A man crosses the road near defunct Uganda Commercial Bank (UCB) building in 1971. After the privitisation of the bank, the building was sold to businessman Karim Hirji, who renamed it Cham Towers. UCB bank was once the largest financial institution in the country with 67 branches. PHOTO | FILE

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Monitor privatisation rot prediction comes to pass

What you need to know:

  • Last month marked 30 years since the establishment of Monitor Publications Ltd (MPL), publisher of Daily Monitor. The enduring tagline of the newspaper is: Truth Every Day. Three decades of publishing has proven the cost of telling the truth is high, but The Monitor has paid the ultimate price with closures and harassment by the state and denial of government advertising. In this first instalment of our new series, Top 30 Stories in 30 Years, our reporter Frederic Musisi examines how the newspaper’s lead in the maiden edition about the filth in privatisation played out prophetic.

Privatisation was part of, in today’s lexicon, the Structural Adjustments Programme (SAPs) vaccine that the Washington Consensus — World Bank and International Monetary Funds (IMF) — sold to more than a dozen poor countries, some emerging out of political and civil strife, in Africa, Latin America and South eastern Asia, to stimulate their distressed economies. 

In Uganda, the exercise started unofficially in 1989 and by the time this newspaper was born, three years later, the writing was on the wall of what could go wrong.

“This privatisation drive stinks badly,” screamed The Monitor’s maiden issue on July 24, 1992. The story, an op-ed, authored by Richard Tebere ran from front page to page 16.

Privatisation has come to Uganda, Tebere, who died in a car crash five years later, wrote, and in a big way government officials with unaccustomed alacrity are falling over each other to sell off more than 100 public enterprises whose owners are the people of Uganda.

“On the face of it, it makes a lot of sense. For why should tax payers continue to subsidise loss making and corruption-riddled corporations? But a critical look below the surface reveals a lot of dirt. In fact the whole privatisation business stinks. As it is being carried out now there is no transparency at all nor any agreed upon formula,” the article read in part.

The premonition would come to pass during the subsequent years. Massive syndicated corruption, asset stripping, asset undervaluation, defaulting onpayment by a handful buyer, especially regime cronies, among others, turned privatisation into a fodder for newspapers—particularly the Monitor which boldly chronicled the mess—as scandals unfolded one after another.

Mr David Ouma Balikoowa, one of the Monitor founding members, recalled that the decision to lead with the op-ed on privatisation was premised on the paper’s foundational ethos—scrutiny of public policy, holding government accountable, and public interest journalism.

“It was a general attitude of making the government accountable. Exploring how public resources were utilised,” Mr Balikoowa reminisced. 

“So we were not very surprised when the same things we warned about started happening.”

The first publication of The Monitor reprinted yesterday with its lead story criticising the privatisation drive and a story published by this newspaper on the first signs of failure of privatisation. PHOTO | FILE

Besides, Mr Balikoowa said they had seen how property of the departing Asians 20 years earlier had been distributed willy-nilly to regime cronies under President Amin without regard for procedure.

“We already had that experience. By the time we were starting the Monitor, privatisation was the talk of the town so we felt it was our responsibility to warn about repeating mistakes of the past,” he noted

Writing on the Wall

In 1972, former President Amin gave all—an estimated 60,000—Asians 90 days to leave Uganda in the attempt to nationalise the economy. The fleeing Asians left behind between 7,000 to 10,000 properties around the country, which were redistributed to regime cronies and other Ugandans.

President Amin was overthrown in 1979 and several of his cronies were dispossessed of the same property by associates of the subsequent regimes, including the current one.

A 2019 parliamentary Committee on Commissions, Statutory Authorities, and State Enterprises (Cosase) probe into activities of the Departed Asian Property Custodian Board, established to expropriate and manage the departed Asians’ property, unravelled, among others, syndicated corruption, questionable transfers and corruption, which were being carefully crafted behind the cloistered boardrooms.

The Cosase probe findings bore parallels with findings of the back-to-back inquiries into the unbundling of state enterprises between 1993 and the mid-2000s.

The state-owned enterprises in all sectors of the economy had been established before and after independence in 1962 to, among others, balance the weak private sector, propel national building, and promote indigenous entrepreneurship.

But owing to several factors, including collapse in commodity prices of the 1970s, mismanagement, and the post-independence political turbulence between 1966 to the late 1980s, majority morphed into loss-making ventures hence burdensome to the Treasury.

At the time President Museveni and his National Resistance Army (NRA) shot into power in 1986, there were 146 state-owned enterprises—138 majority holdings and eight minority state holdings.

Whether privatisation achieved the desired objectives, remains a subject of debate. However, looked at from the prism of saving tax payers money from subsidising loss making ventures then it was a success—to an extent.

