Uganda’s strategic dilemma Part3

Why Uganda’s economy is dominated by multinational capital and what cannot be done about it

So we come to our third and last instalment on how post-1986 Uganda cultivated groups and interests hostile to local firms. First to be discredited were local banks, followed by locally owned construction firms. They were accused of doing “shoddy work” at a high price. New procurement laws requiring international competitive bidding effectively locked them out of key contracts.

The same fate befell local manufacturing firms. The old arguments of infant industry protection were labelled “corruption and favouritism.” Museveni could be heard saying it does not matter who produces a product; what matters is its quality and cost. But how could a young and small local construction or manufacturing firm fairly compete against big multinational firms?

Yet an indigenous/national/local/domestic business class did grow during this period; especially in trade and real estate. This was not by design. Multinational capital, with its footloose approach, is least interested in real estate as it ties down working capital. With trade and foreign exchange liberalisation, traders could fly to Dubai or China and import goods at low prices. This undermined local manufacturing.

Capitalism is at its core an ideology of greed: that everyone should go to the market and pursue that which is to their best monetary advantage. Hence as the ideology of money and riches as the supreme value took root, corruption became an attractive and large economic sector. Multinational firms lack social ties with local officials to negotiate bribes. So they began hiring local intermediaries as the bridge. There emerged a large class of what Marxists call compradors but whom we call commission agents – wheeler-dealers who make money connecting foreign firms to local politicians and bureaucrats.

Hence, the business groups that consolidated under this reform process i.e. the traders and compradors were those that have no interest in, and are hostile to local/domestic/national/indigenous capital in manufacturing and construction.

Traders make money by importing high quality products at low prices for the domestic market. So they are enemies of national/local/domestic/indigenous manufacturing firms. Commission agents make money by acting as agents of multinational construction firms to local power-holders. So they have a vested interest in continued reliance on multinational construction firms. These became the local business magnets. They contribute to NRM’s electoral campaigns and hence have the most effective local voice in policy-making circles – alongside donors.

The results are obvious today. Uganda is investing large sums in energy and transport infrastructure – railways, roads, bridges, airports, dams, transmission and distribution lines, water treatment plants etc. However, there are hardly any local firms winning tenders in these multi-billion dollar contracts. Why? They were either killed and/or stifled by reforms emphasising international competitive bidding over local ownership. Today, local construction firms, if they exist at all, lack political clout to influence public policy.

Local manufacturing firms are in the same boat. They are finding it difficult to supply Chinese firms that are winning these contracts for the same reason. On the face of it, locals look like they lack better quality steel at competitive prices. The real reason, however, is they lack political clout to influence public policy. So when Museveni complains that Uganda is a supermarket for foreign manufactures, he is unaware of how he has spent 33 years promoting policies that undermined local manufacturing.

This is not a moral judgement on the President. Rather it is to explain how the policies of the last 33 years effectively weakened, displaced and stifled the growth of local manufacturing and construction firms. And this did not happen to them just as businesses. Rather the biggest problem is that they were killed as a political force within the decision making structure. Instead the reforms gave economic and, therefore, political power to traders (importers) and commission agents (the comprador capitalists).

But this ensemble of forces is beginning to choke the country. For example, the failure to grow manufacturing has made it difficult for Uganda to close her trade deficit in absolute terms. While since 1991 Uganda’s exports have grown faster (at an annual average of 70%) than growth in her imports (at an annual average of 31%), Uganda’s trade deficit has reduced in relative terms but grown in absolute terms. This is contrary to East Asian countries like Taiwan, South Korea and now China whose growth was characterised by huge trade surpluses.

Consequently, the contradictions of Uganda’s growth trajectory are becoming increasingly manifest. For instance, as the country invests tens of billions of dollars in infrastructure, it is also losing a lot of foreign exchange through paying international contractors. At the beginning of every year, the shilling comes close to collapse as foreign firms repatriate profits. These contradictions are forcing a discussion on local content within policy-making circles. However, this is largely as an intellectual exercise. Without a strong vested local interest with a politically weighted voice backed by the correct ideology in decision-making circles, it is difficult to design and sustain the right policy responses.

Textbook theories tell us little about Uganda’s current situation. Rather, it is in understanding the specificity of Uganda’s reform process and interplay between politics, institutions and the economic policy-making that we can explain why our country is in the situation it is in now.

The reconstruction process in post 1986 Uganda was driven by local and international interests with a very definite ideological orientation. The policies they pursued empowered (both economically and politically) particular business groups and individuals (traders and commission agents). It also empowered civil servants, civil society actors, journalists and academics with a particular ideological bias. The process also weakened, displaced and/or stifled particular groups and individuals; most especially local manufacturing and construction firms.

The resultant political settlement imposes constraints on the ability of Museveni or his successor to successfully pursue a project promoting local content policies. The dominant business and political groups are hostile to local content laws. Equally, the ideology of key players in politics, the civil service, mass media, academia and civil society is hostile. No amount of altruism can change this. Only a change in the dominant ideology, accompanied by a change in the social groups that dominate political power and influence public policy can bring about a real change in Uganda’s economic direction.

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