Has economic liberalisation delivered us from hell? Part II

A bank client counting dollars. The director financial stability at the Bank of Uganda says borrowing in foreign currency is risky for their business.

What you need to know:

Sam Obbo spoke to economists who gave a mixed bag of reactions about the current privatisation in Uganda.

Given the economic figures, why then do some Ugandans have reservations about the current privatisation/ liberalisation policy and Capital Account, which allows foreign investors to repatriate their profits? I do not have figures which portray repatriation over the past 12 months or 24 years, respectively (because they are jealously guarded by Bank of Uganda). The amounts are huge, according to some sources.
Some Ugandans that I spoke to, for this article, expressed disquiet over the turn of events. They argued that the investors are reaping more than they sow. However, in a similar vein, several others are all praise for the policy. Below is a snapshot image of viewpoints by some interviewees.

Sylvester Nyanzi, a mechanical engineer and former banker, said: “In my view, we are too open! The investors are not interested in the most vital aspect of our economy; agriculture, and yet that’s where money is most needed.” They should be wooed to that sector. And if they are not interested, then a 10 per cent tax, which could be tagged a cost, should be levied on their turnover. This money should then be kept on an account in Bank of Uganda; and channelled into agriculture so that our rural poor are gradually liberated from subsistence to commercial farming. That’s when the peasants will contribute better to the national coffers.”

He believes that if Uganda were to suffer another sad political chapter, such as obtained in the 1970s and early 80s, “most of these investors would leave us in the cold.” He suggested drastic reforms along the model of the expunged Rural Farmers Scheme, cooperative unions and marketing boards. “Short of that, foreign investors will always fly in; make money; go away with their profits; and leave an artificial impact on our economy. The portion paid as taxes and salaries to locals is a drop in the ocean,” he argued.

Bank of Uganda Governor Emeritus, Leo Kibirango does not believe in Nyanzi’s taxation theory. As a solution to the 100 per cent repatriation, Kibirango suggests a smarter way out. In his view, government should compel them to float shares on the local stock exchange so that Ugandans get a piece of the pie. In so doing, part of such profits would remain in the country. He said: “For example, in Tanzania, an investor must have at least 30 per cent shares held by locals. This helps ensure that part of the money, which would have been wired abroad, remains back home, through paid dividends.”

He added: We are too liberal! We need to moderate our capitalism.” Kibirango, who is board chairman of the newly introduced Financial Intelligence Authority, however disagrees with outright opponents of liberalisation. He said because of the policy, foreigners had gained confidence in our economy. As a result, significant capital inflows had been registered; which wasn’t the case decades ago.
Prior to repatriation, the investors first bank in local institutions; this helps our economy. Liberalisation also gave us a dividend of the stock exchange. Consequently, some investors such as Stanbic Bank had lured other foreigners to buy shares; which is a win-win situation for the economy. “There are actually more foreign companies listed on our stock exchange than local ones,” he said.

In addition, foreign investors had enhanced employment opportunities for our people. Other advantages which he enumerated included: payment of local tax at the rate of 30 per cent and a withholding tax of 18 per cent, which positively impacted the GDP; exposure of Ugandans to modern ways of manufacturing, rendering services, etc, and an atmosphere in which the government could [currently] float bonds abroad.
He, however, observed that liberalisation had exposed Uganda to money laundering. Although a law was now in place, its implementation remained a challenge; to stem unscrupulous fellows who could ferry in millions of dollars under the guise of investment but ultimately wreck the economic gains.
Capt. Gad Gasatura, a former MP; aviation pilot; and current management guru, was all praises for the reforms. Liberalisation had indirectly stemmed corruption; created jobs; and spurred economic growth.

“Money does not like controls. Once you impose them, then the money is bound to go away,” he counselled.
On the flip side, he was apprehensive of government’s failure to regulate the quality of imports. “It is not doing well in the area of monitoring and regulation; often times, one comes across poor quality goods or expired drugs, which are brought in by some of these investors,” he said.
Dr Ezra Suruma, a former Bank of Uganda Deputy Governor, and Finance minister, said regulations were counter-productive. He said this was one of the reasons why many speculators had found ways of beating the system and sold US dollars on the kibanda (black) market in the 1980s. “I am not saying we should entirely do away with regulations; all I am saying is that we should be more careful.”

