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.

Budgeting for Bureacrats

Nowhere, either in the National budget, or Vision 2040 or even NDP II is the average/median Ugandan –the 14 –year –old girl. Rather, we see a bleak picture of a technocrat/bureaucrat at the Ministry of Finance, Planning and Economic Development (MoFPED)

From the madness of more to wisdom of enough

About a year ago, I was reading a report titled “Gender and Social Inclusion: Uganda” by USAID when I came across a fascinating highlight that has been boiling my brain for quite a while. Over the years, I have realized that to graduate from the madness of more to the wisdom of enough, one needs to read such reports and the likes. The highlight, in the aforementioned report, typifies an average Ugandan and it reads, in part:

“The average Ugandan is a fourteen-year-old girl. She is one of six children, living in a rural area; her family is poor and it finds itself vulnerable to economic, political, and environmental shocks. She has a one-in-four risk of becoming pregnant during adolescence, is at high risk of being engaged in early marriage, and will likely drop out of school before reaching secondary level. Her status is the result of a combination of factors: poor nutrition, low performance in school, cultural expectations related to early marriage and family size, and systems not supporting her ambitions to thrive….”

In Uganda, the period of March to May has traditionally been a time for assessing the developments of the previous national budget, in order to anticipate what the new one has in store. It is in the same period that a group of young well-meaning economists at the Economic Hub Uganda (EHU) – a youth led think tank, where I belong – has restlessly questioned Uganda’s budgeting process and broadly, the relevance of her development agenda.

Driven by the above mind boggling highlight, EHU has organized a number of conversations on national budgets (FY 2017/2018 and FY 2018/2019), Vision 2040, and National Developing Plan (NDP II) to interrogate the fate of a “14-year- old girl” in Uganda’s development agenda. These conversations have given birth to a number of questions that have got us wet under the collars. For example, is Uganda’s national budget or broadly her development agenda oriented towards the needs of a median or average Ugandan –the 14 –year –old girl?

After disturbing our hair, in these conversations, we found the simplest answer to the above disturbing question: the answer is “NO”. Nowhere, either in the National budget, or Vision 2040 or even NDP II is the average Ugandan –the 14 –year –old girl. Not even her parents who perhaps own separate kiosks of tomatoes on a village street. Rather, we see a bleak picture of a technocrat/bureaucrat at the Ministry of Finance, Planning and Economic Development (MoFPED) perhaps a one Kenneth Mugambe –the Director of Budget, MoFPED envisaged in these documents. We thus concluded that our dream of attaining a middle income status by 2020, as highlighted by NDP II, is an improbable concoction –a fabricated story unlikely to happen.

Incrementalism:  an old budgeting paradigm

Under the theme “Budgeting for Economic Transformation and Social Inclusion”, EHU, in collaboration with the MUBS Economic Forum (MEF) and Friedrich Ebert Stiftung (FES) organized a public dialogue, on Tuesday, 30^th April, 2019, at Serena Hotel, to explore policy options to include the 14 –year –old girl in Uganda’s development agenda, through budgeting.

Prof Ezra Suruma — Chancellor, Makerere University attending the dialogue

The dialogue started with a key presentation from Ramathan Ggoobi –a celebrated economist in Uganda and coordinator of MEF. His presentation raised unpleasant facts about Uganda’s rare economic transformation process. It revealed that Uganda’s budget is not transformative and vocally raised recommendations to make the budget transformative. He stressed that a budget is transformative when it invests in sectors that encourage structural change towards higher productivity and jobs. Such sectors as education, health and social protection that Uganda has literally forgotten.

Interesting it was. It is in the same dialogue that I nearly lost my voice, in contribution to the plenary discussion, explaining that Uganda’s budgeting process is informed by an old and perhaps a wrong paradigm of incrementalism. A paradigm is simply a pattern of something or a model, just to escape an old criticism that economists use a sophisticated grammar, just as lawyers.  It is an old and wrong pattern to go to the budgeting process with a predetermined position that the current budget figure should exceed the previous figure. The budgeting environment needs to shift, markedly, from this paradigm to one of constraints and cutback expenditure.

The need to comprehensively review the National Budget

The beginning of wisdom about Uganda’s national budget is that it is almost never actively reviewed as a whole every year. Instead, it is based on last year’s budget with special attention given to a narrow range of increases. We have an agency –MoFPED that acts as advocate, protecting its budget base and requesting small “incremental” increases from the previous year. Then, we have appropriations subcommittees, in parliament and Local government that act as guardians to make slight reductions in what the agency requests.

It is because of that paradigm that Uganda’s budget figure is ever rising. The whole point was that our national budget wouldn’t necessarily increase if it was comprehensively reviewed every other year. That may be we would cutback expenditure on public management. There is no serious economist in this country that hasn’t questioned the logic of expanding the legislature and cabinet to the sizes they have become

Academics and practitioners: The big Divide

On the defensive, Kenneth Mugambe –Director of Budget, MoFPED, as well as one of the panelists for the dialogue dismissed my submission describing it very academic, just as he had earlier dismissed Ggoobi’s presentation. He mistook the whole point and rushed to conclude that I was proposing a zero-based model of budgeting.

