May 7, 2020

Prof. WASWA BALUNYWA, PhD | What Next for Uganda Economy after COVID-19: The Issues and Solutions


Now that the lockdown has been eased (Presidential address Mon May 4).  It is even more important that economic supporting measures are initiated. A large number of market vendors are now on the streets again!  Boda-boda are now transporting people away from roadblocks! They are seeking survival.

Unless the government can sustain distributing food, they have to get out. The government must act quickly, both on the medical and economic sides. On the medical, continuous sensitization of people making them aware of the dangers of the virus should be upped, on the economic side, decisions and actions of support must be taken. Keeping the health hazard in mind. Of course for the medical, there are measures but this is in respect to preventing the likely spread.

This discussion (the treatise) focusses on change initiative by government in the Ugandan economy. I feel itis an opportunity for government to rethink the way it does business. At the international level, there is change taking place. There is change driven by the philosophy of how we view life and the world and how we manage society. There is an apparent shift in power. The Chinese have come to a Centre stage in world affairs and poised to take global leadership, or will they? Their view of the world is different from that of the West.Technology is also pushing change. It is a complex world and the world is in turmoil. The Coronavirus appears an accelerator or an obstacle to the emerging change.

The new world order may be driven by China!If that comes to pass, the world order will change. Who calls the shots globally will change. The Italian Prime Minister talked of a changed Europe. Following Italy’s debacle in handling the Coronavirus pandemic, Italy felt it wasn’t assisted by fellow European countries. Will it leave the European Union? This comes after departure by the UK in January 2020. May be Europe may not exist in the future as we see it now and yet Europe is a key player in global affairs today. The coronavirus effect is accelerating the change, enabled by technology and leaders. And for an economy, the driver is government, supported by actions of individuals and organizations. Any measure taken to restore economic activity must be cognizant of these global challenges.  This part two (2) deals with the proposed broad responses to the economic problem. It sets out what the problem is, which is the economic stoppage and emerging issues. It discusses broadly the measures and brings out only the immediate measures. These are no means exhaustive and my personal views.

The solutions to the coronavirus pandemic

The medical researchers and economiststhink tanks should be working overtime to generate solutions. These must be solutions that fit into or adjust to these major world happenings, the coronavirus effect, technology and power shift among others. The countries that have effective leadership, good policies and adapt or create unique technologies and exploit the unique advantage of a country will yield high impact results. Those that don’t will see poorer economic results. Already the world has numerous failed states, a new name may emerge to describe those states that don’t succeed after the Coronavirus.

The Coronavirus will not live anything untouched. People’s individual lives will be touched, families, economies, organizations will all be touched. Some economies may be destroyed completely others will be injured badly, while some will receive some minor injuries. As governments react, they will find medical solutions to the pandemic but must also provide economic solutions including a stimulus to the economy.

Medical solutions will not be easy in the midst of conspiracy theories. Viruses are man-made, I gather, solutions are vaccines. There is a controversy over vaccines allegedly proposed by the stinking rich Bill Gates. Many countries the US, UK, Israel, Australia and India are reported to have developed or in the process of developing a vaccine. The conflict between the US and WHO will make things worse. A vaccine that would be used by the world would be announced by WHO. But if the US has no confidence in the WHO, how can the world adapt such a vaccine. Of course, the Chinese have come to WHO’s aid but that may breed more conflict.

Many scientists say the medicalsolution is about 12 to 24 months away! Not sure who to believe, but I guess the medical problem is still with us. We should not lower our guard.  We should continue with preventive and otherstrategies. The lockdown has been one. It cannot last on forever! But unlocking, the country is also another nightmare. We may see an escalation in infections yet our capacity to manage them is limited. Dead bodies will be the consequenceThere is a Norwegian doctor who argues that it is important to build resistance by being exposed to the virus!  Open up he urges.  What risk is this? The solution, a cure or vaccine.

From the economic side, most economies are likely to stagnate but definitely most, if not all will have negative growth rates for some time. Recessions have set in, they may last for a year or more. Individuals and organizations have lost income. This when summed up, makes up national lost income. All nations have lost income. Recessions have been predicted for the different economies. Infact, all world economies have already reported decline in production and in GDP growth rates. The period has now been dubbed the Great Lockdown which has created the worst Economic Downturn in history. The IMF predicts a global loss of US$ 9trillion. The International Labour Organization (ILO) estimates that 1.6 billion people have lost their jobs (May 01, 2020).

