The cost of a huge government-

President Museveni addressing the 80-member cabinet at State House, Entebbe

 Cornelia Stott, in his book “The Sound of Truth”, writes that the greatest patriotism is to tell your country when it is behaving dishonorably, foolishly and viciously. Just three months ago, I wrote in these pages telling “those in charge” of this country how Broken Window Economics is misleading them in the fight against COVID-19 pandemic.

In summary, I told those in charge, who were evangelizing that some select sectors of the economy like Agriculture will not be affected by the pandemic, that economies work like human bodies: when the buttocks are itching, the brain loses comfort! As a patriot, I exhaust my fingers—telling them about the defects of their huge government—in this piece.

Dictatorship of Boredom

I have kept my eyes gazed on this government for quite a while. This government is huge, greedy and makes nosy, officious and dangerous intrusions into the smallest corners of life. During my classes on this government, often I wonder whether it is being run by people, putting us on or by imbeciles, who really mean it. When I try to read a script on this government or listen to anything that “those in charge” of it are saying, I feel like high-school student who has fallen two weeks behind in the algebra class.

Researchers of political history tell us that leaders grow huge governments on purpose—to establish a “Dictatorship of Boredom”. They (researchers) assert that a huge government is so tedious to put its regular citizens to sleep such that the leaders (those in charge) are the last people awake to spend all the tax money. That when regular citizens grow drowsy and torpid, they snore like a gas-powered weed whacker and cannot notice what government is doing!

Since 2006, it is as if “those in charge” (NRM leaders) have been on a mission to grow a monster government. Today, it boasts of a cabinet of 80 ministers, a legislature of about 440 MPs (most of whom are comedians), a stadium of RDCs and their deputies, an extensive list of presidential advisers (whom the president advises occasionally), presidential convoys (to the ghetto and elsewhere) and other hangers-on, an extensive local government spread around 134 districts, and a civil service of over 300,000 people. All these depend on tax revenue generated by this small economy that is mainly agrarian.

This logic is mind boggling. Did NRM intentionally choose the Leviathan model of government to establish a ‘dictatorship of boredom’? Why has government bored us, sooo much, for this long?

Yes, government is boring because political careers of “those in charge” of it are based on the most tepid kind of lie: "government will provide free sanitary pads to all girls in schools", “government will provide free internet in Kampala”, “government will provide free masks to all Ugandans above six years”, and name it. Of course politicians don't tell the truth neither do they tell entertaining whoppers!

A Monster government swallows citizens it governs

It is James Buchanan and Geoffrey Brennan (1989), who in their book “Power to tax”, warn leaders of establishing a Leviathan government—a type of government that grows like a monster because it is “assumed” to be made up of self-serving politicians, bureaucrats, professional groups and other pressure groups (civil society). They warn that a huge government often breeds two animals that eventually swallow the regular citizens it governs: indecisiveness and fiscal indiscipline.

A huge government not only becomes indecisive and fiscally undisciplined but also gets more “thugs” in a protection racket demand than what discarded first wives of famous rich men get in divorce.

Swollen and arrogant with pelf, the thugs occasionally go butting into people’s businesses to intentionally fail them. They grab people’s land, in the name of government. When people speak, they waylay young men, ship them to people’s places and tell them to “hit in the head and shut them up!” And after they lecture people on investment plans (how they became millionaires) and safe sex (reminding people to produce few children).

Huge governments borrow for fun

Momentous events in the recent years have confirmed prior views of those who have always been skeptical of this government and decried its incompetence.

January 24th 2020, a headline “Government to finance 2021 elections on borrowed cash” was in our tabloids. Later in the day, in the evening of prime-time television, Hon. David Bahati, state minister for Finance, Planning and Economic Development, appeared on TV explaining that a Shs2.4 trillion loan request was before parliamentary committee on national economy for approval. He went ahead to give a reckless justification saying that “there is no way we cannot have elections. We have to ensure by April, the resources which we need are provided”.

When Covid-19 came, late March, president Museveni, given his military tactics to tackle real life issues, switched the country on a “silent mode”. He told us (using jargons in Runyankore language) to “stop walking, keep quiet, and listen”. That in so doing, we would be able to know where the enemy (Corona virus) is coming from (okushabuuza).

Jail the “Covidiots”

While we were under cover, “those in charge” were trading us. On April 3rd 2020, there was a headline “Inside Shs. 304 billion Corona virus budget” in the Daily Monitor. Those in charge were to allocate Shs 82 billion to Health, Shs 81 billion to security, Shs 59 billion to disaster, Shs 36 billion to local government, Shs 30 billion to Kampala City Authority (KCCA), and Shs 14 billion to ICT. The devil is in details of what the money was to be spent on.

Few weeks after, parliament passed a supplementary budget of Shs.900 billion to “save our lives”. It was in papers! It was in tabloids, making rounds. In what seemed part of the deal, Member of Parliament (MPs) allocated 1% of the budget (Shs.90 billion, each bagging Shs.20 millions) to themselves to carry out supervision and advocacy on Covid-19.

The public uproar which followed, baptizing MPs as “selfish” did not catch my attention. Why? Because economists often tell us that the purity of motive that fired a young man with a righteous zeal to make the world a better place tends to evaporate when he is a Member of Parliament with a big loss-making farm and a nice looking home.
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Those in charge went begging international donor agencies that were vulnerable to the virus. The World Bank (WB) gave them Shs. 57 billion ($15 Million) as a donation, and later Shs. 175 billion ($48 million) to “fight” desert locusts. The International Monetary Fund (IMF) gave them a loan of Shs. 1.9 trillion ($491.5 Million), among other events that have happened lately.

