How Investments in Agriculture can ease Uganda’s unemployment

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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

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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.

Is Uganda’s Economy Foreign Owned?

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Over the years, key sector of the Ugandan economy are increasingly being owned by foreign companies. In short, the foreign companies control more money than the Ugandan counterparts. In the Banking sector out of the over 25 commercial banks, less than six are Ugandan. KCB, Equity Bank, Diamond Trust Bank, Fina Bank, Bank of Africa, are all Kenyan owned. United Bank of Africa and Bank of Africa (U) Ltd are Nigerian owned. Eco Bank (U) Ltd is Togolese owned. Standard Chartered and Barclays Bank are multinational. Stanbic Bank (U) Ltd is South African Owned. The few banks that can be said to be Ugandan are Centenary Bank, Bank of Baroda, Crane Bank, DFCU and the defunct National Bank of Commerce.

The Insurance sector is another industry dominated by foreign companies. All these are foreign firms; AIG Uganda Ltd, East Africa Underwriters Ltd, Insurance Co. of E Africa (U) Ltd, Lion Assurance Co. Ltd, National Insurance Corporation Ltd, NICO Insurance (UG) Ltd, Microcare Insurance Ltd, Phoenix of Uganda Assurance Co. Ltd, The East Africa General Insurance Co. Ltd, The Jubilee Insurance Company of (U) Ltd, TransAfrica Assurance, UAP Insurance Uganda Ltd, Sanlam.

The largest retail chains are also dominated by foreign companies. Outside of Quality Super market, Mega Supermarket and Capital Supermarkets, the rest of the big super markets are foreign. Game and Shoprite are South African owned. Two of the biggest super markets in Uganda are Kenyan owned; Nakumatt and Tuskeys.

In the telecommunication sector MTN is South African owned, Airtel, Vodafone is UK owned, Africel is Lebanese owned. Only UTL and K2 are local. Even then UTL is partly owned by Libyans, and K2 which is 100% Ugandan doesn’t control any significant market share.

In the words of a Ugandan comedian, Foreign Companies seem to see Opportunities in Uganda better than Ugandans themselves. While enterprising Indians come empty handed and become billionaires in Uganda, Ugandans instead flock to countries whose stringent VISA procedures signals that Ugandan immigrants are unwelcome. Clueless and self-centered crop of politicians and bureaucrats have made this possible, according to the comedian. While world powers traverse oceans to go and fight for their foreign interests in other people’s countries, Ugandan Politicians can’t protect the economic interests of citizens in their own country that is why some foreign investors come all the way from their countries to sell chapattis.

Surprisingly, some of the comedian’s sentiments mirror the prevailing reality. Neoliberal economic policies has promoted free economies making capital freely mobile. Growing economies such as Uganda have attracted significant Foreign Direct Investment over the years following with the ensuing economic stability. This has been quite impressive for economic growth, as some may say.

Fresh concerns are however arising over the fact that the few foreign companies that dominate the economy are becoming economically powerful to the detriment of the average citizens. 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 and comply with the same company laws. Both foreign and local companies create jobs and thus contribute to the development of the economy.

Repatriation of profits to home countries is a key fear. Rather than reinvesting profits in the local economy, most foreign companies may consider investing profits elsewhere. Repatriating profits means the jobs that could have been created and the taxes that could have been earned had the company reinvested locally will go elsewhere. And that is just one of the fears. In 2015, after Ugandan Africell acquired Orange telecom, former Orange employees complained that the new Lebanese owners were racists and referred to blacks as monkeys. They complained that lowly qualified Lebanese had been offered higher positions in the company hierarchy.

Some years before, Daily Monitor broke a similar story regarding Hima Cement, about what Ugandan employees referred to as favoritism. Many highly qualified and experienced managers who have worked for the company for years complained that junior Kenyans were being favoured for top management positions ahead of their comparatively better qualified and more experienced Ugandan managers. Such incidents are a wakeup call for Ugandan authorities to pull up their socks in terms of labour regulations.

There is a perception that foreign companies tend to have more business to business linkages with companies in home countries. A South African advertising firm has more chances of scooping a lucrative advertising deal a South African company in Uganda than a local company. A Kenyan Company is more likely insure with a Kenyan Insurance agency. Chinese companies are likely to dine and wine at a Chinese Restaurant. In the end all the money goes home. A South African super market may have preference for South African Apples and oranges ahead of similar products from Rukungiri and Kabale. At some point it was even rumoured that UMEME was importing electricity poles from South Africa even when electric poles could be sourced and treated locally.

Far from the belief that these foreign firms create jobs for Ugandans, the reality is that in most of these retail chains, Ugandans dominate unenviable positions such as pushing carts, collecting trolleys or jobs like clearing the stores. Uganda very much need the Foreign Direct Investments to keep coming, but there has to be appropriate regulatory measures. In the whole of East Africa, it is only Uganda where a foreigner can enter the country illegally and begin to do business without a permit.

In China all foreign companies in certain sectors must have a local investment partner. In other countries investors are not required to own more than a certain threshold percentage of shares in a company. This ensures that locals too will benefit from the dividends of investment. In neighboring Kenya, foreign investors are required to sign an agreement with the government with a view of initiating training arrangements for phasing out expatriates. In neighboring Tanzania, president Magufuli recently urged all foreign nationals in Tanzania to “surrender their jobs to Tanzanians”. In 2014, South Sudan gave a similar directive urging all foreign nationals to leave Juba. South Africans were even burning and killing foreigners. Clearly it’s only Uganda that is too lenient to foreigners.

Certain sectors like energy and water are strategic assets with a bearing on natural security. It is thus important for government to empower local investors to take the lead in such sectors. Uganda should learn from its mistakes in the privatization process and empower local individuals to own companies through stock exchange. While many individual Ugandan companies may not have the financial muscle to build dams such a Bujjagali and Nyagak on their own, the government can create a public company as vehicle through which individual investors can own these companies. The government would only need to create the companies then float them on the stock exchange through an IPO. The government would then divest its stake in the companies in a phased approach.

owachgiu@gmail.com

 

 

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