29 July 2014

Uganda: 'Strong Institutions Needed to Supervise Private Sector'

Uganda must build strong public institutions capable of supervising the private sector's operations, experts have said.

Speaking at the launch of the 2014 Africa Economic Outlook (AEO) report last week, Dr Steve Kayizzi-Mugerwa, the acting vice president and chief economist at African Development Bank, said it was very risky to leave the private sector to do anything they want when they feel like.

"Strong institutions are very important," Mugerwa said. "While the market forces can play without interruptions, they need someone to look at what they are doing."

Bank of Uganda Deputy Governor Louis Kasekende agreed, saying no one ever envisaged markets working without strategic supervision.

"There are potential areas of intervention. Some players try and fail; they need to be managed. We cannot play down the role that government can play."

Last week, BOU closed Global Trust Bank (GTB) for failing to break even and, thus, putting its customers' deposits at risk. This is typical of how public institutions can act in a free market to protect the public. When Uganda embarked on the IMF/World Bank's Structural Adjustment Programmes in the early 1990s, most public institutions, including Uganda Commercial bank (UCB) were privatised, on the assumption that private players would spur competition, innovation and creativity and lead to better services and general development.

Some liberalised sectors, such as banking, have been extremely successful. But according to experts, if such sectors are not supervised by a strong institution, they could reap off Ugandans in pursuit of profit. Meanwhile, according to the AEO report, Uganda's construction industry has achieved the highest growth rate since 2006, owing to huge public investments and private commercial building.

The report says the construction sector grew at 8.2 per cent during the 2012/13 financial year.

"Growth in construction largely owes its performance to roads, bridges and non-residential building sector, which was especially robust among public activities," the report said.

Agriculture, fisheries, and forestry sector remained sluggish, despite employing 82 per cent of the population. In agriculture, the report says, sluggishness was mainly on the part of the food crops, with productivity was hampered by prolonged drought.

The electricity supply sector also grew at an impressive 10 per cent in 2013, boosted by the opening of the Bujagali hydropower station in 2012. The report says Uganda has managed to regain its growth momentum, projecting 6.6 per cent this year, and seven per cent in 2015.

The IMF's projection is 6.2 per cent for this year. Uganda's growth prospects are premised on strong exports performance and public investments. However, some observers have called for stronger measures to stimulate growth in the areas that benefit majority of Ugandans.

Professor Augustus Nuwagaba, the head of Reeve Consults, said Uganda's development was more artificial, seen only by the affluent sectors.

"This growth is in MTN and Stanbic; how many of you have your mother working in MTN? she is in the village farming. And this growth is not there in agriculture," Nuwagaba said.

Mugerwa shot back that transformation could not cater for everyone, although he conceded that government had to put emphasis on sectors where the bigger part of the population is engaged. Last financial year, the agriculture sector slowed down again, growing by only three per cent.

Government was advised to manage the public's oil expectations, and to tame its own appetite to spend when oil money starts flowing. Uganda hopes to start commercial oil production in 2018.


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