Why are we so obsessed with borrowing yet we are too poor to pay back or to jail? Is it in our DNA that we should borrow for every expenditure? Why do we borrow to spend on unproductive ventures—politics, military, administration, etc.? What is really inspiring the current fiscal indiscipline? Those in charge know the right answers.

Stop the buck

Someone should remind them (those in charge) that it is fiscal and monetary discipline, restored by their government in early 1990s, which turned Uganda’s economy in a solid performance then. Remind them that it is fiscal discipline after 1992 which saw the economy grow at an average rate of 7.5%, poverty reduce to 21% (from 56% in 1990), and GDP per capita grow by over 3.5% (in real terms).

Those in charge should be told that ever since fiscal indiscipline resumed, beginning in 2006, all these achievements have reversed. Their government is bloated. Their government has become as fiscally profligate as those governments it fought. The economy has been growing for a few, without creating jobs. Poverty has increased, and household incomes have stagnated.

This is not good news to a government which inspires to attain a “midro” income status. As long as their government continues to spend on unproductive ventures, however much they borrow, we shall not be able to accumulate national wealth necessary to lead us to middle income status.

It is President Harry Truman, who in his farewell address to the American people, referred to his favorite motto, “The buck stops here”. Truman said to them that to build a strong state, those in leadership, whoever they are, must decide. That a strong state is one with the capacity to get things done, raise taxes, and provide public goods.

Truman’s wisdom draws from the “theory of comparative development” which argues that underdevelopment stems from having an incompetent state that is unable to create social order, discipline politicians, decide on policies, and provide public goods. In some sense, this theory speaks a lot about the same set of facts we have been putting to those in charge of this government.

Indeed, studies have always identified lack of collective decision-making at the political level as an institutional chronic disease in Uganda. They have always talked of the bad habit of indecisiveness when it comes to taking urgent decisions and policies. It is time for “those in charge” to reflect on some of these issues and appeal to their guile to reconsider some of them. Let them bury their pretense and take urgent decisions

How to restore fiscal discipline

Economists have, for long, talked about of five main policies which are essential in guiding developing countries to achieve fiscal discipline.

First, they talk of tax reforms. As they advise, Uganda needs a tax reform which is mainly based on a combination of measures to broaden the tax and enhance efficiency in tax administration. Broadening the tax base suggests removing key tax exemptions (be it sector—specific, or on interest and capital gains, or the exemption on import duties) as well reducing the size of the informal sector by necessarily incorporating it into formality. We have occasionally put it to those in charge how to achieve the latter.

Second, they talk of public expenditure reform. The reform should aim towards a reduced current expenditure and increased capital investment. Excessive current spending could be cut in the area of defense (military), politics (elections), and wages/salaries and pensions (in medium term). As revenue materializes, then capital investment, especially in the social sectors (education, health, social protection, etc.) should be raised accordingly.

Third, they talk of public debt sustainability. That countries ought to reduce the public debt-to-GDP ratio. There is need to escalate economic growth, consider concessional–multilateral financing options, and a fiscal correction on this front.

Fourth area of policy reform relates to fiscal rules through the revamping of the “Law of Fiscal Prudence and Transparency”. Revamping of the Law should proceed gradually, focusing on institutional strengthening. The design of a set of fiscal rules for government institutions should impose hard budget constraints on them and upgrade their fiscal responsibility.

A fifth area of policy reform concerns contingent fiscal liabilities. Uganda must start making transparent budgetary provisions to deal with their eventual materialization lest the “contingent risk” will make the restoration of fiscal discipline difficult.

And so?

All said, those in charge should take urgent decisions right from the onset. I know this is painful and could attract hatred if rolled across the entire public sector.

Leaders don’t need to be liked; they need to be respected. In her book “The Truth About Being a Leader”, Dr Keren Otazo, says that “if a leader tries too hard to be nice, not only will others likely look down on him as a ‘soft touch’, but may also take advantage of his good nature”. A leader just needs to be careful about doing favors or letting people

If the issues could be reconciled, the dominant characteristics of Uganda’s politics could be thrown into sharper relief and perhaps see some incipient signs of a future economic and political order in this country. It could give birth to an era where “those in charge” of this country concede that good economics is good politics. That good economic policies necessarily relax political constraints.

Mugabe Darious teaches Economics at Makerere University Business School.

Broken window economics misleading Ugandan authorities in the fight against the pandemic

H.E Yoweri. K. Museveni, president of the Republic of Uganda, addressing the nation

Just about three months ago, Uganda’s small economy seemed well on the way to a nice recovery: economic growth projections were rosy, inflation rates were cheery, while trade and political tensions were arguably seen as “not so bad”. Now all bets are off. As COVID-19 continues to spread around the globe, it has already brought our small economy to a derail.

Ever since Uganda announced the first COVID-19 case on 19th March, 2020, Ugandan leaders have been facing a stress test and they will be measured by their ability to deal with COVID-19 threat in an effective fashion. The stress levels among Ugandan leaders seem to be peaking since then. This is particularly true for all countries across the globe.

