State of nation: The speech versus reality

Monday June 10 2019

Assistance. The elderly are ferried on

Assistance. The elderly are ferried on wheelbarrows to receive their senior citizen grant under the government Social Assistance Grant for Empowerment programme in Napak District on September 4, 2018. PHOTO BY STEVEN ARIONG  

By Frederic Musisi

President Museveni appeared bullish during his State-of-the-Nation Address saying the economy had overcome a blip and could post one of the fastest growths in the world.
However, with rising debt, unemployment and poverty levels, the President’s speech did little to assuage the fears of many Ugandans trapped in a financial quicksand.
The President’s address comes a week to the reading of the 2019-2020 financial year budget of Shs40.5 trillion, an increment of 20 per cent from the Shs32 trillion for the financial year 2018/2019 which ends next month.
A bigger budget, under normal circumstances, could mean more money availed to areas that improve social services such as hospitals and schools but it is not the case despite a gradual increase in budgets of social sectors.

However, a substantial amount will go into paying interest on debt with estimates placing it at staggering Shs4 trillion.
The budget is expected to be financed by domestic revenue collections amounting Shs20.487 trillion: external project support amounting to Shs9.42 trillion, domestic debt refinancing Shs6.18 trillion, domestic financing Shs2.32 trillion, external budget support Shs675.2 billion, and resources from the Petroleum Fund amounting Shs445.8 billion.
If there is anything to go by, last Thursday’s address was a mixed bag of fortunes; a speech that painted a picture of optimism but did little to offer pragmatic answers for those who believe that the economy is not working in their favour.

Dr Isaac Shinyekwa, a research fellow at Makerere University’s Economic Policy Research Centre (EPRC), says what is undoubtable is that Uganda’s economy over the last three decades has grown at 6 per cent, “but high as it is, is not necessarily reflected”.
“Growth and development are interesting concepts, in that growth can be attributed to section of people in society, and this problem of distribution is one we are struggling with as an economy,” Dr Shinyekwa says.
He adds: “You have a section of society not benefiting or left out of this growth.”

In his address, Mr Museveni specifically expressed delight at the performance of the economy, which expanded to Shs109 trillion or $29 billion dollars in the financial year, which is ending.
Gross Domestic Product (GDP) — expansion of the economy grew from $25 billion in the 2017/2018 financial year to $29 billion this financial year, figures that economists in the Finance ministry like to flaunt as a measure of success.
However, this remains a contested debate as others say it is not reflective of the health of the economy, particularly in light of rising poverty levels, the widening income inequality gap and the overall quality of life.

While GDP is considered the broadest indicator of economic output and growth, economists and development experts say it can be misleading because of its limitations.

In pain. A patient at Busolwe  Hospital in
In pain. A patient at Busolwe Hospital in Butaleja District last year. The increase in budget is expected to improve social services such as in hospitals. File photo


There are better indicators such as GDP per capita which takes into account the average income of each individual.
During his speech on Thursday, the President revealed that this figure had risen to $800 dollars but given Uganda’s population estimated at 40 million, the correct figure is a lesser amount of $725 (Shs2.7m), which confines Uganda to among the countries with lowest GDP per capita in the World. Still a distance from Uganda’s lofty dream, the $725 GDP per capita is well below the required $1,006 (Shs3.7m) for lower middle-income status. With a fast expanding population, there are fears that this may not be realised soon.

The President anchored his speech on the ability of the economy to bounce back after strategic investments in energy and infrastructure.
He revealed that the economy is expected to grow at 7 per cent this financial year premised on, among others, industrialisation; to promote exports using primarily agriculture as the base, increasing production and productivity in the agricultural sector by investing in quality inputs, investments in the nascent oil sector, and strengthening local content so that Ugandans can be integrated into wealth creation as the economy expands.

However, for a majority of Ugandans, these changes are yet to trickle down their pockets.
A September 2018 survey by Twaweza, a non-governmental organisation, highlighted that poverty remains an entrenched problem in Uganda even when economic growth has held steady at around 5 per cent in recent years.
The survey indicated that economic growth has not reached everyone, reinforcing the earlier Uganda Bureau of Statistics findings that people living in poverty now stands at 10 million up from 6.6 million.
According to the World Bank, someone is regarded poor if they live below the purchasing power parity of $1.90 (about Shs4,000).

The World Bank says between 1993 and 2006, the number of people living in poverty dropped by an average of 1.9 per cent per year.
This progress slowed down in the 10 years that followed and out of every three people that climbed out of poverty in the decade to 2016, two fell back in demonstrating the fragility of the gains realised by the poorest households.
Dr Shinyekwa says poverty levels started increasing in the last decade when government turned its focus to infrastructure development.
“When you talk about GDP per capital income it, it is just an average figure, it may not be a reflection of a true wellbeing of the economy,” he says.

As more are trapped in the poverty cycle so is the raise in income inequality.
A 2017 report titled Who is growing by Oxfam, indicates that income inequality has increased significantly since the 1990s, where the relatively few have benefited at the expense of a majority.
“The richest 10 per cent of the population enjoy 35.7 per cent of national income, while the poorest 10 per cent claim a meagre 2.5 per cent and the poorest 20 per cent have only 5.8 per cent. Those at the bottom are on a downward poverty spiral while those at the top are on an upward trend,” the Oxfam reports.

“Growth was high in the last decade, but from the last decade—from 2011 when we seem to have got serious macro-economic problems—the momentum seems to have been lost,” says Abubakar Mayanja, an economist.
Mr Mayanja adds: “If we had grown at 8 per cent over the last 30 years, that is enough to transform the economy, but then we have these unending fiscal problems such as the cost of public administration which set us backward.”
Mr Mayanja argues that “there might be individuals doing very well for one reason or another, and GDP might be expanding, but the distribution of that GDP, when you look at the Gini coefficient, is not enough to create momentum for the whole economy to grow.”
A 2017 report by the United Nations Economic Commission for Africa ranked Uganda 17th among countries with the highest level of income inequality in Africa.

