Why UCB sale was a monumental betrayal

In a rare admission, last week President Museveni regretted his role in the sale of Uganda Commercial Bank (UCB), two 20 decades ago. This is huge.

For the uninitiated, Mr Museveni does not admit to mistakes or misjudgment. In an interview with the Voice of America sometime in 2002/2003, Dr Shaka Ssali pressed him on any mistake from the past or an action that he regretted. He said none!

In Museveni’s world, when things go wrong or mistakes are made, it is other people to blame, not him. In fact even in the sale of UCB, he blamed it on the late Emmanuel Tumusiime-Mutebile, former Treasury Secretary and later governor of the Bank of Uganda (BoU). 

But last week’s admission was a big deal because, at a minimum, Museveni conceded that he erred in siding with Mutebile’s position against Dr Ezra Suruma who spiritedly opposed the decision to sale UCB. 

Dr Suruma was at the centre of the fight but ultimately lost the battle to the International Monetary Fund (IMF)/World Bank-free markets wing at the Finance ministry and BoU whose high priest was Mr Mutebile. 

UCB was a government-owned commercial bank with branches across the country, and served as the most important institution for access to basic banking services by the public including small business loans.  The move to sale UCB started in the mid-1990s when it was in distress, drowning in bad loans and gripped with managerial inefficiency. In an effort to avert its proposed privatisation on account of insolvency, Dr Suruma left his position as deputy governor of BoU to take over as UCB managing director where he was quickly able to reorganise things, recapitalise and return the bank to a sound financial footing. 

By the time it was sold in 2002, UCB was in good health, profitable and prudently managed. Why then was it sold, or rather given away for the cheap, to foreign owners? 
Mutebile and the free market fundamentalists at the Central Bank and the Treasury had secured the ear of

Museveni, Suruma did not. The final decision to give away UCB was ultimately Museveni’s, but the real power behind the push was the IMF, the purveyor of a neoliberal doctrine that governments have no business doing business, an ideological position Mutebile fully embraced and persuaded Museveni that it was the ‘correct line’.

Free markets are critical to economic performance and societal prosperity. No one can argue against this. But free markets have their own limits. Context and specific conditions matter. Markets do not work the same way everywhere nor do they solve every problem. 

Market activities can effectively service certain needs, but they can also fail to meet certain goals or even be disastrous. That is why they have to be regulated, and there is always good reason to not leave certain sectors of the economy at the whims of free markets. 

The IMF and its Ugandan converts preached the gospel that free markets do not want government to do any business, instead every economic activity and business venture be left to the private sector. 

This of course assumes existence of a substantial private business sector with the capital and capacity to take over all government owned enterprises. This was not the case during privatisation in 1990s. For historical reasons, going back to colonial rule, for most of its independent time Uganda has not had a robust and well-articulated indigenous business class. 

When the IMF and its agents at BoU and the Treasury pressed for sweeping privatisation of state-owned businesses in the 1990s, it was a give-away frenzy to local regime cronies and foreign capitalist interests not necessarily committed to Uganda’s long-term development goals.

The luxuries of leaving everything to the market and letting free markets sort out economic issues is something that a poor country like Uganda cannot afford. In the early stages of struggling to secure a foothold and muster stable ground to transform the economy and society, there are certain critical sectors of the economy that cannot simply be left to free markets. Arguably, the most important of all is the banking sector. That is why it was a monumental betrayal for Museveni to have superintended the sale of UCB, the one financial institution with the infrastructure, reach and wherewithal to facilitate economic transformation. 

Today, Uganda’s biggest businesses undoing is the prohibitive cost of credit, the cost of borrowing money. No way in the world can anyone do meaningful and profitable business in Uganda with the obscene interest rates charged by commercial banks. 

The government has been tinkering with all sorts of plans for availing investment capital to small businesses including the vague and, quite frankly dubious, so-called Parish Development Model. Yet, the best approach should have been to empower UCB as a national bank focused on enhancing national development through availing affordable credit and not narrowly pursuing profit, which is what those who got UCB are doing!

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