An economy is not a bulb

President Museveni held his first televised address over COVID-19 on 18th March and talked about the struggle against the disease as a “war”. Given his militarism, perhaps, this is a figure of speech, but he needs to be reminded that those on the frontline against the virus aren’t mercenaries, conscripts or enlisted men; they are our doctors, nurses, pharmacists, utility workers, etc. Interventions/tactics that are war-like may suddenly saddle our “frontliners” to death they never signed up for.

Two days later, Museveni made his second televised address over COVID-19 on the 20th March and issued new measures (16 of them) that were to “freeze” the economy and lead to its sudden shut. I could really see a stressed Museveni who stammered to announce the lockdown measures. Since then, the president has gone to conduct 9 other televised addresses over COVID-19, in addition to countless televised press conferences by ministers and other leaders.

It really didn’t require anyone to be a spy to tell that the president was opposed to such “shut-down” measures much as he seemed unaware that shutting down the economy is not like shutting down a light bulb. It is John Cochrane, my favorite Stanford University economist, who recently pointed out that shutting down an economy is like shutting a nuclear reactor: you need to do it slowly and carefully or it melts down.

Government denies the virus fuel

Nevertheless, COVID-19 has clearly proven the ability of governments to take dramatic measures to mitigate an existential threat, as well as people’s ability, at least in the short run, to adapt to new restricted lifestyles imposed by these measures. It has also taught us that the timing of the enactment of measures is crucial for their effectiveness in saving lives.

It’s on that account that I commend Ugandan government, under the leadership of President Museveni and Dr. Jane Ruth Acheng, the minister of health, for quickly enforcing containment policies that have helped to “flatten the epidemiologic curve” for Uganda.

Flattening the epidemiologic curve is done by slowing the rate of infection by reducing overall person-to-person contact, for example, via work and school closures, travel bans, ‘social distancing’, and by removing infected people from the population either by curing them or quarantining them.

Times of fear, it is said, are times of rumors and misinformation and therefore knowledge is the only antidote. Today, any well-informed economist should have some knowledge on the dynamics of spreading infectious diseases. One doesn’t need to be an epidemiologist to understand the basics of epidemiology.

A flatter curve saves lives directly (fewer get ill and so fewer die) and indirectly since it avoids bottlenecks in the healthcare system that typically result in suboptimal treatment.

Flattening the curve also buys time for drastically raising the capacity of the health sector: more beds, more ventilators, more face masks, more tests, more health-care professionals, more research funding, more testing, more tracking, name it.

The desire to flatten the curve is exactly why governments around the world, Uganda inclusive, are taking what might seem like “extreme measures”. Of course, this is in good faith to save lives. Admittedly, the containment measures taken by government, so far, have successfully gunned down my fears for a health crisis that had vehemently occupied my mind the day Uganda announced the first COVID-19 case.

Well, we have flattened the epidemiologic curve by inevitably steepening the macroeconomic recession curve. And the jury is still out on which of two things — COVID-19 or the lock-down effects — will cost more lives and do more damage to Uganda’s economy. My bet is still on the latter.

The lock-down measures have already attenuated the livelihoods of Ugandans (millions of them) who are ‘locked up’ in their homes. But as Darwin surmised, those who survive downturns “are not the strongest or the most intelligent, but the most adaptable to change.”

‘Broken window’ economics

Authorities in Uganda, for obvious reasons, are too optimistic and continue to underestimate the economic damage these lock-down measures are likely to inflict on the economy. They have been the foremost evangelists of the “Broken window economics” in the COVID-19 era.

For starters, in Frederic Bastiat’s parable of the broken window, a shopkeeper’s son carelessly breaks a window pane. A witty onlooker — perhaps Museveni’s ideological ancestor — considers this “good economics” because it creates business for the glazier who replaces broken windows.

Good economics is not common sense neither is it a broken window pane. True, common sense can enable anyone to see the cost of replacing the pane but other things require an economics lens. That was money the shopkeeper could have spent on a basket of food stuffs, a new pair of shoes, fine clothes, or on a book he wanted to read.

To cover costs like replacing the window, and get back to his previous condition, the shopkeeper probably raises prices, meaning his customers have to spend more on his products, leaving them less to spend on other things they might like. Even the glazier’s customers get screwed! Broken windows increase demand, which means higher prices. The man building a new house has to pay more, and wait longer, for new window panes.

The matter is a loss, not a gain, for everyone except the glazier in the long run. Ugandan authorities really need a refresher course in basic text book economics, particularly on how sectors of the economy are interlinked

Get atheists out of the papal conclave!

The other week I saw Hon. David Bahati, state minister for finance, when he was hosted on “NBS Frontline” to explain government’s intervention in response to economic impact of the pandemic. I saw a minister who is unfit for the job.

Throughout the show, the minister appeared like an atheist who had lost his way into a papal conclave (a meeting of the College of Cardinals), in Vatican, and was tasked to lead the second sermon meant to suggest qualities necessary for the next Pope.

Hon. Bahati said, “We have awoken to the reality of global economic disturbance. Let us quickly embark on manufacturing, import substitution and export promotion”. Of course, he was paraphrasing president Museveni’s quip from his second address while launching the lockdown measures.

In brief, authorities in Uganda are optimistic that a few select sectors of the economy will thrive. That agriculture will boost (since most people are in homes and thus more labour force to occupy gardens). That production will speed up (since there agricultural inputs), manufacturing will flourish (since there’s electricity), and that the country can embark on import substitution and export promotion.

