Shilling can never collapse - Museveni

What a man sows is what he reaps, is how President Museveni starts his July 6 letter to the media in which he discusses the ailing Shilling and its economic implication. Mr Museveni, in this slightly edited letter, says the economy is sound and current situation only hurts importers.

There have been stories in some of the local newspapers talking about the “collapse of the Shilling.” The Shilling will never collapse because the economy is well-managed, the indiscipline of the various actors and their lack of foresight notwithstanding. It will simply become more expensive for those who import goods and services from outside to buy the dollar. Therefore, there should be no talk of the collapse of the Shilling. There should be talk of a more expensive dollar for those who import.

On the other hand, provided the economy is well-managed internally, especially the monetary policy (supply of money within Uganda), a more expensive dollar is good for Uganda’s exporters. Why? If I was exporting pineapples to Juba and getting $4 per piece, when the dollar is selling at Shs2,450, I would be earning Shs9,800.

When the dollar becomes more expensive and it sells at Shs2,600, then my pineapple earnings will bring me Shs10,400. Of course, some of the exporters import inputs. Those inputs will become more costly.

That rise in the input costs will not affect the profitability of the export business if the major portion of the inputs is local, for example labour.

Even the tourists who are coming into Uganda will be happier because their dollar will give them more Shillings. This is provided the inflation is brought under control on items that are not imported, which is already happening. The monthly food inflation for March was 17.4 per cent and the annual food inflation for the same month was 29.1 per cent while the monthly food inflation for June 2011 was negative 7.8 per cent.

Nevertheless, we must think of our traders, such as Kampala City Traders Association (KACITA), who make a livelihood by importing. They will, definitely, have a hard life. It is, therefore, good that the profitability of exporters in Uganda should not only depend on the weakening of the Shilling, but should depend on more permanent factors such as cheaper electricity and cheaper transport costs.

Export more
We must, therefore, bring more dollars into the country by exporting more. The more dollars we bring into the country, the cheaper the dollar will become against the Shilling. This will be good for our importers and will not affect the exporters if the costs of electricity and transport have been brought down. That is exactly what the NRM government has been fighting for all these years in spite of so many obstacles.

To promote sustainable growth and development, we must take hard choices targeted at improving the investment climate for both domestic and foreign investors. We should avoid cosmetic options that provide short-term relief and sustain distortions.

Economic saboteurs
Soon we are going to start on Karuma. In the meantime, we are going to have an exporting sector not based on the opportunistic elements of an expensive dollar and a weak Shilling, but on low costs of doing business on account of cheaper electricity and lower transport costs. That is why we are tarmacking roads.

Right from the bush days, the NRM has been clear on all these points. That is why Point No.5 of the NRM Ten-Point Programme talks of building an independent, integrated and self-sustaining economy. In other words, an economy that imports less and exports more. Since coming into government, I am always pushing for this cause in spite of being opposed by different elements even within the NRM. I will quote the following cases:

(1) Leasing the Dairy Corporation at Bugolobi to a Thai investor to make it more efficient. The Thai was fed up and went away. I got Sameer from India. Instead of processing 25,000 litres per day as was in the past, the Bugolobi dairy facility is now processing 280,000 litres per day. They are able to process one million litres per day. We are no longer importing milk. Instead, we are exporting and bringing in $5 million (figs. 2009) per annum because of the dairy sector. This, however, came amid stiff opposition. When I brought in Sameer, I was ridiculed as an idiot who ‘sold’ the Dairy Corporation for one dollar. Rent for that facility was not the issue. The issues were: to process our milk, to create jobs, to save on imports of milk and to export.

(2)Converting the Bugolobi coffee facility to export textiles. This also came under criticism. The Srilankans that were involved also had problems. I will soon get a more capable investor to use our cotton to produce fabrics and textiles so as to earn more dollars for our economy.

(3) I had succeeded in bringing the South African Airlines to manage the Uganda Airlines. Parliament opposed this and Uganda Airlines had to wind up. Some of the well-managed airlines such as the Ethiopian Airlines, initially managed by the Trans-World Airlines, bring in dollars for their countries.

