The tragedy of National Budget funded by donors

A worker arranges toothpaste in a supermarket in Kampala. Uganda is still relying on other countries like Kenya for daily household requirements such as soap and toothpaste among others. PHOTO BY RACHEL MABALA

What you need to know:

About 40 per cent of Uganda’s national recurrent budget is financed by donors. Edward Baliddawa explores why this has been the case, its impact and how it can be reversed.

There are crucial things that must be addressed. I shudder when national leaders allow to be conditioned to believing that there are things they shouldn’t be talking about or offering any opinion on! As an educated person who believes in positive transformation of my country at least during my lifetime, I find this national apathy to things not only disturbing, but also disappointing.

As the country prepares itself to receive the national budget for FY 2018/2019 in the coming days, the question is: How far we might have come to making our national budget self-sustaining?
One of the easiest indicators for this is to know how much of our national recurrent budget is financed by our own internally generated revenue.

Recently, President Uhuru Kenyatta revealed that the Kenyan national recurrent budget is 100 per cent financed by Kenya’s internally generated revenue. This means the salaries of all the civil servants of Kenya are paid by the Kenyan generated income from taxes of Kenyan taxpayers. This is a stark contrast to Uganda, where up to 40 per cent of our national recurrent budget is financed by donors.

If the donors withhold their funding for whatever reason, the net effect is that many of our salaried civil servants don’t get paid!
But why do we perpetually find ourselves in this kind of risky situation?
In another press interview recently in Nairobi, he revealed that Kenya exports goods worth $700m (Shs2.6 trillion) to Uganda every year, while Uganda exports to Kenya goods only worth $150m (Shs571b)!

In other words, Uganda has a trade imbalance with Kenya of $550m (Shs2.1 trillion) every year! No wonder in any given supermarket or shop in any location in any part of Uganda, the largest amount of commodities will be from Kenya. These would range from Unlivear products such as Margarine, bathing soap (such as Geisha, Imperial, Lifebouy), washing soap (such as OMO and Ariel), cooking oil, kimbo, ketch up, food spices, curry powder, sanitary pads, vim, mosquito repellants, baking flour, baking powder such as sodium bicarbonate, processed juice drinks, gums (such as orbit), pain killers (such as panadol, hedex and action), razor blades, shoe polish, safety pins (ebikwaaso), match sticks and many others.

However, when the NRM government took over in 1986, there were no consumables in the Uganda shops. Everything was being brought in from Kenya. But with determination and government intervention, production for certain products was supported and resumed. Some of those that benefited from this effort by the NRM government are, Kakira Sugar Works and Mehta Groups in Lugazi who started sugar production, Mukwano Group for cooking oil and soap, Crown Beverages and East African Beverages for sodas and beer, respectively.

But somehow along the way, the government focus on ensuring that there is production of the essential commodities was lost. Even after three decades of this revolution, we are still relying on other countries to furnish us with commodities that make up our daily household requirements!

But those commodities mentioned above are not the only ones imported for our daily households needs. The list for goods from other places including China, UAE, South Africa and India.
In essence, our list of imports from Kenya, China, India and UAE is endless and so is our dependence on these countries’ goodwill and economic stability.

Interestingly, we as a country have little if not nothing, to export to those countries. Hence, our trade imbalance or deficit is not with only Kenya, but with everyone else!
Drawing from what the Kenyan President said, governments generate internal revenue from taxes on both goods and services to fund their recurrent budget needs. The biggest bulk of local taxes come from the manufacturing sector. So for Kenya that has a strong manufacturing base, it is easy to see how they can collect sufficient taxes into their revenue bourse as compared to Uganda’s ever challenged manufacturing sector. No wonder the tax man at Uganda Revenue Authority (URA) is nowadays scampering all over looking for whom to tax in order With the current EA customs regime, goods that are imported into Uganda from Kenya or any other EA state are not taxed.

So our URA tax man doesn’t get anything from a list of goods that come in Uganda from Kenya. That is where the crux of the matter is! Because the factories manufacturing these commodities are not located in Uganda, so as a country, we don’t get to collect any Exercise duty, VAT, PAYE or Income tax from these activities. More sadly, as a country we don’t get any jobs for our youth, hence no revenue for our people.
But how can we as leaders sit back and pretend or put on a façade posturing that all is well?

My concern is that apparently in pursuit of our long held zeal of being the loudest proponents of the East African Federation arising from our ideological orientation for Pan-Africanism, we are inadvertently placing the economy of our country at the guillotine for our neighbours.
But regional integration must be premised on the basis of fair play, where each member state is treated and acts as an equal partner.

Recently, someone told me the amount of brisk trade that takes place along the Uganda - Kenya border at Busia, which sadly most of which is not properly documented or formalised. This trade involves Kenyans coming all the way from Nairobi to buy tomatoes in the gardens of our farmers as far as Busoga, Luwero, Nakaseke, Masindi and Mubende. These tomatoes are loaded on to trucks and taken to Kenya to be processed into tomato paste such as Ketchup which is in turn exported back to Uganda as a premium product.

The same is the story for the wheat from Sebei region which is later exported to us as finished first quality wheat flour under the brands of Unga and Pembe.
But that is not all about the Busia trade. The brisk business with Kenya has gone to adversely pose a real threat not only to our environment, but also our food security. I am told that many very big people in this country are engaged in selling charcoal to Kenya which ends up into Somalia, Djibouti, Yemen and other Gulf states. In the same breadth, the sale of maize grain and other cereals is a brisk business at the border with Kenya too.

Now, even if we are fervent proponents of Free Trade within East Africa, this trade must be based on the fair trade principles. Continuing to embrace this apparent one-way trade model may continue to affect our economy and thus, our trade deficit with our shrewd neighbour will continue enlarging so will our dependence on foreign aid to fund Uganda’s recurrent budget!

The effect of this situation will only demonstrate that our long time quest to create an intergraded and self-sustaining economy will continue to be an illusion.
How can we allow a tax free trade regime whereby our neighbours are the major beneficiaries and rendering Uganda a cash cow for them?

But with the ongoing hype to extend incentives including free land bonanzas to investors, there seems to be no interest in investing in the local production of those goods that we keep importing from Kenya. This means even if we were in the remotest possibility to impose taxes on those goods from Kenya, we would end up with a scarcity which would result in massive smuggling!

In summary, the current policies that are being pursued of free trade, in a way are continuing to encourage more manufacturing growth in Kenya particularly for the Uganda consumed commodities. This means as manufacturing grows, our neighbours will continue to collect more taxes, create more jobs for their citizens and encourage more investments in the country due to increased purchasing powers of the consumers; thus better living for the citizens.

The writer is a former Member of Parliament.


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