Rule of law is a pre-requisite for economic development

By Moses Byaruhanga

RECENTLY I had the privilege of being invited by the Uganda Law Society to present a paper on “The Rule of Law as a pre-dominant factor for Economic Development in Uganda,” during the fifth annual Rule of Law Day. 

In my presentation, I said Rule of Law can be traced back to the 17th Century. It was popularised in the 19th Century by a British Jurist, A.V. Dicey.

The UN defines rule of law as; ‘a Principle in which all persons, institutions and entities, public and private, including the state itself, are accountable to laws that are publicly promulgated, equally enforced and independently adjudicated and which are consistent with international human rights, norms and standards.

In relating rule of law to economic development, I will use the examples given by an economist by the names of F.A. Hayek.(1899-1992). 

He is considered as a great economist and political philosopher of the 20th Century. 

Hayek proposed that under the rule of law, individuals would be able to make wise investments and future plans with some confidence in a successful return on investment which he stated that “under the rule of law the Government is prevented from stultifying individual efforts by ad hoc action. 

Within the known rules of the game, the individual is free to pursue his personal ends and desires, certain that the powers and desires of government will not be used deliberately to frustrate his efforts”. 

Adam Smith, in his book The Wealth of Nations, identified rule of law as one of the keys to prosperity.

For businesses to prosper, they need to be guided by laws breach of which calls for a system where adjudication is transparent. 

For instance in order to attract foreign investment, the investors must have confidence in the judicial system of the country they are investing in.

Related to the above are property rights. Any investor is interested in how property rights are protected in order for him or her to make a decision to invest.

Alan Greenspan, who was chairman of the Federal Reserve Board in the USA from 1987-2006, in his book The Age of Turbulence (2007), wrote on pg. 251, that; “people need the legal protection to own and dispose of such property without the threat of arbitrary confiscation by the state or mobs in the street”. 

Therefore, property rights which are part of rule of law are important in driving the economy to development.

When there is a dispute over property, people want a system that resolves the said dispute in a transparent manner.

Uganda has had an experience when in 1972, the government under president Idi Amin confiscated properties that belonged to Asians. 

Uganda could not attract investors while the properties that had been confiscated from their rightful owners were still in government hands.

Hence, the said properties had to be returned to their rightful owners. For the rule of law to be effective, the state must be in a position to enforce the law. 

This requires stability in the country. People need to be secure in order to be free to engage in economic development.

In other wards the state must have authority over its territorial boundaries.

During insurgency in the north, there was absence of rule of law in those areas.

This affected economic development in the north. You therefore need a well equipped professional army to ensure stability in a country for rule of law to prevail.

We need laws that address the concerns of the business sector. Recently, I met an investor who wanted to invest in a depot for petroleum products. 

When he approached the Ministry of Energy for a permit, he was told that under the regulations, he had to first acquire land and get NEMA clearance etc. 

His concern was that since he was applying for a permit, it is implied that a permit can be denied. 

If that happened, what would one do with the land already bought? This regulations is not business friendly.

The other challenge is enforcement of standards. There are bodies created by laws which are in charge of standards.

However, more often than not, you hear of sub-standard goods on the market including seeds and pesticides. 

This affects economic development. A farmer needs the right seeds and pesticides or acaricides. 

Therefore, we should advocate for strong regulation and enforcement of standards.

Rule of law among others calls for citizens to be accountable to the laws of the country and respect for the rights of others. 

The other day, a businessman downtown rung me and said that why cant you people in government get special teargas for Kizza Besigye. I asked why? His answer was that whenever he goes to downtown and carries out demonstrations, they are forced to close their shops and the teargas used by police to stop him affects all the people in the area including the innocent ones.

With oil we should avoid the bad experiences the rich oil producing countries in the Persian Gulf have gone through. 

Although these countries have a high income per capita (Saudi Arabia $24,000, Kuwait $48,000, Bahrain $40,300, this is comparable to some Western countries like the $47,200, Denmark $36,600, Germany $35,700. (These are estimates of 2010 from CIA Fact Book using the Purchasing Power Parity). 

From the petrol-dollar, their riches are rarely followed by industries. There is no high level of industrialisation in the majority of the oil producing countries; hence, unemployment is high (around 15%). 

In the West countries with high income per capita like the US, UK, have unemployment below 8%. 

Therefore the Arab spring you saw fell on fertile ground of unemployed youths who were easily mobilised to go on the streets.

Fortunately for Africa and Uganda, a new world opportunity has offered itself. The increasing middle class in Africa, India and China has shifted consumerism from Europe and North America.

World Bank figures show that in 2000, developing countries were home to 56% of the global middle class, but by 2030, that figure is expected to reach 93%. 

Our target as Uganda, East Africa and Africa should be how much of that increased middle class do we produce finished products for?

We should industrialise and add value to the agricultural products so that we sell finished products to Africa, China and India. 

This industrialisation requires a well-functioning rule of law.

Senior Presidential advisor on political affairs