 The stimulus packages and the policies that are initiated during and immediately after the pandemic should enable the countries to restart and restore economic vitality. But this is not guaranteed because it cannot be predicted. If it does, the growth will come out of new opportunities, recognizing those opportunities and taking advantage of the new technologies (innovations) that are being developed especially in the 4IR changes that are being introduced in the world. But government must be alert because there is no right formula or right way of doing things. Governments are going to do extraordinary things to save their people from starving anddeath and save their economies from economic ruin.

The Uganda economy may decline by 30% in the current year 2019/2020. Even the subsequent year 2020/2021, may see negative growth. To avoid worse economic performance, government must initiate an economic stimulus package. But it must decide on what the problem is, what the goals of stimulus and how to achieve intended goals.

The Government Action Plan

To achieve the intended goals, government has to take numerous decisions and actions. Some are immediate to ease the lockdown and restart the economy others may be short to medium term, again to stimulate economic activity in and stabilize the economy, the decisions to be taken are not ordinary, they are drastic and maybe painful. But the decisions should not ignore health considerations until when the pandemic is safely resolved in whatever way, cure or vaccine.  Government must also take long term decisions to resolve the challenges it has had over the years that have caused the continued poverty among Ugandans. These are fundamental policy rethinks or calibrations that government must do togrow and develop the economy and ensure it gets the desired results in both medium and long term.

 Current thinking and strategies are now obsolete!  Continuing with them is fatal.The foundation of previous decisions should be questioned. Previous decisions did not remove poverty. They are indeed in question. They have been discredited. We either change or sink into further misery. There are also specific decisions, fundamental or technical decisions that government must take to lead to social economic transformation. This is a duty of every government and responsibility of leadership.

But what is government dealing with? It is dealing with the current stoppage of the economy and its consequences. Government can also take advantage of the combination of changes around the world to tackle those challenges the country has faced in the past that appear not to have solutions. It is possible that policies of the past were not entirelyappropriate. Governmentputthe best selection of macro-economic policies, they yielded results, but did not remove the problem of poverty! The coronavirus has led to a stoppage of the economy. What has that revealed to us about weaknesses in our policies?  The fact is that, a large number of urban people live hand to mouth and have no savings. They must be fed! It has also shown that Ugandans have no food, even when they can afford. Some will want free food from the government. We must revisit the policies for the economy to quick start. How do you get factories to reopen? How do you get markets, schools to re-open? How do you get shops and other businesses to re-open? How do you restore normalcy? Or how do you get to a new normal. And what is that new normal?

The Current Economic Problem and the goal of the stimulus

Where is the economy now? The above issues are indication of a problem. There is need define the problem. The problem on our hand now is that the economy has grounded to a halt. It needs to be re-started. This forced halt has led to maiming and or death of business.  If business dies, government has no locus to operate! If government announces opening up (easing already started),how do businesses restart. But as we define the problem we must have our nationalgoals in mind.What do we want to achieve by these measures government will take?  I believe the overall goals of the economic measures that should be taken now andimmediately during the post Covid 19 should be; to restart and restore economic activity and stability of the economy, to ensure recovery of the economy, to ensure growth of the economy among many others. These are global issues that every country must deal with.

Like other countries we have some challenges unique to Uganda that need to be addressed. These are some dysfunctional activities and policies at play. These include: Buildingin wetlands, farming in forest reserves, location of markets, boda-boda “operations” in downtown, small roads, planlessness of towns, illegal structures, the pandemic corruption, population explosion, growth of slums in undesignated areas, disposal of plastics, importation of unskilled labour among others. This is probably the time for the country to re-think and re design those economic activities for the benefit of the country. Some of the unique activities may have developed because of poor implementation of policy or the lack of it. These have actually been affected very much by the coronavirus. It also includes Agriculture.

While it may not be affected negatively, it is possible that it’s now time for agriculture to be restructured in the economy in a very unique way.  Besides the above, we also have this challenge of development not reaching the ordinary people. We have been able to identify the vulnerable communities and how the economy works. But this has been brought down by the virus. How do we end the endemic poverty? How do we involve the bottom of the pyramid in wealth celebration?

Government long term goals

The coronavirus has brought war conditions. We need the war cabinet to deal with the economic crisis. Restarting and restoring the economy is ageneral goal but it should not be considered in isolation. Itshould be related to long term goals of government which include social economic transformation of the Uganda society. This has eluded this country and indeed African countries for years. Today over 26% people in Uganda are below the poverty line (2017).Less than a dollar per day and about 50% live on less than US $ 2 per day. If you go by our rural population, its 80%, it is also reported that 60% of the population is engaged in agriculture which contributes about 25% of the economy. Most of them are on subsistence production. It means that the people who really are poor are many. These figures have to change for the better.

