Business and EntrepreneurshipPolitics and Government

UGANDA, and the East African Community: A case for demand-led growth in the economy.

A tonne of sugar costs $705 to transport from Kakira to Nairobi. From any other market, including Brazil, the least cost of transportation for a tonne of sugar is $840!

That would be a mundane figure, if it wasn’t for the fact that Kenya, Tanzania and South Sudan prefer that sugar that costs them higher to import than the one from Kakira, or Uganda for that matter.

At around 20:00hrs or 8pm, I flipped the channels so my kids could get cartoons off their minds and sleep. Flipping backwards, the intention was to end up on Investigation Discovery at 171.

Fortunately, I landed on UBC TV. And, unsurprisingly, the President was being aired live, addressing a crowd of serious-looking sugarcane farmer groups in Jinja City. I decided to listen.

Basing his speech on facts and history, which he does with an excellent grasp, he lamented that Uganda was having a surplus of everything; sugar, sugarcane, ceramic tiles, sweaters, blankets (one factory produces 10,000 per day and sells 3,000), motorcycle tires, milk and milk products and even, electricity.

No one in East Africa, believes this. The Kenyans are so mortified that they are sending a delegation to come check how Uganda can have a milk glut! Uganda, actually produces in excess of 2.2 billion litres of milk, but consumes only 800 million litres.

Let us take milk. The recommendation is that one takes 3 cups of milk per day or 732 millilitres per day, which translates into 270 litres per person per year. At that rate, Ugandans, 42 million of us, would need 11.34 billion litres of milk per year! Over and above the paltry 2.2 billion litres of milk we produce per year. At 800 million litres of milk consumed in Uganda, annually, our per capita intake is 19 litres per person, leaving a deficit of 251 litres of milk per person! The reasons why we don’t take milk are many, but the first is that it is a luxury most can ill-afford, so we leave it to mostly under-12-year-olds, in most households.

Granted, some are lactose intolerant, and some have health concerns that may make them not take it.

The argument is that Uganda, had it stopped relying on the neo-classical school of economic thought which considers profit-led growth instead of demand-led growth, we would be far. M7 wouldn’t be aging trying to talk to these doomed Black Africans about the need for integration. They will NEVER get it. They would rather see their neighbours fall, and in fact celebrate the fact, than celebrate and embrace shared prosperity.

Profit-led growth looks at the wage as a cost. For 33 years now, the neo-classical economists in charge at Bank of Uganda, and Ministry of Finance, see it that way. On the other hand, demand-led growth looks at the wage as a driver of productivity, and aggregate demand, or vice-versa. The only wage-led growth economist that has come out strongly is Dr. Fred Muhumuza. Wage-led growth is cyclical. It caters to the greediness of the capitalist investor, while improving the standard of living of the worker, and ensuring s/he has enough disposable income, which when multiplied, creates a huge market, that then attracts more investment, and creates higher employment at above the living wage and the cycle continues.

Now, what is ailing M7 and his administration is NOT the lack of market for the supposed and to be polite “manufactured or artificial” surplus. It is the lack of demand, or rather more accurately, the existence of a huge suppressed/constrained demand for goods and services.

Demand-led growth economies exist. The Germans are about 83 million people. We are 42 million. The Germans produce lots of vehicles and high-end technology stuff. They also consume and can afford to the man, those products, because they have known that the first market to consider is the local one (how many Ugandans workers at Goodwill factory can afford 70 square metres of tiles per year for a small house off their savings?). Their wages MUST, therefore, be structured in a way that makes that cycle work; high wages, more disposable income, increased demand, more productivity, a large market, more investment, more employment at high wages, and the cycle regurgitates sustainable growth and high living standards.

Why should we go this way?

M7’s increasing angst at the way the rest of our so-called sister/brother countries treat Uganda, Ugandans, and Ugandan made goods or services offered, increasingly shows that respect shall only be earned if we don’t seem and are actually NOT desperate for these relations to flourish.

Kenya, can afford to be arrogant because President Mwai Kibaki laid a foundation for a wage-led/demand-led economy. The Broad Money Supply M2 for Kenya as of Saturday, Dec 14, 2019 was $28 billion. That is money in circulation available to their entrepreneurs, workers and also reflective of the vitality of the economy. Of course, Kenya is a huge economy of $98.7 billion. Kenya has 48 million people.

Uganda’s Broad Money M2 supply was $6 billion. Uganda has 42 million people and a $35 billion economy.

As a capitalist, one quickly notices that the 42 million people of Uganda HAVE no money to participate meaningfully in the economy.

Why?

  1. High Interest rates. Uganda’s average interest rates of 21%+ p.a are criminal, to say the least.
  2. Government borrowing from commercial banks at commercial rates when it could issue bonds, has the option of a Eurobond, etc, driving up the interest rates as banks have a better customer in government and cannot bet on the ride of the small, and medium enterprises. The borrowing, we are told, is only because some fat cats cut deals with a few bankers to enable the process to completion.
  3. High taxes on the few participants in the economy. And, generally, an unfair tax incentives regime that favours some, leading to low or reduced participation in the economy.
  4. Extremely low wages below the basket of goods needed to survive. 90% of Ugandan civil and private workers earn less than $275 per month. The government is the one to signal the private sector what a good, average wage should look like.
  5. An unimaginative legislature and civil service stuck in the past and stagnating the economy. The political and civil classes in Uganda are callous, because they can easily steal money to finance their lifestyles and hence DO NOT see the need to innovate new solutions to society’s problems.Where Kenya has a Public Finance Management (Car Loan and Mortgage Scheme) Regulations, Uganda maintains a stupid, corrupt and highly inefficient process of acquiring a government fleet, because the Permanent Secretaries in ministries will get cuts or tokens of appreciation from the Car Dealers.

Thus, where, we would have the 480,000 pubic servants have access to vehicle financing, making this a market where Toyota could establish an assembly plant (M7 famously declined, early this year to cut the ribbon at Toyota, Namanve, writing on two pages on the commemorative book, that they should make the cars, here), we only sell about 20,000 brand new cars per year, with 80% to the government. So, where, arguably, demand would exist for at least 200,000 brand new cars, our imagination or the lack of it ensures we remain stuck in an economy of constrained demand.

Of course, Toyota, can make the cars here. However, to do that, the wages would need to be HIGH enough to afford a car loan payment per month, and enable the operation of the same, and enabling law in place to keep the interest so low, as an incentive to workers, etc and this demand would lead to what the President has always wanted.

The same arguments made for milk and Toyota, above, can be replicated for electricity, sugar, etc.

So, the problem, I posit as a non-economist, but as a participant in this economy interested in its grown, won’t be solved by shuttle diplomacy to Juba, Kinshasa, Nairobi, Dar or Kigali. The problem is at BOU and MOFPED headquarters. These neo-classical economists shall be the death of this economy, and invariably whoever leads it politically. The lamentations over the market wouldn’t be there, if we had done this in the first place.

My exhortation is simple. The East African Community may be viable, but it will only be sustainable, if the guarantor, in this case, Uganda, can actually do without the rest as pertains aggregate demand. When dealing with Black Africans, keep in mind that they sold their neighbours into slavery.

? Nze Eve.

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