By Badru D Mulumba
May 13, 2004
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Why is the left lane of the Highway that proceeds to Kenya new yet Part 3: This is the third part of our series on the economy that explore Uganda's economic performance with the view to ultimately build consensus on the way forward. Who does Museveni's economic miracle benefit? In this series of Uganda's economic performance, Senior Staff Writer, BADRU D. MULUMBA unravel the mystery of an economic miracle that has in many respects done exactly the opposite of what it ought to do by condemning a sizeable population by the wayside. Mr Walusimbi Mpanga has an interesting story to tell. He is a consultant with Uganda Export Promotions Board. Last year, he escorted a visiting United Nations Development Programme consultant to Tilda (Kibimba Rice Scheme). "I told him, look we do not export. And what he reads about Uganda is a country supposed to be a success story. He thought it is like Singapore. That is how bad. We do not export, whatever we export is of little value." And the signs of this export inadequacy where all there to be seen. Standing there, along Kampala - Tororo Highway and taking in the fresh air of the countryside, the realisation hit them both hard. The left lane of the Highway that proceeds to Kenya is new; the right lane that leads from Kenya looks 'eight years older'. And it is not because the contractors did a shoddy work on the lane from Kenya. It is one of the most damning examples of how a country that has spent the last decade and half being taunted posting some of the most intriguing growth rates in the region has, in some strange twist, also lost it. Said Mpanga: "Why is it new? That is, because we do not export. Because we import a lot instead, that is why the road from Kenya is old. The wish of everybody is that this road [from Kenya] should be newer than this other one [lane from Uganda]." It is the lingering black spot on Uganda's economic success. And, puzzling, it started some time in 1986, as the extract from Uganda: a country guide (Library of Congress, 1990), reveals. From surplus to trade deficit Agricultural products have dominated Uganda's exports throughout its history. Coffee became the most important export after 1950, but cotton, tea, tobacco, and some manufactured goods were also important. During the 1970s, all exports except coffee declined as a result of low producer prices, marketing problems, declining exchange rates, and general economic disruption. Coffee production declined only slightly during these years of political turmoil, but the value of sales was vulnerable to shifts in world market prices. From 1981 to 1984, general exports steadily increased, but only in 1984 and 1985 when they were sufficient to produce a trade surplus. In 1986 a trend of declining exports and increasing imports developed and continued to the end of the decade. Uganda sent most of its exports to the United States, Britain, the Netherlands, and France. Exports to regional trading partners were less important but increased slightly in the late 1980s. During the early 1980s, the value of imports remained fairly steady, constrained mainly by the shortage of foreign exchange. However, in the late 1980s, imports rose dramatically, causing a large deficit in the trade balance. The government normally allocated foreign exchange for the purchase of essential goods such as fuel, vehicles, machinery, medical supplies, and military equipment. Principal imports--mainly construction materials, machinery, and spare parts--came from Europe, Kenya and Malaysia. In November 1988, the government announced a new programme to support the expansion of non-traditional exports to diversify exports and increase foreign exchange earnings. Under this plan, private companies with export licenses granted by the Ministry of Commerce were permitted to retain foreign exchange earned from non-traditional exports, especially from fruits and vegetables that could be cultivated and transported fairly readily. Under the plan, international traders would be permitted to sell all or part of the foreign exchange received for these exports to the Central Bank. They could then apply for import licenses valued at the equivalent of their foreign exchange earnings in order to finance imports within 180 days. At the same time, the government got a United States Agency for International Development (USAID) export trade promotion credit amounting to $12.5 million to assist the private sector in expanding production, marketing, and trading in these and other non-traditional exports. Items eligible to be financed under the trade promotion credit included improved seeds, high analysis fertilisers, raw jute for manufacturing gunnysacks, tin for local manufacture of farm tools, and packaging materials. An important development in Ugandan trade in the late 1980s was the growth of counter trade, or barter, agreements at both government and company levels. Faced with serious foreign exchange shortages, the Ugandan government used this approach to secure essential goods and services, such as petroleum products and technical advice. Between 1986 and 1990, the government transacted more than seventy barter deals valued at an estimated $534 million. By mid-1989 the turnover from barter trade arrangements was approximately $60 million a year, or 