How Uganda performs well in spite of corruption and incompetence and what it teaches us
In 2013 I wrote an article with exactly this headline, the reason this is named “Part 2”. It was about how the state in Uganda exhibits gross corruption and incompetence and yet in many aspects the country performs well. What explains this? I want to suggest that the state in Uganda has been successful in large part because it divested itself of the responsibility to do many things leaving individuals in our society the freedom to pursue their talents in the market.
I argued in this column last week that the main factor behind economically successful countries is the rate of growth in the value of their exports relative to the rate of growth in the cost of her imports – or what economists call “terms of trade”. Uganda still has a huge trade deficit. However, the deficit has been declining in relative terms even though the absolute figure has grown over the years.
In 1991, Uganda exported goods worth $184m. In 2017, it was $3.35 billion i.e. it had grown 18fold at an annual average rate of 65%, an impressive performance by historic standards. Meanwhile, in 1991 Uganda’s import bill was $522m. In 2017 it was $5 billion. So our imports have grown 10 fold at an annual average rate 33%. Uganda’s export earnings have grown twice as fast as her import bill. Until I researched this, I thought the reverse was the case.
To appreciate Uganda’s success we need to remember that the biggest challenge poor countries have historically faced is reliance on a few products for a huge share of their export earnings. Thus, whenever there was a sudden fall in the price of this single commodity, the country’s economy would buckle. In 2015, this is exactly what happened to Nigeria, Angola, Equatorial Guinea and Chad, which depend on oil for a huge share of their export earnings (as Zambia does on copper): international prices of oil and copper fell causing huge revenue losses.
I used to think, on the basis of a large body ofdevelopment economics literature, that the only effective way a country can successfully diversity her exports, is through manufacturing.Over the last 25 years, Uganda has remained a producer and exporter of unprocessed products. However, in spite of this, it has successfully diversified her exports across a large basket of goods.
For example, in 1990 coffee was the leading foreign exchange earner and contributed 80.3% of total export receipts. Today coffee is still the leading foreign exchange earner but in 2017 it contributed only 15% of total export receipts, followed by gold at 13%. None of the other export commodities contributes more than 4% of our export revenue. This means that the prices of individual commodities in the basket of our exports can fall without inflicting any significant harm on our overall export earnings.
This export performance is most manifest in Uganda’s trade with her neighbors. In 1995, Uganda exported goods worth $16m to Kenya and imported goods worth $280m from there. In 2016, this figure was $483m to $485m. In twenty years, Uganda has closed her trade deficit with Kenya that was 18 times larger. In 1996, Uganda exported $38m to DRC, $24m to Rwanda, $4.5m to Tanzania and $23.3m to Sudan. Then things went bad. By 2003, Uganda’s exports to Kenya had grown to $78m, for Tanzania stagnated at $5m, while they declined for Rwanda to $20m, DRC to $12m and Sudan to $13m.
I do not recall government of Uganda doing anything to reverse this trend. However, in 2016, Uganda exported goods worth $400m to DRC, $226m to Rwanda (down from $270m in 2014), $112m to Tanzania, $281m to South Sudan (down from $400m in 2014). In 2016, Uganda imported goods worth $72m from Tanzania, $22m from DRC, $12.6m from Rwanda and $157,000 from South Sudan.
Thus, Uganda has cut her trade deficit with Kenya to a miniscule $2m and enjoys a trade surplus with the rest of her neighbors. Actually in real terms (after adjusting to inflation), Kenya has grown her exports to Uganda by only 4% in 23 years, while Uganda has grown hers to Kenya by 1,800% over the same period.
Many Ugandan elites believe Uganda is grossly mismanaged! I share this sentiment. But facts likethese only show that oursentiments are wrong. So why are Ugandans angry with a government that outperforms her peers? Some of my friends argue that Ugandans are frustrated because they are not informed. They claim that this is because government and President YoweriMusevenimake no effort to publicize their achievements. I am inclined to believe that this is a small part of a bigger story.
I meet many Uganda government officials and share these success stories with them. However, hardly anyone feels proud of them including officials of the ministry of trade who should claim the credit. Often they express disbelief and move on. Why is this the case?
I think the answer lies in how Uganda has achieved its export performance. Government liberalized trade and for the most part did very little else. And this may be a good thing – to do nothing. Where a particular government regulation obstructs them, businesspeoplejust bribe their way out of it. So officials in government are right not to be elated by Uganda’s export performance because they have done nothing to facilitate it.Ugandans are frustrated perhaps because they do not see their government doing much to promote trade. However, they are wrong to think such handoff approach is a wrong policy. It is a winner.
There is an even bigger argument to make regarding Uganda’s attitude towards her international trade. For example, Kampala has recently developed a frosty relationship with Kigali over issues we should devote our best diplomatic efforts to solve. Why? Rwanda is the 4th largest destination for our exports and weenjoy a trade surplus with her worth $212m. It is, therefore, in our interests to consistently court Kigali as any businessman would his good customer.
Yet I often meet Ugandan officialswho argue that Rwanda should be fought or ignored, an attitude that is destructive to our national interest. It should be the policy of Kampala to ensure Kigali never turns her gaze towards Tanzania and/or elsewhere for her imports because that would hurt our country. I suspect we do not value trade with Rwanda because our exports to it have not grown out of our hard work whose benefits we would be careful not to undermine.
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