Commenting on repatriations, he said: “These are people who risk bringing in their capital. So, why shouldn’t they repatriate their profits and enjoy them with their shareholders?” He added: “Our experience in the 1980s and 1990s clearly proved that rules and regulations do not necessarily spur an economy. If anything, people will find ways of working against them. One therefore has to be careful; to balance the two.”

Asked about the best solution to the ‘repatriation headache’, Dr Suruma said: “In my view, the best way forward is to give investors more incentives so that they repatriate less of their money; but certainly not through rules.”
NB: The writer of this article notes that Uganda is not the only country engaging in this conversation. On Thursday, April 28, 2016, the government of Zambia decreed that it would hitherto not allow foreigners to operate commercial banks. Reason? The foreigners were salting away all their profits and hurting the local economy!
Anyhow, that aside, I sounded out other well-informed Ugandans and this is what they had to say:

Manzi Tumubweine, an economist, former Member of Parliament and cabinet Minister, said: “Some people mistakenly believe that whenever investors repatriate their profits, they are engaging in capital flight. This is wrong. If an investor were to bring in $30 million (Shs101 billion) and invest in a given venture, then he or she should be free to repatriate profits. After all, even when they remit profits to their parent companies or investors, they do so in small quantities and over time; not in one go.”
He added: “My only quarrel would be with investors who fly in and borrow capital from our local banks --- and then repatriate profits. That is outright cheating.”

He was also apprehensive of the current policy which allows some investors to operate wholesale and retail shops.
“The government ought to rein them in because their actions negatively impact availability of jobs for the locals. For example, there is no foreigner who can fly into Dubai and run taxis; it is a reserve of nationals,” he said.
Tumubweine was irked that virtually all commercial banks are operated by foreigners. “The tragedy is that most of our people, especially in rural areas, cannot access credit for production from such banks. They are not willing to lend, except to affluent members of society or lower middle class people that earn monthly salaries!”

Charles Ocici, another economist; former banker; and current business trainer, said the speed and extent of the reforms was not entirely bad. However, there was dire need for regulation. “After all, even economically strong countries like Italy do still have some controls.”
He said if the government policy were to pay off more dividends, then there was a need to address four critical issues. These are: ensuring a sound financial system; cracking hard on corruption; solving the energy and infrastructure deficiencies.

“Once these are sorted out, then we will not need to beg any investor to come here. We currently allow them to repatriate all their profits because we bargained from a very weak position; we were a very poor nation; and that’s what any poor person does.”
Ocici, however, advocated for control of how much can be repatriated. “We should not just allow incessant outflows. We should ensure that out of determined profits in a given year, only 50 per cent is repatriated, while the other 50 per cent is reinvested here.”

In his view, about Shs1 trillion is salted away annually, under the guise repatriating profits. Another way round this concern could be incentives to investors to enhance activity in the export sector.
Dan Kasirye, an economist who works for the International Finance Corporation, World Bank, said liberalisation of the Capital Account was now a stale subject, in light of the fact that we are in a globalised environment where various people, in diverse countries, transfer colossal sums of money within seconds.

“If we were not to open the capital account, then foreign direct investments, which in turn create jobs and income, would not have been realised. Today, all countries, perhaps with the exception of Cuba, do allow foreigners to repatriate profits, as long as there is evidence that money was brought in to undertake a given commercial or industrial venture.”
“Therefore, in my view the current challenge facing Uganda is that of failure to limit the number of mushrooming Chinese shopkeepers --- and who apparently repatriate on a daily basis. Above all, there is no tangible economic development impact of their activities in Uganda. Our neighbour, Kenya, saw through this and decided that no Chinese would be allowed to run groceries over there.”

Against a backdrop of those viewpoints and our persistent failure as a country to double, treble or even quadruple our exports; and to enhance the tourism sector (where there are no 100 per cent repatriations) – save for a few unsung heroes such as Amos Wekesa – it seems certain that Ugandans who are not die-hard proponents of free market enterprise will continue to lament as foreign investors are begged to tap into the Ugandan market but literally need bullion vans to repatriate the fruits of their sweat. Well, it is their hard-earned money. Secondly, under the current legal framework, they are free to laugh all the way to their foreign bank accounts. Hopefully, the various views here-in will provide some food for thought to our newly elected Executive and Legislative arms of government; civil society, the academia and various Think tanks.

The writer is a media consultant. Email: [email protected]