The IMF/World Bank supervised theoretical economists at the Bank of Uganda will be responsible for Uganda's post-coronavirus economic failures. You borrow $491 million, with $151 million going to budget assistance and UDB. $340 million solely for the Bank of Uganda to fix the currency rate!
Textbook economics is based on primarily Western ideas about how African economies should function. Most western nations have given billions and trillions of dollars straight to SMEs, manufacturing, farmers, enterprises, airlines, hotels, and so on in order to quickly restore their economies, but those of us who are emulating the capitalist west are doing so ineptly.
For the past 30 years of my adult life, I've heard, read, and seen the Bank of Uganda spend millions, if not billions, of dollars to stabilise exchange rates, yet Wapi! The shilling continues to rise towards heaven.
During the country's worst economic circumstances, the shilling was at 7(seven) shillings to a dollar in 1979, owing to substantial agricultural exports like coffee, cotton, and tea.
In 1987, the currency was reformed, and the shilling was pegged at about 7 (seven) shillings to the dollar. The shilling began to fall due to a lack of export profits to maintain it. In reality, when all industries and agricultural exports collapsed, the nation shifted into high gear, replacing even minor exports with a fully import-led economy.
The Bank of Uganda began what is known as exchange rate stability. But, as they say, doing the same thing over and over again and expecting different results is a myth. Today, the shilling to dollar exchange rate is 3900 shillings to one dollar, representing an almost 1000 percent depreciation of the shilling.
With the coronavirus lockdown wreaking havoc on the economy, the Bank of Uganda turns to its regulator, the IMF, and borrows roughly $500 million to stabilise exchange rates. Gosh! This kind of economics is awful! As a farmer whose poultry farm had suffered greatly as a result of coronavirus effects, I listened to the president brag about recapitalizing UDB and felt relieved that many of us farmers and others involved in the employment sector and direct economic contribution would rush to UDB and borrow to directly stimulate the economy, or so we thought.
The theoretical economist at the Bank of Uganda had a different perspective! The country is crying for an economic stimulus that will spur agricultural exports and agro-based industries to bring in the much desired forex, but Bank of Uganda economists think first exhausting the forex reserves and then borrowing to stabilise exchange rates is the best way to rejuvenate the collapsing economy.
I now believe Isingoma is a cassava farmer from Bunyoro or Tooro. Around 2009 or 2010, the Bank of Uganda invited me to a session at Munyonyo, which was conducted by the IMF and World Bank. The event was primarily intended for farmers and banks. Many poultry and crop producers gathered since the Bank of Uganda/World Bank was searching for methods to improve agricultural finance.
At the group stage discussions, a white man from the world bank kept moving around groups and telling us to come up with an idea of small cluster farming groups of five farmers all over the country so as to spur commercial agriculture.
Mr. Isingoma, a farmer in the west region who had over 500 acres of cassava and was selling cassava cuttings to South Sudan, aside , as we sipped the tea and coffee provided, told me, "These guys at the Bank of Uganda and World Bank seem to know nothing about agriculture and its importance to the Ugandan economy." He wondered how he, as a large-scale farmer who should be supported with mechanization, is now being told to go down and look for other four farmers to cluster and get some little assistance as if he was a subsistence farmer.
He, like the majority of the attendees, rejected the concept.
Isingoma also described how an agricultural extension official from his district came hunting for him despite never having visited his enormous cassava field. He comes upon someone whose Land Rover has broken down. He comes to a halt to inquire about directions to Isingoma's property. Isingoma was the one whose Land Rover had broken down.
To him, that kind of ignorance of an official meant to provide him with agricultural extension services defined the problems agriculture was facing in the country, much like the bank of Uganda going to farmers with a complete lack of reality.
He told me how agricultural officials were all running to his farm to book cassava cuttings, but unfortunately, both the cassava in the ground and the cuttings had been paid up front by the South Sudanese.
