Of Crane Bank, 'recession' and debt management

By Jim Mugunga

The most strikingly engaging debate in Uganda at the moment is the state of the economy, fueled largely by the goings on at Crane Bank.

This bank was, until recently, garnering all the banker of the year awards, so its crumbling seems to have happened over night! It was growing fast, with branches mushrooming at unprecedented speed. Indeed top rated accountants and international auditors had returned a healthy verdict on its affairs over the years, before it tumbled down like a pack of cards. For now, we await the actual story, after details of the loan books, insider trading and various auditors' role, among others, are fully examined.    

However, that it took Crane Bank to bring us back full cycle to debate the economy soon after the election period is greatly frustrating. Frustrating it is because financial indiscipline and mismanagement, which are at the core of Crane Bank's woes, should never be baptized another name or camouflaged with excuses bordering on condemning our economy.

Such tendencies will divert the nation from focusing on pertinent issues. Mixing Crane Bank's mismanagement with the performance of the national economy negates the fact that it is under the same economy that the likes of Crane Bank grew and thrived.

When we rewind this discussion a little bit, we will note that Uganda remains one of the preferred investment destinations in sub-Saharan Africa despite well documented global economic dip. Our non-reliance on mineral commodities saved the country from the downward spiral affecting wider Africa and the globe. Against the odds, Uganda's economic growth over the years has kept on the positive growth trajectory. Yes, not at the same pace and numbers as expected but obviously not declining and indeed far from recession.

Recession, as is well known, is a term used to define "negative economic growth for two consecutive quarters (6 months)". According to Axel Schimmelpfennig of the International Monitory Fund (IMF) who was in the country recently to assess country performance, Uganda, which has been posting positive growth, does not fit the recession bill. Furthermore, the World Bank Group September 2016 Uganda Poverty Assessment Report refers to Uganda's remarkable story of progress in reducing poverty. The report, which made reference to some countries in sub-Saharan Africa, indicated that Uganda's proportion of households living on less than US$1.90 purchasing power parity (PPP) per day fell by 2.7 percentage points per year since 2003. This was the second fastest percentage point reduction in poverty, only slower than that of Chad. We were of course far ahead of Namibia, Senegal, Rwanda, Ethiopia and South Africa, and many others. From the above, I wish to argue that a country deep in recession would not be able to post very positive poverty reduction figures.

The recession terminology is thus used for selfish political gain, to instill fear and panic among Ugandans.

So, what is the reality of our economy?

A few months before the national elections earlier this year, the economy was already a discussion point primarily due to scarcity of available cash. Many believed that money hitherto known as the key driver for stepped up political activity, had been held back to incapacitate some political candidates. Others believed that the same money "would be set free" to facilitate other candidates once the campaigns reach the final bend. These speculators were off the mark as there was indeed "no free money" from either the ruling party or the opposition. Despite projections by some political commentators, both the Treasury and the Central Bank tightly kept the lid on national coffers throughout the campaign. In short, Muhakanizi and Mutebire did not "shake the mango tree".

The campaign period done, the NRM rightly chose to concentrate on service delivery and manifesto implementation as opposed to running extravagant country wide money- spending celebrations. The opposition too had bills to settle and a costly petition to manage. Once again, elections related free-spending was curtailed.

Should we not then analyse the issue further and interrogate the several factors that have contributed to the current "lack of cash" in the economy?

The Ministry of Finance purged all leakages that had hitherto characterized government operations. The initial salvo targeted salaries and pension. There were running battles; attacks and counterattacks, accusations and resistance to the new initiatives. Looking back, it was the determination to see through the changes that have enabled government to sort out the salaries and pensions' management. To date, we pride ourselves as a government in a seamless and scandal-free wages' regime that delivers salaries on or about the 25th of every month.

A verification exercise of all civil servants and pensioners has been able to eliminate ghosts and cut out excess cash that was freely available in the economy and hence artificially propped up the land and real estate sub-sectors.

