ACME ISSUE BRIEF No. 1
THE CENTRAL ISSUE
THE PRIVATE SECTOR AND THE 2014/15 BUDGET Ahead of the reading of the national budget in 2014, the African Centre for Media Excellence (ACME) hosted Mr Gideon Badagawa, the executive director of Private Sector Foundation Uganda. PSFU is the “apex body for the private sector” in Uganda. Mr Badagawa spoke at ACME on the evening of Thursday, 15 May 2014, under our “An Evening With…” monthly speaker series aimed at getting primarily journalists to engage with a variety of subjects in an informal setting. The talk focused on what the private sector hopes to get out of the budget. The budget process in Uganda is one of the more open and consultative in Africa. And the private sector is a key constituency because Uganda seeks to run a private sector-led economy. The private sector voice is channelled through PSFU, a body that policymakers take quite seriously.
About 90 per cent of the private sector in Uganda is made up of micro, small and medium scale enterprises (MSMEs) and is largely informal. In fact, 75 per cent of MSMEs are informal: not formally registered, not paying taxes. Mr Badagawa argues that the private sector cannot drive the economy when 75 per cent of it is informal: you don’t know where this private sector is located, how much it is doing. Only when large industrial entities such as Mukwano (soap, cooking oil, etc.), Madhvani (sugar, electricity), Nile Breweries (beer, bottled water) get to constitute 30 per cent of the private sector will the sector actually begin to move/lead the economy. Did the government perhaps leave business/ liberalise prematurely?
REPORTING TIP Is Uganda doing enough to grow the private sector? This is the broader question.
Issue As would be expected in a country that ranks quite poorly in annual surveys such as the World Bank’s Doing Business (Uganda ranked 150 out of 189 countries in the 2015 report) and the World Economic Forum’s Global Competitiveness Index (Uganda ranked 122 of 144 countries in 2014/15), the private sector would need many things from the budget. Mr Badagawa listed some of those. Reporting tip Why does Uganda perform poorly compared to neighbours such as Rwanda in these rankings? Is it because of bad policies? Is it because good policies are not enforced diligently? Does politics interfere? What is Uganda doing to improve conditions for doing business, for enhancing competitiveness? Some pointers lie in the points raised hereafter.
Infrastructure Building up energy and transportation infrastructure (including crossborder infrastructure), for example, is more important to the private sector than offering businesses tax holidays. You can offer 20-year tax holidays, Mr Badagawa said, but you won’t attract serious businesses with dilapidated infrastructure. Steel manufacturer Roofings alone needs about 50MW of electricity (Uganda has installed capacity of nearly 900 MW) to operate at full capacity. We are not bothered about the cost of power, he said. We just want availability and predictability. “Let power be expensive, but let it be there.” He added that the reason there is less than 15 per cent trade amongst EAC countries presently is because of poor transportation infrastructure. If Uganda moved its inbound cargo from road to railway, the cost of transportation of goods between Mombasa and Kampala
would reduce from $129 per ton to less than $60. Reporting tip 1 The government has rolled out major energy and transportation infrastructure projects from large hydropower stations to the standard gauge railway. The issue is: are Ugandans getting value for money i.e. are these projects being properly negotiated, are they proceeding on time and are they within budget? What are some of the social and environmental costs? Are some of these projects already making the kind of difference the private sector expects? Reporting tip 2 How much electricity is Roofings actually consuming and at what cost? If it consumes up to 50MW, what are the implications of that? Do some domestic customers get rationed more regularly? Is Roofings the single biggest commercial consumer of electricity in Uganda? If not, who are the others? Reporting tip 3 Intra-EAC transport infrastructure is being addressed, more aggressively through the Northern Corridor countries of Uganda, Kenya and Rwanda. Work has been going on for a year; just how well is the collaboration developing? What are the results/ benefits so far? While at it, how did the collaboration amongst the three countries actually start? Whose idea was it? Speculatively, if/when one of the three leaders leaves power, will the coalition of the willing survive in robust health? Reporting tip 4 Tax breaks now have a bad name. It is worth assessing how many tax breaks Uganda has offered and to which companies in the last three or four years that debate on tax holidays has been on — essentially saying they are a bad idea.
Efficiency and effectiveness in allocation of public resources PSFU wants money pumped into sectors that create wealth and employment such as tourism, agriculture, away from consumption (say creation of new districts or constituencies).