Well, a refresher course in economics will remind Ugandan authorities that the economy is a complex web of interconnected stakeholders and supply chains: workers, businesses, suppliers, consumers, technology providers, civil society, financial institutions, policymakers, politicians, etc. Lockdown measures have led to a sudden halt of this complex web and arrested the linkages that allow economies to function.

It will also remind them that globally, economies are connected by about six (6) cross-border flows of: goods, services, knowhow, people, financial capital, foreign direct investment, international banking, and exchange rates.

When they cough, Uganda catches a cold

I will not try my hand at predicting the size of the likely economic damage the pandemic and lockdown measures will cascade on the economy. What is apparent now is that manufacturing will feel a triple hit of the pandemic:

First, COVID-19 was born from the world’s manufacturing heartland (China) and jealously spread fast in the other industrial giants – the US, Japan, Britain, Germany, France, and Italy. These G7 economies account for 65% of world manufacturing and 60% of the world supply. As COVID-19 continues to escalate and its effects reverberate in these G7 economies, the direct supply chain disruptions will attenuate production and limit manufacturing elsewhere, Uganda inclusive.

Second, the supply chain contagion will amplify the aforementioned direct supply shocks as manufacturing sectors in less-hit nations will find it difficult or more expensive to acquire imported industrial inputs from hard-hit nations and subsequently from each other. Production will be limited.

Third, there will be demand disruptions due to drops in aggregate demand (i.e. recessions). When other economies are locked, we shall not export our manufactured goods! But economics also teaches us that when a crisis is presented with massive “Knightian” uncertainty (the unknown-unknowns), of the COVID-19 type, consumers and firms tend to embrace a ‘wait-and-see’ attitude leading to delays in consumption and investment respectively.

That said, the prevailing reality should make evangelists of the cohesion message—Ugandan authorities— to quickly rethink of their interventions to the pandemic. I know the government should preach a message of cohesion and responsibility to prevent public fear and panic in this fight against COVID-19. But on the side of interventions to flatten the economic recession curve, government needs to be bolder if it’s to manage this common crisis and rebuild some trust.

Recommendations

The government should consider a worst case scenario for which COVID-19 is endemic if it is to make the “right” policy interventions that can cushion the implications of containment measures and the speed at which the economy can adjust towards more normal conditions.

Right from the onset, government should revisit the recently passed national budget (FY2020/2021) to ensure that more funds are reallocated to the health sector. As a first priority, the health sector should have funds to support all necessary spending on prevention, containment and mitigation of the virus, including higher overtime pay and better working environment conditions for medical workers, as well as research.
“Confirmation bias” has already hardened the position of development economists who have, for long, identified health systems as a priority that public and private donors should focus on. They stand to be proven right, but the proof might be cruel.

Secondly, government should channel financial support to public and private institutions that support “vulnerable” citizen groups. Beyond distribution of food relief, the vulnerable households should be provided with temporary direct transfers to tide them over the loss of income from work shutdowns and layoffs.

Government should consider converting some food relief into cash. Why? The cost of distributing food is much higher than its intrinsic value in most areas where the vulnerable citizen groups reside. My argument is based on the fact the country has a poor housing strategy. As a result most of the food relief is ending up in the well-to- households (civil servants) who stay near the road leaving the vulnerable households at the mercy of hunger.

Thirdly, small and medium-sized enterprises (SMEs) should be safeguarded against bankruptcy. As SMEs face a falloff in demand, reducing or even suspending fixed charges (such as rent), deferring taxes and credit forbearance would also help to ease the pressure on SMEs. Such interventions can increase liquidity buffers to these firms in affected sectors and enable them avoid debt default.

Lastly, we need to ratchet up “telecommuting” (working from home instead of traveling to an office) and “distance learning” (taking classes from home instead of traveling to a university campus). Those two trends were already noticeable prior COVID-19, but fear of contagion is boosting them tremendously. And when the fear subsides, the benefits will be remembered.

In the meantime, priority should be to ensure that the work force remains employed even if quarantined or forced to stay home. This may require amending our labour regulations. In the long run, not as many people should be returning to offices and campuses as before. That means lighter traffic, lower energy consumption, and more spare time for many workers and students. This should be the job of all stakeholders.

The future

All said, my biggest fears are if the virus becomes endemic—becoming one of humanity’s constant companions, just like the seasonal flu and common cold, in the absence of a vaccine. Given that contagious diseases of the COVID-19 type are rife with “negative externalities”; will the low-risk category individuals accept to self-isolate or take precautionary measures? What will be the low incentives for such individuals to adhere to the measures?

But also given that these preventive measures provision of services (food, medicine and the alike) to high-risk individuals, will the markets provide these services efficiently? Will these services be provided competitively? Should firms providing these services (COVID-19 profiteers) subsidize those who will suffer most from the incoming recession?

Should we prepare for that period? When the comfort of being in the presence of others is replaced by a greater comfort in isolation? Will nations stay closed? What will become of the deserted airports and hotels? Could COVID-19 become the second nature to recoil from touching hands or touching our faces and renders washing our hands a norm?

These questions are unsettling albeit answering them will save humanity a great deal of social unrest going forward.

Mugabe Darious Teaches Economics at Makerere University Business School.

