By Enock Twinoburyo
On the 18th February 2016,
Ugandans cast their vote re-electing President Museveni for another five-year
term, following his 30-year rule. The election wasn’t immune to controversy
with a realm of issues highlighted by different commentators and election
observers. Of particular interest to the economics of this country is
monetization of the elections as well as substantial machinery purchase by
police. A trend of increased budget allocations has always been a norm during
election and pre-election years; the budget for 2006 election year encountered
a supplementary budget to tune of 10% of the approved budget, while the 2011
saw a record supplementary budget to a tune of 33 percent of the budget. The
same year also encountered a heightened expansion in money supply (inform of
deposits and current in circulation).
While 2016 elections seen the smallest share of the supplements as a
percentage of the approved budget, it is notable that the FY 2015/16 approved
budget was a sizeable nominal increment from the FY 2014/15. The budget allocations remain split evenly
between development and recurrent expenditures despite the increased focus on
infrastructural investments. These
trends in part exhibit the large administrative structure anchored around the
president; also arguably reflective of the politics of lifetime presidency.
These elections related trends usually have
pass-through effect on the economy in terms of heightened inflation, shilling
depreciation, subdued private sector credit and resultantly a restrictive
policy environment as remedy. In the next five years, we need to revisit the
basic economic fundamentals that attach sizeable weight to the factors of
production mainly land and labour as well entrepreneurship and capital.
Land as a primary factor of production
should come high on the scale of preference of reforms but seemingly this has
not been the case over the many years. According to the Sixth World
bank Uganda Economic Update: “Searching
for the GRAIL- Can land support the prosperity drive?”, Uganda's
land is largely customary owned with only less than 20% of land registered (compared to 64% in Rwanda, 60% in Kenya
and 50% in Ethiopia). The limited registration of land in Uganda coupled
with weak institutional capacity for land administration has resulted into
illiquid markets (characterized by limited land supply to match the
overwhelming demand), consequently affecting development of the financial
system and agricultural sector. Land disputes are estimated to reduce
agriculture sector output by 5-11%.
Uganda also has a high population density of 194 persons per square
kilometer compared to 80 persons in Kenya, and 116 persons in Ghana. This
implies land is absorbing the majority of the labor force, without
corresponding increases in the level of productivity.
When it comes to labour structure, it has a
lot to do with the population growth trend of this economy. The latter has been
growing at over 3% over the last decades, as such, going by the classical Malthusian
theory of population, Uganda risks a population curse. At macro level, discounting
economic growth by population growth implies an annual average GDP per capita
growth rate of 3.5% over the medium term. Compounding the current annual per
capita of USD 700 by 3.5% implies attaining a lower middle income GDP per
capita of USD 1000 in 2027. While growth
rates look rosy, the discount factor is also large.
In addition, population has consequences
for the labour market developments, including but not limited to the rising
level of unemployment and falling labour participation rate. This trend is
irrespective of the fact Uganda has less than 900,000 degree graduates (just only
2.5% of its population). Over the last five or so years, average income or even
wages have fallen in real terms, owing to the precarious economic environment
of high inflation and high interest rates. An eclectic view at labour structure
shows that the majority of labour force is in self-employment to a tune of 73%,
most of whom are in the informal sector and the agricultural sector.
Informality is a reflection of market failures and calls for proactive
government intervention.
By and large, the business as usual approach
needs a tweak. Reforms are urgent, but difficult. There is need for an
effective public service and this will require a couple of hard choices ranging
from restructuring to reinforcing accountability. Holistic restructuring is necessary, as
opposed to the isolated Kampala City Council Authority (KCCA) and the Uganda
National Roads Authority (UNRA). As a matter of fact, few public institutions
would garner high private sector interest if they listed on the stock exchange
markets, a reflection of inefficiencies in these entities. The KCCA and UNRA examples show that hard
decisions have to be encountered, jobs may be lost, but these short term costs
will be compensated by long term benefits. For example in the 1990s, the
Swedish Social Democrats government made large cuts in the civil service.
Around the same time, Canada cut government expenditure by 18.9% without social
turmoil – and without greatly reducing health, justice, or housing programmes.
They did this while maintaining tax levies, so the result was a reduced public
deficit and falling public debt. These reforms in KCCA and UNRA should be
subject to review periodically, to ensure there is value for money. Even in the
current system, it would be necessary to require that the audit recommendations
be either followed according to a strict schedule, or rejected with a
convincing justification. The laxity on the latter has arguably had its fair
share on the economy. Notably, the audit of the Auditor General's office has
been pending for 10 years now.
These reforms can only go as far as the
political environment allows. My appeal to the President over the next 5 years is
to walk his talk "the next five years – there will be no playing games; no
corruption and a more focused budgeting". Lasting reform can only be
achieved on the basis of a political and social consensus.
Enock is a Kampala-based economist and writes extensively on Uganda's economic matters.
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