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Uganda |
FINANCES
Slowly the US dollar is becoming a medium of exchange in Uganda.
The upper
crust of Ugandan society
and the downtown Kampala Asian landlords think
it is better
The gradual weakening of the Ugandan shilling is the main reason why the dollar seems to be taking over. In 1987, President Museveni introduced a currency reform that replaced the «old» Ugandan shilling with the «new» Ugandan shilling. Called the «Museveni dollar», one new shilling was equivalent to one hundred old shillings. At the time, one US dollar was worth shs 65. A lot of water has now passed under the bridge and now to buy one US dollar will cost you shs 1,750.
Dr Suruma is head of the economic desk of the ruling National Resistance Movement (NRM) and one time deputy Governor of Central Bank. He says the shilling has depreciated by 3,000% over this period.
Celtel is the first mobile phone company to have set up shop in Kampala (in 1995) and has 27,000 subscribers. It now quotes its rates in US dollars. The South African cable television service, Multi-Choice, with 5,000 subscribers followed suit. Many landlords in exclusive suburbs of Kampala now demand that rents must be paid in dollars. This practice has spread to other sectors of the capital, with Asian landlords in downtown Kampala demanding payment in dollars. For example, there’s City House, a building managed by Sudhir Ruperalia, an Indo-Asian with mainly small-time traders as tenants. They literally gnashed their teeth in frustration because with the shilling becoming unstable, business was down and rents climbed higher and higher.
Reasonably established businessmen sublease their shops to small-time traders for $100 a month, for a tiny space. The well-healed consider it a joke to continue business in Uganda, and most direct their trade to neighbouring countries to escape high taxes.
In just one month in October 2000, the «dollar question» drove 80 people out of business and those who are still managing to keep their heads above water, have confronted the ebullient Sudhir. He told them to move out if they couldn’t afford the rent. Indeed, traders have little room to manoeuvre, partly because Sudhir owns a sizeable number of strategic buildings in Kampala and is influential in government circles. The Government told the traders that they will have to adjust to the new economic measures. This annoyed the traders and many voted against Yoweri Museveni in the March 2000 presidential elections.
Uganda is one of the African countries highlighted by the Bretton Woods Institutions as a success story. The country pursued all the policies handed down by these bodies without changing an iota. And this included opening up the economy and allowing a free flow of hard currency. Yet her shilling is treated like garbage in some quarters. The problem is, the Ugandan shilling is weak, partly as a result of lack of production to back it up.
Diversifying the economy
Frank Griffith, Managing Director of Barclays Bank and president of the Uganda Institute of Bankers, has criticised the «dollarisation» of the Ugandan economy for creating an artificial shortage of foreign exchange and making importers’ lives a misery. It should be noted that at one time, Uganda’s foreign exchange depended mostly on coffee which accounted for 65% of the earnings. But coffee took a beating on the international market and Uganda is realising that she is losing her competitive advantage, largely because of shortage of labour complicated by the AIDS pandemic.
Attempts to diversify exports have sometimes been scuttled. The recent ban on Ugandan fish to Europe, cost the economy $100 million while it lasted. The fact is, Uganda has few choices when it comes to diversifying her export sector. She is now trying her luck with mining. The Central Bank put up $15 million to assist businessmen who could market other products, but much of this has remained untouched.
Potential investors experience a nightmare when it comes to working their way through Uganda’s bureaucracy. And once that’s over, then there’s other problems to be contended with, such as the country’s notoriously unreliable telephone system. Also, the country’s Land Laws do nothing to make investors feel secure. Foreigners are not allowed to own land. They only lease it. No wonder many of them leave the country to small-timers.
Local firms should be encouraged
Ironically, local investors don’t fare that easy, because the government prefers foreign investors. But why give generous tax benefits to foreign investors and then come down hard on local investors? «The Government should realise that it is the local people in the long run, who have a vested interest in this country’s economic progress», says Yona Kanyomozi, an economist and formally a minister. «If problems arise here, then foreign investors take the next available flight home».
Local industrialists have tried to stress this point whenever they meet government officials. The former head of the 500-member Uganda Manufacturers Association (UMA), James Mulwana, told Emmanuel Mutabile, who was Secretary for Treasury (but now Governor of the Central Bank), that «it is not proper for local Ugandan firms, struggling to get off the ground, to be subjected to competition from foreign firms». His solution is to maintain duties on imported products for a period of time, allowing local firms to grow. He says Ugandan industrialists are overtaxed, paying 40% of the taxes collected, yet they contribute 10% of the country’s economic output.
Perhaps, people like Mr Mutabile should be listened to more carefully!
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