Liberalisation policy reversal: Is govt finally giving in?

The Museveni of 1986 up to somewhere in 1987, was a hard line Marxist,  at least according to those who were close to him, who believed in socioeconomic analysis to transform a country that had been ravaged by war. 

Well, some historians and politicians, including Prof Yash Tandon, have argued differently. 

In his book - Common People’s Uganda - Prof Tandon argues that President Museveni only used Marxism as an excuse to rally a power grab but never understood its workings and was quick to abandon his idealism at the slightest challenge by capitalist frontiers. 

However, unlike Prof Tandon, Ramathan Ggoobi, an economist and lecturer at Makerere University Business School, insists that the post-1986 Museveni up to until 1989, believed in the concept of Marxism but was only forced out of it by the push for capitalism that had been fronted by powerful capitalist frontiers such as the International Momentary Fund (IMF) and World Bank. 

Indeed, some historians have argued, it is such belief in Marxism that encouraged Museveni to barter just about everything that Uganda could afford in exchange for imports. 

Whereas, it could have been scarcity of resources, the barter trade arrangement that went on from about 1986 up to about 1987, was proof of a more left-leaning approach that alienated the capitalist agenda, which had enveloped much of the world at the time. 

For instance, during the period Libya had been supplying oil, cement, tractors and steel in return for coffee, tea, cotton, meat, hides and skins while Cuba supplied sugar, drugs, vehicle batteries and paper in exchange for cotton, beans and hides. 

In a way, this helped Uganda to regenerate itself from the ruins of a shattered economy, which at some point had recorded inflation of above 3,000 per cent and heavy currency depreciation. 

However, the West-controlled IMF described the barter system as inefficient and overly costly due to a lot of behind-the-scenes costs, maneuvers and manpower. 

Uganda had not been alone in pursuing the barter system. Zimbabwe had also been trying it but the neoliberalism forces were just too much for the lone stars, especially Uganda, which was in urgent need of Western support after a devastating five-year guerrilla war. 

Therefore, in the later part of the 1980s, particularly in 1987, government adopted a new approach in which, though unwillingly,  it sought to pursue a programme of macroeconomic adjustment and structural reform with the view of liberalising the economy. 

Therefore, it is during this period, according to Ggoobi, that President Museveni could have abandoned his Marxist and socialist ideologies, not out of sheer will, but through donor pressures, some of whom had shown unwillingness to support an economy that had been reluctant to open up. 

The adjustments required government to build a private sector-led economy as well as release itself from doing business to become an enabler to the reformation instead of engaging in businesses in which it had no expertise.  

The reformation also ushered in privatisation, which for more than 30 years has remained a point of discussion and a reference of government’s failure to stimulate an economy whose private sector remains so weak to invest in capital intensive projects as well as sustain business growth, which is required for an economy that has a multitude of challenges, key among them unemployment,  low tax revenue and a large trade deficit.      

By 1990, government, according to a paper by Eng Simon D’Ujanga, the State Energy Minister, which was presented to energy sector stakeholders in 1996, had adopted the economic liberalisation policy, in which it sought to open up the economy as well as privatise about 144 state-owned enterprises. 

The policy also sought to create private sector-led growth and put in place a liberalisation policy that would promote free trade, eliminate deregulation, subsidies, price controls and rationing. 

However, in there, has been the larger challenge as many experts have, and continue to argue that it was a mistake for government to fully liberalise the economy without putting in place safeguards on certain sectors of the economy, which has exposed Ugandans to exploitation and surrendered the economy to foreign control. 

Apart from small and medium enterprises and the informal economy, it is difficult to point to a sector that is controlled by Ugandans. 
Be it banking, which is a key sector of the economy, telecommunications or energy, Ugandans have a very low stake and the policy inputs only favour those who own such companies yet a lot of money is repatriated with so little left here to facilitate growth of the real economy. 

