Is the standoff between government and traders the tip of an irreparable breakdown of their relationship?
Last week, striking traders paralysed
business in Kampala. Negotiations between their association, KASITA, and
the government did not yield much. As with all previous strikes and
demonstrations in Uganda over the last one year, the traders’ strike was
a welcome development. It shows that political contests in Uganda are
increasingly about public policy as opposed to emotive issues of clan,
tribe and religion. We are beginning to see organised groups in the
public policy market (as teachers, medical workers, consumers, traders,
vendors, boda boda riders etc) eliciting concessions from the state
through healthy confrontations.
Although it is too early to tell, the
honeymoon between traders and the NRM may be moving towards rupture.
Indeed many of the alliances that made it possible for Museveni to
consolidate his position are coming under strain. For instance, in its
early years, the NRM needed foreign donors to finance its political
survival. In exchange for their financial support, the NRM allowed
international donors to significantly influence economy policies. The
resultant policies were favourable to traders. So the alliance between
traders and the NRM was by default.
However, as Museveni has sought to
remain in power indefinitely, he has been forced to expand official
patronage and unofficial opportunities for his clients to profit through
corruption. This has strained the relations between the NRM and
donors. It is now the open policy of government to reduce its dependence
of foreign aid. This has reduced the influence donors have over
government. Many donors are tempted to reduce their funding to the
government of Uganda although their internal divisions are making it
difficult to realise this goal.
However, government has to find
alternative sources of financing away from donors before oil begins to
flow. Consequently, there is pressure to improve tax administration.
This is likely to lead to a major clash with traders who for long have
profited from tax evasion. Therefore, although the current strike by
traders has been sparked by a tactical disagreement over bank interest
rates, the underlying structural tensions between the two are likely to
cause an even bigger rupture. When or if this happens, are we likely to
see traders join other social forces in Uganda, especially the political
opposition, in the struggle to remove Museveni from power?
It is difficult to tell. For now, the
opposition in Uganda is highly disorganised, incoherent and dominated by
fanatical factions that are only interested in listening to their own
echoes rather than to the concerns of other constituent groups that have
a vested interest in change. Therefore, holding many other factors
constant, the current opposition is least likely to take advantage of
the growing rift between the NRM and traders. Instead, traders will find
themselves hemmed between an increasingly hostile government and an
equally mindless opposition. Whether this will force them to support a
third force outside of the current opposition is also difficult to
foretell.
But as traders and NRM lock horns in the
battle for interest rates, both of them have a point. Government is
right strategically, the traders are right tactically. Traders are
asking government to intervene in financial markets to reduce interest
rates. Government is saying that its policy is to allow free markets to
work. Yet to control inflation, the central bank has increased the rate
at which commercial banks can borrow from it. Therefore, interest rates
are being set indirectly by the central bank. Of course the central bank
is right since this is the best way it can regain control over
inflation and stabilise the value of the shilling against major
currencies.
Yet this crisis was created by the
government, not the market. During the last election campaigns,
government spent tonnes of money to buy votes. For the first time in
Museveni’s campaign history, his cash bribes reached the lowest voter.
Whether this was due to increased efficiency of its delivery or there
was too much money that in spite of the theft that often takes place at
higher levels, a significant chunk tricked down to the masses is
irrelevant. What is important is that campaign funding led to massive
growth in money supply which in turn led to inflation.
To curb inflation, the central bank has
caused extremely high interest rates on loans that are now threatening
to send many traders out of business. I have met many businesspersons
who are on the verge of bankruptcy due to these interest rates. To be
fair to these traders, their failure has not been caused by poor
management of their businesses but by government’s disastrous and
reckless election spending. If you are a businessman, you ask yourself
why you should pay such a high price for the actions of politicians.
Therefore, traders are right to insist that government should reduce the
interest rates because it is the cause of the problem in the first
place.
However, the worst decision for the
government will be to follow one stupid mistake with yet another
disastrous one. It has already caused high inflation by reckless
campaign spending. Let it not sustain this inflation to appease traders
by adopting loose monetary policy. This may appease traders in the short
term – but at the price of sustaining inflation or causing the shilling
to depreciate further. The worst would be for government to subsidise
interest rates (like it has been doing with electricity) by paying the
difference between the rate at which they borrowed and the rate which
commercial banks are charging now. Let the traders suffer in the short
term in order to save the economy in the long term.
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