The Dilemma of top-down freebies: Why Uganda’s Poverty Alleviation Programmes keep flopping

Leave a comment

You could literally run of out of fingers if you are to enumerate Uganda’s several state-led poverty alleviation efforts that have failed flat. Over the years, the government has rolled out several projects, but there is embarrassingly little progress to show at the end of the day.  Newer keep flopping just like precursor projects.

Over two decades ago, in 1988, the government with support of World bank rolled out Program for Alleviation of Poverty and Social Costs of Adjustment (PAPSCA). Subsequently, the Poverty Alleviation Project (PAP) of 1993, the Entadikwa scheme of 1996, Poverty Eradication Action Plan (PEAP) of 1997, the Poverty Action Fund (PAF) of 1998, the Plan for Modernisation of Agriculture (PMA) and the Vision 2025.

After 10 years of implementing National Agriculture Advisory Services (NAADS), a component  of the  ambitious PMA, the president declared that NAADs had failed to achieve its mandate. Operation Wealth Creation (OWC) was created to correct the mistakes of NAADs. Ironically, sooner than later, OWC itself was on spotlight for allegedly delivering rotten seeds to beneficiaries.

The single common feature of all these flopped programs is that they have all been some sort of top bottom interventions. They are plans about alleviating poor people, but without the participatory input of the poor people themselves; the supposed beneficiaries. It has been a case of government doing the same things, but expecting different results. All these programmes entailed government giving out free inputs or cash as entry point for economic empowerment.

The brutal truth is that wealth creation starts from the mind. The government can give out as much money as it can, but without preparing the minds of the recipients, nothing much can be achieved. That is precisely the reason lottery winners often go back to their previous financial status after squandering the windfall. Great billionaires of this world didn’t get where they are from handouts. Some of them now have more money than the GDP of Uganda but they began from the scratch.

Evidence abound of a high number beneficiaries of Northern Uganda Social Action Fund (NUSAF) who simply sold off the animals they received. That is expected; people tend not to value what they haven’t worked hard to get. A farmer who received a free fresian cow wouldn’t be bothered by the death of his cow. On the other hand a farmer who bought his own cow using his hard earned cash would feel the pain. Thus, some one who has used his own will work hard for the success of the proceed compared to a freebie recipient.   

Worst of all, free things tend to breed dependency syndrome. Some farmers are now stupid enough to shun agriculture capacity building training where there are no “transport refund”. Instead of happily receiving free training on modern agriculture techniques, a farmer now wants to be paid an allowance for being trained. You might ask: how did we get here? Its these free handouts that have exacerbated dependency syndrome and propped this mediocrity.  

Community members who couldn’t be considered as part of a small pilot project by an NGO now have the audacity to organise themselves to complain about missing out on a free handout by a foreign NGO. Ugandan MPs are probably  have a good grasp of the present scale of dependency syndrome.

Sometimes people stay poor because they are oblivious of the fact that they can better their lives. And all that starts in the mind. That explains why even in the era of free education offered by UPE (never mind the quality) some rural parents do not bother  taking their children to school and they are comfortable with it. Some parents force their daughters into early marriages so as to get dowry. There are villages that have too much mangoes in some seasons, and they oblivious they can process it into pulp.  This goes on to show that mindset re-engineering is so vital in povery eradication efforts. Skills, awareness and exposure are much more of a necessity to the rural folks than the handouts.   

The government can give handouts to thousands of villagers, but there is that one entrepreneur who will start from zero and create much wealth than all of these recipients of handouts combined. Since this one entrepreneur can create jobs for thousands of people, the government should focus on creating conducive atmosphere for entrepreneurs.  

It’s far better to offer these inputs at subsidized rates than giving them out for free. The subsidy would be an incentive for the recipient to work harder on their projects since their own money is on the line in case of failure. That would certainly reduce the failure rate by a significant margin. Those who are too poor to afford the already subsidised inputs can still benefit indirectly as employees in these supported ventures.   

President Yoweri Museveni With a farmer

 

Another viable option is encouraging beneficiaries to form cooperatives, to which government offers matched funding. Being tasked to raise some money on their own, however little, as pre-qualification criteria for accessing government funding will create a spirit of self actualization. The only sorts of ventures where freebies cannot lead to dependency syndrome are social enterprises. That’s because social enterprises can make their money to sustain their existence while creating great impacts or providing crucial services at lower cost.

Dependency syndrome is so bad that even in some communities where people are blessed with immense resources such as land, they can’t acknowledge the value of these assets. Isn’t it shocking for a family collectively owning 100 acres of land to be suffering from starvation? With these assets, even if one had no capital, they could make use o these assets to their benefits. They could enter into short term joint venture with investors, where one party provides the land, and another party provides capital. Sensitizing locals to become aware of these opportunities  is a far much sustainable approach for empowering our farmers rather than handouts.

