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.
