Don’t pay tycoons’ debts, say experts
What you need to know:
• Government asked to weigh implication on the economy of companies shutting down.
• Economists call for due diligence and clear guidelines on how money will be recovered.
• Experts say ownership of companies on the list is questionable.
Kampala- In what could turn out to be the largest taxpayer bailout of private companies in Uganda’s history, if approved, economists are warning the government on blanket bailout of ‘reckless’ firms.
Last week, a document seen by the Daily Monitor revealed more than 66 companies and individuals are seeking a total of Shs1.3 trillion from the government because they’re indebted. However, economists argue that the bailout process needs to be transparent and impact on economy weighed should the companies collapse.
“Government shouldn’t play around with taxpayers money. If the government is to bail out companies, then they would have to weigh the implication of the company closing on the economy. What is their tax contribution? How many jobs do they generate? Because the entire economy is distressed, how do you go about bailing out a few?” Dr Fred Muhumuza, an economist working with the Financial Sector Deepening Project Uganda (FSDU), tells Daily Monitor.
Dr Muhumuza says it shouldn’t be an easy decision for the government to make noting that debt forces companies to restructure the business and return it to profitability.
According to the leaked list, the highest employer is Horyal Investment Holding Company Ltd, which claims to employ about 10,000 people. Horyal is the holding company that owns the recently launched sugar factory in Atiak.
However, according to the company directors, 1,200 people would get direct jobs to support about 5,000 out-grower farmers. This is why the government must verify what these companies claim.
Perhaps the more realistic employers are those in the steel manufacturing sector: Steel Rolling Mills, Steel and Tube, Roofings Limited and Shumuk Aluminum Industries that employ a total of 8,000 people combined. Their total tax contribution to the government is not known.
Mr Isaac Nkote, the Dean Faculty of Commerce and Senior Economics lecturer at Makerere University Business School(MUBS), says bailouts are part and parcel of any active economy, because, like an individual, companies fall sick and will need treatment.
The companies and individuals listed borrowed money from commercial banks and have fallen back on debt obligations. “So the government can intervene and bail out these companies, put them on the road and they begin to work normally,” Mr Nkote says.
However, he says bailouts are a good argument so long as you carried out due diligence and set clear guidelines on how that money will be recovered. “You should do an analysis to establish the impact of that company to the economy. If the impact is far reaching and devastating then you should go ahead and help them out,” he says.
There has been social media outcry on the bailouts. Ugandans using the hashtag #Scambailouts have expressed their anger towards taxpayer’s money being used to bailout companies.
They have been specifically pointing out the lavish and extravagant lifestyles of people who are demanding to be bailed out.
This is the same view Mr Ramadhan Ggoobi, a senior economics lecturer at Makerere University Business School, holds. “The only problem is that most of the listed companies’ influence on the economy is questionable. These companies invest in mainly non-tradable activities, they don’t employ so many people and most are personal companies run by a few individuals. Some do not even pay tax,” Mr Ggoobi says.
He added: “...Some have ended up investing in personal properties such as houses and expensive cars which they think are assets but are not. They have no multiplier effect on the economy. Bailing out such companies may not augur well for the public who pay taxes.”