(4) We wanted (and we had an opportunity to do so) to expand Mehta’s sugar production at Lugazi and to build a new sugar plant by Madhvani in Amuru in Acholi. Both projects were opposed by some elements in our system. Some people organised demonstrations. Three people died. What crime did I commit? I wanted to produce more sugar for Uganda.
In 1986, there was no sugar produced in Uganda; all sugar that was consumed was imported. Sugar production is now at 350,570 metric tonnes per annum out of Kakira, Lugazi and Kinyara. We need more sugar, though.
The people are now complaining of the price of sugar. We reduced the tax on sugar in the budget. If the price is still high, whose fault is it? Who have been obstructing the building of sugar factories in Uganda? One politician from Acholi announced: “Acholi land is sweeter than sugar”. I may ask one question: “Don’t Acholis drink sugar?”
On account of this indiscipline and betrayal, Ugandans are deprived of an additional 400,000 tonnes of sugar per annum, some of which could bring in dollars that the traders are now crying for.

(5) The building of Garden City was opposed. I insisted and it is now a glittering success. Shoprite at Lugogo was opposed. They are now buying and exporting our oranges. The towering Hilton on Nakasero hill was opposed. I insisted and it has now improved the skyline of Kampala and it will accommodate tourists.

(6) The Bujagali power project was opposed and, as a consequence, delayed for more than 10 years. We suffered power shortages. It will only start producing electricity in November 2011. We shall export more and earn more dollars so as to enable KACITA to import less expensively in terms of the Shilling they need to spend to buy the foreign exchange.

Besigye fracas
The opposition to our development plans is, mainly, responsible for preserving the bottlenecks – inadequate electricity and high transport costs – that makes Uganda import more than it exports, which, in the end, makes the dollar expensive for the importers. This obstruction is always from the opposition groups but also, sometimes, from within the NRM. Inadequate funding has also been a problem. Now that we are beginning to have our own money, let all this unprincipled opposition stop.
The fracas caused by Dr Besigye in May and the irresponsible media reports by some of the local newspapers, certainly, scared away some of the tourists that were intending to come here. Investors from outside can also be affected in the same way.

When the tourists stay away because of the perceived risks associated with civil disorders (illegal demonstrations), there will be less dollar inflows and, therefore, the dollar for the importers will be expensive.
But the Shilling will not collapse. The importers will need more shillings to buy the dollar, which may ruin some of the weaker businesses. The newspapers, which have been cheering indiscipline, are the ones suffering on account of higher costs for newsprint.

However, other economic activities will go on and, actually, thrive. My cattle business, for example, will not be significantly affected by all this indiscipline. Yes, the cattle drugs may go up because of the more expensive dollar. However, as long as people are consuming beef, I will continue to thrive.

The economies of Angola and Sudan were thriving even in war because of oil. The sectors that are threatened by the indiscipline of some of the actors must stand resolutely with us, the patriots, who always oppose this type of sabotage. That is why we are proposing serious legislation and even constitutional amendment on rioters and other economic saboteurs.
Our dollar-hungry importers also need to take heart.

Even in the short-run, provided social discipline is ensured, we can easily generate dollars from tourism, investor inflows and remittances from Ugandans working abroad. Parliament here needs to pass the necessary constitutional amendments and legislations that will stop political indiscipline. My proposals on this are already with the NRM caucus.

UPDF has already guaranteed peace in the country. It is not acceptable that politicians should be the ones to sabotage our economy by failing to appropriately legislate against indiscipline. All the National Parks are now safe. The tourists can flow in.

We are talking about dollars, dollars all the time. There is a hard currency that is found in the soil of Uganda and the neighbouring countries. This is gold. We should use Uganda currency to buy this gold and put it in our reserves. In case we need dollars, we can always sell this gold and get the dollars.

Oil to the rescue
The oil money is beginning to come in even before we have started exploration. The first oil money to come in are the dollars that were taxes – capital gains tax – following Heritage selling its shares to Tullow.

The high cost of doing business discourage investments in the economy and creates all the other problems such as unemployment, low export earnings that cause the Shilling to depreciate. The oil money will in future exclusively be used for ending these bottlenecks.

The completion of the building of our Defence system has removed one bottleneck – the perennial insecurity caused by Kony and the cattle-rustlers in Karamoja. As already pointed out, this unlocks money-earners such as tourism and FDIs provided there is social discipline.

Discipline will deliver the importers and other economic actors from problems.

I thank you.
Yoweri Kaguta Museveni
President