If Uganda was a corporate entity, the CEO would have been sacked soon after the Budget presentation because the strategy and funds allocation ignored the underlying drivers of under performance in the preceding period (2015/2016) – a case of budget misalignment!
Statistics indicates that the performance of Uganda’s economy using GDP as an indicator grew at 4.6 per cent in the FY 2015/2016, lower than 5.3 per cent in 2014/2015. So what were the drivers of this under performance? These have been well articulated as: The sharp fall in international prices of key commodity items such as coffee, tea, minerals; the significant decline in private sector credit on account of high lending rates, thereby stifling domestic activity; the strengthening of major currencies against the Shilling.
Before we look at the strategic areas and how they align to addressing the challenges to GDP growth, let’s answer these questions. Of the three key drivers of our GDP under performance, only one is internal or within the control of government while the other two are largely external and outside the control of government; so what should be our strategy? Our export earnings are just a fraction of total earnings and if it has impacted GDP, what would be the scenario if we were a major export earner? Shall we not increase our vulnerability by enhancing productivity in the export items? What should the strategy be since we are not in control or have no capacity to influence foreign market prices? The strengthening of the major currencies did not end in 2015/16 so how are we prepared to absorb the shocks of recurrence in 2016/17?
These should inform the budget focus areas and strategy! What is the focus of the current budget towards dealing with the decline in private sector credit uptake, which stimulates domestic activity?
To answer these pertinent questions, there is need to delve into the causes that manifested in these challenges. For instance, what caused high interest rates and how are we prepared to address the causes in the new financial year so as to drive growth?
Now let’s look at the current budget (2016/17) with the theme “Enhancing productivity for job creation” with the following strategic areas: Enhanced production and productivity; development and maintenance of strategic infrastructure; human capital and skills development; improving good governance. So how are we dealing with the challenges of the previous year with this kind of strategic focus areas which are totally disconnected?
Other than misaligned strategic focus areas, the funding priorities are already misdirected to administrative overheads (expansion of Cabinet, among others) hence redundant focus areas and failure from the start. This is like a CEO citing under-performance of the export sector which formed a major client base leading to low growth as major blows to the decline in the bottom line to the board. When it comes to the strategy, there is nothing about diversifying the client base to other sectors to build resilience to such shocks and instead, he focuses on staff productivity, flamboyant head office space; staff training with new skills that are not addressing the institutional performance challenges, which are external in nature. In terms of budget allocation, he starts by asking for funding to increase head count of management team.
With a budget that clearly brings out reasons for failure and sweeps them under the carpet while deliberately focusing on political tokenism with a sugar-coated theme and strategic areas crafted by the best brains in economics, it’s a sure failure of the economy and hardship ahead for the citizens. This is the reason poor quality universal education introduced – to create citizens with short memory and less critical thinking for ease of manipulation for political capital.
Whereas it’s good to enhance productivity and production by developing infrastructure while human capital and skills development helps to create value addition to production at the same time observing the rule of law, security and human rights; where is the production going to be sold? In the same foreign market where prices are not within your control? Where trade is done using major currencies whose value is not in your control?
You need local consumption capacity (demand) to automatically drive productivity and production – enhance household incomes, address poverty which is real not the political poverty statistics being talked about in Uganda. Enhanced household income means available public savings in banks for lending rather than fixed deposits at high rates from the few rich, which also drives lending rates. There will definitely be demand for private sector credit as well as local consumption at prices we can regulate such that when foreign prices fall below certain thresholds, we regulate production/export to domestic consumption ratio to minimise impact on our GDP growth!
In my opinion, we cannot continue playing semantics and doing the same things expecting different outcomes. The government and leaders should take Ugandans more seriously.
Mr Adiga is an economist and banker. jadiga73@gmail.com
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