Uganda’s stalled transformation

 Why Museveni has not transformed agricultural Uganda into an industrial economy and what can be done

President Yoweri Museveni’s stated objective is to transform Uganda from an agrarian to an industrial nation. He has been in power for 30 years, the period South Korea took to achieve that goal. Yet 80% of Ugandans still depend on agriculture for a livelihood; 68% as subsistence farmers. It seems realistic to blame Museveni for this as I used to do when I was still young and intelligent.

Now I have grown old and stupid. So I wonder: If Museveni is the reason manufacturing in Uganda has grown at a snail’s pace, what explains its failure across the rest of Sub-SaharanAfrica’s 47 countries? With the exception of Ethiopia, Africa is de-industrialising. Recent growth has been sustained by high commodity prices and services. There are more manufacturing jobs in Vietnam alone than the whole of Sub-Saharan Africa combined.

Museveni took power when our country was at three critical junctures – one domestic, the other regional and the third international. Locally, after a series of military coups and civil wars, the state and economy had nearly collapsed. Consequently, the state could not perform even its most basic function of ensuring basic law and order; leave alone finance public goods and services like electricity, clean water, health and education.

Regionally, Sub-Saharan Africa, with the exception of Gabon, Zimbabwe, Botswana andMauritius, was suffering negative growth. Poverty was on the rise. Globally, the world was shifting from state-centered economic growth models. The IMF and World Bank had gained ascendance over policy in Africa and were ramming Structural Adjustment Programs down the throat of every poor country. Their policies sought to roll back the state and “unleash” (the word is not mine but World Bank’s) markets.

Museveni needed money to reconstruct Uganda. The Soviet Union and her satellites were no longer able to help. Western donors said they could only give Uganda money if it reached an agreement with IMF. The IMF and World Bank could only give aid on condition that Uganda accepts their free market policy prescriptions. They were supported by bureaucrats in the ministries of Finance and Planning led by current Central Bank Governor Emmanuel Tumusiime-Mutebile. Museveni yielded to these demands out of desperation rather than out of conviction.

Beginning in 1987, Uganda began a long process of economic reform, rolling back the state. Uganda agreed to control inflation, eliminate licensing requirements, remove price and foreign exchange controls, privatise and liberalise the economy, reduce the size of the civil service, and withdraw subsidies from areas like health and education.

Over the years, these policies proved very successful as they put Uganda on a long term trajectory of growth. Over the last 30 years, Uganda’s GDP has grown at an average rate of 6.74% (the 17th fastest in the world), with per capita income growing at an average rate of 3.5%. Outside of East Asia, few nations have achieved this feat historically, certainly no country in Western Europe and North America over 30 years. Therefore, Museveni has been exceptionally successful.

Yet, in spite of this stellar performance, Uganda has remained a peasant society. The economic policies which have ironically sustained GDP growth at an impressive rate have not stimulated transformation. I will criticise the president and his economic bureaucrats with humility because for many years I was an inconsistent supporter of these policies. Although Museveni accepted free market reforms out of desperation, he was eventually converted and became their most fervent believer.

Today, the President is reluctant to use the state aggressively to promote industrial growth. However, it is not Museveni alone. Across Africa, the free market ideology captured the soul of economic bureaucrats and political pundits. Yet aggressive state-driven industrial policies have been the basis of transformation in every single country that has transitioned from agriculture to industry. Without growing a strong and dynamic manufacturing sector, Uganda can say kwaheri to transformation.

Free market reforms were what Uganda needed in 1986 because the country had suffered deep institutional and economic atrophy. It was not possible for the state anymore to run many public enterprises, to try finance a large basket of public goods and services for everyone. Rolling it back from its ambitious post-independence posture was the best option. And it worked wonders.

However, today Uganda stands at a new critical juncture. We now know that no amount of growth based on exporting primary agricultural commodities and services can transform us into an industrial nation. We need to bring the state back in – not just as an adjunct to private enterprise but even as a transformative agent in its own right. The good news is that contrary to opposition slogans, state institutions under Museveni have recovered their institutional integrity and competence (even with all their weaknesses) to work successfully.

In 1990 when Uganda began privatising, state owned companies were in disastrous shape. Public sector losses were $200 million on a budget of $600 million.

Today, nearly all of them are performing well. Housing Finance Bank, National Water and Sewerage Corporation, Pride Micro Finance, National Social Security Fund, New Vision Group, Post Bank, etc. are some of most profitable enterprises in Uganda and out-competing their private sector rivals. Free market policies have given us short term allocative efficiencies. But they do not tackle the challenge of structural transformation that lies at the heart of development. It is impossible to transform a poor country without industry.

The lesson from Uganda’s stellar growth is that a poor country cannot transform by relying on primary commodities and services unless it has a rich mineral that it manages well. East Asia transformed by exporting manufactured goods. A market driven economy tends to replicate rather than transform our structural weaknesses – a small enclave of a modern economy with high incomes surrounded by a sea of peasant agriculture and poverty.

I think the time has come, indeed is long overdue, for the state in Uganda (and Africa) to consider an active and aggressive industrial policy. Uganda needs to mobilise funds to act as long term cheap credit to stimulate manufacturing growth. The state also needs to organise subsidies, tax waivers, trade protection, and other incentives to manufactures such as cheap electricity and other transport infrastructure like roads, railways and airports.

Given Museveni’s personal reluctance to have the state perform this role, and the ideological bias of his economic bureaucrats at Finance and Bank of Uganda, I do not think this is possible. Sadly his opponents also have no clue of what Uganda needs.

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amwenda@independent.co.ug

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