Why museveni has made a u-turn on privatisation

On March 17, President Museveni must have woken up from his more than 20- year experiment admitting he should not have blindly adapted privatisation, which was forced down his throat by the World Bank and International Monetary Fund.
“We are not going to allow more privatisation of government institutions,” Museveni told his Cabinet in a veiled admission of a failed policy that has fallen short on key deliverables.

The above statement must have surprised not only Ugandans but ‘his’ development partners owing to the fact that Museveni, had for more than 20 years stuck by the policy touting it as the best for modern economic development even amid expert advice to abandon it. But what explains Museveni’s paradigm shift even as he is well aware of a possible and costly backlash from his longtime friends (read development partners).

The context
Whereas there has been no proposal for a policy shift tabled before any government department, perhaps we shall rely on expert analysis and the performance of previously privatised entities to explain Museveni’s change of heart.

When contacted for this article, Moses Mwase, the Privatisation Unit executive director, through the agency’s spokesperson, Mark Ssali, asked that we hold the article, saying it would lack depth as President Museveni’s pronouncement had been taken out of context and laced with exaggerations. The Privatisation Unit is a department under the ministry of Finance charged with the divesture of public entities.

Genesis of privatisation
Before NRM took over government in 1986, Uganda had more than 130 parastatals but almost all have been sold off through sale of assets, share sale, joint ventures and pre-emptive rights.

Others have been disposed of through initial public offerings, concessions, auctions, debt equity swap and repossessions.

Details obtained from the Privatisation Unit, indicate by June 30, 2011, government had conducted 95 sell off transactions and 39 liquidations, raising more than Shs200b.

Out of these, 52 had been privatised, five repossessed, 11 concessioned, six auctioned, two disposed of through debt swaps, 13 sold through pre-emptive rights and two as joint ventures.

The sell offs, government claimed had been prompted by failure by such entities to operate at full capacity as well as operating in losses.

But what do experts say
From a known Marxist, President Museveni adopted a capitalist stance, privatising almost all government parastatals.

However, his recent pronouncement has fascinated many with some experts emphasising it was a mistake for government to adopt the privatisation policy.

Ezra Suruma, an economic adviser to President Museveni and former Finance minister, shares his frustration with privatisation, saying the price has been humongous.
“This (privitisation) was a price too high but because we needed support, we agreed to World Bank and IMF policies,” Suruma notes.

However, he is quick to note that he opposed the sell of key entities such as Uganda Commercial Bank, saying: “….we had to have a foothold in the financial sector. Thus we didn’t have to sell UCB after turning it around.”
Suruma was the UCB managing director at the time when it was sold.

Similarly, Gideon Badagawa, the executive director of Private Sector Foundation Uganda, thinks mistakes were committed right from the onset as government handed over key entities without preparing the public.

Just like Suruma, Badagawa says there was no way government could hand over the economy to peasant Ugandans, majority of whom had no idea of what was going on. “Many Ugandans were not ready to be exposed to markets because they were too green to know what was going on,” he notes.

But how can one understand Museveni’s U-turn
To get to the bottom of Museveni’s frustration one might need to look at individual performances of some of the key entities that were privatised and later alone their contribution in terms of employment. First, we shall start with those which have up to now failed to walk the hype associated with privatisation.

Uganda Clays Limited
The bricks and roofings manufacturer was in October 1999 sold to Kenya Clay Products Limited through an initial public offering.

Uganda Clays, which had looked promising is currently knotted by debts amounting to more than Shs13b. The company has in over a decade not given shareholders dividends and continues to operate in red.

Kinyara Sugar Works
One of Uganda’s largest sugar producers was in October 2006 sold to Mauritius sugar manufacturing giant Rai Holdings. The company is partly owned by the government of Uganda (31 per cent) and Rai Holdings (69 per cent). However, its performance continues to ignite debate as government has sometimes had to intervene with financial bailouts to keep it afloat.

Uganda Telecom
The company, which was in June 2000 sold to Detecom continues to struggle under new owners Lap Green. The telecom is heavily indebted but has, according to outgoing managing director, Ali Amir, cut back on its losses by more than 40 per cent amid low financing and unpaid bills by government amounting to more than Shs7b.

Bat Uganda
The company has been reduced to a sales agency, selling its products manufactured in Kenya. First it closed off the leaf processing plant before moving the section to Nairobi, Kenya. Recent public notices have invited bidders to buy off its factory and store premises on Jinja Road and is now operating in rented premises.

Uganda Railways Corporation
The company has almost become a scrap yard trademarked by a collection of junk locomotives dating back to the 19th century. The company, currently owned under a concession of a consortium under Kenya’s Rift Valley Railways has suffered years of neglect and is in dire need of serious financing.

The status of the above companies, previously owned by government are not the only ones struggling through business but perhaps might help one to understand where Museveni draws the frustration, considering that it is him and a few close associates who have through the years supported the privatisation policy.

Other entities, including National Insurance Company, Umeme, formerly (UEB), National Housing and Construction Company and Nytil have either totally failed or delivered but not to expectation as their privatisation had been leveraged on the pretext that they would create more employment or realise key deliverables within the shortest time possible.

Successes & liquidations

Although many companies that were privatised have not performed well there have been some success stories that have even performed beyond expectation and below we review some of them.

New Vision Printing & Publishing Co Ltd
One of Uganda’s largest media conglomerate was privatised in 2004 through an initial public offering. The company has largely expanded boasting of different media platforms including print, broadcasting and a number of online platforms.

Uganda Commercial Bank
The previously government owned bank was sold to South Africa’s Standard Bank Group. Although the bank cut several jobs and closed off a number of branches in rural Uganda it has maintained substantial growth as well as expansion but in urban or peri-urban areas.

Liquidations
But it is important to also note that government liquidated or auctioned off some entities that it said had been doused in debts and failed to deliver. Key among them was Uganda Airlines, Foods & Beverages, Fresh Foods and Uganda Hire Purchase Company, among others.

[email protected]