Shutting down an economy has challenged millions of people who live day to day. It is massive unemployment. These people need urgent attention of government.Uganda has to act urgently and now has tremendous opportunity not only to restore the economy but put it on a path that should benefit the large number of people in the country. The consequence of failure to restore and improve economic normalcy is not only social unrest butsliding into abject poverty. The situation will be worse if COVID 19 medically wrecks the nation. It still has potential to do so if our leadership doesn’t take optimal decisions and if peopledon’tbehave in a desired manner.

Uganda’s economy has been growing over the last 30 years or so at an average of about 5% per year. From past experience, cases of Japan, China and Singapore among others, an economy needs a sustained average of 10% per year for over 10 years to be able to transform into a developed economy. Uganda’s economic growth figures, may be the highest achieved could have been 7.5% in one year, otherwise the figures of an average at 5% growth rate in GDP per year cannot produce the desired results.But there must be a check on our population growth figures. With a population growth rate of over 3.5%, there can be no meaningful reduction in poverty in the economy. This means that Uganda is actually short of the necessary numbers to enable it to transform not only into a middle-income country but into a developed country. And when you add the fact that this growth is coming from a few individuals, this growth is not impacting the majority of people in the country.

Uganda’s vision 2020 had envisaged achieving a middle-income status by 2020, this year! Middle income is when per capita GDP of a country is between US$1,026 and US$12,475. Uganda is US$642! A new date of 2040 has been set. Without change in a way we do business, this may again be elusive.  As is often said we have economic growth but we don’t have economic development. Knowing well that 80% of the people live in rural areas and agriculture occupies about 60% of the population, it is clear that the growth in the country is not impacting on the entire population. This is the change you need to see. Those figures must change considerably to see economic transformation in the country. In developed countries, an average of 3% of the total population is in agriculture! That 60% in Uganda should moveto industry and services. The economy will be growing.

We need a target GDP growth rate of 10% per year. But how do we do it? This is the quality of our decision making. We have the expertise to indicate what we do to achieve. We need 100% literacy rate within 3-5 years. This is crucial in mindset change and building a middle class. It is also important at improving the quality of entrepreneurship, persons and ideas. If you attempt to incubate not so literate People in business start-up, you will not succeed. We can indicate what we want to do to get to the middle income status. Address agriculture! Address IT. Check our expenditures on both. If you want something to die, don’t make it a priority. We can also address population growth with simple solutions.All these should be targeted for growth

Addressing the problem. Strategies.

Government must take some immediate measures to kick start the economy. These will be a set of policies including monetary, fiscal, education, health and environmental policies among others. Government must also address some of the unique aspects of the economy that are not functioning properly.  Or those that are bottlenecks to economicgrowth. As short-term measures are implemented, government must address long term issues, removing bottlenecks and providing policy directions to ensure growth and development. Some bottlenecks may be dealt with in both short term and long-term measures. It is an enormous and horrendous task.

The measures to restore normalcy will not be ordinary policies and decisions, the status quo must be disrupted. We must be ready to abandon what we know and what we have done so well. It is said that if you continue to do the same thing and expect different results, you must have something wrong with you! The country needs to restate its development goals and evolve short-term, medium-term and long-term strategies to achieve them. In this parttwo (2), I will deal with only immediate measures. 

The Immediate Intervention Measures

There are immediate measures that government must take to kick start and or stimulate the economy. Theseincludes, addressing the budget. Othermeasures are simply reliefs to enable business restart. Some are HANDOUTS. Others assistances to businesses to enable them secure either loans or overdrafts with a view to kick starting their businesses. Some issues deal with rent and tax

We must agree that all nations have incurred losses. The losses are a collective aggregation of losses by individuals and organizations. We have to keep that in mind as we decide. Not an orthodox way of decision making, neither orthodox decisions, but they must be made. They include the following.

  1. Cut the national budget.

The first and most important is management of its national budget. Before the Coronavirus, there were shortfalls in the tax collections (Possibly this is what may have led to the change in leadership at the URA). The Coronavirus will lead to decline in GDP this financial year 2019/20. It may be up to 30% decline. Our tax collections are about 15% of GDP, if GDP declines, taxes collected will decline. Government therefore must urgently address the budget deficit in 2019/20 through reduction in expenditure. Luckily the lockdown locked some expenditures, but these may not be much. It was assumed that other than salaries all other expenditure has to be frozen.

Government must negotiate loan repayment with the IMF and World Bank. President Museveni has called for cancellation. Still better than rescheduling. There is no choice. Almost 30% of the countries budget is interest andloan repayments. Next year’s budget 2020/21 must also be recast in light of the recession and low growth expected in that year.  Austerity measures, discipline is required. This is tough for a country that cannot meet its entire annual budget, how much can we borrow and what is acceptable? But tough times calls for tough decisions. These will be budget cutting.

