Where government should focus in next Budget

A man walks past traders in downtown Kampala. The Ugandan economy at present is struggling through a period of stagnation. PHOTO BY EDGAR R. BATTE

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Part II. The Ugandan economy at present is struggling through a period of stagnation. There are many explanations given, but the main facts appear to be that it is facing an oversupply in relation to consumer demand, writes Timothy Kalyegira.

In this second part of analysis ahead of the reading of the 2017/2018 National Budget, we have a look at the consumer economy.
This is the real background to the Budget, in that it actually looks at the background to the economy.
The Ugandan economy had reached the limit of its recovery phase in 2010, which is partly what caused the slowdown that led to the “walk-to-work” protest action by the Opposition.
Most of what had been registered as economic growth from about 1990 to 2010 was in reality a long recovery from the scarcity of the 1973-1993 period. But in 2014, a real downturn hit most of Africa’s economies.

Dependent on mineral exports
Those dependent on mineral exports like oil and precious metals such as Angola, South Africa and Nigeria were particularly hard-hit.
Others, like Uganda, Kenya and Tanzania that export unprocessed agricultural produce and many others whose currencies lost value in the wake of a strengthening US dollar saw their economies hit by crisis.
The Ugandan economy at present is struggling through a period of stagnation. There are many explanations given, but the main facts appear to be that it is facing an oversupply in relation to consumer demand.
And then, the retail sector across the country is now a kind of distribution system and network for imported goods mainly from China.
Growth that is driven mainly by imports soon reaches a crisis point.
The steady depreciation in the value of the Ugandan Shilling over the last 20 years is testimony to this.
One of the main headaches facing the business community is the high commercial bank lending rates. Companies say this high cost of credit prevents them from expanding their operations.
But then, one could argue that perhaps this might not be such a bad thing after all.

What would be the point of a company taking out a bank loan, expanding its production output and being left with an increased inventory of goods nobody is buying?
The Ugandan consumer is faced with an increased volume and variety of services that he or she cannot afford. The Ugandan consumer is typically very budget conscious and not yet showing much brand loyalty.
Where the road leads to the lowest prices, there the consumer will go, which is why the second-hand clothes and car market is thrice as vibrant as that of new apparel and cars.
It is not that Ugandans prefer second-hand clothes to new clothes; second-hand is all most can afford.
Whole industries like tourism, book publishing and retailing and others in the creative industries suffer a perennial lack of domestic demand.

So this Ugandan is both weak as a consumer in the economy and weak as a producer in the economy.
The lack of real planning by the government is a major part of the problem, as was seen last week by the decision to switch off nearly eight million unregistered phone and data SIM cards, only for the mass disconnection to be reversed after three days.
So what we get from the Budget proposals by the government via the ministry of Finance are estimates of national expenditure over the next fiscal year, as the economy, government structure and State expenditure presently are. The Budget does not reflect new, crucial thinking about the new direction the economy should take, and then working within these new mechanisms and plans, a budget to fund government planning and investment according to the new direction is proposed.

Everywhere in Kampala and several other towns, Chinese companies are at work repairing worn-out roads or building new ones, including municipal roads that 50 years ago were maintained by town councils. That is how far eroded Uganda’s State capacity is today.
The newly refurbished roads will ease the comfort for motorists and passengers, but there is no clear indication of how they directly could help improve economic productivity or the distribution of Ugandan industrial goods and agricultural produce.
From the above discussion on too many goods chasing too few buyers, it’s clear that the only medium-term or long-term solution for Uganda is production for the international export market.
The domestic market is too small and weak for production and investment beyond a certain point.

The National Budget, then, should be the operational detail at the end of a more important process – setting out new strategic plans for re-shaping the Ugandan economy into one of exports.
That would require a much better-educated and better-trained workforce. It would require a significant upgrading and strengthening of Uganda’s embassies abroad into coordination centres for Ugandan companies exporting their goods and services.
It would mean a lowering of bank lending rates to enable industry to expand and upgrade their plants and production facilities.
It would mean eliminating redundant government ministries and concentrating on those vital to an export drive and better international relations. It would mean investment in much better and cheaper electronic communications, from 4G Internet networks to stable phone networks.

It would require increased enforcement of standards and international best practices, everything from quality control to respect for trademark and copyright law, marketing and international distribution.
These are the issues the government should be thinking about throughout the financial year, drawing up strategic plans to put the economy on a new footing, and then the budget presented to the nation via parliament in early June becomes the document that seeks clearance for the money to put these strategic new plans into effect.
It should not be an annual ritual of simply stating the details of recurrent expenditure.

Eroded capacity
Everywhere in Kampala and several other towns, Chinese companies are at work repairing worn-out roads or building new ones, including municipal roads that 50 years ago were maintained by town councils. That is how far eroded Uganda’s State capacity is today.