Why pushing money into economy now, may be futile

On everyone’s lips is the tough economic environment in which most of us find ourselves.

Prices of a wide range of commodities have gone up, especially the ones for domestic use, such as soap and cooking oil that have almost doubled. The same applies to fuel.

Yet there is a noticeable lack of money to meet all these needs and more. This is happening during this period of need for the all-important, school fees and other dues which have also been hiked.

My economist friend is very angry with the government. He argues in so many words that during such times the government, which in Uganda is the largest spender, should push money into the economy.

He says it is time to pay off wages, arrears and release money for projects which are being held back for fear of creating ‘inflationary pressures’ as he calls them.

In his wisdom, the money will get into the hands of ordinary people to enable them to purchase goods and services. This will stimulate production leading to an abundance of goods and increased revenue collection.

The theory sounds quite good and simple, and it is very popular.  But when one looks at the structure and organisation of Uganda’s economy, doubts crop up.

For the last 30 years or so ever since Uganda took to the path of privatisation, there was a noticeable shift in the way the government does business with Ugandans and other businesses a.k.a. investors.

Before 1989, Uganda had a myriad of industries and other corporations such as the Coffee Marketing Board, among others. These employed several people and had forward and backward linkages in the economy.

Secondly, you also had a vibrant cooperative movement that brought many people with one common purpose of boosting production.

So in theory when the government intervened with a package be it financial or in-kind say it bought in trucks or tractors, the trickle-down effect to the man at the bottom of the pecking order was almost instant and quite effective.

Whatever the government gave would be passed on to the members of the cooperative society or the industry. Members would utilise it within their line of work.

Now after the privatisation and restructuring of 1989 where the government claimed it would mostly concentrate on policy and regulation, there was a rise in the number of individuals as opposed to public organisations or entities which do business with the government.

Middlemen, dealers, commission agents, ‘tenderpreneurs,’ lobbyists, fronts, insider traders, outright influence peddlers, and other characters many of whom are connected to the government, gained prominence. We must also agree that there are several genuine private businesses as well, though a good number benefit from the coveted connection and cover.

Others are simply co-opted and cajoled into towing that line or else they will not get a piece of the cake.

To get any business with the government you have to go through them. They are connected and know who sits where, has the power to move things and who signs the approvals leading to awards and payments.

That is what constitutes a big part of what we call the private sector.

The trouble with most of Uganda’s private sector is that it is mainly individuals first and businesses later. In other words, most people doing business do not look at the business as being a separate entity from themselves. Their desires, wishes, interests, and aspirations come before those of the business sector.

For instance, when one gets a good deal with the government and payment comes in, if their wish has always been to own a nice four-wheel drive then it will happen even if this affects the cash flows and savings of the business.

Herein lies the reason why most businesses do not grow and live to see their fifth birthday. So when the government pays such companies they instead rush to buy land and put up apartment blocks and arcades plus other luxuries and they wait for the next deal.

The concrete block is a relatively ‘safe investment’ in Uganda. But it does not lead to a good number of people getting money in their hands to effectively demand for goods on the market. It would contribute to economic growth figures but the benefits accrue to a few people.

The money does not spread out the way it would if you had it paid to say a cooperative society or a business engaging in manufacturing and employing many people. The interests of society or the business come first. The effect is that almost everyone would quickly get a small share of the money and boost household incomes and effective demand which in turn stimulates the economy.

That is where we are today. The real and beneficial economy in Uganda is controlled and is in the hands of a few people. If and when you pay them it does not substantially affect a significant number of people because the trickle-down effect and spread out of recipients is not pronounced.

 What we have to think seriously about is solid investment into manufacturing and cooperatives. Such entities should be given conditions on how they are managed if they are to deal with the government.

The all-important one is that a portion of their resources/revenues should be saved in trusts. This will help to build future capital as a way of weaning off government interventions.

Secondly, they should also organise labour into unions with a portion of the earnings of individuals being saved in a similar fashion.

These savings may be used as a guarantee in case members feel like borrowing or benefiting from a bailout or a revolving fund from the government. There should be no interventions from the government that give people ‘free money’ as this acts as a disincentive to work and build a saving culture.

Saving implies growth. This means that such entities become viable as bodies that may borrow from financial institutions both at home and abroad at even lower interest rates. Good financial muscle means the chances of risk are lower.

It is through such institutions that the government should push money to boost the economy other than dealing with ‘individually oriented’ entities.

Mr Sengoba is a commentator on political and social issues

Twitter: @nsengoba