The forgotten lessons- History of pandemics

Influenza Pandemic
There is a famous saying that “we learn from history”. I have picked my pens to demystify this saying in light of the history of pandemics. We seem to have learnt little (if any) and forgotten much (if not all) from the experience of pandemics. December 2019 is not any different from the March of 1918. The latter marked the first wave of Spanish influenza (avian flu) moving across the United States that lasted throughout the summer of 1918.

It started as a joke and little attention was given to this infectious disease. It started along the axis from Massachusetts to Virginia; leaped the Appalachians; positioned along the inland waterways; it jumped clear across the plains and the Rockies to Los Angeles; San Francisco; and Seattle. Then, with secure bases on both coasts, took its time to seep into every niche and corner of America by the fall of 1918. By the spring of 1919, it had spread to almost every corner of the globe subsequently claiming over 50 million lives!

History has it that the global magnitude and spread of the influenza pandemic was exacerbated by World War I, which itself is estimated to have killed roughly 10 million civilians and 9 million troops. Not only did the mass movement of troops from around the world lead to the spread of the disease, tens of thousands of Allied and Central Power troops died as a result of the influenza pandemic rather than combat itself.

The 1918 influenza was unique. Its mortality rates (those who died of influenza) were the highest for the segment of the population aged 18 to 40, and more so for males than females of this age group. These deaths were not caused by the influenza virus itself, but by the body’s immunological reaction to the virus. And surprisingly individuals with the strongest immune systems were more likely to die than individuals with weaker immune systems. Indeed, out of 272,500 male influenza deaths in 1918, nearly 49 percent were aged20 to 39, whereas only 18 percent were under age 5 and 13 percent were over age 50. The fact that males aged 18 to 40 were the hardest hit by the influenza had serious economic consequences for the families that had lost their primary breadwinner. Also, the significant loss of prime working-age employees had economic consequences for businesses globally.

It is reasonable to say that the influenza of 1918 has ‘almost’ been forgotten as a tragic event in world history, despite its economic severity. This is not good, as learning from past pandemics may be the only way to reasonably prepare for any future pandemics. My little intelligence informs me that the 1918 influenza pandemic has not received a notable place in world history for three reasons.

First, the pandemic occurred at the same time as World War I. Thus, the pandemic and World War I were mistaken to be one event rather than two separate events. Second, .Influenza swept into communities, killed members of the population, and was gone in contrast to diseases of the day like polio, smallpox and syphilis which were a permanent part of society. Finally, unlike polio and smallpox, no famous people of the era died from the influenza; thus there was no public perception that even the politically powerful, rich and famous were not immune from the virus. It was unofficially perceived to be the “disease of the poor”.

Mistaken by the above myths, the world did not learn from the influenza experience. We did not plan for future pandemics. We are paying a huge price again.

Covid19 Pandemic
The 31st of December 2020 got us on the flip side of the coin, forgetful of the pandemics’ history. A pneumonia of unknown cause was detected in Wuhan China and reported to Word Health Organization (WHO) country officer. We, again, thought it was a joke and literally thought it was mere pneumonia. Even when WHO announced the corona virus disease 19 (Covid19) as a pandemic on 11th March 2020, we still thought it was a joke. Indeed, jokingly quite many on the African continent branded it a “Whites’ disease” and we were not much bothered, neither did we plan for it.

The evolution of the disease and its economic impact is highly uncertain, which makes it difficult for policymakers to formulate an appropriate macroeconomic policy response. In a strongly connected and integrated world, the impacts of Covid19 beyond mortality (those who die) and morbidity (those who are incapacitated and unable to work for a period) has become apparent since the outbreak. Economists are predicting a global economic recession, much bigger than the one experienced after the 2008 financial crisis.

Economies, worldwide are feeling the heat of a recession. GDP growth rates are on the decline, with China projected to record -2% in the second quarter of 2020—her lowest rate in the past two decades or so; the stock markets are already in intensive care unit (ICU)—with FTSE MIB (Italy), FTSE (UK), and S & P500 (USA) nearing their deaths; Airlines are in “comma”—with over 4.6 million seats on scheduled seats between EU and non-EU countries banned in the past 30 days; large decline in the restaurant industry—with completely no restaurant reservations and walk-ins on open table; tourism is in amnesia; literally all sectors are affected. The dystopian reality of deserted airports, empty trucks and thinly occupied restaurants is already badly hurting economic activity in developing economies.

Uncertainty, panic and lock-down policies are driving a large drop in demand. The drop in demand will thus force many investment firms to close, especially small and young firms which large depend on cash flows. Covid19 is the worst crisis of our time! Unfortunately, in Uganda the spread of this contagious disease has begun to sprint. A lot of questions are already making the brain bells of serious Ugandans to ring. With the ailing heath system on which the country sits, the questions relate to “Thy blood or my Livelihood” contrary to what famous economist, Lionel Robins, coined as “Thy blood or mine” when he was attacking interpersonal comparisons.

Interpersonal comparisons permit us to judge whether prospective additional losses of life of some may be viewed as outweighing the economic or social harms experienced by others. This thinking overrides humane morals in this situation. For starters, Uganda had more ministers than intensive care unit (ICU) beds in hospitals as of February 2020—to justify the extreme end of Uganda’s ailing health system. Tthe country had 12 functional ICUs (80% of them in Kampala), with a total of 55 functional ICU beds and the nurse patient ratio of 1:8 (1 nurse for every 8 patients, for the worst ICU).  But the country has 80 (cabinet 39, state 41) ministers! Since the announcement of the first Covid-19 case, Uganda has fixed her dysfunctional ICUs and consequently raising the ICU beds to over 400. How long shall we make such quick responses with more projected cases?  Not so long!

