On June 12, 2008 the then Minister of Finance, Planning and Economic Development, Dr Ezra Suruma, while presenting the budget for the financial year 2008/2009 announced that government had created a revolving fund, the Land Acquisition facility.
“In order to assist people who are landless or whose land holding is too small to realise an income that is above the poverty line, government set aside a revolving fund to be used as a Land Acquisition Loan Facility,” he said.
Dr Suruma made the promise as a follow up to a promise contained in the NRM’s 2006 campaign manifesto in which the party promised to make it “possible for many working Ugandans to own their own homes” if Ugandans handed it the mandate to lead them for the period between 1996 and 2001.
In the manifesto, the first that the party released for what was the first multiparty election held in Uganda since 1986 when the NRM shot its way to power, the party argued that there was need for a facility to address a housing deficit that had arisen in the country on account of lack of a fully developed mortgage finance industry.
While the general situation in the country indicated that there an acute housing shortage across the country, the problem was believed to be more acute in Kampala.
The 2002/2003 Household Survey had indicated that Kampala had 264,000 housing units and a deficit of 66,000 units.
It was thought that the deficit for Kampala was low at the time because government had just boarded off pool houses.
With an urban population growth rate estimated at 4.8 per cent per annum and a national population growth rate of 3.5 per cent per annum, it was at the time projected that the deficit would rise to six figure levels if nothing was not done to arrest the problem at the earliest.
“In order to make it possible for the young and middle-income earners to own houses, they need mortgage facilities to borrow funds to buy houses and pay back the loans over a period of time. However, mortgage firms are poorly capitalised and cannot lend out, to their satisfaction,” the manifesto reads in parts.
The facility was, however, not planned for Kampala alone. It was meant for at least 30 districts and besides enabling the youth and middle income earners to construct houses, the scheme had also been expected to contribute to an improvement of the quality of houses that middle income earners would put up.
The facility had also been expected to have a multiplier effect on the national economy, especially by way of triggering growth in the transport and manufacturing sectors, lead to the creation of several direct and indirect employment opportunities, and help enlarge the tax base.
How it was meant to work
Dr Suruma announced that the facility was meant to be accessed through Post Bank as the apex institution with a chain of Savings and Credit Cooperatives (Saccos) across the country as intermediary agencies through which beneficiaries could access them.
In an attempt to ease demands for collateral, beneficiaries were required to make purchases through the Saccos.
That way, purchased pieces of land would serve as collateral.
The ministry, Dr Suruma said, had during the budgeting for the financial year 2007/2008 made a provision for Shs3 billion to be shared out in 30 districts at the rate of Shs100 million per district, but the money was never made available.
As a result, what was meant to be an allocation for the financial year 2007/2008 was added on to the allocation for the financial year 2008/2009, bringing to Shs6 billion the amount that would be available for borrowing, with each districts having at least Shs200 million at its disposal.
“I regret the slowness in disbursing this facility. However I am glad to report that the money has finally been disbursed to Post Bank and is ready for disbursement to Saccos. An additional Shs3 billion has been allocated in this financial year 2008/09 bringing the total to Shs.6 billion,” Dr Suruma said.
The revolving fund was meant to be in existence for at least a decade.
It had been projected that with the ministry allocating Shs3 billion per year, Shs30 billion would have been distributed with beneficiaries in each of the 30 districts getting a total of Shs1 billion, but the money never trickled down.
No one seems to know what happened to the money, not even the first tranche of Shs6 billion that Dr Suruma had said would be disbursed in the financial year 2008/2009! Neither the intermediary agency through which the money was meant to be sent down to the Saccos nor the Saccos and would be beneficiaries got the money. So where did the money go?
While the funds that had been earmarked to tackle the problem were very little and might not have been able to help tackle the housing deficit in Kampala and other urban centres, the mere fact that it was never made available can only mean one of two things – either that this was yet another empty campaign promise or that funds were misallocated.
The mismanagement of the plan as seen through the failure to channel it through the financial institution that it had earlier been planned to be channeled was partly responsible for the fund’s failure to take off.
The objective of making mortgage facilities available to young and middle income earners was not realised. As a result, the housing deficit that it had been meant to tackle, albeit partially, has persisted.
If figures from the Centre for Affordable Housing Finance in Africa (CAHF), are anything to go by, there were slightly more than 6000 mortgages across the country as of January 2017, with the highest standing at $30,000 (approximately Shs108,502,371) and the lowest interest rates on mortgages stood at 22 per cent and required a down payment of at least 30 per cent. Such figures put mortgages out of the reach of low income earners. That makes it impossible for them to improve their housing and living conditions.
Matters are complicated by lack of affordable construction finance for large housing estates private property developers, which compels them to borrow from commercial banks at very high interest rates, which hampers growth of the housing sector.
This not only hampers growth of the housing sector, but becomes one of the drivers behind the prohibitive rent demands by landlords in some parts of Kampala and other major urban centres.
According to the senior manager of marketing and communication at Post Bank Limited, Ms Jackie Takahanizibwa, the funds were never channeled through the institution as Dr Suruma had announced.
“The bank had made adequate preparations in terms of training and putting in place other necessary facilities, but the plan never materialised. The Ministry of Finance did not channel the funds through us. We have since been made to understand that the money was instead made available through the Microfinance Support Center (MSC)” she told Daily Monitor on phone on Friday.
However, the executive director and chief executive officer of the Microfinance Support Center, Mr John Peter Mujuni, has since come out to say that his institution never received any funds under the said scheme.
The idea of creating a Land Acquisition Loan Facility had no doubt been a great idea gone to waste due to both inefficiency and ineffectiveness of the people in government.
That inefficiency is hampering economic development and improvement of people’s living standards.
The World Bank’s Economic update report titled ‘Infrastructure finance deficit: Can Public-Private-Partnerships fill the gap?’ shows that whereas government has been spending at least $1 billion (about Shs3.6 trillion) on infrastructural development, close to $300 million (about Shs1 trillion), nearly 30 per cent of the total expenditure, is lost due to inefficiency in the course of implementing the projects. Government must, therefore, move to fix this problem.
In the same breath government must as a matter of urgency, move to not only resurrect this land acquisition loan, but also ensure that Housing Finance Corporation and Housing Finance are capitalised in order to make mortgages accessible to low income earners.
We have argued elsewhere that government has made substantial inroads in improving the energy and roads’ sectors on account of having created both the Energy and Roads Funds, which have enabled it make funding available to the sectors without relying on donor funds.
We believe that government could borrow a leaf from what it has done in those two areas and create a Housing Fund for purposes of working towards improving the housing conditions of Ugandans.
This might also help force commercial banks to revisit the interests and lending conditions that are to blame for people’s failure to take up loans to invest in houses.