His dismissal of my submission, on the account of being too academic, got my two hands on the cheeks wondering why the gap between academics and practitioners has increasingly become a laden topic. Subsequently, I began to think that this gap has largely outlived its usefulness, and that the recent arguments for and against academic-practitioner collaboration are not to advance any understanding yet.

And yet the two contending areas are inextricably related: academics explains much of the practice and equally practice explains much of academics. For example, academics was used to explain some of the practices in the country and to, by and large, dismiss the notion that Uganda is on the right development path as claimed by government authorities at MoFPED and National Planning Authority (NPA). That Uganda’s economy cannot structurally transform with increasing income inequality. She cannot achieve a middle income status with the increasing population growth rates. It is impossible when the average Ugandan is still giving birth at the age of 14 and later becoming a grandmother at the age of 28.

For starters, Uganda has the 9^th highest population growth rate of 3.25% and the 5^th highest fertility rate of 6 kids per woman in the world. Producing kids has thus become one the most booming sectors in the country, along with the “Jesus sector”. And it appears as if producing more children is something legendary. Surprising enough is that the population growth is slightly higher than growth in Agriculture (at 2.9%) thus we are not producing enough food for the rising population. In 1978, it was Reverand Thomas Robert Multhus who, in his classic work “An Essay on the Principle of Population”, argued that when population growth surpasses food growth, positive checks such as starvation, war, disease, floods etc. would operate to return population to return population to a lower and more sustainable level. We acknowledge that these checks are operating in Uganda.

Rural, informal, poor

Over the past two decades, Uganda has endured a questionable slow economic recovery with an average economic growth rate of 6%. A group of researchers at the Center for International Development at Harvard University (CID) presented economic growth projections which revealed that Uganda has the potential to be the second fastest growing economy (after India) over the decade 2014–2024.

Well, this is the Uganda that we saw in the ‘heavy’ documents i.e. Vision 2040, and NDP II. However, Uganda’s growth profile also reveals unpleasant statistics. First; despite the rosy growth statistics, Uganda has the largest number of rural population in East Africa (82%), but with an agricultural sector that contributes the lowest share of GDP. This implies low levels of farm productivity and high poverty levels. My brain bells begin to ring again: will the country’s obsession with infrastructure development improve farm productivity?

Second; rosy economic growth statistics notwithstanding, Uganda’s urban informal sector accounts for nearly half of GDP i.e. 42% or (1.2 million households) higher than any other E. African country except Tanzania. Months ago, I nearly emptied my pens pointing in these pages to decry government’s interventions in the informal sector. Indeed, much of our growth has been happening in low productivity sectors, mainly informal services sector with all its limitations to create jobs and raise revenue

I also noted that the sector’s challenge is not only to provide employment to the new entrants in the labor force, but also to absorb millions who leave agriculture sector in search of “non-farm” jobs. It is because of questioning such issues that I have started losing my hair at arguably a younger age. Because of wrong interventions, we now see young able- bodied men sell off their last piece of land in search of a non-farm job such as boda-boda riding.

Majority of Uganda’s workforce is also stuck in this unorganized sector, without any written contract, social security benefit, and security of tenure. Basing on a wealth of empirical research, I have tirelessly argued that most government policies which attempt to “regulate” the informal sector to bring it into the tax net, without adequate support, end up killing the sector that absorbs the uneducated and unskilled. How do we then reduce the size of the informal sector without killing the golden goose?

Third; Uganda hasn’t completed the demographic transition. She has the 2nd lowest death rate i.e. 12 per 1000 (after Kenya’s 10) but also has the highest birth rate (48 per 1000) i.e. a population growth rate of 3% per year. From the budget dialogue, it appeared obvious that an active policy on population control is badly needed. Granted, Uganda is one of the world’s youngest countries with about 77% of its population below the age of 30 years and yet it presides over a high youth unemployment rate.

Invest in women education

Indeed the phrase of “harnessing demographic dividend” has dominated much of the public discussions recently. For Uganda to harness this dividend, the population growth rate should be reduced and total employment increased. How? By not only controlling population directly using population “control measures” such as family planning measures but also investing in women education and income generation. In the long run, this will increase incomes and living standards and birth rates will decline.

Generation of empirical research shows that if adults, particularly women, get involved in economically productive ventures/jobs, population growth and poverty reduce. This research should inform us to rethink of our policy interventions on population control. It (research) calls for policies aimed at easing women’s childcare responsibilities, improving access and use of farm labour, securing equal access to and use of non-labour inputs, and supporting women’s education and training.

Family planning alone cannot control population control. Why? Behavioral economics predicts that such interventions may increase population on the account of a ‘moral hazard’. These measures act as incentive for people to get involved more in sex knowing that it is protected. So, sex intercourse increases and birth rates ‘may’ increase given that the measures are not 100% protective.

Who are we budgeting for?

Promises kept, we need transformative budget for a better Uganda. A budget that is pro-poor and oriented on the needs of the average Ugandan. A budget that is based on livelihood transformation rather than expectations of economic growth. To have such kind of a budget, we need to find answers to the following questions. Who decides the budget in Uganda and what are his/her/their interests? Who are the players in the budget process and what incentives are at each stage? How do we balance the power between those who decide the budget and the average Ugandan vis-à-vis their interests?

Darious Mugabe is an Economist at Economic Hub Uganda and also lectures economics at renowned Makerere University Business School (MUBS)