The unbundling of the state enterprises, including offloading some into private hands, was among the list of Structural Adjust Programmes (SAPs); conditionalities, crusaded and imposed by the World Bank, International Monetary Fund, and World Trade Organisation, for the poor countries to receive aid.

Former Finance minister Ezra Suruma, who served as director of research in Bank of Uganda at the time of discussion of the SAPs in the late 1980s, told Daily Monitor recently that the financial assistance from the Bretton Woods was “the only help on the horizon.”

“Shops were empty, there were no cars on the roads, there was no forex, among many other things, so we needed help,” Prof Suruma said. “I remember the first loan of $100m we got was to help us with our Balance of Payment position, and to get essential commodities into the country.”

The IMF describes the SAPs as “macroeconomic adjustment and structural reform” programmes with the objective of sustaining high and broad-based economic growth in which the poor are able to participate.

Certainly, he added that the SAPs were essentially “about restoring a market led economy.” That was also the time of “Reganomics”—the economic policies, including, among others, unrestrained free-market activity pushed by former US president Ronald Regan.

President Museveni, who during the 1980-1986 rebel war professed Marxist ideals, immediately made U-turn and warmed up to and has since been a firm disciple of the leechy capitalistic system. Even today as the country writhes in the economic blues occasioned by the recent Covid-19 lockdowns and the Russo-Ukrainian war, government has remained non-committal in intervening in the market forces. 

Premonition comes to pass

Besides privatisation, other SAPs included removing price controls and state subsidies, encouraging foreign direct investments, devaluation of currencies (to make exports cheap and imports expensive), and liberalisation of the market.

Privatisation started unofficially in 1989 with the divesting of six companies including, Nile Breweries, Shell Uganda Ltd, and Lake Victoria Bottling Company, and officially commenced in 1993 with enactment of the Public Enterprises Reform and Divestiture (PERD) Act to guide the process.

The divestiture took several forms such as auction, management buyout, asset and share sales, and transfer of ownership to private sector.

The exercise, according to a 2001 paper titled Corruption and Cronyism in Uganda’s Privatisation in the 1990s by Roger Tangri and Andrew Mwenda, was marred by malpractice and manipulation involving regime politicians and well-connected individuals.

There was a scandal during the sale of almost all state enterprises. The most scandalous ones included sale of Uganda Commercial Bank (UCB), Entebbe Handling Services (ENHAS), and Uganda Grain Milling Company, in which President Museveni’s relatives were named during the back-to-back inquiries.

ENHAS, which was the former Uganda Airline’s most lucrative business, was sold neither to the highest bidder—Dairo Air Services— that offered $6.5m (about Shs25b) nor to the second highest bidder, South African Alliance Air that floated $4.5m (Shs17b).

It was acquired by then minister of State for Privatisation, Mr Sam Kutesa, whose daughter is married to First Son, Lt Gen Muhoozi Kainerugaba.

UCB—the largest bank then with 189 branches, and handled 45 percent of the total banking deposits—was first converted into a limited liability company in 1997. In 1998 it was partially, 49 percent, privatised to a Malaysian company Westmont Land.  

A 2002 parliamentary inquiry heard that Westmont mismanaged the bank, which compelled Bank of Uganda (BoU) to step in as a resident supervisor in November 1998, and later seized the bank in April 1999 before expiry of the three year management contract.

It was further revealed that Westmont had lent some Shs35b to Greenland Bank without proper securities and beyond limit levels and without consulting BoU as the representative arm of government that owned 51 percent of the shares in UCB. In April 1999, UCB was seized by BoU from Westmont, and then re-privatised in 2001. Then, Greenland Bank was also closed.

UCB was the largest bank at the time, on which Stanbic would later build its infrastructure to become one of the largest banks today.

In the case of Uganda Grain Milling Company, the highest bidder, Kenya-based UNGA Millers, was bypassed and the company sold to President Museveni’s brother, Salim Saleh, under a company called Caleb International on grounds of  “Ugandaness”.

Mr Museveni specifically likened the non-performing state enterprises to “dead people that required burying.”  It did not take long when the divestiture process was hijacked by regime cronies, including his relatives, and NRA/M party cadres.

Analysis of the documents details that at least 10 state enterprises were undervalued or sold to government employees, NRA/M cadres, and senior government officials, including MPs, Cabinet ministers, and presidential advisers.

Undoing Obote/Amin legacies

While the killing of state enterprises was pushed by donors, a senior minister once recounted to this newspaper of the pressure and vested interests in some of the assets by regime cronies and desire to undo some of Obote and Amin’s legacies by the current regime.

To-date, after 36 years in power, President Museveni still blames some of the country’s problems on his predecessors.

