Uganda Company Bailouts Politically Motivated, Critics Allege

The Ugandan government is to spend $300 million bailing out ailing businesses. Critics complain the funds are being used to reward political loyalty rather than innovation, skill or good corporate management.

The Musa Body Group is a Kampala-based manufacturer which produces machinery for agriculture, including animal feed and vegetable processing. According to its website, it was founded in 1951, employees 113 people and its annual sales vary between $1 million (900,000 euros) and $10 million.

It also has a training wing which specializes in turning scrap metal into machines that are sold at home and abroad, not insignificant on a continent battling with youth unemployment.

Musa Body would like to improve the quality of its products so they can compete better on international markets, but this would require funds to which it has no access. Musa Body and other companies like it need government support but its name does not appear on the list of beneficiaries of the Ugandan government's $300 million bailout program.

Bailout candidates

Some of the companies that are on the list include Crane Bank owned by tycoon Sudhir Ruparelia, Roofings Uganda Limited run by Lalani Sikander and Simba Group which belongs to Patrick Bitature.

All three individuals are rumored to have contributed generously to President Yoweri Museveni's election campaign coffers.

Crane Bank saw profits of 50 billion Uganda shillings ($14.8 million, 13.4 million euros) in 2014 turn into a loss of 3 billion shillings in 2014, while Roofings Uganda borrowed from the International Finance Group, a member of the World Bank group, but is now producing at only 30 percent of its capacity because of low demand.

Ugandan economic analyst Augustus Nwagaba says there are two preliminary criteria that are almost always used when starting to decide whether a company deserves a bailout: how much tax does it pay and how many people does it employ. He wonders whether due diligence - economists' parlance for investigating a company before you do business with it - has been applied in this program.

"When you look at some of these companies that want a bailout, most of them are non-tradables," he told DW.

Non-tradable is a term which refers to goods or services which are produced or consumed domestically but which are not comparable to those which are exported or imported.

President Yoweri Museveni says the reason for bailing out selected companies is that most of them have lost money in South Sudan, where a civil war is raging, and the government must cover their losses. It is estimated that Ugandan companies were making close to a $1 million a day in South Sudan before the fighting broke out.

"Other countries normally have what they call export credit guarantees," Museveni said.

Interest rates

Museveni's critics feel that the program hasn't been thought through properly. John Walugembe, Executive Director of Uganda's Small Scale Industries Association, says the bailout in its present form could have an adverse effect on the whole of the economy.

"Is this a message that micro-, small- and medium-sized business, can go ahead and collapse?" he asked.

Doris Akol, head of the Uganda Revenue Authority, told DW that the companies that are failing miscalculated on interest rates when they took out variable interest rate loans.

"Many of them took out loan facilities when interest rates were low, but when the Central Bank had to raise rates mid-year because of macro-economic conditions, loan obligations became higher and many of our business people became non-performing," she said.

Ugandan lawmakers, mostly from the opposition, are preparing a motion to scuttle the bailout program when it comes before parliament.

Source: Deutsche Welle.

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