Take for instance, it is nearly next to impossible in Uganda to access a loan that favours long term business growth yet the Central Bank has for years, until recently, talked its way out of reigning in on interest rates on claims of operating a liberalised banking sector.  

Tumusiime Mutebile, the Bank of Uganda governor, had for a long time made it a song to remind Ugandans how government was operating a liberalised capital account every time they questioned the rationale of high interest. 

However, in a recent twist of events he suprised Ugandans when he hinted on capping interest rates if banks continued to ignore Central Bank’s efforts to lower interest rates and the cost of loans. 

Mutebile could have been mesmerised by how banks had gone ahead to charge interest rates in the region of 25 per cent yet the Central Bank had for months maintained a low Central Bank Rate. 

Therefore, it could be because of such arrogance that government has begun to reconsider its approach as all indications suggest it has made a 360° turn to get back into doing business and take  back key sectors of the economy into its control. 
Indeed, the recent disbanding of the Privatisation Unit (PU) could be testament to a policy shift, which some believe has been long overdue. 

“We are just building a rich economy presided over by foreign companies. The economy is concentrated in the centre and promoting market fundamentalism yet with poor people,” Ggoobi says, and notes that state failure, and not necessarily government failure, provided a fertile ground for opportunists to vend to Africans and particularly to Uganda, structured adjustment policies as the magic bullet to the economic problems of the late 80s and 90s. 

The architects of the Washington Consensus, he says, failed to understand the problems of Africa, forcing governments out of key sectors, which would act as an anchor for private sector growth. 

Therefore, Ggoobi argues it is good government has now understood the crisis it creates years and Ugandans, who have for decades questioned full economic liberalisation, have been vindicated. 

Over the years, government has been investing in key sectors of the economy under Uganda Development Corporation to accelerate industrial growth, which appears to be a key policy reversal.

This, Ggoobi says, is an indication that the State has returned to play an active role but must limit itself to businesses that cannot be done by private sector.  The story of Uganda Airlines also points to a hardcore policy shift and gives a proper direction on where government has now put its focus. 
Uganda Airlines had been liquidated after government failed to get an investor to buy it. It had been one of the entities that government sought to privatise as it sought to dispose loss-making entities. 

However, unlike Ggoobi, Susan Kavuma, an economist and lecturer at the Makerere School of Economics, believes that the policy shift should be undertaken with some stocktaking with the view of understanding how they were performing before they were sold off and how they are performing now. 

Beyond this, she says, there is need for some re-assurance because a number of government institutions have been run down, living most of them incapable of conducting regulatory and oversight functions.   “If government is to get back in business, we need an environment that has stronger institutions. The rules should apply and people should abide by them,” Kavuma says. 

The policy reversal, Gideon Badagawa, the Private Sector Foundation Uganda executive director, says is proof that government made a mistake to fully open up the economy,  and notes so much has been lost over the years. 

“Economies that are robust world over have had their governments work closely with the private sector on several projects and programmes through public private partnerships,” he says and notes that whereas the private sector is strategic and efficient, government must provide policy support and resources in long term capital intensive projects.

Lack of control 
Jane Seruwagi Nalunga, the Seatini executive director, believes privatisation robbed Uganda of the control in key areas of the economy such as banking. 
However, government has attempted to revive Uganda Development Bank.  Whereas it is good, it will not address the problem of micro, small and medium enterprises that are largely starved of patient capital to expand.

She also notes that in the last 35 years, there has been a lot of revenue leakages, some of which have been witnessed through double taxation agreement signed with tax havens, which has deprived Uganda of revenues.  Away from this, Siragi Magara, also a policy analyst, believes the 35 years have been commendable in many ways but created a serious challenge in human capital development.     

This, he says remains a challenge that continues to create a pile of resources at home but imports labour to do low grade works such masonry.  By the close of National NDPII President Museveni had promised that Uganda would have attained a Middle Income Status. However, this remains a pipe dream and unlikely to be acheived soon. 

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