 The state enterprises remained functional regardless of the circumstances.

In other instances, the government supported particularly Asian investors, including Mehta and Madhvani, to take back their property and recapitalise, which the President justified as “strategic intervention in vital sectors generating employment and fighting poverty through helping businesses that generated wealth.”

The unbundling and sale of 146 parastatals, the World Bank hoped it would raise $500m, the equivalent of $1billion today adjusted for inflation or (Shs3.8 trillion). However, by end of 2006, only $167m had been raised or $221m (Shs781b) in today’s currency adjusted for inflation, of which 59 percent of the money went in divestiture costs, and 41 percent into pre-divestiture costs.

The trifling sales proceeds was a result of, among others, asset stripping, asset undervaluation, and defaulting on payment by some buyers.

The former State minister for Privatisation, Manzi Tumubweine, who succumbed to Covid-19 last year in June, told Daily Monitor in his last media interview in late 2019: “Where we went wrong was to sell 140 enterprises at the same time. It was a mess.”

“Yes, many were not profitable, there was no capacity, and we didn’t have the capacity to trim them and make them productive. It was a complicated situation without a simple answer,” he said.

Tumubweine also revealed that there was hostility against voices of reason opposed to the sale and unbundling of strategic state enterprises such as UCBL and Uganda Airlines.

There were also state enterprises, which were liquidated or struck off the registrar of companies, including Agro-Chemicals, Domestic Appliances, Hamilton, Itama Mines, Lebel (EA) Ltd, Sukulu Mines, TICAF, Uganda Air Ltd, Uganda Aviation Services, Uganda Fish Marketing, Uganda Farm Machinery Ltd, and Uganda Tourism Development Corporation.

Others were Ugadev Holdings Ltd, Uganda Wildlife Development Corporation, Uganda Toni Services, Gobbot (U) Ltd, Uganda Transport Company, People’s Transport Company, Uganda General Merchandise Ltd, Infra Africa Traders, Lint Marketing Board, Paramount Manufacturers, and Toro Development Corporation.

Thirty years down the road, some economists have argued that privatisation was a mistake, which resulted in government putting the economy into the hands of foreign hands and pushing majority indigenous Ugandans to back burners of the informal sector and retail.

The President and Daily Monitor have over the years enjoyed a love-hate relationship, including being closed thrice, over its reporting.

Mr Balikoowa, however, maintained: “President Museveni doesn’t hate Monitor. He disagrees with it in many instances and readily expresses that opinion. As the Head of State that opinion sounds strong. But the public is now used to it and we have all learnt to live with it. He is an avid reader of Monitor.  He has also at times credited it in some instances where he has agreed with it.

Privatisation

Privatisation commenced officially in 1993. 

In February 1993, the divestiture of Lake Victoria Bottling Company Ltd to Crown Bottlers throughshare sale at Shs6.4b was finalised; in August, Uganda Securico Ltd was sold to Securiko (U) Ltd, and in October Agricultural Enterprises Ltd was divested to Commonwealth Development Corporation through a joint venture deal of Shs12m.

In May 1994, Uganda Tea Corporation was repossessed by Metha Group while Steel Corporation of East Africa was divested to Madhvani Group and later in 2000 fully acquired it through pre-emptive rights at Shs363m; in August Blenders (U) Ltd was sold to Unilever Overseas Holding BVC at Shs494m.

In August 1994, Hotel Margherita was divested to Reco Industries Ltd for Shs365m; White Horse Inn was divested to Kabale Development Company Ltd registered to among others Mr Amos Nzeyi and Dr Ruhakana Rugunda for Shs600m; Tumpeco was divested to GM Company Ltd; Mt Moroto Hotel was acquired by Kodet International for Shs40m; Rock Hotel was acquired by SWISA Industries Ltd for Shs300m; and in December Uganda Cement Industry was divested to Rawals Group of Industries for Shs20b in today’s currency.

In 1995, Lira Hotel was acquired by Showa Trade Company Ltd registered to former Northern region NRM vice chairperson, Sam Engola, for Shs250m; Soroti Hotel was sold for Shs150m to Speed bird Aviation Services Ltd linked to an NRM cadre in Teso; Acholi Inn was sold to Laoo Ltd for Shs235m; while Hilltop Hotel was sold for Shs35m to Three Links Ltd, a company also to linked to a top NRM honcho.

In 1995, Lira Hotel was acquired by Showa Trade Company Ltd registered to Engola for Shs250m; Soroti Hotel was sold for Shs150m to Speedbird Aviation Services Ltd linked to an NRM cadre in Teso; Acholi Inn was sold to Laoo Ltd for Shs235m; while Hilltop Hotel was sold for Shs35m to Three Links Ltd, a company linked to a top NRM honcho.



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