Bank of Uganda's Economic Inconsistencies. Business news this week was constantly reporting how the US Federal Reserve just raised it's core interest rate to 0.25%.
What a huge difference I thought, compared to Bank of Uganda's 17% lending rate. And it's the first time since 2006 that the US has raised interest rates yet it is still close to zero. I said this before but maybe let me make the argument clearer today. Keeping low rates has been a deliberate measure against the global financial crisis that has been ongoing for almost a decade now. So the Ugandan 17% rate is totally incomprehensible for a country far more badly off economically than the US. The UK rate is at 0.5% today as they try to compete with the US. So while the developed nations are making real attempts to technically boost investments in their economies and thereby get jobs for their people, we are only offering confusing financial jargon at the Central Bank. Meanwhile we are comparable to the guy who raised by 4000% the price for our own life saving drugs. That's probably the difference between the 0.25% rate in the US and our 17%. Whatever rates in developed nations, we should be lower or at par so as to attract global business. That is what the UK is doing against the US. Competing. As we say we are creating incentives for Direct Foreign Investment to Uganda, who would want to invest where money is that expensive to borrow yet cheaper alternatives exist elsewhere? That is a key question that potential long term investors ask themselves. There is high array of choice out there on where best to invest. With 17% at our Central Bank, the lending rates are even higher at our commercial banks who follow what BOU determines as it's core lending rate. Our business environment is therefore much harsher even for local investors compared to western countries, partly because of high loan interest rates. I therefore wonder what market logic we are pursuing to foster economic development and create favorable conditions for local and international investment. Bank of Uganda is ignoring the necessity to make Uganda's financial market competitive regionally and globally. Kenya has made sure they attract whoever is window-shopping for investment in the region. Their regulatory framework, skills, stable currency, stock exchange, location, port, infrastructure and other crucial elements for global business are already far better in place. Yet we are all trying to get investment to our respective countries even though we are close partners within the East African Community, IGAD and the AU. At those rates, our commercial banks would rather borrow cheaply from their interbank connections abroad. Meaning that means BOU could be loosing it's main clientele that borrows their cash, and that is the commercial banks. Then we wonder what is causing the loss of value in our national currency, why other investors have packed their bags and left, and why thousands of medium and small scale businesses close each.yet we have 80% of our youths unemployed. It's the inconsistent financial policies and related erratic spending by junta economics at BOU. I am also yet to read accountability from our Central Bank for any profits made from lending at the exorbitant 17% rate. Of one is wondering why Islamic Banking has been sidelines as a legislative priority for decades, look no further. There is a private cartel that benefits from high interest rates at the expense of growing the economy. Yet Islamic Banking, a practice that has been promised for over two decades now, through four successive parliaments since 1996, would offer interest free loans to the general public to develop the country. This would drastically reduce the cartels personal earnings from loans interest. Meanwhile the rhetoric claim made publicly is that the financial sector is a "Free market economy". Islamic Banking isn't free to operate/compete in Uganda. It isn't free to offer the most competitive business loan up for grabs to any Ugandan regardless of clients' religious background. It would bring the big boost to economic development across the board. Surprisingly last years even the Pope agreed with it's principles as being the most sound for economic development. But it is probably illegal to reject, delay, or prevent the financial practice/product in this country as has been happening.
_______________________________________________ WestNileNet mailing list [email protected] http://orion.kym.net/mailman/listinfo/westnilenet WestNileNet is generously hosted by INFOCOM http://www.infocom.co.ug/ The above comments and data are owned by whoever posted them (including attachments if any). The List's Host is not responsible for them in any way. _______________________________________________