Looking at the way poor folks cheer corrupt politicians who are responsible for these massive failures, you momentarily realize that the mindset ought to be the starting point of any effective poverty alleviation programme. Above all else, besides the much needed government intervention, we should create an atmosphere where every individual feels duty bound to fight poverty in his/her own homestead.

 

Advertisements

How Investments in Agriculture can ease Uganda’s unemployment

Leave a comment

Owachgiu Dennis

Most countries lag behind economically because they fail to exploit their competitive advantages. Massive Youth Unemployment in Uganda today correlates directly with the country’s inability to create opportunities in sectors where they have competitive advantages. In Uganda, agriculture is a key competitive advantage because of the large tracks of fertile arable land available countrywide. Uganda’s land can record high yield even without fertilizers.

Since it employs nearly 80% of the population, Agriculture is the sector that can be relied to ignited an increase in household incomes for the greatest number of people. Investment in Agriculture can positively impact on many sectors of the economy simultaneously. Great and mighty economic powers such as the United States of America owes their economic growth to Agriculture.

Farming in Uganda is still largely subsistence

Uganda certainly has numerous untapped opportunities. It is noteworthy that the handful of small holder coffee farmers in Uganda have already made Uganda Africa’s leading coffer exporter and brought in considerable income. Uganda’s production level and earning can still grow up significantly for coffee, just as for other agricultural products. Investments towards processing such products locally could further allow Uganda to export finished products rather than raw materials. Exporting finished products would earn even more money for the country and create many new jobs at the processing plants.

The growth of agro-processing industries to process agricultural products will itself create jobs for multitudes in other related industries. By-products in other manufacturing cycles are automatic raw materials for other products. Other business will emerge to handle Packaging, transporting finished goods etc. When the goods are exported the country will earn the much needed foreign exchange for the economy and improve the balance of payment position.

The fact that countries that are not as endowed as Uganda are doing well means the sky is the limit for Uganda. Arid Egypt grows and exports agricultural products all year round using water from rive Nile, and Uganda has the source of river Nile right here. Israel products several tones of fresh water fish in tanks, and Uganda has the largest fresh water body right here. Botswana exports more tones of beef products globally, yet Uganda has more cows than Botswana. Israel exports more Diary products yet Uganda has more dairy cows than Israel.

It’s time to take advantages of these competitive advantages to uplift the economy. With the bulk of our population being youthful, availability of labour force is in itself another competitive advantage at our disposal. The kind of agriculture that will create enormous opportunities will have to be commercialized intensive agriculture, not the traditional hand-to-mouth subsistence agriculture. This requires real investments and the national budget should reflect agriculture as a priority area.

The huge amounts of money the country can potentially earn from agriculture will automatically spur the growth of other sectors, notably the service sector. Uganda already has a vibrant service sector, but since most people – about 67% live on a 2$ a day- the service sector can’t continually grow in an economy where the majority have a low purchasing power. Agriculture is that one sector that can unlock the purchasing power of the largest portion of the population since it employs the majority. The increase in purchasing power would then increase revenues in the service sector.

Agriculture can thus accelerate economic growth, which will create several new opportunities for citizens.  Most prosperous people who will earn a decent income from agriculture will reinvest the money in other new ventures. It is these new ventures that will create more employments opportunities for our young people. It is on that premise that agriculture must be embraced and allocated up to 10% of the budget annually. As a productive sector, the more money invested in agriculture, the more money government will earn back in tax and non tax revenues. The increased revenues can then be allocated to other crucial budgetary sectors.

The next logical question is where do we get the extra money to invest in agriculture? In my opinion we have three clear feasible ways. One would be to temporarily cut down the state’s administrative costs and use the money to invest in agriculture. Office automation would cut down the required number of personnel, thus saving some money. Reducing on the number of political appointees, by trimming down some non-essential and redundant personnel such as the “senior advisors” who offer no advice at all.

Another strategy is by implementing agricultural and economic zoning in different regions. Zoning will encourage bulk production with the additional advantage of economies of scale. It becomes easy to attract foreign direct investments for agro-processing industries to areas with enough raw materials.

The third strategy would be to formation of individually owned agricultural cooperatives through which many smallholder farmers can pool money together to either carryout farming together or to process agricultural products. The government can set up a cooperative bank or a Bank that is agriculture-friendly to provide financing to the agricultural cooperatives. Alternatively, the government can channel cheaper credit in form of Agricultural loan facilities through existing networks of commercial banks.

