Of political power and the economy

He who pays the piper calls the tune.  Legislators in favour of the age amendment bill are grappling with a whole range of problems at the moment, while simultaneously facing a challenge to their authority from the local people who feel that the prevailing approach has been mistaken. More than that, masses argue that terms under the Age limit amendment bill have been set more with reference to the interest of the ruling party than to the concerns of the ordinary voters.

Certainly, it is possible to look at Uganda’s economic history as a variant on the old saying; he who pays the piper calls the tune. What determines economic policy? Politicians will tack with the prevailing winds to ensure they stay in office. Political or economic ideas will be adopted when they are useful to that process.

To the extent that groups gain economic power, political power will follow; think of how: In October 2017, the Ministry of Finance released Ugx.12.6b (US$3.4m) cash to facilitate Members of Parliament (MPs) during their consultations on the presidential age limit amendment bill. Each MP received estimated Ugx. 29m (US$8,055) to go to their constituencies and consult masses about a bill that Summit Business magazine deems not economically driven. This money jogs our memory to that disbursed before and during elections. A whooping Ugx. 2.4 trillion was spent by parties during the 2016 election period. An amount that saw the shilling plunge by over 20% and inflation rates to all-time highs. It was mainly attributed to the unaccounted for sums of money that were disbursed by these parties to convince voters to favour them.

‘History repeats itself,’ goes a popular saying. Already, Ugx. 12.6b has been given to MPs except for the few who returned back the money. Such money is set to enter into the financial market thus an increase in money circulation. Yet, this comes shortly after Central Bank’s efforts to control the year-on-year inflation rate that has increased by more than 24% to 5.2% in October 2016 from the 4.8 percent recorded in October 2016. The rise in inflation has been attributed to the increase in money circulation that is not backed up by a corresponding production of goods and services. This has further weakened the shilling against the dollar with a 6.7% decline in value of the former. And with the unaccounted age limit cash in circulation, Uganda’s economy could be en rooted to inflation rates close to those that sore towards, and during elections.

Bank of Uganda already endorsed expansionary monetary strategy; reducing the CBR rate to 9.5 percent to increase access to credit for the locals. However, this has been undermined by the age limit cash. More money than was planned for is circulating the economy aggregating inflation rates to levels the central bank has failed to control as demand for basic commodities upsurges and prices rise. The cash in circulation has indeed reached its limit. Just when Ugandans had full confidence in the central bank in boosting their financial inclusion by stimulating reduction of lending rates, BoU might have to drop back into the protective contractionary policies it has previously adopted in order to control this highly volatile inflation that might get out of hand

Bad Investors or Bad Economy?

“Mr Tasty’s fried chicken, the fast foods parking area receives fewer cars these days. Along the same street is home to Tuskys supermarket, Haruna Shopping Mall and Ntinda Shopping Centre.

Likewise, the recent skyscraper; Ntinda Complex opposite St Luke Church is eye catching as you are ushered into the centre of Ntinda town. Business seems to be booming. But do skyscrapers reflect improved business environment? What exactly is taking place inside the skyscrapers?

On 23rd August 2017, Nakumatt took the country by storm when it announced her exit from Uganda citing rent debts of more than Ugx. 1tn and unpaid taxes amounting Ugx. 300m. Uchumi also closed shop in the country in similar conditions and so has Vodafone. Take the case of Tuskys supermarket. Most of their shelves have gone empty for more than six months’. Should we assume consumers buy everything on display? Investors are presumed to have better insight of their target market. But falling bond yields depict that the economy is slowing. Are Ugandans bad customers or it’s just a bad economy?

Nakumatt’s Managing Director Atul Shah blamed these issues on over expansion while seeking economies of scale. Besides, the rapid growth of e-commerce platforms narrowed their base drastically. And the predominantly poor Ugandan population does not favour high-end retail. Just about five percent of the locals attained middle income status.

According to an insider, Nakumatt sought bailout from government in June 2017. However, in September, Uganda Revenue Authority auctioned Nakumatt’s merchandise citing failure to clear taxes. This is where we expected UIA to step in and either back or block the move considering the hypermarket was employing more than 100 Ugandans countrywide. Conversely, Uganda Investment Authority (UIA) remained silent as it watched events unfold.

Business analysts continue to question UIA’s procedures on vetting investors. We now have Chinese investors. About 65 percent of these so called investors are established in down town Kampala. Qualicell house tells a lot about the quality of investors UIA is licensing. Shocking! This also happened in Angola’s capital Luanda where a hospital built by the Chinese developed alarming cracks and had to be rebuilt. Hitherto, their investments are highly tied incubating neo-colonialism. Some operate like the proverbial mosquito feeding on the sleeping man.

UIA’s regulations allow any investor to buy land and set up shop in the country. This has brought about an uncontrolled influx of foreigners from Asia, disguised as investors. Yet, their support is excessively tied. You wonder why UIA has not imposed strict vetting policies to defy ‘bad investors’.

Why invite every passer-by to your home? Baroda, an Indian bank controls 80% of its equity despite listing on the Uganda Securities Exchange with less than two percent owned by the locals. Does this really empower Ugandans or are we selling our country to the highest bidder? What about policies on the quality of employment to locals?

The investment climate is still pro-foreign rather than support Buy Uganda Build Uganda initiatives. We need an inward outlook if 2018 is going to be a fruitful year