Wednesday, October 17, 2018
Analysis & OpinionsFeaturedNews

Uganda At 56 But Her Economy Is Far From ‘Taking Off’

Today October 9, 2018, Uganda marks her 56th independence anniversary from Britain on October9, 1962.

The small East African country has made steady economic progress.

For example, tax revenue collections have significantly increased over time; when Uganda Revenue Authority (URA) was formed in 1991, the tax body managed to collect Shs180.4bn only in 1991/92, but in 2017/18, the tax agency collected over Shs15 trillion in tax revenue, showing a remarkable progress.

The size of Uganda’s economy has also expanded so much that it is estimated at US$27 billion as of 2017.

However, notwithstanding the milestones made, Uganda’s economy remains far from reaching the ‘take off stage’. President Yoweri Museveni recently said Uganda was at ‘take off stage’.

Under this stage, the economy becomes self-reliant, implying that the economy can develop without external assistance.

Further, new industries are set up which start generating savings due to which investment level goes up, which in turn helps in raising national income.

According to Rostow, “Take-off is an industrial revolution, tied directly to radical changes in methods of production, having their decisive consequences over a relatively short period of time.”

He says it takes a period of 20-30 years to reach this stage. Uganda’s 56 years of independence have been punctuated by political and economic turmoil, a thing that has affected the country’s economic growth.

Figures don’t lie

None the less, even the 32 years of National Resistance Movement in power that have been touted as generally peaceful, the economy remains in shambles.

Uganda not only largely depends on foreign imported goods, but also much of the country’s tax revenue comes from foreign owned companies.

For example, according to Bank of Uganda (BoU) latest figures, Uganda spent US$6,110m (Shs23.1 trillion) on formal imports in 2017, up from US$5,352m (Shs20.2 trillion) in 2016. Going by the 2018/19 Shs32.7 trillion budget, Uganda literally spends three quarters of the budget on imports.

On the contrary, Uganda earned US$2,800m (Shs10.6 trillion) from formal exports in 2017, up from US$2,502m (Shs9.4 trillion) in 2016.

From the above figures you can clearly tell whether Uganda is self reliant (at take-off stage) or not.

Additionally, at 56 years old, Uganda hasn’t nurtured many strong indigenous companies to support the economy. Many large companies in Uganda are foreign owned.

It is worth noting that in early 2016, President Museveni released a list of Uganda’s top 100 tax payers and a close analysis indicates that over 90% were foreign owned.

Key sectors of the economy including banking, telecommunications and manufacturing are all dominated by foreign owned companies.

It’s not bad to have foreign companies. They employ many Ugandans and pay taxes. In fact, when they post profits, they pay 30% in Capital Gains Tax.

Thereafter, they are at liberty to do whatever they want with the money including repatriating profits.   All the top 10 tax payers are foreign owned and these are the most profitable companies in the country        .

The challenge with foreign owned companies is that they can easily relocate their business to better markets.

At 56 years , all major banks are foreign owned. Out of 24 banks operating in Uganda, only three including Centenary Bank, Housing Finance Bank and Finance Trust Bank are locally owned.

The three systemically important banks; Stanbic, Standard Chartered and dfcu Bank are foreign owned.

A systemically important bank is one whose failure might trigger a financial crisis. They are colloquially referred to as “too big to fail”.

The problem with this kind of structure is that these banks become like a cartel so much that they dictate the market.

Shockingly, Uganda hasn’t made efforts to support home- grown indigenous banks. Crane Bank, National Bank of Commerce, Co-operative Bank, Greenland Bank, Teefe Bank and Gold Trust Bank have all collapsed without much effort to save them. International Credit Bank was also closed. Uganda Commercial Bank was sold to Stanbic while Barclays Bank acquired Nile Bank Uganda Limited in 2007.

To add salt to injury, Uganda’s  ever ballooning public debt shows that the country is far from taking off. According to official government figures, as at end of June 2018, Uganda’s total Public debt stock (domestic and external) amounted to US$ 10.7 billion equivalent to Shs41.32 trillion.

Out of this,  external debt Disbursed and Outstanding (DOD) accounted for 67.2% (US$7.2 billion or Shs27.93 trillion) while domestic debt contributes 32.4% (US$3.5 billion or Shs13.38trillion).

The government has since been borrowing and the figure is expected to be nearing the Shs50 trillion- mark.  Is Uganda still at take-off stage?

According to World Bank, Uganda’s per capita income (annual earnings per person) stood at US$604.0 (Shs2.28m) in 2017.  In 1960s, it stood at US$62.3.

This means it is impossible for Uganda to achieve a lower Middle Income status by 2020.

World Bank ranks middle income countries as those whose per capita income averages between US$1,036 and US$12,615.

According to World Bank, Uganda has witnessed more economic volatility and a slowed Gross Domestic Product (GDP) growth averaging about 5% in the past decade, making it further harder to achieve a lower middle income status.

It is also worth noting that a country can’t take off when 68% of the total population is engaged in subsistence farming. That means that slightly over 30% of the population is in the money economy. Uganda’s population is estimated at 40 million people.

Questions remain: When will Uganda’s economy take-off?  How will it take-off off? Who will lead this transformation?

 

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