Museveni has caused the economic crisis in Uganda, say economists
President Yoweri Museveni’s government has received unkind treatment by economists as the biggest cause of the economic crisis currently being witnessed in the country through unprecedented business closures, rising numbers of problem banks, rising poverty and starvation.
The ruthless verdict came during a public debate on, The Turbulence in Uganda’s banking sector that was organised by Makerere University Business School (MUBS) under its Economic Forum this week.
While The MUBS Principal Prof. Wasswa Balunywa thinks the economic downturn is an expected outcome of an election year, most of his colleagues argue that the government has committed several mistakes including allowing foreigners to wield overwhelming control of key aspects of the economy.
In regard to the banking sector, economists feared foreign banks have engaged in anti-competitive practices such as agreeing to set very high interest rates to borrowers that have discouraged genuine borrowers and instead invited intentional defaulters.
The focus on Uganda’s ailing economy by the MUBS Economic Forum was meant, according to Dr. Isaac Nkote, the Dean of Faculty of Commerce, to identify the causes of the crisis as well as guide government on how to escape what many fear to be a much deeper crisis on the scale of an economic recession.
The takeover of Crane Bank by the central bank last month has lifted the lid on the staggering scale of non-performing assets, and by extension on the performance of other growth nerves of the economy such as manufacturing and real estate.
Using a historical perspective as a former central banker as well as Managing Director of the defunct Uganda Commercial Bank, Prof. Ezra Suruma argued in his Keynote Address that the corrosive debts held by commercial banks are likely to be a result of mismanagement coupled with weak supervision.
Prof. Suruma, who currently Heads the Delivery Unit in the Office of the Prime Minister, said that when he was both in BoU as Deputy Governor and in UCB as MD, managers wantonly lent to relatives and friends. But Suruma too acknowledged that the government instituted unrealistically stringent measures for entry into the banking market by indigenous Ugandans. He cited the government’s decade-long delay to introduce legislations governing SACCOs as a major oversight that has partly caused the collapse of most savings and cooperatives societies across the country.
More dangerous to the economy though, speakers argued, has been the government’s inability to live within its means as seen in terms of its unquenchable thirst for loans from commercial banks to fill the yawning budget gaps.
By offering banks double digit interest on its treasury bonds, Wilbrod Owor, the Executive Director of the Uganda Institute of Bankers, argued, the government automatically set a mark too high for the business community to jump.
“Lets face it, banks are in business and here to make money. If the government is willing to borrow from you at 17%, you cannot lend [to the private sector] below that,” said Owor.
The debate comes amid what is perceived to be a very serious banking crisis. Following last month’s Central Bank takeover of the management of Crane Bank, the spotlight on the banking sector has revealed that the banking industry is tittering on enormous amounts of bad debts that have accumulated largely because of business failures as well as unscrupulous behaviour by bank managers and owners.
Martin Okumu, the spokesperson of the Uganda Chamber of Commerce placed blame at the door of the banks for making it impossible for genuine businesses to access credit at affordable rates.
“There is not genuine business that can borrow at 26 to30 percent in Uganda and be able to survive. There are no businesses that can be able to make those margins. So by banks raising interest rates to that level, they ought to have known that they are attracting fraudsters,” argued Okumu.
Bank of Uganda’s role as a supervisor of the commercial banks also came under serious question with some noting that the central bank has done little to strengthen its supervisory arm to be able to stop unscrupulous behaviour by bank managers.
Still, the back stops at the president, so argued some economists, for keeping the same team of ineffective regulators who have presided over the biggest number of bank failures in the region. Even with his frail health condition, Prof. Tumusiime Mutebile has kept a stronghold on the monetary policy buttons despite growing concerns that Bank of Uganda needs to abandon its hawkish view on maintaining low inflation so as to stimulate growth.
It was revealed that commercial banks are holding up to Ushs1.1 trillion in bad debts.
Allow economic domination of foreigners
The current downward spiral of the economy has strong roots in bad decisions that were taken by the government when it chose to award billions in government projects to foreigners that have simply shipped out money from the economy as they develop huge infrastructure projects such as roads, dams and airports, economists argued.
Over the past decade, Uganda has spent billions of borrowed money on building power dams, roads and other infrastructure projects by hiring Chinese and Indian firms to do a job many now believe should have been shared, at least partially by Ugandans.
Even the most ardent defenders of government such as Moses Byaruhanga, appeared to agree with critics when he argued that the awarding of all major infrastructure deals to foreigners was a mistake.
Gov’t to nurture own companies
Byaruhanga pointed out that the government has realised its mistake and is now ready to support the establishment of locally owned construction companies that can be able to win major tenders for projects like power dams and highways.
While government appears to be taking steps to correct some of those mistakes, a number of people doubt its ability to implement the needed economic reforms, such as rooting out corrosive corruption, revamping the agricultural sector, reducing the size of government and hence the budget deficit.
But even when successfully implemented, the MP Hoima and Deputy Chairperson of the Parliament Committee on National Economy Dr. Lawrence Bategeka argued that, without mindset change especially among the majority youth towards production especially targeting the export market, the country will not experience meaningful economic transformation.