Post-Covid-19: What Uganda needs is pro-jobs and pro-poor interventions

Thursday April 09 2020

Thomas Tayebwa

Fellow Ugandans, I trust that we are all busy trying to stay safe and keeping our loved ones and businesses safe. I must thank the President and all the frontline government workers, especially in health and security agencies, who are putting in extra time in trying to keep us all safe and alive - even when it puts their own lives at risk.

Last week, Bank of Uganda released the business confidence index for March 2020 showing that private sector confidence in the economy has fallen to a three-year low to 54.19 - the lowest since January 2016 when it last hit 53.77.

The Stanbic Purchase Managers Index (PMI) for March 2020 also fell to 45.3, down from 56.2 in February - the first time there has been a deterioration in business conditions since January 2017. Across both indices, business leaders were pessimistic about the near future and said they wouldn’t be hiring or buying supplies.

These reports, coincide with the tabling to Parliament by the Minister of Finance of the various Tax Amendment Bills for 2020, which at first glance point to either increments or introduction of new tax measures - a wrong move at such a critical time, in my view.

My prayer is, these measures, should be aligned to the recommendations of the Taskforce of the Parliament of Uganda on the effects of Covid-19 on the economy that emphasised boosting confidence in the economy by assisting the recovery of aggregate demand making borrowing cheaper and subsequently encouraging spending, which will in turn grow jobs and put money in the pockets of Ugandans. And in, so doing, we should avoid scoring own goals.

For example, at first glance, the proposed tax Bills will have net effect of increasing the cost of doing business, especially to the SMES, especially in agriculture, trade, hospitality, transportation and construction sectors, the same sectors that will be hurt most by Covid-19 related stress.


Let us not forget that some of the key sectors that we are hurting like agriculture, construction and trade/retail, do contribute a combined 60 per cent of employment and more than 40 per cent of tax revenue.

We have been told by government that the banking industry’s non-performing loans could worsen from 4.7 per cent to 5.9 per cent - but banking experts have, however, put the NPLs figure at between 7 per cent to 10 per cent. Again, the worst affected sectors will be trade, tourism, transportation and construction - why then hit the same sectors with more taxes - such as the proposed additional Shs150 tax increment on per litre of fuel?

I would have expected to see tax measures specifically designed to stimulate growth and jobs. Lest I forget, in whatever we do, we must not forget the informal sector jua kali or omuntu wawansi as we like to call them.

It is common knowledge that when such disasters strike, the ordinary person on the street or in Ruhinda North County, which I represent, is usually the hardest hit- both by the disaster and often by being left out in the recovery efforts.

Statistics from Ubos show the informal sector accounts for Shs65.2 trillion or 60 per cent of our Shs108.5 trillion GDP at market prices.

Of this, agriculture accounts for the biggest chunk - Shs27 trillion, followed by services (Shs22.6 trillion) and Industry (Shs15.6 trillion).

By reintroducing withholding tax on agricultural supplies, what message are we sending regarding the agriculture sector, which employs about 35 per cent of our people and only less than 10 per cent use irrigation, fertilisers and improved seeds?

What measures are we putting in place for women and the youth in the rural areas, who are largely financially excluded and their only source of hope is micro-credit through the Saccos and rotating credit and savings associations (ROSCA), better known as niginas?

We all know that as Non-performing loans (NPLs) go up, interest rates will go up and more and more local Ugandan businesses will be locked out of borrowing, so why then introduce new taxes on SMEs such as the proposed Shs360,000 plus 0.7 per cent of the annual a turnover on companies with as excess of Shs80 million in turnover - turnover moreover?

Also this is the time to fully unload the entire remaining balance of the proposed Shs500 billion recapitalisation of Uganda Development Bank (UDB). We must not forget recapitalisation of other government-owned financial institutions such as the Microfinance Support Centre, to provide both credit relief to existing clients, but also extend extremely affordable credit to new informal sector clients and the Saccos.

But more importantly and of more urgency, while the Central Bank is engaging the more formal commercial banks on loans moratoriums to the formal private sector, an arrangement must also be worked out for the informal lenders on whom the rural people rely on for credit.

For example, working with the police, local council courts and the Judiciary, an understanding can be reached on not harassing many of the poor indebted people whose livelihoods have been shattered otherwise, several poor people could easily lose their land, houses, crops, animals and boda-bodas - basically entire livelihoods.

Mr Tayebwa is the Member of Parliament for Ruhinda North County.