro-economic environment, it is easy to build and invest.
Whether from one’s savings or money stolen from the State or laundered from drug trafficking, it’s easy to build glittering new high-rise office towers.
What is much harder is to get organisations and companies to actually rent out a place here.
It’s easy for beer and soda companies to produce more crates; it’s much more difficult to get the struggling public to afford to buy these products.
This is why even the greedy ones who embezzled government or company funds and built apartment blocks or shopping malls are discovering that without a matching of demand and supply, they are left with empty properties.
Those business people or companies with close ties to the ruling NRM government are discovering this law of economics that affects all.
Hotels, shopping malls, restaurants, nightclubs and so forth owned by NRM supporters are as empty as those owned by Opposition supporters.
Every effort should have been made to create an internal consumer market for Ugandan products and services, a market so vibrant that in theory the country would not need wider East African markets.
It means encouraging internal tourism, for example. It means persuading Ugandans to visit the various national parks and historic sites.
It means creating a merit-based employment system, so that many more of the right people can get the right jobs and with their spending power, drive higher quality demand.
To take an example, people who love and are devoted to books or print newspapers are typically not the scheming type.
They are usually milder than average in temperament and most struggle to survive in a crafty, indisciplineD economy such as Uganda’s.
They wish to buy more newspapers or books, but often lack the disposable income to.
If there was a merit-based system, these mild, book-loving types who are usually above-average intellectually would have the meaningful income to drive Uganda’s struggling book publishing industry.
The type of people who amass wealth overnight and drive the large SUVs that fill Kampala’s roads are usually not much interested in books or ideas.
Creating a merit-based and rules-based society, in turn, also requires a streamlining of the politics.
There must be truth and principle in the way politics is handled.
In the 2021 General Election, NRM won countrywide, at least by the official results, but NUP won decisively in Buganda where about 70 per cent of Uganda’s economy resides.
From an economic point of view, the NRM government can’t hope to stimulate market forces when it refuses to engage NUP and the participation of NUP’s supporters in this economic heartland of the country.
Creating organic demand in the local economy requires a whole set of skills, policies, incentives and knowledge. I’m not sure government has these strengths.
