Tuesday January 19 2016

Wealth creation: How can the economy leap forward?

Children seated outside a hut in a seemingly

Children seated outside a hut in a seemingly poor homestead. Ugandans have a higher propensity to spend than to save; something which usually results from cultural practices that hold individuals so attached to one another, especially in extended families. FILE PHOTO 

By William Lubuulwa

Recent media reports indicate the Uganda People’s Defence Forces (UPDF) managed Operation Wealth Creation (OWC) programme has had numerous challenges despite having branches extended throughout the country.
OWC, an economic intervention that President Yoweri Museveni launched in July 2013 to create a system that aims at raising household incomes for poverty eradication, runs under the National Agricultural Advisory Services (Naads) supervised by the UPDF.

The Naads programme started following an Act of Parliament in 2001 to support a 25-year vision. The initial seven years for the first phase covered FY2001/2002 to 2007/2008, estimated by Naads to cost $108 million (Shs376.4 billion). There is little available information on OWC funding but it is financed as part of the Agriculture ministry budget.

When Naads was mismanaged, government posted military coordinators to the programme areas to oversee OWC. Although creating wealth has never been a mandate of the military, and therefore no law to that effect, President Museveni decided to deploy the army to coordinate Naads activities after accusing the officials of mismanaging OWC.
Gen. (Rtd) Caleb Akandwanaho aka Salim Saleh, the OWC head, has always pledged to support youth and women under the programme. He applauds Ugandans for embracing OWC but advises: “You should be organised in groups to receive farm inputs and have mutual agreements on land to avoid jeopardising the programme.”

However, the programme, which has been running for the last 30 months now, has come under criticism for sidelining women, youth and late supply of agricultural inputs to farmers.
At some point, the Kabale District chairman Patrick Besigye Keihwa was uncomfortable about the miserable quantities of farm inputs that were being distributed under OWC. Keihwa wondered how the whole district could create wealth from a paltry 11 tonnes of bean seeds.

In Kabarole District, the situation is not very different. A widows’ association is grumbling over failure to acquire agricultural inputs from OWC; while many other people think OWC is NRM’s economic plan to keep the party’s political game up.
Wealth creation is a good thing. It should not be haphazard, but well-thought about and handled.
Creating wealth should be a virtuous cycle involving four key stages that include production, marketing, conservation and investment for continuous production with each of the stages having independent factors at play.

Factors of production are capital, labour, entrepreneurship and land. To maximise production, for instance, one must have these factors working at their optimum. The level of development at each of these stages determines how much wealth can be created by the individual, community or nation.
The problem with poor communities, Uganda inclusive, is that most of the factors highlighted above are marginal, some almost non-existent.
A country’s production level hinges on the aggregate part played by individuals in the economy. Therefore, wealth creation should be a collective effort of all persons in their country.

Although in state formation, just like in wealth creation, an individual is the smallest entity but their contribution is very important. The individuals form families, and later communities that form the state/nation or call it an economy in fiscal terms. At each of these levels, there is a certain amount of production that totals to the Gross National Product that may be translated into national wealth.

Creating wealth
Wealth creation begins with production of a product or service that is marketed to receive money. This money may be used to purchase other goods or services that one lacks, but needs. So, any individual, community or country that does not develop its capacity to produce, remains poor.

What sustains poverty?
Poverty refers to lack of access to basic needs/services such as food, shelter, clothing, water, medical care and others. Such goods and services are ideally accessed with money, which is got through production and marketing. To produce and market, one needs skills. Without these skills, one is prone to poverty. Having money, but no skill can be very detrimental in one’s economic life. It hinders individuals and nations from saving, building capital and managing money for continued investments and subsequent production.

Social/cultural issues not only play a role in keeping people poor but also in creating wealth.
Ugandans have a higher propensity to spend than to save; something which usually results from cultural practices that hold individuals so attached to one another, especially in extended families. In such families, only a few of them are engaged in production and the rest are dependants. This has an impact on one’s values that influence the choices one makes, whether to spend or save and invest.

How can wealth creation be supported?
In the cycle of wealth creation, both the individual and the state have complimentary roles they play. Apart from the human resource of the nation, the state has the responsibility to ensure that the necessary infrastructure and services are in place to give a favourable environment for investment, production and marketing to take place.

Wealth creation should be supported by availing development capital rationally to local entrepreneurs, especially where best practices for growth have been exhibited, but not by patronage. Patronage, especially from political powers, which is common in Uganda, undermines the development of free enterprise.
Progressive governments assist entrepreneurs and businesspeople to market national goods/services to the international market because, in most cases, individuals do not have the financial might to do so.

Also, the state should effectively play its supportive role of putting in place a developed infrastructure such as all-weather roads.
Kyaliwumba advises government to put deliberate effort in developing factors of production.
“Government must put in place easy access to affordable development capital; build a highly skilled labour force; equitably avail land for investment; support local enterprise, and limit repatriation of profits by foreign investors,” he stresses; before adding, “Government should also put in place an advanced marketing framework and dependable infrastructure, if we are to create wealth for all.”

There should be concerted efforts in helping investors in sectors such as tourism and minerals to get a better share of the international market through prudently negotiated deals. Such deals will not only bring in wealth into the country but will also go a long way in creating jobs for many Ugandans.
Instead of President Museveni preaching the gospel of wealth for all, the state should zone production systems on the basis of regional comparative advantages, for instance, basing on nearness to raw materials, minerals, soils or favourable climate. These issues, and the engagement of communities in social/cultural transformation, are a matter of governance at the national level.

What explains Uganda’s high poverty levels?

In view of the cycle for wealth creation given earlier on, Uganda remains poor because the human resource is not developed enough to harness and market her natural resources extensively. The individuals, too, are not well-nurtured to save the little they get for capital development to further the cycle of wealth creation.

Contrary to what many Ugandans believe, most parts of the country would not be poor. But because people’s culture and other practices are very strong and respected, individuals end up doing things that impoverish them.
For instance, it might not be true to say that Busoga is the poorest region in Uganda. It is perceived that way because of culture. With a big population of Busoga people engaged in production, relative to some other regions in Uganda, implies that the region has better access to money than some other regions.
Busoga sub-region is a major producer of maize, sugar cane and coffee, which are key agricultural outputs in the economy. Therefore, Busoga is not poor.

Kakira Sugar Outgrowers head and opinion leader in self-help initiatives in Busoga sub-region, Steven Kyaliwumba, says the single most important cultural factor that is keeping Busoga in perceived poverty, is polygamy. Under its influence, wives compete to produce as many children for the husband as possible which has an immense setback on savings. Such children are most unlikely to get a good education. So their skills remain undeveloped and their values in life stagnate given their social environment.
“This creates low ambition in life making the cycle of ill-prepared individuals to continue. This is coupled with the dominance of religions that approve polygamy and advocate less for education. So that is the calamity for Busoga,” Kyaliwumba explains.