  •  Wave Rent for 3 Months!

Sounds foolish, yes it does. But very rational. A group of people have not worked for the month of April, part of May and didn’t work part of March. As we re-open, businesses will take time to pick. Even those business that have been open, there was decline in business. I will be surprised if Mobile Money transactions did not drop by over 60% so, nothing is wrong in this crazy proposal. The world has made a loss, and so will government and so will organizations andindividuals. Let this country forget rent earnings for three months! And even for URA for that periodand PAYE. Individuals and organizations have not been working. Ofcourse there are exceptions, many families have had to receive food! In the same vain there should be a waiver for rent!  Waive the rent payable otherwise tenants may simply get out of these buildings. This must be seen as part of the national loss. KACITA, the Kampala Traders Association already listed things they feel government should support them in. These include rent. Crazy but crazy enough to ease business start-up. These are not ordinary times.

  • Handouts to business, people, bottom of the pyramid (Very Controversial measures!)
  • Give every boda-boda “proven owner” Shs 10,000 a startup capital. These are less than 1,000,000 Boda-boda is the country. They have associations. This is equivalent to the 5 kilos of maize. Total disbursement may be Shs 10 billion utmost.
  • Give registered market vendors, estimated at 200,000 from their association, startup capital of Shs 100,000 that is Shs 20billion.Every market has a register of active members.
  • Give registered shop keeps Shs 50,000 per shop as working capital.
  • Farmers can be given money to buy seedlings. Money, not actual seedlings.

Mine, a proposal to think about and work out details. Nobody is obliged to accept them. But at least, I have made Ugandans think of weird but pragmatic solutions.

  • Ideological Review

As an immediate measure government needs to address the issue of ideology. Whenever we talk about ideology the feelings many people get is there they go again, they are talking about socialism and communism! We have missed an opportunity to build a national identity because of the scare. Many nations take their young people through a national service. We tried with Kyankwanzi and government was labelled communist. Without a common understanding of our problems as a country, without pride that we are Ugandans and that is what God made us, we cannot build consensus on a development approach. Neither can we build a nation.

Ideology is how we want to manage our society and in summary it is about the role of government in the economy. We have this famous “Government Etuyambe” demanding help from government, but when it does it is suspected for introducing socialism! We blame government for every challenge we get. During the Coronavirus pandemic, we wait for food from government! Different situation give different lessons. Government needs to assert itself.I noted that our different political parties do not differ much on the role of government. But to expect ordinary Ugandans peddling food in markets and manufacturing products on streets to compete with multi-nationals or foreigners with money is to ask Ugandans swim with the sharks. Perpetuation of poverty is imagining that capitaless Ugandans can compete with foreign capital. This has to change.

  • Reduce Taxes

Right now, what the country requires is a reduction in tax rates! This means that government is going to collect less money but government must have confidence that by reducing tax it is actually encouraging more people to pay and you may have a neutral tax stance. So, it is important that the following things are done;

  1. Government must revise its budget down both revenue and expenditure. While there was a supplementary budget of about Shs300 billion recently for the coronavirus war. The annual budget for 2019/20 was Shs34.3 trillion. Tax collection in April to June, may drop by 50-80%. The budget must be revised accordingly. Unfortunately, government usually makes quarterly transfers! The money was already sent based on expectation! Very likely we shall borrow externally to meet the deficit. The 2020/21 budget must also be revised down ward. Unless if we can absorb more loans. But having said that, the expenditure burden of government has to increase. We shall need more money for health, but most important money to restart the economy. We shall apply the Keynesian logic of giving people salaries for no real work done. Handouts to business people fit in their category. The biggest challenge our policymakers will have in years!
  2. Individual income tax rate must be reduced to 20%  including the PAYE
  3. Reduce the corporation tax rate to 20% for formal businesses and 10% for informal. The informal business should be based on a flat figure charged on sales figures.
  4. Reduce on the VAT from the current 18% to 16%. The intention is to have more business coming into the tax bracket.
  5. Reduce taxes on property to 10%.
  6. Small businesses should be specifically targeted for tax holidays and tax waivers for 3 years. They are the worst hit during this period and they should, therefore, have the biggest benefit in terms of government assistance to enable them to restart the businesses. For the next one-year small businesses should not be taxed to enable them to restart the businesses.
  7. There is an issue of government vehicles, the government collects so much money on vehicles making them so expensive and yet it must find the same money to pay for its vehicles. Remove taxes on government vehicles and make them cheaper for the government.  
  8. Remove taxes on income from securities.
  9. Increase tax rate for those who earn over Shs 50 million per month to 30% and those who earn over 80 million per month to 35% and those over 100 million to 40%.
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