The Treasury also introduced the single account as a tool to monitor all government funds. This upset those who traded in this cash whenever it sat un-used on government accounts. Indeed it is not so far-fetched to argue that some of this money was deliberately un-utilised for projects and services of government so as to "float about" thus earning signatories' excess but illegal money in form of commissions. Some banks thrived off the dealings and were so blinded to see the single account tsunami coming and its ultimate impact.  Further, the government has made accounting officers personally liable for non-payment of salaries and wages on time; non-performance; ghosts, and failure to absorb or spend.

Finally the impact of the global slowdown and commitment to spending towards infrastructure such as power, roads and airport; and cut down on unwarranted imports cannot be ignored. It is widely accepted that positive infrastructure investment and determination to derive actual value for each dollar spent will spur production and economic activity.

All these deliberate, calculated and worthy efforts have had a direct impact of collectively mopping up the excess artificial cash that was once upon a time easy-pick from the streets (and offices) in our cities and municipalities. Of course there was the role played in our local economy by real dollars from South Sudan. They boosted rental businesses; entertainment sector and vehicles sales. Sooner, the South Sudan government improved and started operating real systems with a growing banking sector and better public finance structures. The tightening of cash movement in Juba has made its nationals smarter. Increasingly they prefer to buy houses in Kampala and Nairobi and not long time rentals. They also know about securing a hard bargain thus cutting out speculators and middlemen. Most recently, economic activity in the region has slowed down as a result of internal revolt in Juba leading to a similar decrease in dollars spent in Kampala. The impact is real and must be felt. Broadly, the impact of the above is that there are culprits and many more will come to the fore and perish unless they read the signs and adjust as quickly to the new budget and cash management regime adopted by government.

However, there is need for government to keep an eye on the debt ceiling. For the country to stay afloat and not necessarily fall for the promises of future revenue windfall is the most important part of it all. It also means that some projects that are not necessarily a priority among priorities; that are not strategic and for public good or part of the National Development Plan have to be let go. This of course does not make the Ministry of Finance more popular as it sorts out these kinds of projects, but it does not stop it from doing its job!

Without prudence, mayhem will prevail. We need not look further than Ghana which a few years ago was praised as the beacon of the new African arising. It was the destination of most benchmarking trips by politicians, and the ‘Africa take off story' was never complete without the praises of "Ghana's success" being sung.

Ghana is today ranked fourth (behind Cape Verde, Gambia and São Tomé and Principe) in Africa among the countries with the highest public debt in relation the total value of the economy. This is a country whose US $7 billion debt was cancelled in 2005. Ghana's debt, which stood at US $2.3 billion in 2006, had risen to US $12.6 billion in 2014!

Ghana recently signed three financial bailout agreements with the World Bank totaling US $220 million, as well as a Policy Based Guarantee of US $400 million to cover securities issuance of up to US $1 billion. These, as we all know, come with stringent conditions.

Egypt, hitherto a giant manufacturer of repute with a tourism sector that far dwarfs Uganda, is another example. The country, whose fortunes hit the lowest during the uprisings, got back to its feet as a result of cash injection from Saudi Arabia and a few other Persian states. The funds made available collectively are estimated in excess of USD 30 Billion. The windfall in hand and banking on future expected revenues, the country later made several missteps on prioritization of expenditures and hugely debatable political infrastructure projects such as the US$ 8Billion Suez Canal expansion.

Hardly months after commissioning the canal, the Egyptians were forced to the IMF for bail out. This month, the country was asked to prove that it was ready to implement structural changes that included currency and the introduction of Value Added Tax (VAT) among others in order to receive a USD 12 Billion loan. Barely a week ago, the Egyptian currency was allowed to float and it has since lost 50 percent of its value. There are reported scarcities of basic necessities such as sugar, rice and medicines in a country that was until recently almost self sufficient.

My take therefore is that so far so good for Uganda's economy, but there should be no complacency.