Post-colonial governments fail to bolster economy

Feb 03, 2012

The decision not to make Uganda a settler colony, the nationalisation of companies, the expulsion of the Asians and the liberalisation of the economy under the NRM are arguably the biggest decisions that

TO mark 50 years of Uganda’s independence, New Vision will until October 9, 2012 be publishing highlights of events and activities that have shaped the history of this country. Paul Busharizi explains how the present economic problems Uganda is facing were planted over the colonial era

The decision not to make Uganda a settler colony, the nationalisation of companies, the expulsion of the Asians and the liberalisation of the economy under the NRM are arguably the biggest decisions that continue to reverberate through the economy.

Fifty years after indepen¬dence services account for about half of our GDP, in¬dustry 25.1% and agriculture 22.2%.

As economies develop, agriculture’s significance reduces as manufacturing and services, not only create more value from agricultural com¬modities, among other things, but also that manufacturing and services employ more people.

In Uganda, however, agri¬culture employs four in every five workers, while industry employs 5% and services about 13%, according to the 2009 estimates.

What this means is that the overwhelming majority of Ugandans have been left behind by the economic boom of the last 26 years as most of the growth has come from the services and the manufactur¬ing sectors.

To ferret out the root of this problem you would have to go back to the beginning of the last century to see how this came about.

Sir James Hayes Sadler, who was a commissioner of Uganda between 1901 and 1907, decided that the country was not attractive for human settlement. Due to the hot humid climate, which came with malaria infestations and the tsetse flies, he decided it was best left to the Afri¬cans. The tsetse flies and the distance from the sea, would make commercial agriculture untenable, he argued.

Sir Hesketh Bell, who suc¬ceeded Sadler, was also sold on the idea and did little to encourage European settle-ment. In neighbouring Kenya, the temperate climate of the highlands straddling the rift valley was more suited to the settlers and, with the large unoccupied tracts of land, they could engage in commercial agriculture.

The repercussions of this single decision - despite massive pressure from certain quarters to allow for European settlement a la Kenya, is that our tenure system was not regularised.

To do commercial agri¬culture, you cannot afford a disparity of the tenure system that currently exists in Uganda, but not in Kenya or other former British colonies Zimbabwe or South Africa. In these colonies, all the arable land is titled, meaning it can be verified, transferred or collatralised. Land becomes a commodity and attains com¬mercial value.

So in the wish to develop Uganda as an African state, small holders farmers were used to plant cash crops, including cotton, coffee and tea. The introduction of poll tax and the harsh penalties one would incur if they did not pay, served as incentive enough for farmers to grow the cash crops.

So successful was the cash crop economy, mainly due to cotton, that the British treasury stopped subsidising the Uganda administration in 1914.

Shut out of production, the European and Asians found themselves restricted to the commercial and processing side.

If Sadler and Bell thought they were doing the African a favour by keeping settlers off the land, the unintended consequence (or was it?) is that the Europeans and Asians ended up controlling the more lucrative parts of the value chain. As a result by the 1970s a handful of families - mostly Asian, controlled over a third of the economy of Uganda.

Milton Obote, with his move to the left, attempted to redress this by na¬tionalising enterprises, reasoning that by having the Government hold and run the assets in trust for Ugandans would reduce the wealth disparities.

Analysts of the time say through his slap dash nationalisation policy, Obote “disenfranchised the non-citizens who run the economy without empower¬ing the Africans who had not been allowed to participate in commerce, industry and large-scale agriculture” - a recipe for disaster.

His successor Idi Amin, while becoming increasingly isolated from his erstwhile sponsors, especially the British, and hoping to bolster his local support, expelled the Asians in 1972 at the height of his economic war.

The vacuum caused by these efforts at “nationalisation” accelerated the economy’s down turn. In his native wisdom Amin sought to slow the slide by publically executing or torturing people involved in economic crimes, like hoarding, smuggling, overcharg¬ing and dealing in foreign exchange.

The extent of the destruction of the economy is captured by the fact that of the 930 registered firms in 1971 only 300 remained by the time of Amin’s overthrow in 1979 operating at 5% of their capacity.

The economy had shrunk by an annual 1%, while the population con¬tinued to grow. All sectors collapsed, apart from subsistence agriculture, for lack of imported inputs.

Obote’s second administration was dogged by insecurity, although some progress was made at recovery. The economy grew by 5.5% and inflation fell to 20%, while the share of agricul¬ture fell from 70.5% of to about 50% of GDP. The NRM’s triumphant entry into Kampala in January 1986 was, there¬fore, tempered by the reality of a basket case economy and enormity of the task of resurrecting it.

In 1986, per capita GDP was less than half what it was 15 years earlier, the Government tax base had collapsed as subsistence agriculture and the informal sector accounted for almost all of economic output.

A country is only as viable as its private sector, because it is the private sector that pays the taxes that sustain governments and finance infrastructure and social services.

In the beginning, the NRM deeply opposed donor prescriptions for the economy. It revalued the shilling, allocated commodities administra¬tively, sought to control prices and maintain the parastatal monopolies.

But there was only so much a gov¬ernment with empty coffers could do. Years after Obote’s nationalisa¬tion drive and Amin’s expulsion of the Asians, no comparable indig¬enous business class had emerged to fill the void left, but these well-meaning but disastrous attempts at economic engineering.

Faced with the urgent need to jump-start the economy with little money to sustain its central planning agenda, the NRM did an about turn, invited the Asians back. Although the process had, however, started with the Obote II government. It also privatised state corporations and liberalised the markets. This was the much needed shot in the arm the economy required.

A combination of these policies in addition to liberal dozes of foreign aid have seen the country enjoy its longest stretch of economic growth in the last 50 years. Revenues are up a thousand fold from 1986, manufacturing and services now dominate economic out¬put and exports have been diversified away from coffee.

Uganda has, in recent years, been judged the most entrepreneurial country in the world. The nationalisa¬tion of enterprises, the expulsion of the Asians and hard economic times could take the credit for bringing about this situation. The challenge though is, for lack of know-how, the indigenous Ugandan businessman has failed to graduate from a subsist¬ence businessman. To get to the next level, the Ugandan businessman would have to learn how to aggregate his efforts with partners in order to pursue ambitions beyond his own personal upkeep.

The frustration of the colonial settler farmer and the expulsion of the Asians denied Ugandans that skill transfer and the insecurity of the 1970s and 1980s short-circuited the learning process further.

As a result of these decisions taken generations ago, we find ourselves in a high inflationary situation partly because our agricultural produc¬tion could not fill a regional gap left by drought-hit Kenya last year. We continue to be donor dependent because the informal sector continues to dominate the economy and, hence, a narrow tax base.

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