‘Uganda’s Economy Is a Large Hot-Air Balloon’ [interview]

As government officials struggle to tell the real health of Uganda’s economy, some observers say the economy is slowly crumbling. Unemployment is growing some businesses are closing and others struggling, not to mention a sharp drop in government revenues.

In an interview last week, Dr Fred Muhumuza, an economist and senior manager at the audit firm KPMG, tells Alon Mwesigwa why he is not impressed with the direction the economy has taken.

What makes you think Uganda’s economy is in decline?

When you look at the five years between 2005 and 2010, our average growth was 8.2 per cent but the subsequent four years to 2014, there is an average of 5.1 per cent growth. And if you take the span of all the nine years and draw a trend line, you have a minus 0.72 per cent per year decline in growth rates.

Whether someone tells you we have done this reform and built this infrastructure, if it can’t be reflected in [growth], you might be making a lot of goose mooching. Growth of the economy [creates] employment and if the economy is not growing, you can’t generate [jobs]. Businesses which eventually feed into employment and welfare can’t perform. They are closing.

Bank of Uganda says loans to private businesses have improved, which means the economy is improving and government’s domestic borrowing has not affected private credit growth. But you are gly opposed to government’s domestic borrowing.

It is not a question of whether private sector and government are crowding out each other. There is more than that. Remember last year, they had planned to borrow Shs 1.1tn but they borrowed Shs 1.7tn. Now if this year they plan to borrow Shs 1.4tn, I will not be surprised if they borrow Shs 2tn. With domestic revenues falling, government will actually be forced to do more domestic borrowing.

Private sector credit has not increased because of improved business environment it is because people are actually borrowing more to save their investments. It is this over-indebtedness that you see companies closing.

But the biggest issue is interest payment. Of course some people will argue that it [the debt] is sustainable because our debt to GDP ratio is still low. But remember the whole of GDP is not there to repay the debt. And if part of that GDP is the plazas and arcades and gardens just feeding hand-to-mouth, soon, we are running into a problem of debt repayment. We may reach a point where government fails to pay or fails on its obligations like paying salary to teachers and health workers…

These government papers often attract offshore investors…

The danger with that is foreign exchange dis-alignment. It makes the shilling ger, in a sense, artificially, because these dollars are not generated through domestic economic activity. There is nothing. It is speculative investors in the financial sector who have come to take aantage of government rate.

When the shilling is artificially made ger, it undermines domestic production because it’s preferable for anybody to import because the dollar is cheap. Already, the economy is being distorted.

We will soon have oil revenues… the feeling is we shouldn’t worry much about debt.

Ghana has oil money, but its economy is crumbling. They have been exporting oil for some time. And here it is likely that by the time this money comes, you will owe the creditors so much more than even what oil will give you.

So, whatever you get from oil, you will be paying off the private creditors. You will not even be able to solve your own problems. I can’t even count on that oil money depending on how slow Uganda is and what we might go through to do compensation to get the right of way for the pipeline. I don’t see anyone’s oil flowing in the next decade.

The central bank said in a recent report that our trade deficit had deteriorated. Why can’t we produce for export?

If you [government] make it unfavourable to do domestic production, yet Ugandans still need soap, cement, drugs, which can’t be produced domestically, [they] will buy dollars and import and your import bill goes higher. It will continue to deteriorate if we can’t produce anything.

Government says it has reduced poverty to below 20 per cent of the population. You often argued that actually 70 per cent of Ugandans are just seated at the poverty line cliff. You mean we haven’t made any progress?

The poverty we compute is those below the poverty line and those vulnerable. The vulnerable are possibly sitting just above the poverty line. The last report that gave us 24 per cent of Ugandans below the poverty line also indicated that 43 per cent were vulnerable. If you add up, it’s 70 per cent of Ugandans doing badly.

For those just above the line, it could be because you collected the information when they had just found temporary employment or were not sick. Many Ugandans’ source of income is very shaky and [they are] not out of danger. Many are still living on hand-to-mouth basis.

Last year, Ernst and Young ranked Uganda among the top ten recipients of Foreign Direct Investment (FDI). Are you seeing this translate into employment?

I would be interested in knowing what type of FDI we are talking about. If the FDI are the dollars coming to buy government treasury bills and bonds, that’s not the right FDI. Of course a lot of injection is coming through telecoms sector and this does not translate into employment. I would be happy if that FDI came in sort of Air Uganda that has closed shop or partnership with Pioneer [Easy Bus].

The one [FDI] they are talking about, I also don’t see it. Maybe it came in form of a new bank.

You once referred Uganda as a shopping-mall economy. What’s your problem with malls?

We have so many malls and the value added by these malls is too small. Yes, there are Ugandans employed in Nakumatt in those malls, but how much do they earn? The tellers earn maybe Shs 150,000 or Shs 200,000 [a month].

A mall might be proud and say that ‘we sold goods of Shs 500m yesterday’, but all these goods come from Kenya. That means about Shs 400m will go back to Kenya. A very tiny portion will stay in the country.

So, you are being a shopping mall or a bank teller that every day, you handle millions of shillings, but hardly any is yours. It would be better if what is sold in Nakumatt is from Uganda – Bwaise, Kiboga or Gulu. But we have a balloon so big, but full of air. All these things come back to reflect in lack of jobs and hardships that Ugandans are facing.

So, you think government has failed Ugandans?

The cardinal objective of any government, politics aside, is economic growth – sufficient to meet demands of its citizens rich or poor. But today, even the wealthy are endangered because they have built their houses but they can’t get tenants. Factories and other investments are being auctioned by banks – look at Mabirizi plaza.

MPs are being arrested for debts the youths want jobs and even those with jobs are complaining because the pay is not worthwhile. We must ask the hard questions

Everything seems so bad but what’s the way out?

As Ugandans, we need to have a discussion on what must be done. We have focussed so much on trivial issues. The way we create our national agenda need to be rethought. Have you ever wondered why it is only teachers and health workers who aren’t paid because computers have failed? Why not other [government] officials or Parliament? It is actually the corruption within the system, and not the computers failing.

Source : The Observer

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