MPs are coming of age but...

Aug 04, 2007

THIS week, the Parliament’s national economy committee released a report on the status of the economy from January to March. In the report, the MPs observed that while the economy is growing, almost all the growth was accounted for by consumption and not investment and exports. The MPs noted that

By Paul Busharizi

THIS week, the Parliament’s national economy committee released a report on the status of the economy from January to March. In the report, the MPs observed that while the economy is growing, almost all the growth was accounted for by consumption and not investment and exports. The MPs noted that this was not a healthy development.

They stopped short of earning their keep by making vague suggestions about how the Government should redress this imbalance.

We have to give the MPs marks for noting that our GDP growth is not sustainable in its current form but you then have to frown at their inability to make more concrete recommendations than they did.
First, for a snap course in wealth creation.

On an individual level, wealth is created by the accumulation of quality appreciating assets, which ideally would throw off income as well.

They say all durable wealth is the result of time and compound interest – that is interest earned on interest.
So if an individual shifts a portion of his income towards buying appreciating assets regularly, he allows compound interest to work in his favour until he reaches the happy situation where he need not work for a living as his assets make money for him as he sleeps.

At the national level, the Government creates an enabling environment for wealth creation by educating its population, keeping them healthy, developing physical and institutional infrastructure all of which serve to facilitate the creation of a vibrant private sector, the engine of wealth creation.
The Government finances investments in education, health, infrastructure and institutional building either through taxes or loans and grants.

The extent to which the Government invests in these long-term projects is the extent to which it delays gratification (consumption). However, if the Government slants its spending priorities towards consumption – sustaining a huge bureaucracy for example rather than investing in roads, railways, power projects, education and health, poverty will always stalk the country.

But we should not be surprised. With the amount of donor largesse we have enjoyed all these years, there is no incentive to invest. We are like a child for whom there is no incentive to save if your parents keep feeding, housing and clothing you regardless of your behaviour or performance at school.
Apart from our agricultural output, we have not benefited from natural resource extraction.

However, the way we have gorged ourselves on aid, interesting parallels can be drawn with other resource rich nations that have failed to ensure widespread prosperity for their people.
Aid is to us what oil has been to Nigeria or Equatorial Guinea.

In an interesting paper, “Immesirizing wealth? Africa’s curse: Its resource abundance. Can it be exorcised?” Standard Bank Africa economist Jan Duvenage shows that generally countries that are resource rich have slower growing economies than resource poor economies.

This is because in the face of an abundance of natural resources – or donor aid, the countries’ productive sectors suffer, mainly manufacturing but in Africa this is normally agriculture and in addition institutions are weakened.
Duvenage says, however, that these trends are not cast in stone.

In Africa, countries like Botswana and Mauritius have been successful in averting this fate through economic liberalisation, increased government savings and building market-supporting institutions.

So if the MPs want to be helpful, they need to put the Government on the spot about the quality of education and health services, institutional integrity and whether pace of infrastructure development is adequate and of good quality.

And maybe in paring back the Government’s outlandish consumption, they may lead by example and recommend that parliament’s size be halved and the MPs salaries be frozen for five years!

pbusharizi@newvision.co.ug

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