What does Mutebile’s reappointment mean?

Emmanuel Tumusiime-Mutebile, the Governor of the Central Bank, has been reappointed to a fourth term. The Constitution of Uganda provides that the Governor and his deputy are eligible for reappointment but does not specify the number of times this can happen.

As such, no succession plan is in place at the Central Bank. If one exists, none has been presented to the public or the markets.

In the short-term, the pros of Mr Mutebile’s reappointment are there. Uganda’s economy since 2011 has oscillated between sideways and decline.

The disruptions in Uganda’s economy in short order have been decline in remittances after the global recession (2008-2010), followed by donor exit in the aftermath of the 2011 elections.

After 2011, the domestic economy has also been hit by a number of major uncertainties; political uncertainty, specifically the unresolved question of political transition, unstable commodity prices and regional political unrest.

Between 2014 and 2015, these factors have been compounded by global economic trends, including a slowdown that marked a natural end of an economic cycle and prolonged anxiety in world markets of delayed tightening of the supply of cheap money since 2008.

The last two years have seen two developments; the fall in crude oil prices – a major contributor to Uganda’s prospective resource envelope. Low cost producers and the world majors have not reacted to falling prices but are producing more to maintain market share.

In 2016, two new players are going to hit the global market: Iran, which is shaking off a sanctions regime, and the United States where Congress recently voted to authorise oil exports to shore up rising domestic oil production.

Unlike conventional drilling operations, fracking in the United States is a much more fragmented low-cost production, allowing wells to be turned on and off at will.

It is Canada up north that has been hit more, shale oil wells are expensive to drill and the failure of Keystone, the pipeline dream to transport crude across continental America at the same time, have been hardly welcome.

Mr Mutebile, long associated with the IMF-World Bank regime, has been strong on the gas, raising interest rates.

A high cost of money and its effect on business can only do “wonders” to Uganda’s high unemployment rate. Under IMF protection, Uganda has been able to get away from publishing an unemployment rate or setting a minimum wage.

For a country with a rising youthful workforce, this can only be a disaster. The Governor, to his credit, has spoken out on government’s fiscal profligacy. His deputy Louis Kasekende has spoken of the failure by government to articulate and implement an industrial policy.

Policies such as free hoes and other embarrassments are a response to the collapse of collateral demand in many parts of Uganda. Fortunately, the El Nino cycle has kept the cost of food cheap even though families are obviously consuming less and the intensity of the rain cycles has not been good to people farming annual crops.

Lastly, the Governor will have to start doing something about the structural lopsidedness of the economy. Kampala’s contribution to economic output and tax revenues is now at 60 per cent and 70 per cent respectively.