What you need to know:
- Finance ministry permanent secretary Ramathan Ggoobi, in line with principles of liberal economics, argues that market forces of supply and demand will correct the imbalances, and any statist intervention is likely to wreak more havoc.
The government yesterday ruled out providing subsidies, tax or price control relief to clothe Ugandans against pricks of rising living costs which have left millions helpless and in need.
Dr Ramathan Ggoobi, an economics scholar tapped last year as the Finance ministry permanent Secretary/secretary to Treasury, in a media briefing in Kampala, said such statist interventions would create more problems than they solve.
“Subsidies tend to take money to the wrong people, not the ones you intend [to help]. Here we call them mafias. They can easily organise themselves and take all the subsidies. So, the Treasury will be funding them. We aren’t going to control prices either. That is bad economics. You control prices, you create so many unintended consequences,” he said.
Rising prices of commodities
Ugandan households, four out of ten of which are in the poor category, are grappling with the headache of putting food on the table following the heating of the economy and the rise, in some cases doubling, in prices of groceries and construction materials.
Uganda Bureau of Statistics, the official government statistics agency, has reported a more than 1.5 percentage point jump in food inflation from the start of the year.
From members of Parliament to Church of Uganda Archbishop Samuel Stephen Kaziimba, from businesses to ordinary citizens on the streets, the government has been bombarded with a chorus demanding to ease the burden for families after leaders of neighbouring Rwanda and Kenya stepped in with fuel subsidies and other reliefs.
At yesterday’s press conference, Dr Ggoobi declined to discuss any government blueprint to tame the wild living costs, referring to a planned statement by his political supervisor, Finance minister Matia Kasaija, to Parliament later in the day.
When the hour of reckoning arrived, it was not Mr Kasaija but the State Industry minister David Bahati in the August House, and he retailed as solution broad stroke ideas including ramping up import substitution industrialisation, a cornerstone of President Museveni’s initial 10-point programme on building an independent and integrated economy conceptualised even before he captured State power in 1986.
Mr Bahati offered nothing to assuage the situation in the short term, and turned to the nascent Parish Development Model, a new government programme to invest cash directly into enterprises selected by residents in every parish in the country, as crucial to lift the nine million households out of poverty and buffer them against future vagaries.
He announced that the government planned to work with Bidco, a palm oil-producing firm in Kalangala and Bukora Ltd in Sango Bay, alongside sunflower and soybean farmers in northern Uganda, to boost production and put a lid on runaway prices of cooking oil and its by-products.
In an echo of stale recommendations, minister Bahati said the government’s attack line to bring down transport costs --- catalysed by a sudden jump in fuel prices by between Shs500 to Shs800 per litre --- was to smoothen transportation infrastructure that take years to build.
The fuel crisis is both a regional and international problem which leaders and experts attribute to supply shocks due to Russia’s ongoing invasion of Ukraine and retaliatory sanctions by the West, and oil producers’ refusal to up production in the face of disruptions, rising oil prices on the international market, and a growing appetite powered by surging economies stymied over the past two years by Covid-19 pandemic.
The disruptions caught Uganda flat-footed, and with its only oil reserves in Jinja in private hands and without stock.
Mr Bahati, a former State minister for planning in the Finance ministry, said the government is instead building new and larger-capacity fuel storage infrastructure in Buloba, on Mityana Road, to guarantee strategic reserves to cushion Ugandans against future distresses.
He also pointed citizens to existing government programmes such as Emyooga and the recapitalised Uganda Development Bank for affordable credit to spur private sector investment.
Earlier in the day, PS Ggoobi said some Ugandans were happy when Kenya subsided fuel prices and wanted Uganda to take the same steps.
“A few days later, there was a shortage of fuel. I don’t see people saying ‘Mr PSST (permanent secretary/secretary of Treasury), look at this shortage’,” he said.
Idi Amin policies
Turning to history for lessons, the PS said former President Idi Amin started price controls, but it didn’t solve the problem, and instead caused a shortage of commodities.
“If you aren’t a producer of a good, why do you want to determine the prices? Why don’t you leave these businesses that are competing to compete? Businesses want to make money. If they overcharge, customers will go away. This is what is happening to some people … They used the opportunity to overcharge, but they ended up burning their fingers,” he added.
Dr Ggoobi also said the government will not open up the border to allow cheaper products to enter into the country since they will push the local manufacturers out of business.
Last month, the business community under Kampala City Traders Association (Kacita) petitioned President Museveni about the rising commodity prices and he directed Finance Ministry officials to discuss with them.
Mr Thaddeus Musoke, the Kacita chairman, said yesterday that they suggested that the government waives taxes on fuel, and permits importation of some products like cement that are cheaper in neighbouring countries to temporarily bring down prices.
“We suggested a revision of the government policy of marking fuel at Shs30 per litre at [the Kenyan port city of] Mombasa. It is too much. If they also remove the Shs1,500 tax on a litre of fuel, the prices will reduce and also bring the cost of transport down,” he said.
Mr Musoke said the price of a bag of cement in Kampala is now at Shs38,000, yet an imported bag of cement costs Shs25,000.
“We have cartels in the country that are taken over by the government and they are the ones benefiting from the rise in commodity prices,” he said, without providing evidence.
DON'T MISS: More solutions required to stem rising prices
The Kacita boss said during the meetings with officials from the Finance ministry, the manufacturers complained about the digital stamp that is increasing prices of commodities.
Efforts to get a comment from the Uganda Manufacturers Association Executive Director, Mr Daniel Birungi, was futile.
Mr Rashid Ssekindi, the chairman of taxi drivers, questioned why PS Ggoobi was ruling the government out of price control when it sets taxi fare caps.
“I used to spend Shs35,000 on fuel in my taxi to travel to Entebbe. I now spend nearly Shs50,000 because of the rise in fuel prices, which means a loss of Shs15,000 per route. But the Uganda government doesn’t allow me to increase fares; therefore, it is the driver and the owner of the taxi who shoulder the burden,” he said.
Mr Ssekindi said if the government reduced the price per litre of fuel by just Shs500, transporters and manufacturers would get a relief.