How Museveni's ‘new’ Uganda is eating once-forbidden fruit of liberalisation
Saturday January 28 2023
Uganda is in the midst of what seems to be a new wave of re-nationalisation, which could see companies that are cross-listed across East African exchanges, swallowed back by the state.
Read: Umeme, grain and coffee: Why Kenya should fear Uganda’s economic gamble
One key renationalisation is centralised backdoor control over coffee through a monopoly being granted to Vinci Coffee Company (a newly formed firm with no previous experience in the industry) to process and export Uganda's coffee. The figure behind the company, controversial Italian businesswoman Enrica Pinetti, is linked to powerful figures in the Uganda government and has her finger in many pies that have gone sour.
The government has also revoked the concession of electricity distributor Umeme and will, in 2025, create a new state entity to sell power. In other actions, it has swallowed back executive agencies like infrastructure builder Uganda National Road Authority into the Works ministry. However, in perhaps its most audacious move, it has swooped on the embarrassingly cash-rich National Social Security Fund and is set to suck out trillions of shillings from it and splash some on the Ministry of Labour to spend on a series of dubious activities and some as social bribes to the trade unions. That has necessitated not just extinguishing the quasi-autonomy of NSSF, East Africa's most successful and richest social security fund, but also appointing its hatchet men to its leadership.
On the back of that, Uganda, which was the first country in East Africa to grant the central bank considerable independence, is clawing that back. It is a year since Bank of Uganda's forceful long-serving governor Emmanuel Tumusiime-Mutebile died on January 23, 2022, and there has not been a replacement. There are reportedly factional fights within the ruling NRM, and in the State House, over the position. But mostly, the deadlock is ideological, split between those who want the bank to end its tight monetary policies and to support national capitalists and those who want to hold the line and are against an inflationary spending binge.
Even just 10 years ago, when Uganda was touted as one of the freest economies in the world, the current direction would have been considered forbidden fruit not to be eaten at any cost. Times have changed.
Most open economy
Uganda's economy will likely remain the most open in the East African Community for a few more years because its liberalisation has gone too far to be rolled back into the grubby hands of politicians, bureaucrats, and their business fronts, with a few strokes of the pen. The peculiar thing is that the present reversals are coming from the same sources that produced the initial free market dynamics that created them.
From shortly after President Yoweri Museveni's National Resistance Movement fought its way to power in January 1986, after a five-year bush war, until about 2006, there was a war by at least two rebels in various parts of the country. There was the Islamist Allied Democratic Front in the Rwenzori mountain ranges in the west. The longest was by the unusually brutal Joseph Kony's Lord's Resistance Army in the north that lasted nearly 20 years, and there were a couple of short-lived ones in northeastern Uganda.
By 2006, all these rebellions had been definitively squelched inside Uganda, the remnants of the groups driven into South Sudan and the eastern Democratic of Congo. Northern Uganda is undergoing one of the most dramatic economic recoveries outside a capital city region ever witnessed in a post-conflict African country.
When Museveni and the NRM came to power in 1986, they were committed to a neo-socialist economy and sought to trade internationally through barter. It was a spectacular failure. In 1988, it swore off socialism and became one of the continent's most gung-ho free market regimes, liberalising everything in sight. It was rewarded by heady economic growth and was the toast of the global free market elite and donors.
In reality, the government had quickly discovered that it could only fight wars on a few fronts while running a command economy and expect to succeed. The wars were part of the impetus for liberalisation.
The northern wars also helped the NRM in its political consolidation, as the southern, eastern, and lower eastern parts of the country rallied tightly around Museveni and the government, galvanised by the fear of the hell that would befall if a limb-chopping and cannibal LRA were to win and take power. War brought a dose of discipline to the government, especially its critical security and economy department, that otherwise would not have been possible in the corrupt and inept tradition the country reverted to in peacetime.
Free market forces
To raise a moneyed elite with a vested interest in the government's stay in power, it unleashed free market forces on the fertile lands of the south, the hilly gardens of western Uganda with its dogged farmers, and the withered ranches in the southwest. It had to give them autonomy over their products, and improve the sense of security for the banking industry with financial reforms, to create the package of incentives necessary for it all to work.
The economic boom, and the new businesses born, provided a big supply of worker fodder that poured their savings into the NSSF. In the pre-NRM liberalised era, the NSSF would have been a cropper.
Many Ugandans go about their business without realising it, but for the first time in history, the country has gone for 16 years without a major conflict, its longest spell. The peace dividend, though, came with its problems.
Without the war in the north and with the government having been forced to allow multiparty politics in 2005, fear wasn't enough to keep most of the country in line behind Museveni and his government. Soon there were millions of young people who didn't know or care about the bad old days before Museveni. Fractures in the ruling NRM created more challengers, and people like Dr Kizza Besigye, who has been a thorn in Museveni's side, emerged from that ferment.
