What Uganda’s debt crisis means for politics

Sunday May 02 2021

Most of the loans were secured to build infrastructure such as airports, hydro power dams and multi-lane highways. PHOTO / FILE

By Timothy Kalyegira

The government on Monday, April 26, announced that it had entered into discussions with the World Bank and with the Chinese government to have payment of the money owed these two entities rescheduled.

As far back as 2019, there was already a looming foreign debt crisis.
Forty three sub-Saharan African countries by May 2019 were struggling with a 55 per cent debt-to-GDP ratio and more.

Most of these loans had been secured to build infrastructure such as airports, hydro power dams and multi-lane highways.
In theory, this infrastructure was supposed to spur economic development. The reality now proves that the fruits of this infrastructure are negligible not just at present but into the future.

One of the problems with the current economic development model is in its assumption that the best way to grow the economy is to supply the infrastructure and tools, then demand will naturally follow.
It is starting to dawn on many businesses that the challenge they face is the lack of consumer demand.

The main complication facing the large beer, soft drinks, soap and cooking oil companies is not necessarily the shortage of electricity to produce in larger volumes; it is that even the present relatively small factory output does not have a sufficient market.

Even when South Sudan was running at full blast, it was not a large enough market to absorb Ugandan goods.


And so, the two hydro-electric power dams at Karuma and Isimba will end up supplying more electricity than there is demand for it.

The general economic picture is now becoming clear: Much of the boasted-about high level of GDP growth was founded on heavy external borrowing to lay out new infrastructure.

Africa is now slipping back into the debt trap that plagued it in the 1970s and 1980s.

What does all this mean politically?
For one, most of the promises made by the NRM in its 2021 election manifesto will not be fulfilled.

In the wake of the recent general election, many NRM leaders and analysts argued that part of the reason the NRM fared poorly in Buganda was that it had not properly implemented programmes to reduce poverty in the region.

If so, then many poverty-alleviation programmes will either be scaled back or quietly abandoned altogether.
The half dozen towns that were upgraded to city status will remain cities in name only.

Beyond giving these sleepy towns a fresh look and feeling of modernity, in strictly economic terms there is not enough four-wheel vehicle traffic to justify the new municipal roads.

The major means of transportation in Lira, Fort Portal, Mbale, Gulu, Mbarara, Arua, Soroti and the other sleepy towns-turned-cities is the motorcycle boda boda.
Most residents walk to and from work, school and worship.

These new “cities” will be unable to fund their budgets and will continue to depend on the central government treasury to subsidise them.

Businesses and individuals that supply the government with goods and services should not be surprised when they go for months or years unpaid.
Many such businesses will fold in the process, with their capital tied up in the unpaid invoices.

Many other related issues arise. Given this crippling debt, will Uganda be able to complete the oil pipeline or even begin it? How about the standard gauge railway?
Will the new airport in Hoima remain on course for completion or will that see delays?

Will the revamped Uganda Airlines end up as the loss-making State-owned enterprise that it was in preceding decades?
For the general population, the next two years are going to be a really difficult period, with families and individuals falling behind on rent, school fees and other obligations.

During the 2020-2021 election campaign, the ruling NRM party and government more or less demonised and brutalised the Opposition NUP/People Power and its supporters.

While this was the tactical stance to take politically, economically it had its limitations. NUP won a solid block vote in Buganda and parts of Busoga.
When combined into a whole, Buganda and Busoga are the economic heartland of Uganda.

Apart from the Karuma dam, the new international airport in Hoima and the cement factories in Tororo and Kasese, nearly all the country’s major infrastructure is located in Buganda and Busoga – the Owen Falls Dam, Entebbe International Airport, Makerere University, Parliament, the government ministries, the head offices of every commercial bank, newspaper, major TV station, business corporations, bus companies, all foreign embassies, international airline offices, shopping malls, supermarkets, NGOs local and foreign.

Therefore, politically President Museveni won in eastern, northern and western Uganda but lost in the central region where more than 75 per cent of the national economy is based.

To pull Uganda out of the current debt crisis and return it to the path of more sustainable GDP growth cannot be undertaken with the NRM government on hostile terms with the population in the central region.
Political support from the other three regions might be great for the government, but their combined economic strength and purchasing power are negligible when compared with the central region.
One way for the government to handle this politically would be to exercise fiscal and managerial discipline in its running of the economy and the public sector.
However, the basis of the NRM’s balancing of power over the last 35 years has always been the appeasement of regional and ethnic interests.

Patronage is the way the NRM state is run and it is hard to see how it can dispense with patriotism in favour of strict stewardship of the economy.
Given the shock loss by the NRM in Buganda and the spate of riots and unrest that preceded the election, the government will continue to keep a close eye on internal security.

The heightened security surveillance will add to the government’s expenditure, further deepening the debt burden and, in turn, deepening the despair and frustration that led to the rise of the NUP in Buganda.
In summary, the current debt crisis will before long turn into a national economic crisis and, with that, become a political crisis.