          

owachgiu@gmail.com

 

Counting the gains and the loses from Uganda’s Privatization of State owned Corporations

Leave a comment

A hastily planned privatization drive has over the years rendered a bulk of Uganda’s economy in the hands of foreign-owned companies. Ordinarily, in a well regulated economy, local or foreign ownership of companies in a country wouldn’t be a big deal because they would all pay the standard income tax, value added tax etc to government and comply with the same regulatory requirement. Both foreign and local companies create jobs and thus contribute to the development of the economy.

Foreign ownership only becomes a headache to the economy when there are poor regulation mechanisms. One key facet of the drawback is expatriation of profits directly and indirectly. Capital mobility is a feature of economic Liberalism and while a local company could have invested in other sectors in the local economy, a foreign company may opt to draw all its profits and reinvest it elsewhere. That is what Field Marshal Amin famously described as “Milking the economy without feeding it”.

Uganda’s privatization process was dictated as part of the structural adjustment program. The restructure came at a time most Ugandan companies were presumably unable to run big companies. Consequently, most profitable enterprises such as Uganda Commercial Bank, Hima Cement, Uganda Baati, Tororo Cement, National Insurance Corporation etc went out to foreigners (Here is a full list of divested State Companies). Uganda Electricity Board was equally split into different legal entities, out of which UMEME was given the concession to take over roles Uganda Electricity Distribution Company Ltd. While Uganda was divesting its interest in UEB, on grounds that state-owned companies are ineffective, it instead gave Electricity Generation contract to Eskom, a South African-state owned company. One would ask, if Eskom could work well, why couldn’t UEGCL do the work?

The opportunity cost of this mass privatization was gigantic. Many companies were purchased below their real net valuations. Some of the new owners were only interested in short term gains. While the initial goal was to create a level ground for the private sector actors to compete, the privatization bonanza was hijacked by some bureaucrats to sell state assets cheaply to themselves. Many staff quarters and public land were sold in the process. At Uganda Broadcasting Corporation for instance, many top officials sold UBC’s land to themselves.

Despite the flawed perception that state owned companies are ineffective, to the contrary, many are still going strong. Locally, the last surviving state-owned company, Uganda National Water and Sewerage Corporation is doing quite well. Kenya Commercial Bank, whose divesture was well managed, is operational in the entire of East African Community block. While Uganda sold its Uganda Airlines Cheaply at the “price of a stinking mackerel”, Ethiopian Airways is going strong internationally. Even Kenyan Airways is making immense contributions to the Kenyan economy. Despite posting loses some years, Kenya Airways has made Kenya a regional air transport hub and has bolstered tourism in a big way. If an international company wanted to set up a regional office, Kenya would be the perfect destination.

Uganda on the other hand can’t show what it did with the proceeds of its Airline’s sale. Prior to the Sale, most of the assets of the airline such as Staff residential Quarters and other assets were stripped from the airline. Hitherto state-owned Uganda Commercial Bank (UCB) equally had a questionable purchase value. For instance, shortly before its acquisition by Stanbic bank (Standard bank Group), the Uganda Government had borrowed money from World Bank to recapitalize UCB. However Stanbic Bank managed to acquire UCB at a lower fee than the real net worth of the company. UCB was a big bank with huge base of assets. It owned most of the buildings that housed its network of branches countrywide – and that was a significant asset base.

Exports and Import Bank of China that is giving Uganda most the loans for infrastructure development happens to be a state-owned company. Most of the Chinese Companies working on many infrastructural projects in Uganda today are all state-owned. Ethiopia’s state owned telecommunications company is doing well and posting good profits, and that is how Ethiopia can build new roads with its own money where its neighbors have to borrow or beg from donors.

It’s certainly understandable that some sectors such as Hospitality were not operating on a cost effective basis. Most state-owned Hotels were not bringing in profits and were instead draining from tax payers to fund their operational costs. Privatization of such entities was a good move. Hotels are better owned by private sector rather than government.

Uganda’s privatization doesn’t seem to have worked for the common citizens. It only worked for the tiny minority who took over management of formerly state owned enterprises. Those who took over hotels like Lira Hotel, Soroti Hotel etc are happy with the process. Most of the eventual owners to took over those government entities paid very negligible fees to acquire these assets in which tax payers had invested billions of shillings.

On the flip side, Privatization has no doubt led to the growth of manufacturing industries in Uganda. Most of the companies under their umbrella Body Uganda Manufacturers Association sprang up as a result of the privatization policy. While privatization of the financial sector brought on board predatory lenders, privatization led to infusion of finances from external sources into the Uganda financial market. Competition from amongst these payers has given consumers a wide array of choices.

It can thus be said that Privatization program was it itself a good thing. It was the sheer manner in which it was implemented that was haphazard and thus didn’t not translate into the benefits that would have typically been derived from it. If you have read “Confession of economic Hit man” then you can probably comprehend the intentions behind the international pressure that prompted government’s mass divesture of state-owned corporations.

Older Entries