10 to 15 percent of the value of conventional trade. The Ugandan input was almost always coffee or cotton. These barter deals included some imaginative and innovative schemes, notably hotel and road building projects and plans for technology transfer. They also provided a wider range of imports than would have been possible under conventional trading, especially in view of the continuing shortage of foreign exchange. Under separate barter agreements in 1988, Uganda received two consignments of petroleum products from Algeria and Libya. The consignment from Libya was part of a $60 million deal to exchange Libyan oil, cement, and trucks for Ugandan coffee, tobacco, and tea. A similar agreement worth more than $24 million over three years was signed with Algeria in January 1988. Uganda declared a temporary moratorium on new barter deals in 1988 because it had insufficient agricultural produce to fulfil existing agreements. Farmers blamed an inadequate round of producer price increases in January 1988 for continuing shortfalls in several crops. Problems were particularly acute surrounding trade in corn. The government promised approximately 10,000 tonnes of corn to Algeria, Cuba, Egypt, and Libya, plus 12,000 tonnes to North Korea and 5,000 tonnes to Yugoslavia. By late 1989, none of these shipments had been delivered, although Uganda had received consignments of industrial goods as part of these barter agreements. Despite problems in the supply of local products, the government signed two protocol agreements in early 1988 with Rwanda and North Korea. The Rwanda agreement was worth $10 million over a one-year period; in exchange for exports such as corn, salt, tobacco, wood, and bananas, Uganda was to receive Rwandan goods such as blankets or paint. In June 1988, Uganda and North Korea signed a protocol on barter trade for 1988 and 1989, including Korean cement, machinery, tools, and electrical goods, in return for Ugandan cotton lint, meat, and other agricultural products. The protocol extended over a period of eighteen to twenty-four months and was worth $14 million to each country. Of this amount, $8 million was for cement. By late 1990, however, many barter deals were still under suspension and at least some were being renegotiated because of continued shortfalls in Uganda's agricultural production. In 1988 and 1989, to bring the balance of trade and payments under control, the government imposed new import and export licensing procedures. Imports designated as "foreign exchange required," which included most commercial imports, were processed through a bank. Importers presented their license applications to a bank, together with supporting documentation and a foreign exchange application form. If Ministry of Trade officials approved the application, they issued an import license entitling the bank to open a letter of credit. For imports designated "no foreign exchange required," where the importer already had the foreign exchange or the goods were financed by foreign sources, an import license was required. Imports from other members of the Preferential Trade Area (PTA) for East and Southern Africa enjoyed increasingly favoured treatment, while imports from Israel and South Africa were prohibited. The Société Générale de Surveillance of Geneva operated an import contract administration programme to ensure contract provisions regarding quantity and quality were met. Each export deal required a Ministry of Trade license stating the agreed price in foreign currency and declaring receipts to the Central Bank. Licenses for non-perishable goods were subject to advance payment to the Central Bank. Some goods could only be exported through official agencies such as the Produce Marketing Board and the Coffee Marketing Board. To Walusimbi Mpanga, Uganda's export woes are rooted in a complacency that continues to afflict this country. "1986, we had a quota to supply sugar to the European Union and Mauritius is the one that takes up Uganda's quota," he recalls. "Ugandans are paying a lot more price for sugar. The exporters have found it more lucrative to sell to Ugandan market." Mauritius produces an estimated 620,000 tonnes of sugar annually; Uganda produces 120,000 tonnes. In 2002, Mauritius sugar exports accounted for 85 percent of all of that country's agricultural exports last year, earning the country $300 million; Uganda's total exports were estimated at just about $476 million and total imports about $1.8 billion - about 400 percent the exports. Mauritius exports were about $1.5 billion about 75 percent of the $2.06 billion imports. By 2000, Mauritius started generating 42 mega watts of electricity which accounts for 21 percent of the country's electricity generation at $90 million ($2.1 million per mega watt); Uganda was tussling environmentalists and graft allegations that stood in its way to generate an estimated 200 mega watts - part of it for export - for $580 million ($2.8 million per mega watt). "They had a clear path, they are going offshore, they are going computers, like the Indians," says Walusimbi Mpanga. "Mauritius is positioning itself to become the 'Singapore of the Indian ocean'." Singapore is one of Asia's success stories. Additional report from Uganda: country guide (Library of Congress, 1990) EMAIL: [EMAIL PROTECTED] |
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