On the 18th February 2016, Ugandans cast their vote re-electing President Museveni for his fifth term, following his 30 year rule. The election wasn’t immune to controversy with a realm of issues highlighted by different commentators and election observers. Of particular interest to the economics of this country is monetization of the elections as well as substantial machinery purchase by police. A trend of increased budget allocations has always been a norm during election and pre-election years; the budget for 2006 election year encountered a supplementary budget to tune of 10% of the approved budget, while the 2011 saw a record supplementary budget to a tune of 33 percent of the budget. The same year also encountered a heightened expansion in money supply (inform of deposits and current in circulation). While 2016 elections have seen the smallest share of the supplements as a percentage of the approved budget, the Financial Year (FY) 2015/16 approved budget was a sizeable nominal increment (30%) from the FY 2014/15. Notably also the annual budget allocations nearly remain split evenly between development and recurrent expenditures despite the increased focus on infrastructural investments. These trends in part exhibit the large administrative structure anchored around the president; also arguably reflective of the politics of lifetime presidency. As such, there usually pass-through effects on the economy in terms of heightened inflation, shilling depreciation, subdued private sector credit and resultantly a restrictive policy environment as remedy. In the next five years, we need to revisit the basic economic fundamentals that attach sizeable weight to the factors of production mainly land and labour as well entrepreneurship and capital.
Land as a primary factor of production should come high on the scale of preference of reforms but seemingly this has not been the case over the many years. According to the Sixth World bank Uganda Economic Update: “Searching for the GRAIL- Can land support the prosperity drive?”, Uganda's land is largely customary owned with only less than 20% of land registered (compared to 64% in Rwanda, 60% in Kenya and 50% in Ethiopia). The limited registration of land in Uganda coupled with weak institutional capacity for land administration has resulted into illiquid markets (characterized by limited land supply to match the overwhelming demand), consequently affecting development of the financial system and agricultural sector. Land disputes are estimated to reduce agriculture sector output by 5-11%. Uganda also has a high population density of 194 persons per square kilometer compared to 80 persons in Kenya, and 116 persons in Ghana. This implies land is absorbing the majority of the labor force, without corresponding increases in the level of productivity.
When it comes to labour structure, it has a lot to do with the population growth trend of this economy. The latter has been growing at over 3% over the last decades, as such, going by the classical Malthusian theory of population, Uganda risks a population curse. At macro level, discounting economic growth by population growth implies an annual average GDP per capita growth rate of 3.5% over the medium term. Compounding the current annual per capita of USD 700 by 3.5% implies attaining a lower middle income GDP per capita of USD 1000 in 2027. While growth rates look rosy, the discount factor is also large.
In addition, population has consequences for the labour market developments, including but not limited to the rising level of unemployment and falling labour participation rate. This trend is irrespective of the fact Uganda has less than 900,000 degree graduates (just only 2.5% of its population). Over the last five or so years, average income or even wages have fallen in real terms, owing to the precarious economic environment of high inflation and high interest rates. An eclectic view at labour structure shows that the majority of labour force is in self-employment to a tune of 73%, most of whom, are in the informal sector and the agricultural sector. Informality is a reflection of market failures and calls for proactive government intervention.
By and large, the business as usual approach needs a tweak. Reforms are urgent, but difficult. There is need for an effective public service and this will require a couple of hard choices ranging from restructuring to reinforcing accountability. Holistic restructuring is necessary, as opposed to the isolated Kampala Capital City Authority (KCCA) and the Uganda National Roads Authority (UNRA). As a matter of fact, few public institutions would garner high private sector interest if they listed on the stock exchange markets, a reflection of inefficiencies in these entities. The KCCA and UNRA examples show that hard decisions have to be encountered, jobs may be lost, but these short term costs will be compensated by long term benefits. For example in the 1990s, the Swedish Social Democrats government made large cuts in the civil service. Around the same time, Canada cut government expenditure by 18.9% without social turmoil – and without greatly reducing health, justice, or housing programmes. They did this while maintaining tax levies, so the result was a reduced public deficit and falling public debt. These reforms in KCCA and UNRA should be subject to review periodically, to ensure there is value for money. Even in the current system, it would be necessary to require that the audit recommendations be either followed according to a strict schedule, or rejected with a convincing justification. The laxity on the latter has arguably had its fair share on the economy. Notably, the audit of the Auditor General's office has been pending for 10 years now.
These reforms can only go as far as the political environment allows. My appeal to the President over the next 5 years is to walk his talk "the next five years – there will be no playing games; no corruption and a more focused budgeting". There are no simple solutions and lasting reforms can only be achieved on the basis of a political and social consensus.