Thursday May 8 2014

Economic growth or death: How impressive is Uganda’s story?

By Fred K. Muhumuza

Much as economies never die, Greece and Somalia would be long buried; they are living creatures that need to grow at a minimum rate in order to meet their due obligations in terms of replacement of tear and wear, providing resources to accommodate new populations while maintaining or raising the welfare of current households. For example, income from wages or otherwise must increase at the same rate as inflation if only to hold the status quo in terms of purchasing power. If increases in income lag behind the rate of inflation, the purchasing power (real income) declines along with the welfare of people and institutions. The situation can be worse if new obligations come into the picture, possibly as a result of an increasing population.

In view of the above, I consider it professional cheating to claim that Uganda and some other African economies have posted impressive growth averaging 4-6 per cent over the past two decades. If economies in Europe are growing at 1-2 per cent, there is no point of Africa rejoicing at growth rates of 5 per cent. Our economies are not facing challenges of similar magnitudes in terms of creating enough jobs, building infrastructure, providing social services, fighting wars and feeding an ever-expanding bureaucracy. Impressiveness must be judged on the basis of meeting one’s own obligations and standards, and not by comparing speeds of elephants and squirrels. While six hours in a Marathon is impressive for me, Kiprotich must target two hours.

Uganda is characterised by a population growth rate of 3.2 per cent (over a million people) per year, possible depreciation rates of 8 per cent (partly due to shoddy work), growing bureaucracy (public administration), average inflation close to 7 per cent, and significant expenditures related to maintenance of security, law and order. Since none of the above guarantees future growth, the country also has to invest in infrastructure, human resources, mining, tourism and agriculture, among others. With such a heavy load on board, the Ugandan economic plane can only take off having reached runway speeds of Jumbo (elephant size) jets. However, for the squirrel that our economy seems to be, this kind of load can only slow us down to possible stagnation or towards extinction. Just remember, economies do not die! Uganda’s growth trend by quarter signals an urgent need for significant policy, budget and institutional reviews.

A downward trend is not in conformity with a vision of growth into a middle income country without a major surgery aimed at removing cancerous cells such as expenditures on items that are peripheral to the growth agenda, weak institutional focus and capabilities, and substantial leakages through corruption. In some cases, it will take ‘cutting off’ certain parts of the body (policies and institutions) to halt the cancer. Like in medical practice, consulting the affected parties, including politicians and some bureaucrats, is not necessary during diagnosis and prescription since this is a technical process. At this stage, one only needs cooperation of those in charge of the patient to agree to the necessary procedures, and later be told of the prescription.

Unfortunately, the reform process and immediate outcomes are likely to be painful emotionally, socially, economically and, of course, politically. It may even take changing some of the current caretakers of the patient (economy) since small changes by way of military coup detats never resolved Uganda’s political and economic problems. Never mind that the disease is back even after the protracted guerilla campaign!
Of course, with a weak economy, any kind of ailment is bound to resurface with greater ferocity. Fortunately, no disease will kill the patient (economy), though that is not true for some dependants of the weakening patient – the Ugandans.

Mr Muhumuza is a research Fellow at the Economic Policy Research Centre - Makerere University.