Advertisement

Museveni seeks to inspire confidence in potential investors

Saturday June 10 2017
roofings

Raw materials for the manufacturing sector at Roofings Ltd in Namanve, Uganda. The theme of the 2017/18 budget was industrialisation and job creation. PHOTO | FILE

Ugandan President Yoweri Museveni faces the uphill task of inspiring optimism in a struggling economy whose continuing deterioration is having a direct impact on his political fortunes.

The president has often flagged improved economic performance among his greatest achievements, but the reality on the ground is different.

As he presented this year’s State of the Nation address to parliament on June 6, and the national budget on June 8, President Museveni said that the economy is on the right track.

Inspiring confidence is critical as the country pushes to a 2020 target of becoming a lower middle-income economy.

During his budget speech on Thursday, Finance Minister Matia Kasaija said the economy is “not in recession but growing moderately.”

Mr Kasaija is optimistic that economic growth will rebound from the current 3.9 per cent to 7 per cent, although experts project further regression to about 3.5 per cent.

Advertisement

“I am optimistic about this economy. It is true we had problems. Our businessmen who were exporting to South Sudan and DRC had problems, and the drought caused problems,” President Museveni said in his address.

The president added that his focus would remain on manufacturing and agriculture. He said the traders can “continue to suffer” with the high interest rates, but something would be done for the other two categories.   

President Museveni’s optimism is not entirely misplaced, given the expected investments in extraction of petroleum.

However, with issues like the increased joblessness among youth, government wastage, corruption and growing national debt, with half of the national budget coming from borrowing, it remains to be seen whether the government will deliver on its promises.

Tax collection

On Thursday, Mr Kasaija read the 2017/2018 budget of Ush29 trillion ($8 billion), of which Ush14 trillion ($3.9 billion) is expected to come from external sources. Uganda Revenue Authority is expected to come up with the balance.

While URA collections have been rising steadily, experts are sceptical that 2016/2017 will bring in enough revenue.

“Next year will be particularly challenging because a number of local businesses have collapsed and the environment is not promising to support URA ambitions,” said Moses Asasira, a project co-ordinator at Adroid Consult.  

Under the budget theme of “Industrialisation for Job Creation and Shared Prosperity,” the government hopes to achieve industrialisation, value addition to agricultural and mineral products, improved infrastructure in roads, railways, air transport and electricity.

An oil airport is to be constructed at Kabaale in Hoima district, to facilitate movement of construction equipment, at a cost of Ush2.5 trillion ($708 million). The money will be provided by a lender from the UK.

While the debt remains at sustainable levels, poor absorption of borrowed funds remains critical. Uganda has had a track record of poor absorption of loans in spite of growing interest rates that must be repaid with the principal amount.

Withheld funding

In September 2016, the World Bank withheld $1.5 billion in new lending to Kampala, owing to lack of safeguards and monitoring of projects.  

The Bank’s performance assessment of projects between 2007 and 2016 found that only 15 per cent of the projects it had funded were satisfactory. After protracted discussions with the bank, last week Mr Kasaija said that it has resumed lending to the country.

“We need to stop wasting money and become serious in putting our limited resources to proper use. We are borrowing and wasting. Time will come when it will not be possible to borrow easily,” said Mr Asasira.

The allocation of Ush300 billion ($83 million) to pay domestic debt arrears offers little relief to the private sector given that government is indebted to the tune of Ush2.7 trillion ($750 billion). The government is not about to stop borrowing from the domestic money market, even though this keeps interest rates high. Overall public debt, both domestic and external, stands at $8.7 billion, which is 33.8 per cent of GDP.

“Uganda’s public debt is sustainable over the medium to long term,” said Mr Kasaija.

Of the total budget approved, Ush3.6 trillion ($1 billion) has been allocated for salaries and wages, Ush8 trillion ($2.2 billion) to non-wage expenditure, and Ush11.35 trillion ($3.1 billion) for development expenditure — of which Ush7.74 trillion ($2.1 billion) is from external financing.

Anti-graft measures?

Also critical to public confidence is the level of corruption within government ranks. During his swearing in ceremony last year, President Museveni promised to handle corruption within the ruling party.

Corruption is largely responsible for poor service delivery and is common during awarding of contracts.

The government’s dream of making Uganda achieving middle income status by 2020 is a daunting task as corruption steals from the poorest, yet the economy is underperforming.

READ: Uganda inflation rises to 7pc high

According to Mr Kasaija, average incomes will need to rise to at least $1,039 per year. Given a population estimate of about 41 million people by 2020, the size of the economy will need to grow by an additional $17 billion in order to attain that target.

“We need to speed up execution of government projects and programmes, and ruthlessly deal with corruption in the public service that frustrates investors,” said Mr Kasaija.

Notable corruption has been unearthed in the works and transport sector, which for the eighth year is taking the lion’s share of the national budget. 

Advertisement