About me.

Andrew M. Mwenda is the founding Managing Editor of The Independent, Uganda’s premier current affairs newsmagazine. One of Foreign Policy magazine 's top 100 Global Thinkers, TED Speaker and Foreign aid Critic

Tuesday, June 30, 2009

How to remove hyenas from the meat market

Writing about the 2009/10 budget in this column last week, I argued that Uganda has achieved allocative efficiency without realising technical efficiency. The result: Although large sums of the budget are allocated to priority sectors like health, education, infrastructure and energy, these funds are diverted by civil servants to private pockets.

It would be extremely difficult to improve technical efficiency in Uganda. First, Uganda’s political organisations (NRM, FDC, UPC, DP, etc.) lack effective internal organisation and discipline to bring such advantage to the state. Secondly, our politics make it less politically attractive to invest in technical efficiency. How then can Uganda utilise its increasing tax revenues and foreign aid to deliver public services?

The history of the NRM has shown that Uganda has achieved the most when the state has restrained itself from doing things. For example, the state made a decision not to do business ‘ so it sold off public enterprises (privatisation); it also decided not to control economic activity ‘ so it deregulated; it decided not to restrict entry into business ‘ so it liberalised.

The result: Instead of Uganda Commercial Bank, now we have a more efficient Stanbic Bank. Instead of government issuing import licenses and rationing foreign exchange, now everyone with money can enter a forex bureau, buy dollars, hop onto a plane to Dubai and return with any type and amount of goods they want to trade. And instead of a monopoly by an incompetent and corrupt Uganda Posts and Telecommunications Corporation, now we have MTN, Warid, Zain, UTL and Orange all competing for our attention.

Privatisation, liberalisation and deregulation have made it possible for Uganda to achieve rapid economic growth in spite of institutionalised incompetence and corruption. The greatest achievement of the NRM government from which other governments in Africa should learn is the ability to exercise restraint by avoiding doing things.

Let us not forget that state control of the economy was always politically profitable for Africa’s rulers. By rationing foreign exchange and controlling import licences, incumbents in the state were in position to decide who would get a business opportunity and therefore prosper. By creating monopolies in major economic sectors, incumbents could reward their supporters with state patronage and penalise their opponents by denying them access to business contracts and jobs.

Yet although such practices were politically profitable, they were economically damaging. They undermined economic growth and therefore the growth in tax revenues. A state in fiscal crisis is also a state in political decay: unpaid police tend to join demonstrators while unpaid soldiers tend to mutiny. That is what happened in most of Africa in the 1970s and 80s. President Yoweri Museveni had the early wisdom to learn that it is better to hold a small slice of a growing pie than a large slice of a shrinking one.

The biggest failures for Uganda under the NRM have come whenever the state has sought to do things. That was the fate of ‘entandikwa’, Tri Star Apparels, all the schemes to develop Luwero, Northern Uganda Reconstruction, etc and will be the fate of ‘bona bagaggawale’. It is also the fate of healthcare, UPE, USE, roads. Our government has failed in almost every big and small initiative it has undertaken (except State House).

The lesson is simple but powerful: We are at our best when the state decides to let others ‘ especially the private sector ‘ do things. If we want improved delivery of public goods and services, we must get the state out of providing them. Thus, to make UPE and USE work, if we want improved healthcare delivery, if we want better roads, we should privatise the provision of these goods and services. All public schools and hospitals ‘ wakinaMulago Hospital and Makerere University ‘ yote must go.

This proposal is radical but reasonable. Uganda needs to separate the provision of these services from their financing. Government can continue to finance UPE, USE, health and roads through the private sector. The aim of sustaining state financing is to make many of these services affordable for our citizens.

This is already happening in USE and with better results. For every sub country without a public secondary school, government gives the private school with Shs 60,000 per student per year. In the state owned school, the government gives Shs 47,000 per student per year. In government schools, the state builds the classrooms, pays teachers, buys text books, chalk and in some cases even provides housing for teachers. In private schools, all these costs are incurred by the private owner.

Now let us do the maths: the difference of Shs 13,000 in the cost ratio of public and private schools shows that the taxpayer gets better value for money when the state is financing education without providing it. If the state were not spending all this money itself, civil servants and politicians would have little to steal. The state can then build its competences at the level of monitoring and supervision.

The first step is to reverse Milton Obote’s policy of the 1960s that shifted our prominent schools ‘ Budo, Kisubi, Gayaza, Mwiri, Kibuli, Nabingo, Mary Hill, Namagunga, etc from their owners ‘ the Catholic and Protestant churches and Mosques to government. All these schools should be returned to their former owners. Government can insist that there should be no religious discrimination in admission.

Even for major roads, the state can contract them out to private developers who can charge road tolls. The government can subsidise such costs only by contributing money to the construction of the road. In proposing such a radical shift, I am aware of many policy compromises that would need to be made. For example, the private sector may be absent in village A to provide a primary or secondary school or hospital. Here government can stay in provision of such a service.

Private investors would be happy to take over Mulago and Makerere. The Shs 40 billion per year to Mulago can go to a private investor on clear agreement of what to deliver. Makerere University can be sold to a private trust in which Harvard or Yale can have a stake. Uganda has a corrupt state. The solution: Get hyenas out of the meat market.


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