Can Governor Mutebile live up to his promise?

Mr Emmanuel Tumusiime-Mutebile III is back as the Governor of Bank of Uganda. Mr Mutebile was due to conclude his second term in office this December but was on Wednesday cleared to lead the central bank for another five years, Walter Wafula writes:-

The fearless Governor is set to become the longest serving boss of the heart of the financial industry and economy. The late Charles Nyonyintono Kikonyogo, his predecessor, is so far the longest serving having ‘ruled’ for only two terms before throwing in the towel.

Mr Mutebile, was re-appointed by President Museveni but approved by the parliamentary committee on appointments. His approval was based on his spectacular performance and ‘neatness,’ in office since 2001.
“We as members of the committee voted to retain him because we did not find any fault as long as macro-economic policies are concerned,” the a source who attended the meeting told this newspaper.

His new promise
Upon his re-appointment, the governor pledged to make Uganda to double the current economic growth rate to over 10 per cent per annum from the expected 5.6 per cent in 2010. “I pledge to strengthen the economy. The real GDP growth should be above 10 per cent,” he told the media at Parliament. But most importantly, he promised to protect Uganda’s highly anticipated oil revenues from the fangs of corrupt government officials.

“I hate corruption. I will not accept oil money to be misused,” he said. If there is a strong commitment to misuse the oil revenues, the Governor promised to throw in the towel. “I will resign. Look for another governor if you want to misuse the oil money,” he told journalists.

Long term vision
His vision is to see oil revenue construct infrastructure, support agriculture rather than oil the pockets of civil servants with fat salaries. “We should use this money in such a way that the spending is creating assets which can be used in the future as oil resources get depleted,” he explained.

Uganda is set to earn at least $2 billion (Shs4.5 trillion) per year from the sale of its oil according to analysts. At least two billion barrels of oil, enough to turn Uganda into a major oil exporter, have been discovered in the country. It is this kind of wealth that the Governor is determined to put to good use. But can his promise stand the test of time in a country where two out of every three people are rated as corrupt; either financially or morally?

Exceptional performance
Over the last decade, the governor has concentrated his effort in consolidating a formerly weak financial industry and economy. Both the World Bank and International Monetary Fund have acknowledged that he has created a strong economy and suitable environment for the transformation of Uganda.

When he became Governor for the first time on January 18, 2001, Mr Mutebile set out to achieve financial stability and soundness. He also pledged to keep inflation within acceptable ranges, bring stability in the foreign exchange markets besides developing strong bank regulation and supervision.

“During the past five years, he has been Governor, the bank has recorded remarkable achievements in all these areas,” Prof. Phares Mutibwa notes in his book: The Bank of Uganda (1966-2006). But as his priority, he committed himself to achieving a core inflation rate of 5 per cent without depressing economic development by tightening cash flow within the economy. But his number one dream has also been bruised by circumstance beyond his control.

However, over the last five years Uganda’s inflation has averaged 9.2 per cent from about 6 per cent in 2001. Inflation is defined as the general rise in prices of goods and services over a year. Watching inflation matters because it has an impact on interest rates and business confidence in an economy.

When inflation is too high, the Central Bank tightens credit by raising the bank rate at which commercial banks borrow from it. High government expenditure through public cash disbursements like; pension arrear and gratuity payments which increase the amount of money in circulation are often the result of high inflation, although it can be imported.

While Mr Mutebile has been very keen on inflation, it is also under his reign that annual inflation skyrocketed to 12.6 per cent in 2009. That was the highest rate since 1992 when it reached 54.5 per cent. Last year’s inflation was attributed to food shortages which pushed price level much higher than the previous years.

Celebrated economist
Mr Mutebile is an accomplished and much respected economist across the world. He has deployed the best instruments to tame Uganda’s inflation. However, external factors such as the global recession and high food prices across the globe over the last two years have been a great challenge to his inflation dream.

The Governor’s new term will hand him another opportunity to drive Uganda’s inflation rate to his expectation and reign in on the prevailing high interest rates on loans. His other major challenge is the weak shilling compared versus international currencies like the dollar and Euro.

Mr Mutebile also faces an uphill task of returning the central bank into a surplus. He was bound to leave behind a strong and sound financial sector but a financially weak Central Bank.

According to financial results of the Central Bank for the year ended 30 June 2010, the bank registered a deficit of about Shs30.3 billion compared to a surplus of Shs770.2 billion in the financial year 2008/9. The deficit in 2009/10 is largely attributed to the after-effects of the economic crisis. The disaster thinned global interest rates on foreign investments from which the bank nets billions.

During the year, the crisis halved the bank’s net operating income to Shs62.7 billion from Shs137.8 billion. As a result of the weak performance of the institution, the directors of the bank did not recommend payment of a dividend to the government according to the report.

Despite the tough business climate in the last two years, Mr Mutebile is credited for championing a robust financial system and macroeconomic stability. Under him, the financial sector continues to soar to greater heights in terms of size, number of institutions and depth of financial services.

Banking boosted
As Governor, he has licensed eight new banks including; newly opened ABC Capital Bank from Kenya have been licensed to operate in Uganda. Other banks that have been license to operate include; Kenya Commercial Bank, Equity Bank, Ecobank, United Bank for Africa, Global Trust Bank, Bank of Africa, Fina Bank.

The banks joined the markets soon after the limitation against licensing new banks was terminated in 2005. The entry of new banks in Uganda has widened the banking network to 388 branches and 589 Automated Teller Machines (ATMs). In 2001, there were 167 bank branches and 238 ATMs according to his recent remarks.

Mr Mutebile is on the verge of leaving behind over five million bank accounts accounting for a penetration rate of 16 per cent of the Uganda’s 32 million people. Despite the performance, the vice chairperson of the Public Accounts Committee, Mr Oduman Albert Okello, (FDC, Bukedea) told Sunday Monitor that he was disappointed with the re-appointment of the Governor.

“For the time he has been at the helm he has not achieved what matters most to Ugandans. So what makes the appointment authority and the Parliamentary Appointment Committee thinks that he can deliver this time round?” he asked. Mr Oduman noted that credit is very expensive in commercial banks because interest is high, as a result of BoU participation in issuing of risk free Treasury Bills to the commercial banks.

“This has seen commercials banks trade with the regulators and ignore their core role of lending to SMEs and farmers at more relaxed rates. Lending can come down to 12 per cent from the 20 per cent if BoU withdraws from its participation in the monetary market,” he added.

What others say
Unveiling the Governor for the first time in 2001, Dr Louise Kasekende, the current BoU deputy governor (DG), told staff that their new boss has an incredible reading speed and ability to spot errors in arguments. “But please note: he has a very low tolerance for sub-optimal performance.”

Staff at BoU who spoke to Sunday Monitor on condition of anonymity described Mr Mutebile as “a good CEO” with no visible flaws. Rev Canon Benon Mugarura at St Francis Church of Makerere University described him as a people person. “He loves people and is very generous. He finds it difficult to deal with liars,” he said.

The Governor who is driven in one of the most expensive Mercedes Benzes in Uganda is also said to be a very good fan of whisky. Christmas is around the corner and it can only be befitting for him to toast to another fruitful term in office.