In the early 1990s, the government embraced the “Washington Consensus”, leading to economic liberalisation and opening up of its economy to outsiders as advised by the World Bank and IMF.
The government was told that this was the only way to kick-start its broken economy and get access to much needed concessionary loans and grants from the World Bank, IMF and other foreign donors and also to attract Foreign Direct Investment (FDI). Accordingly, the government was asked to swallow the bitter pill and divest itself from the loss-making parastatals.
In the frenzy of being on the right side of this economic neo - liberalism and trusting that it will deliver Uganda from its deplorable economic situation, the government went into “over drive” and literally sold all its financial institutions, marketing boards, cooperatives, railways, airlines, bus companies, etc.
The slogan adopted then was that “the government has no business in doing business” and that this should be left to the private sector.
This was going too far as no government in any country in the world should completely disengage itself from all businesses and industries, especially when they are strategic to the economy and security of the country. No country in the world has developed without the use of indigenous banks.
The Washington Consensus is a set of economic policy prescriptions considered as a standard reform package to help crisis-ridden developing countries overcome serious economic hardship through macro-economic stabilisation, economic liberalisation, trade and foreign investment encouragement, removal of protection policies, fiscal policy discipline, etc.
Many developing countries facing problems were forced into this unrestrained liberalisation in order to access grants and loans from the World Bank and by extension from other Western donors. Even in the World Bank though, there were people opposed to this prescription.
Most prominent of these was the Bank’s former Chief Economist Prof Joseph Stigilitz. He did not believe in this one-size-fits-all approach and preferred that each country should be treated differently. Over time, the World Bank has started to rethink this policy.
The Uganda government appears to have realised that its economic liberalisation was no panacea and in it has made a complete turn around and is in the process of reviving parastatals it had abandoned - Uganda Airlines, Uganda Railways, Co-operative Unions, Uganda Co-operative Bank and the latest being talked about is Uganda Commercial Bank.
When the Uganda Commercial Bank was sold at a giveaway price, it was, as I wrote in this paper at the time, undergoing transformation and had started to become profitable again, modestly, but on its way up.
UCB was bought by Stanbic, which inherited its well-laid out branch network across the country. Stanbic, a South African Bank, is now the largest commercial bank in Uganda, (as UCB was) and is remitting hundreds of billions of dollars in profits back to South Africa.
UCB did not have to be sold off. Kenya Commercial Bank went through a similar phase of turbulence in the 1990s but the Kenyan government refused to accept dictates that it has to be sold off. It was slowly nursed back to profitability.
It is still the largest commercial bank in Kenya and now has branches in Uganda and other neighbouring countries. Kenya did the same with Kenya Airlines and many other parastatals. Saving them for the long-term good of the country.
Mr Naggaga is an economist, administrator and retired ambassador.