Govt must not invest in private firms
Jul 25, 2007
IN just a few years, the Government has sunk over sh50b in private companies that it may not recover. In 2002 the finance ministry gave sh3.7b to the Uganda Development Bank (UDB) for capitalisation but later gave instructions that the money be given as loans to Phenix Logistics and Apparel Tri-Star
IN just a few years, the Government has sunk over sh50b in private companies that it may not recover. In 2002 the finance ministry gave sh3.7b to the Uganda Development Bank (UDB) for capitalisation but later gave instructions that the money be given as loans to Phenix Logistics and Apparel Tri-Star. In 2003 the Bank of Uganda stopped UDB from recovering sh6.2b lent to Basajjabalaba Hides and Skins. The Bank of Uganda later gave another sh20b to Basajja and it is not clear how that money will be recovered.
While it is good to support the private sector as the engine of economic growth, the methodology is ill-conceived. Rather than support individual companies in the form of hand-outs, unsecured loans and guarantees, the Government should support sectors. This support could be in the form of negotiating trade deals abroad, establishing an enabling investment climate and interest rates, tax waivers, and providing infrastructure such as roads, water and electricity. Where funds are to be provided for vital sub-sectors, companies to benefit should not be handpicked. Proper criteria should be instituted to identify who qualifies. The procedures for accessing the funds and how the money is to be recovered should be clear and transparent.
The collapse of Apparel Tri-star, which left the Government with a loss of nearly $20m (over sh33b) from loan guarantees and other subsidies, should act as a serious warning. The Government should not turn itself into a commercial bank. Otherwise the tax payer will continue to lose money to companies whose operations are not open to public scrutiny.
It is also debatabale whether the Government should enter into joint ventures with private companies. This contradicts its own policy of privatisation and a private sector-led economy. The collapse of Victoria Airlines, in which the Government had just acquired a 20% stake, is hurting. It was also unwise to acquire 47% shares in Phenix Logistics to cover a sh5b debt, instead of giving the company flexible repayment terms.
While it is good to support the private sector as the engine of economic growth, the methodology is ill-conceived. Rather than support individual companies in the form of hand-outs, unsecured loans and guarantees, the Government should support sectors. This support could be in the form of negotiating trade deals abroad, establishing an enabling investment climate and interest rates, tax waivers, and providing infrastructure such as roads, water and electricity. Where funds are to be provided for vital sub-sectors, companies to benefit should not be handpicked. Proper criteria should be instituted to identify who qualifies. The procedures for accessing the funds and how the money is to be recovered should be clear and transparent.
The collapse of Apparel Tri-star, which left the Government with a loss of nearly $20m (over sh33b) from loan guarantees and other subsidies, should act as a serious warning. The Government should not turn itself into a commercial bank. Otherwise the tax payer will continue to lose money to companies whose operations are not open to public scrutiny.
It is also debatabale whether the Government should enter into joint ventures with private companies. This contradicts its own policy of privatisation and a private sector-led economy. The collapse of Victoria Airlines, in which the Government had just acquired a 20% stake, is hurting. It was also unwise to acquire 47% shares in Phenix Logistics to cover a sh5b debt, instead of giving the company flexible repayment terms.