Public leadership must be at a center stage! Identifying the necessary interventions that take into account of the interdependence between health and economic stability is in the nature of a “wicked problem” which demands extraordinary leadership, at such a time when trust in government is unprecendently low. With the disruptions in the supply chains, how’s Uganda prepared to contain Covid19? How will it affect Uganda’s economy? What are the economic effects of Covid19? Precisely, what’s the economics of Covid19? The Economist Patrol has been allowed, by authorities, to monitor economic situation in Uganda during the “lock-down”. The pens will be pointed to these very pages to report the findings, shortly.

Mugabe Darious teaches economics at Makerere University Business School

Oil and Tyrants: Uganda's Remix

And in extreme cases, when a government remains in power only because of oil money, no fiscal adjustment will be possible unless forced by a crisis.

For decades now, economists and environmentalists have been looking, with interest, at when the use of oil is expected to peak. The former have been asking: Will that occurrence be driven by the market (demand) or by supply? While the latter have been asking: What level will emissions reach before this peak is reached? Anyway, the reason I have picked my pen is not to answer the above questions but rather to resuscitate the debate about oil, in Uganda’s context.

Conventionally, oil is defined as a fossil fuel that has been formed from a large amount of plant and animal remains such as algae and zooplankton that go under the decomposition process for million years. Oil is therefore a commodity, in a sense that it is a result of a process and can be offered to the market, of course in exchange for money. 

But oil is not a mere commodity; it is a commodity of power, a commodity of political influence, and a commodity of strategic value to most powerful nations in the world. Indeed talking about oil today, in isolation of politics or geopolitics, would be ‘verbal blasphemy’.

The Paradox of Plenty

Oil is also a paradox commodity; it brings wealth but also poverty—something coming from the growing literature on the ‘paradox of plenty’ which has established important causal claims linking oil abundance and dependence to corruption, authoritarianism, economic decline and violent conflict.

Indeed if we think of any oil-dependent country (like Nigeria), we find corruption, authoritarianism, economic decline and violent conflict lurking underneath. This is on the account of what most development economists call the “resource curse”

To risk boring my students of development economics, a resource curse breeds the ‘unholy trinity’: 1) Rentierism (rentier states, corruption, overconsumption etc.); 2) Dutch Disease (tendency to ignore vital sectors of the economy such as Agriculture whenever oil is discovered), and 3) Weak institutions (bad governments i.e. leaders refuse to leave power). The oil resource curse symptoms, which are increasingly becoming evident in Uganda, in her LBO (Life Before Oil), seem to suggest that Uganda is likely to inevitably contribute to the resource curse theory.

The counter narratives: Who is really right?

For a while, academics, and economists in particular, have been accused of failing to make right predictions—something that ‘barbarians’ (government officials) find confidence in to vehemently shy away from academic advice. Whenever we hear them (government officials) speak, we are tempted to think that oil is coming out of the ground, the following week, month or at least a year but in vain. Those who stand on the perimeter wall of government—academics, civil society, name it, hold a different narrative that Uganda is yet to get ready for oil production.

And indeed in recent times, economists who have attempted to predict future demand and prices for oil have had, arguably, a marginally better success than those who foretell the advent of earthquakes or the second coming of the Messiah (Jesus), needless to say. The 1973 James Akins’ prediction, dubbed “The Oil Crisis: This time the wolf is here”, offers a good example.

Even when I risk being branded a “pessimist”; the pronunciation by the Minister of Energy and Minerals, the Hon. Irene Moloni, that Uganda will start oil production in 2023 is, in my view, sheer compounding government’s sins of lies.

Hon. Irene Mulon, Minister for Energy and Mineral Development

For starters, Uganda has walked a very elusive journey of oil exploration. Oil in Uganda has a history that goes back to the late 19th century, when local communities discovered oil seepages in the Albertine region which was documented by Emin Pasha in 1877 and explorer F. Lugard in 1890, the latter being quick to declare ownership of them. It is until 2006 that discoveries of commercially viable oil reserves were made which raised hopes of a timely boost to economic growth in Uganda—describing her as Africa’s ‘hottest inland exploration frontier’ by the Oil Industry Press

How much oil?

Economists have routinely warned of the pitfalls of windfall revenue from oil resource, and negative experiences of young ‘petro-states’ provide cautionary examples. Current estimates, for example, put the Uganda’s oil potential at around 6.5 billion barrels of recoverable reserves with anticipation, by some geologists, that Uganda’s Albertine Graben may hold more than 6 billion barrels, placing her among the foremost African oil producers.

This implies that if oil production was to start today, and goes ahead without hitches, Uganda’s budget would receive a major windfall of revenues– potentially doubling her revenue base within six to ten years. However, oil production is full of hitches and difficult to predict. Given the volatility of oil prices, for example, it is difficult to estimate Uganda’s likely revenues from oil.

Nigeria’s Oil Experience

On Tuesday 12^th, 2019, the US Embassy Uganda, in collaboration with Makerere University Business School organized a dialogue on “Potential socio-economic & Political Impacts of the Oil Sector and Mitigation Strategies: Lessons from Nigeria” where I met Dr. Cyril Obi, a program director for the African Peacebuilding Network (APN). Cyril’s speech mainly affirmed one thing to me: that Nigeria’s problem, and Africa’s problem in general is not money but how to spend the money. Let me put this in context.