Reporting tip The question of how prudently public money is used (allocative efficiency) in Uganda is a perennial one. How is it being addressed, if at all, and to what benefit?
Skills More vocational training is needed yet Skilling Uganda (a programme that aims to provide technicalvocational skills to “enable individuals to increase productivity and raise incomes”) is not being properly funded. Government could provide incentives for industries to attach students for internship and apprenticeship. Reporting tip What kinds of incentives would work? How far has Skilling Uganda gone? Is it showing any tangible results? If not, why not?
Business finance This is a problem because policymakers tend to think long yet finance short. The government should recapitalise Uganda Development Bank with up to Shs120 billion a year, instead of Shs10 billion, for it to be able to support exportoriented businesses. This is crucial because commercial banks are quoting interest rates of 23 per cent and that is prohibitive. The government needs to look at development financing away from commercial banks. “Elsewhere, sectors are matched to banks.” Meaningful money for agricultural credit may only be provided by a specialised bank. Reporting tip The need for patient yet cheap capital is crucial to grow businesses, create jobs and increase tax receipts. Yet capital remains very expensive in Uganda, hobbling many businesses. Why doesn’t Uganda have merchant banks, cooperative banks, agricultural credit banks? What is being done, if anything, to correct the situation? Are any policy options under consideration? Product development and standards Ugandan universities should take the lead in incubating firms. The School of Food Technology, Nutrition and Bio-Engineering at Makerere University and the freestanding, but government-run, Uganda Industrial Research Institute are al-
ready incubating businesses, but more is needed. Mr Badagawa said the private sector is ready to help, by say paying a training levy, but there is no regulatory framework. Reporting tip A survey/profile of incubation firms that have grown into independent profit-making entities could be informative and educative. Why is there no regulatory framework, or maybe it is dated or inadequate? Legislation Many business laws take too long to be enacted — an average of five years. The counterfeit law has taken eight years and is yet to be passed! No investor will come here to produce and put his products on the market only to be done in by counterfeits and substandard products, Mr Badagawa said. A World Bank project once sought to have 18 business-related bills passed by Parliament in five years and only six were passed. Of those passed only four were assented to by the president. Even for those assented to, it takes a long time to pass attendant regulations. Reporting tip Which interests shape this kind of tardy behaviour? Who is benefiting? Who is losing? What does the World Bank say? How much did it spend? What has since become of all those pieces of proposed legislation? Have the ones that were passed made any demonstrable difference?
Bureaucratic support The government is not putting enough resources into public institutions that support the private sector, for example Uganda Bureau of Statistics. UBOS needs to function effectively to generate regular agricultural statistics, conduct manpower surveys for better planning, etc. The Uganda National Bureau of Standards also needs more money. Not all counterfeits/ substandard products are imported. “We the private sector produce them here,” Mr Badagawa said, hence the need for a robust UNBS. Of the more than 70 entry points into Uganda, he said, UNBS can only be present at fewer than 13! How can you stop counterfeits entering the country? Reporting tip Inadequate funding to these institutions is definitely a big issue. But what else? Is management an issue? UBOS is reputed to run one of the best statistical systems in Africa, so it probably needs just a little push to do much more robust work consistently. What do successful examples from elsewhere teach Uganda?
Hits and misses Of the things outlined,
Tourism This is a priority sector as spelt out the National Development Plan, but it is one that gets lip service year in year out. Kenya invests $23 million in promoting tourism and fetches $3.5 billion per year, Tanzania puts in $10 million and reaps $3.2 billion, Rwanda injects $5 million and bags $2 billion. Uganda, because it thinks tourism is a purely private sector matter, puts in $330,000 and gets $650 million. The point is you reap what you sow. Now the World Bank is providing $25 million for tourism development to be administered by PSFU.
What did the private sector get from the 2014/15 national budget?
What do PSFU and its members say?
What do the money people in ministry of finance say?
What do MPs say?
What are PSFU’s options going forward?
Reporting tip The reason Uganda does not put as much money into tourism promotion as the other EAC countries is because it has made the choice not to. Why this choice? What are the considerations? How is the PSFU running with the World Bank’s $25 million? What are the results thus far, if any?
African Centre for Media Excellence Plot 124 Nanjala Road Bunga Soya, Kampala P.O Box 11283 Kampala, Uganda Tel: +256 312 202 351 Email: info@acme-ug.org www.acme-ug.org