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Mixed fortunes for Uganda's financial sector players

Saturday June 10 2017
EAEntebbejk

Construction of the four-lane Kampala-Entebbe expressway at the Kajjansi junction. FILE PHOTO | MORGAN MBABAZI | NMG

Uganda's financial sector players are positive about increased budget allocations to the transport and education sectors for 2017/18, with additional business opportunities offered by these segments. However, questions have arisen about the quality of spending and poor investment in the agricultural sector.

Total budget allocations for the works and transport sector rose from Ush3.8 trillion ($1.1 billion) in 2016/17, which represented 18.7 per cent of the budget, to Ush4.5 trillion ($1.3 billion), equivalent to 20.8 per cent of the current budget.

The increased allocation is meant to finance completion of select road projects, and also start new ones that include major highways linking Kampala to growing urban centres and border towns.

The new transport projects include the Kampala-Busunju Express Way, which will cover 55 kilometres, and the Very Very Important Persons Nakasero to Northern Bypass connection route, which sources say is designed to quicken movement for the president to Nakasero State House by linking to the Entebbe Express Highway.

However, details on the contract values and duration of the projects were not available by press time.

Total budget allocations for the education sector went up from Ush2.45 trillion ($681 million) in 2016/17, accounting for 12 per cent of the then budget, to Ush2.5 trillion ($696 million) for 2017/18, equivalent to 11.4 per cent of the current budget.

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READ: Uganda to boost spending by 10pc to support growth

Besides funding operational expenses incurred by government schools in the form of feeding, teachers’ salaries and stationery, about Ush8.56 billion ($2.4 million) has been provided for the construction of new secondary schools in 12 sub-counties in a drive to widen access to universal secondary education within disadvantaged communities.

Potential clients

Although commercial banks appear keen on opportunities offered by large infrastructure projects through provision of contract financing products, there is concern about project expenditure that seems to restrict local participation.

“The huge allocations made to the works and transport sector imply good opportunities for commercial banks interested in offering contract finance solutions, but the problem lies in the quality of available opportunities. We need to see the government changing its contracting habits by hiring one big contractor for a given project, taking on board many sub-contractors who in turn will spend more in their communities, employ more people and also increase their profits.

"This creates many potential clients for the banking sector and directly generates more growth for the economy. Right now, we do not see much value from merely hiring one big, individual contractor for a single project in this sector,” said Patrick Mweheire, managing director of Stanbic Bank Uganda.

Previous contracts awarded to Chinese contractors for the construction of the 400 Megawatt Karuma hydropower dam, and the 183 megawatt Isimba dam, collectively valued at about $2 billion, have led to nearly 90 per cent of procurement orders related to goods and services being awarded to foreign firms.

This has led to few commercial benefits for local businesses. So far, the Karuma and Isimba dams are 51 per cent and 50 per cent complete respectively. But there have been claims of substandard work in project performance evaluation reports done by the government.

Agriculture's potential

Modest budget allocations made to the agricultural sector, and flaws in the Operation Wealth Creation (OWC) programme, have raised questions about the sector’s ability to achieve its full potential.

Total allocations to the agricultural sector increased slightly from Ush823.4 billion ($229 million) in 2016/17, equivalent to four per cent of that budget, to Ush828.5 billion ($230.6 million) for 2017/18, accounting for 3.8 per cent of the budget.

About 36 per cent of coffee seedlings distributed to local farmers last year were reported to be of poor quality due to bad handling and selection, leading to a loss of Ush12 billion($3.3 million) incurred by OWC.

“The biggest challenge in raising budget allocations for the works and transport sector is the failure to realise the trickle-down effect of this spending in other sectors of the economy. It is hard to justify higher allocations to one sector that exerts pressure on interest rates while reaping few wider economic benefits. Funding agriculture also needs to change in relation to farmer engagement,” said Uthman Mayanja, a partner at Pricewaterhouse Coopers Uganda.

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