More political repression
Unusually, peace brought more political repression, not political enlightenment. Not having to fear that repression would drive people to join rebels, the government could afford to bring the hammer down harder. To bribe pro-regime political elites around the country, it started creating new districts so they could have positions and points to collect patronage and opened a vast slew of legislative seats. Uganda has 134 districts, and Tanzania 84, although Tanzania's population is 50 per cent bigger than Uganda's, and its territory is nearly four times larger. Uganda has 529 elected MPs and 27 ex-officio members, the largest in East Africa by a country mile.
A massive NRM apparatus of nearly one million people, leeching off the taxpayer, was built up. It started to take its toll on the Treasury.
The Covid-19 economic hit, the food and energy inflation that made it more acute, and a piling debt, left the government grasping for money. The easiest pot it could find was the trillions in the NSSF. The bloodsuckers and vultures are now circling.
These developments are only the last stage that nearly bankrupted Uganda. The events that led to this cash-strapped moment happened on July 7, 2000, April 22, 2000, and December 30, 2002.
Revival of EAC
No leader worked for the revival of the East African Community like President Museveni. On July 7, 2000, the treaty re-establishing the EAC that he, former Tanzanian president Ben Mkapa, and former Kenya president Daniel arap Moi signed in Arusha came into effect. The opening up of the regional market was a boon for Uganda's agricultural sector but a disaster for its largely sheltered industrial sector. Wealth was created in agriculture, but because, for cultural and political reasons, it is hardly taxed, the taxman can't lay his hands on their fortunes. The industry's apex body, the Uganda Manufacturers Association, on the other hand, quickly opened a spirited campaign against unfettered regional trade. Museveni told them to go jump in the river.
On April 22, 2000, with the transitional period following the Genocide against the Tutsi in 1994 ending, Paul Kagame, who had been sitting as vice president and minister of Defence, was sworn in as Rwanda's president.
He immediately launched the second-generation reforms and state-building that was to transform Rwanda into the economy it is today, with the greatest ease of doing business in the EAC, its least corrupt country, and judged to be one of the world's most effective states. Rwanda became the darling of the donor community, and a chunk of their money that was sloshing around in Uganda started to find its way to Kigali.
The rise of the Kenyan economy
Just over eight months later, on December 30, Mwai Kibaki, who had won the first opposition victory in the EAC of the time at the head of one of the second-largest democratic coalitions to ever take power at the polls on the continent, was sworn in as president.
He took over a once sizzling economy that had been eaten to the bone and was moribund. The country was stagnant, and its spirit broken.
Kibaki reawakened Kenya's mojo, and the economy was soon running hot on the rails. By 2010 it was churning out head-turning innovations and was dubbed the Silicon Savannah. Foreign capital, which could only previously find a home in Uganda when Moi's Kenya was a near-pariah, made a beeline for Kenya.
By Christmas of 1999, Uganda was the most beautiful girl in the ball, and all the boys wanted to dance with her. By Christmas of 2003, other beauties had entered the competition, and Uganda was no longer getting all the flowers.
If it hadn't been for Kibaki's Kenya and Kagame's Rwanda, the end of the war in Uganda, and the resurrection of the EAC, the Ugandan economy would have grown larger and richer than it is today by being the only game in the region. It still grew, but more slowly, and with the population galloping at breakneck speed, it was left with many more mouths, including the government's, that it couldn't feed to the full.
It chose the worst option to get by. It has turned on the fortunes that were made in the golden age of economic liberation and reform, and the platform to achieve that is renationalisation.
This play still has more acts before the curtains come down in 2031, when Museveni who will have been in power for 45 years (he seems determined to stand in 2026) might step aside or be edged out because at the official age of 87 then, he would be too frail for the rough and tumble of the presidential office.
New industrial flourish
As one drives on the Kampala to Jinja Road and on the outskirts of the northern Uganda city of Lira, it is clear that a new industrial flourish is under way. In the northern region of Acholi, especially the Nwoya and Amuru districts, and large sections of western Uganda, the makings of a medium-scale agricultural revolution are unmistakable. When those two come together in the next three to five years, the EAC will not know what hit it.
The seat of power in Kampala looks at these developments with both glee and apprehension, fearing the threat to its hold on power. It will run a rear-guard action, including seizing control of things like the coffee sector and capturing the grain market that is a crucial exporter to the EAC. It is unlikely to succeed in the end, but many people will get burnt in the process.
And so, the greatest irony: all this upheaval is because the gods heard and answered Museveni's and the NRM's prayers.