Nigeria has a large and ethnically diverse population of over 180 million, with projections of the country having 433 million people by 2050, behind only India and China. Implying that Nigerians are nearly five times more than Ugandans in number.

Nigeria has a Gross Domestic Product (GDP), which essentially measures the total monetary value of goods and services produced in a country per year, of about $397.30billion, over $370 billion more than Uganda’s. Nigeria has projected oil reserves of 28-35 billion barrels and 160 scf (standard cubic feet) of natural gas. This implies Nigeria has over 29 billion barrels of oil reserves more than Uganda.  

Nigeria made the first commercial oil discovery in 1956, and production started in 1957. For over half a century on, Nigeria has raked over $800 billion in oil rents, yet, poverty continue to ravage over 60% of her population: over 108 million Nigerians live below the $2 per day.

Nigeria, however, has the richest man on the African continent, Aliko Dangote, with a projected net worth of about $10.3 billion, according to the Forbes Magazine. Dangote is, therefore, worth nearly half of Uganda, with all her buildings, merchandise, agricultural output, livestock, name it.

The Africa’s richest man is also set to own the largest oil refinery on the continent by end of 2020. Its completion will make five domestic oil refineries in Nigeria, of which four are owned by Nigerian National Petroleum Corporation (NNPC). All the four refineries currently produce below their installed capacity at the range of 15% - 25%. The inefficiencies of these domestic refineries imply that Nigeria is a net importer of refined oil products of about 750,000 barrels per day despite her large oil reserves.

The Nigerian Disease                                                          

In brief, Nigeria is the current unofficial Chairman of “resource-cursed countries”—a position that Spain held in the 16^th century (when she discovered gold and silver deposits). The Democratic Republic of Congo (DRC) is Nigeria’s vice whereas the likes of Angola, South Sudan and Equatorial Guinea are committee members.

Spain was replaced by Holland in 1960s, with the discovery of large natural gas deposits in the North Sea which led to what analysts refer to as the “Dutch disease”. Nigeria is the recent to overthrow Holland from the throne wealth and poverty.

Oil production in Nigeria has been characterized by things that really typify a cursed nation. For example, “Criminal enterprise” has been the major activity in Nigeria’s oil sector. Criminal enterprise literally has taken two major forms in Nigeria:

First, an organized group of people that unconventionally drill refined oil products from the pipelines. This group is, often times, either helped by Nigeria’s security personnel or coincidentally whenever they come to drill from the pipelines, the security personnel has gone for lunch break.

Second, a group of people that own “bush refineries”. This group steals considerable amount of crude oil and either refine it from their bush refineries or sell it in raw form. There has not been deliberate efforts by Nigerian government to curb these activities largely because they are controlled by a few elites and government officials.

Secondly, in some parts of the Niger Delta, gas flaring has happened for over 14 years, which has resulted to air pollution reaching astronomical levels.

Poor institutions: the “Ugandan Disease”

The experience of Nigeria really poses a disturbing question: What is the fate of states who depend on revenue from natural resources without making the best policy decisions? Policies that can achieve distributive justice of the enormous oil revenue streams.

In economics sense, distribution justice concerns the ‘fair’, ‘just’ or ‘equitable’ distribution of benefits and burdens. It requires, for example, that decisions affect everyone equally and that resources are shared equally.

However, the pursuit of distributive justice or economic equity is a topic that does not sit easily with most economists and policy makers; it is often undermined by the political inequality needed to enforce it. Economists now concur that robust and strong institutions, which are free from political influence, are critical in pursuit of economic equity and broadly economic development.

Strong institutions, which can be formally in form of laws, constitutions, property rights, and contracts should provide transparency and accountability in the management government resources and ultimately check those who possess great power from enriching themselves more often by corruption.

Renowned development economics authors, Daron Acemoglu and James Robinson, brand such intuitions as “inclusive institutions”, in their book “Why Nations Fail”—a book that I have effortless recommended my students of development economics.

Sadly, talking about “good institutions” in Uganda is an abomination, at least in the view of most Ugandans, with some arguing that Uganda’s institutions are ‘Musevenised”. Institutions in Uganda appear to be synonymous with corruption.

Politics suffocating the oil sector

For example, recent efforts to streamline the legal framework governing the oil sector continue to expose the role of Uganda’s technocrats to be confused, and overshadowed or subverted by the involvement of political actors. To my knowledge, politics has shaped most of the processes through which the laws governing the oil and gas sector have been passed and as a result some of the laws have been passed without sufficient checks and balances.

In May, 2010, a draft Petroleum (Exploration, Development, Production, and Value Addition) Bill was published for public review and comment. Uganda’s Civil Society Coalition on Oil (CSCO) noted that the Bill lacked sufficient checks and balances on ministerial control, and may lead to corruption. Shortly after, MPs passed the Bill, in its current form, as there was no consultation to incorporate public views done.

On April 4th, 2013, the ruling NRM party expelled four Members of Parliament for indiscipline, accusing two of them of belonging to the Parliamentary Forum on Oil and Gas (PFOG), a pressure group of legislators advocating for greater transparency in the oil and gas sector, which the party said was “opposed to the NRM position on oil”

On June 27th, 2013, President Museveni also assented to the Petroleum (Refining, Conversion, Transmission and Midstream Storage) Bill, making it an Act of Parliament. The Law gave way for the construction of the first crude oil refinery in Uganda in Kabaale Buseruka but construction is yet to start.