The Bank of Uganda and the World/IMF went back from the Munyonyo Workshop without getting the farmers to support their very unrealistic solution to commercialise agriculture and provide it with the most needed credit. They came with their preconceived ideas and hardly took the real experiences and proposals from us, the farmers.
In the same workshop, one Ugandan and Victoria Ssekitoleko , who were from the FAO regional headquarters for East and Southern Africa, castigated the bank of Uganda and the government for ignoring agriculture in the country in accordance with the Maputo Declaration, which hoped that governments in Africa would put 15% of their national budgets into agriculture. The FAO officials accused the Bank of Uganda and the government for loving talk shops that promise a lot to agriculture. but doing nothing in the end. I remember telling the Ugandan gentleman who was highly placed at FAO that I wished he was my uncle! The whole hall laughed, and during the break only remembered me for that and not my pleas for agricultural funding.
After a number of similar workshops, the bank decided to give some money to the banks to lend to farmers. Unfortunately, as I have always told bank of Uganda officials at such workshops and agricultural shows in Namboole stadium, the money in the banks is largely lent by the banks to Indians who borrow it to buy agricultural equipment at low prices from India and other Asian countries, come to Uganda and enjoy tax-free importation of agricultural tools, but sell them to Ugandans at 5-10% of the cost price.
The banks fear lending the money to Ugandans who don’t have good cash flows as farmers or outrightly lack title securities.
Last year at Namboole, I raised the matter with Bank of Uganda officials. This time I met my old friend, Mr. Kizito, the BOU PRO, who gave me his card and assured me that I could call him if I encountered problems with agricultural facilities at the banks. When I moved to the DFCU bank stall , a young man marketing the DFCU bank facilities seemed to prefer to market their commercial and salary loans. We had a discussion on the agricultural facility but he confirmed my usual fees. The facility is available to largely importers of agricultural tools; in fact, traders of agricultural tools with good cash flows are largely Asian and Chinese traders.
I believed that the facility was really meant to benefit the ordinary farmer, who needed cheap credit at 10% and not the high commercial rate of between 30 and 60% depending on whether you are borrowing from a bank or microfinance, so I approached UDB for the cheap agricultural credit to buy chicken layer cages, milling and feed mixing machines, and a truck for ease of transport at my farm. A proposal was done , evaluations and field visits were done, and I even got assurances that the proposal and the project were all OK. I waited for a call to sign the loan contract, but none came.
Later, I met a friend who had gone through the same but was given very little of what he asked. He told me , my brother , forget UDB, it has no money. When I mentioned that to UDB officials, the lady looked down and had no answer. I knew my friend was right. It took UDB over three months to give me an answer. The officials quickly told me they were waiting for more government funding or further capitalization before finally telling me , "First try and do it yourself, we will come in later."
Yesterday in the papers I saw the UDB extract of financial statements and phew! The national development bank had total assets of 486 billion shillings, roughly $130 million. It had made a profit of about 10bn, or roughly $3m . I laughed instead of crying for Uganda. The national development bank has 130 million dollars in total assets. How will that bank spur development? That is what one or two serious factories or export-oriented agro-industrial farmers need to produce, add value, and export the mayonnaise from eggs. In fact, that’s not even the worth of one of the many football players in Europe, yet the total assets of a bank meant to fund development in the country are not even equated to that of David Beckham.
So when the same papers had bank of Uganda officials explaining that the $491m was to cushion the shilling and not to seriously recapitalize UDB for post coronavirus recovery, I knew the country was simply heading back to its usual rhetoric of agricultural commercialization as the theoretical economists at the bank of Uganda regurgitate textbook theories with an IMF/world bank dose .
With the Bank of Uganda not even advising the government to settle domestic arrears owed to local businesses, Ugandans should brace themselves for austerity measures courtesy of the IMF via the Bank of Uganda, rather than the president's promised economic recovery.
These are my views as a Ugandan farmer and a lawyer suffering losses during the lockdown, not as an economist.
0 Comments