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The Observer | Why our economy is on shaky ground — By Moses Khisa

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Posted October 29, 2016 by Ugandan Diaspora News Team in Opinion ~ 1,555 views

     

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It’s rather post-hoc, but looking back, it’s not difficult to see there was something superficial about Crane bank: the rapid opening of new upcountry branches complete with fancy and palatial buildings, reported exponential growth of bank assets, and high returns all looked too good to be true.

Now, for those who care about a stable Uganda with a growing economy, the central bank’s takeover of the country’s third-largest bank is a big cause for worry. It was a culmination of months of speculation and weeks of heightened social media rumours. The speculation is still on since we don’t yet know the full extent of the bank’s impact on the economy.

We need to avoid being too alarmist, but the rosy, yet artificial, picture of Crane bank as we knew it says something about Uganda’s overall economy. For some time, we have been inundated with impressive growth statistics and a picture of an African success story.

Our ‘development partners’, chiefly the International Monetary Fund and the World Bank, have showcased Uganda as a foremost student of the Washington Consensus tri-policy doctrine of liberalisation, privatisation, and deregulation.

Journalist and businessman Andrew Mwenda has been a most vociferous unofficial spokesman of this success story, presenting Uganda as a fundamental achievement of modern times.

In one of our recent long discussions, I challenged Mwenda on the fact that Uganda’s economic outlook lacks the critical pillars for transformation. But why, I asked, can’t the people in charge of economic policy do some very basic things that would make a difference.

For starters, the much-talked-about growth has largely been in sectors that employ very few Ugandans and where we produce very little, if anything: banking, telecommunication, hotel, tourism, construction, etc. In most of these areas, there is almost nothing that a Ugandan produces, thus contributing to global output – everything is imported, except our game parks and other tourist attractions.

Mr Sudhir Ruparelia, owner of the now-distressed Crane bank, also owns Meera Investments which manages a string of big-money businesses, largely in real estate and the services sector. I don’t know if any of his businesses is a manufacturing plant.

To move a society from poverty and underdevelopment to higher standards of living underpinned by high incomes, improvements in human capital and technological innovation are critical. Only then is it possible to increase productivity and thus expand overall national output.

The quality of human capital depends as much on formal training and gaining competences to execute certain tasks as on social transformation and the embrace of a set of ethos and values.

While literacy rates have gone up, and those who speak for or defend the NRM government will quickly cite the statistics, increased access to education has not translated into highly-productive citizens with the competences for large-scale value-added production. This is an Africa-wide problem, partly the reason the continent receives a paltry share of global foreign direct investment while Asia, especially China, takes a huge chunk.

But human capital can’t transform society on its own; physical capital, too, is critical: money, machines, buildings and infrastructure. Human beings make machines. They also build infrastructure like roads and bridges.

Assuming that they have all the competences to produce machines, people need money to invest in the production of goods that are in turn critical in producing high-value goods that bring high returns and can benefit a range of people in the economy.

A dairy famer in Nakasongola needs milk-processing equipment to be able to get a good return; otherwise, he sells the milk locally in his village at poor prices or, in the worst case-scenario, he won’t sell at all. This raises the critical role of access to credit.

Alexander Gerschenkron, one of the most important thinkers of modern industrialization and late development, made a distinction between early industrialisation (in say, Britain) and late industrialisation in a poor and backward country (like Russia in the late 19th century) or late, late industrialisation in a country like Uganda.

Early industrialisation was aided by “original accumulation” of capital by private players, but late industrialisation required mobilisation of finances that could not be easily done by private entrepreneurs.

The role of the banking sector is then very crucial in financing industrialisation by availing long-term and affordable credit. For this to happen, there has to be an element of ‘fiscal coercion’ in the sense that banks are compelled by the state to conduct business in a manner they would not do if left on their own.

If the state is managed by leaders determined to spur industrialisation, it can undertake a range of policy interventions that make it possible for affordable credit to be channelled to industrial and value-added production.

Key individuals at the central bank and the treasury have unwavering commitment to market economics orthodoxy. They believe the state shouldn’t tamper with the workings of the market. This is a most misleading and ahistorical mindset that blindly and faithfully tows the IFM/World Bank line of thinking. Mwenda and I agreed on this, his own faith notwithstanding.

The author teaches  political science at Northwestern University/Evanston, Chicago-USA.
moses.khisa@gmail.com


About the Author

Ugandan Diaspora News Team

Ugandan Diaspora News Online is an independent, non political news portal primarily aimed at serving Ugandans who work and reside outside Uganda. Our aim is to be a one stop shop for everything Ugandan and the celebration of our Ugandan heritage.

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