In my view, some of these actions were out of excitement and too much expectations. Unfortunately, the development of the oil sector has proceeded slowly—much more slowly than people outside and within the government expected. Museveni is now the captain of ODC –“oil-disappointed-club”. “…you asked me for an airport, I went to London and borrowed $350 million. Now you are saying you don’t want to invest even after I delivered the list of things you asked of me!” the disappointed Museveni said recently at Uganda-Tanzania Business Forum, in Dar es Salaam.

Therefore, the oil industry in Uganda, though still at infancy, has started with faltering steps in terms of institutional and policy formulation process. Many Ugandans ask: what is really going on in the oil sector? Will Ugandans benefit from the oil revenue?

Eat the Cow or the Calf?

These are questions of distributive justice which concern not only the way in which oil revenues will be distributed across members of the same generation, but also between members of different generations. A more encompassing evaluation of the justice of the oil resource must consider the “intra” and “inter” generational aspect.

Achieving distributive justice will require us to manage some important issues. These include: 1) how much oil revenue to save for future generations. We shouldn’t consume all the money at once; 2) how to achieve economic stability in the face of uncertain and widely fluctuating oil revenues and avoid "boom-bust" cycles; and 3) how to ensure that spending is of high quality, whether in the form of large investment projects, public consumption, or subsidies.

The prescriptions for tackling these issues are straightforward but often confront the reality of opaque and highly politicized fiscal systems/institutions. Such systems, often times, lack the checks and balances needed to ensure that resources are well employed and to provide the fiscal flexibility needed to adjust spending in line with changes in resources. And in extreme cases, when a government remains in power only because of oil money, no fiscal adjustment will be possible unless forced by a crisis.

It is Leif Wenar, who in his recent book “Blood Oil: Tyrants, Violence, and Rules that run the World”, argued that in order to ethically evaluate the choices and attitudes concerning the supply chain of all kinds of goods and products, we must direct our attention to the institutions that enable the extraction and use of raw resources. I will pick my pens soon to explain how strong institutions helped the likes of Norway, Canada, Botswana to escape the resource and what lessons Uganda needs to draw from their experience.

                      

Darious Mugabe is a Researcher at Economic Hub Uganda and teaches Economics at renowned Makerere University Business School (MUBS)

Create a leveled playing field for youth

"The heritage of our nation relies not only on our agility to leverage opportunities for young people but also on creating equal platforms that favor all"

A fact that the future of this country depends on the equitable, proper investment in young people and that we are not doing exactly that, is to amputate life from its base. Government programs directed toward addressing youth issues have both fallen short and are often discriminative.The heritage of our nation relies not only on our agility to leverage opportunities for young people but also on creating equal platforms that favor all. 

I was recently part of a team at Reignite Africa that was, as part of organizational strategic planning, engaged in a rapid qualitative assessment with youth leaders from Mayuge and Rukungiri districts. The aim of the assessment was to understand the nature and challenges of youth leadership, participation, and contribution to policy and governance processes at the district and lower levels.There were glaring differences between the two focus groups (one from each district). On one hand was a group of enthusiastic young leaders from Rukungiri that reported a more active engagement in national affairs, but with employment challenges for their electorate. On the other was a group surrounded by hopelessness as a result of a broken system that shared a myriad of challenges young people in their different sub counties face that ranged from child marriages to substance abuse.Whereas both regions reported high unemployment of youth and perpetual corruption of government officials, there were overarching differences. For instance, youth leaders from Mayuge had never benefited from the youth livelihood fund at all unlike many of their counterparts from Rukungiri who reported receiving the fund on behalf of youth groups they represent at the district level. Additionally,whereas both groups had not received formal induction trainingfrom government for the role they currently hold, those in Rukungiri had that opportunity from their political parties and NGO’s. In short, those in Rukungiri were not as despondent.Such differences are perpetuated by the political-economy of the country.

It is a right not a privilege for all young people to get an education as it increases their opportunities to find decent work and contribute meaningfully to the development of their communities. However, a UBOS Education Monograph Report, 2017 revealed higher literacy rates in Kigezi region and central (higher than the national average of 72%) compared to the East and Karamoja sub-region (less than 24%). If education is supposed to be the most reliable opportunity equalizer,then such differences in literacy levels are tragic

                                                      

Besides, inclusive political institutions create inclusive economic institutions that work for all.  Therefore, in adopting a holistic approach to address youth issues, it is important to pay attention to the nuances among youth from different regions and backgrounds. Like Robinson and Daron assert in their book, Why nations fail,extractive political institutions concentrate power in hands of a few who in-turn disproportionately distribute resources to benefit minority groups.Differences are hence created and advanced by political favoritism in the first place. And so it is naïve to categorize youth and their issues-from unemployment to ideological disorientation- as uniform.

World over, meaningful participation of youth in the affairs of a country is what puts the nation on the right development trajectory.Therefore, if the future of this country lies with the youth, it is only prudent to adopt context-specific strategies that direct national policies and programs more equitably, lest we risk deepening regional imbalances and the evils that come with it.

Enock Jjumba Ssentongo is an

Economist at The Economic Hub Uganda (EHU) and also

a  policy advocate at Reignite Africa.