There is also a nexus between income inequality and unemployment. Those in the lower rungs barely stand a chance in the employment rat race, which is not based on meritocracy.
Figures from the 2014 National Population Census showed that 58 per cent of the population in the productive age bracket of between 14 and 64 years, about 10.4 million people, is unemployed.
The average monthly income for the employed is below a paltry Shs200,000.
Government’s surging public debt further aggravates the burden for the poor.

The International Monetary Fund (IMF) statistics released early this year show that Uganda’s public debt will rise from 49.0 per cent in the 2020/21 financial year to eventually reach 50.7 per cent in the 2021/22 financial year due to increased borrowing for infrastructure projects.
IMF warned that vulnerability levels continue to increase, noting that out of every one five shillings collected in revenue, will be spent on interest payment in the 2019/20 financial year.
The bulk of borrowing is towards the commercial oil production whose commencement has been set for 2022 but given the unpredictability it could further delay.

But as the West embraces clean and renewable energy in the place of fossil fuels, there are fears that the price of oil on the volatile international market could further plummet.
With the prospects of oil revenues seemingly still in a distance, some economists suggest that the alternative is for government to prioritise key sectors such as agriculture — which according to the last census employed 70 per cent of the population — and industrialisation.
According to the World Bank, agriculture contributed largely to poverty reduction during the last two decades, which accounted for 79 per cent of national poverty reduction from 2006 to 2013.

The World Bank says performance over the last decade was largely driven by good fortune. But going forward “the critical role that the agricultural sector has played and most likely, will continue to play in poverty reduction deserves a reexamination of agricultural policies with a focus on extension services, input availability and quality, and access to credit”.
The Economic Policy Research Center (EPRC) in a report titled “Fostering a Sustainable Agro-Industrialisation Agenda in Uganda” released last Thursday cited several loopholes in the agriculture sector.
Among those cited, are weak and uncoordinated institutions, a weak and unsustainable production base, and uncoordinated development financing to spur the agro-industry.

Address. President delivers the
Address. President delivers the State-of-the-Nation Address at Kampala Serena International Conference Centre on June 10, 2019. PHOTO BY RACHEL MABALA

The report recommended that, “conceptually, an agro-industrialisation agenda requires a national institutional framework that provides an enabling environment that is cognizant of contemporary global, continental, and regional dynamics.”
The State minister for Privatisation, Ms Evelyn Anite, says government has set a base for industrialisation through gazetting industrial parks, building dams and better roads.
“The first gap is not that of the road from Oraba to Kampala or from Kasese to Moroto, it is transporting goods out of Uganda, and this is why we need the railway, the gap that we are trying to close is to make transport cheaper fast. The other gap is electricity, we want to bring down the cost of manufacturing electricity to 5 cents per kilowatt,” Ms Anite says.

Dr Shinyekwa says gazetting industrial parks and availing cheap capital through Uganda Development Bank (UDB) offers a fresh breath of air.
“All countries in the world that have industrialised have had strong state involvement; I am glad that we are rethinking that,” He says.
If there is one uphill battle, it is how to tame corruption. The Global Competitiveness Index describes the most problematic factors in doing business in Uganda as corruption, lack of access to credit and poor infrastructure.
“Corruption happens because there is apathy in communities by people who allow it. When citizens don’t demand for accountability it enables public officials to gain a certain amount of impunity to steal because no one is asking,” the IGG, Justice Irene Mulyagonja, told the Daily Monitor on Friday.
“Citizen engagement deals more with strengthening the demand side for communities to demand for services for which money is allocated,” she added.

Fight against corruption
In Thursday’s address, the President admitted that the fight against graft could be strengthened.
Some of the areas for strengthening Justice Mulyagonja proposed include creating a central registration system ‘which will enable government to know who owns what and where, after they [public servants] have declared their wealth.’
“We had the Leadership Code Act [LCA] amended, which was a good thing in that we wanted a leadership tribunal established, but we lost some of the good sections; leaders used to declare assets of their spouses and offspring under 18, that provision was removed,” she said.
“What was replaced is a provision that does not state what is supposed to be declared; it is like we have given them license to do what they want,” she added.

Beyond corruption, a complex web of financial fraud through illicit financial flows continues to result into the loss of revenue worth billions of dollars.
Most of these funds are stolen through commercial tax evasion, money laundering, trade mis-invoicing, under-declaring and tax-exemptions.
With multinational firms keeping this illicit wealth layered in safe havens and secrecy jurisdictions, many of these foreign-owned companies in Uganda have hired well-heeled lobbyists to guard their secrets away from the prying eyes of investigators.

For a country to prosper, it must be able to stamp out crime. But serious crimes such as murders continue to rise as security agencies and investigators paper over cracks while the President’s conspicuous silence on Rwanda during his speech attempted to mask the gravity of the conflict between the Kampala and Kigali regimes.

The Economic Policy Research Centre (EPRC) in a report titled “Fostering a Sustainable Agro-Industrialisation Agenda in Uganda” released last Thursday cited several loopholes in the agriculture sector.
Among those cited, are weak and uncoordinated institutions, a weak and unsustainable production base, and uncoordinated development financing to spur the agro-industry.
The report recommended that, “conceptually, an agro-industrialisation agenda requires a national institutional framework that provides an enabling environment that is cognizant of contemporary global, continental, and regional dynamics.”