Introduction: A history
Upon gaining independence from Great Britain in 1962, Uganda was in a fantastic position to experience tremendous economic growth and prosperity. Armed with abundant human and natural resources, fertile soils, pleasant climate and beautiful scenic tourist attractions, Uganda quickly earned its nickname as the "Pearl of Africa." In fact, the 1960's was a very strong decade for Uganda, with growth in production of coffee, tea, cotton, sugar, cement, power and tourism as major sources of foreign capital and economic growth. A decade later, however, all of this would change.
The 1970s saw the rise and fall of Idi Amin, and the collapse of the Ugandan Economy. With the exception of coffee, all agricultural production came to a halt. Government seized control of all aspects of the business and industrial sectors, as well as agriculture, and Amin expelled all of the Asians, who controlled much of these sectors. The resulting mismanagement brought production from these industries to a halt, and the economy came crashing down. Operating on an inflated currency, Uganda's once promising economic outlook now seemed hopeless and beyond repair.
By 1980, Uganda was experiencing negative growth, with GDP 40% lower than in 1971 and manufacturing operating at 5% of capacity. Agricultural production declined an average of 0.7% annually throughout the 70s. Cotton production was down from 80,000 tonnes to 5,000 tonnes and tea down from 21,000 tonnes to just 3,000.
Milton Obote, in his second run as president, made an attempt to revitalize Uganda's crippled economy. Accepting IMF support, Obote floated the shilling, reduced price controls on agricultural products and imposed strict limits on government spending. However, he was unable to maintain these initial structural adjustment policies, and was soon abandoned by the IMF. Thus the economy once again began to fail. Inflation ran in the triple digits, topping the 200% mark for two years, and the value of the shilling plummeted (devalued 2000% in 1986). By 1986, when Yoweri Museveni came to power, per capita GDP was at 57% of its 1970 value.
Structural adjustment under Museveni
After Museveni's initial attempts at stabilizing Uganda's economy failed, he agreed to follow the strict reforms of the IMF. The economic reforms were, however, in line with his own ideas for Uganda, as stated in his Ten Point Program, he used in amassing support during his rise to power. Uganda began participating in an Economic Recovery Program in 1987. The ERP followed four general objectives: 1) to restore incentives in order to encourage growth, investment, employment and exports; 2) to promote and diversify trade with particular emphasis on export promotion; 3) to remove bureaucratic constraints and divest from ailing public enterprises so as to enhance sustainable economic growth and development through the private sector, and; 4) to liberalize trade at all levels.
Toward meeting some of these objectives, Uganda established the Uganda Investment Authority (UIA). The UIA serves as a "One-Stop-Center" for investment, where potential investors, foreign and domestic, could obtain information on investment opportunities, plan strategies, investigate government incentive programs and file all necessary papers to begin work on a new business. Uganda offers numerous incentives for attracting foreign investment. These include duty-free import of machinery necessary to begin production and first arrival privileges, including tax free importation of a personal car and all personal effects. Tax holidays of up to six years are offered for new investments totaling $300,000 or more.
In addition to promoting investment, Museveni also took steps to reduce rampant inflation, and to stabilize the exchange rate. This was accomplished by floating the currency on the market, effectively legalizing the black market on currency exchange. This combined with severe devaluations of the currency coupled to bring inflation down to single digits (from triple digits) and to moderate the exchange rate by curbing drops in currency value against the dollar.
Above all, however, liberalization of the economy is a top priority for Museveni. This includes privatization of government business holdings, reducing tariff barriers, particularly within the context of regional markets including the East Africa Cooperation (EAC) and the Common Market of Eastern and Southern Africa (COMESA), and diversification of exports.
In 1987, as part of the ERP, Museveni proposed the privatization of government business holdings. These included virtually all varieties of business from hotels to commodity marketing boards. This process began in 1991 and continues with the recently privatized Uganda Commercial Bank and the break-up of Uganda Posts and Telecommunications. This program came after heated public debate for concerns that it would lead to mass unemployment as the government laid-off thousands of civil service employees working in these businesses.
In conjunction with the privatization effort, Museveni invited the Asian community, evicted by Amin in 1972, back to Uganda to reclaim their businesses and private property. A crucial element in Uganda's once prosperous economy, the primarily Indian businessmen have returned and brought their enterprises back from the brink, rehabilitating factories and plantations, giving Uganda the economic jump-start it needed. Perhaps most notable among these returnees is the Madhvani family, the head of which is the second wealthiest African businessman, and the second African-born billionaire.
In an effort to liberalize foreign trade in Uganda, tariff barriers, still among the highest in the region, have been reduced by up to 75%. Further reductions are expected once local businesses are prepared to compete globally. Other barriers to trade are also coming down. Perhaps most notable is the ban on the import of beer and other beverages. Occurring gradually to allow local businesses to prepare for the new competition, these reforms are gaining increased public appeal. The removal of restrictions on beer imports comes as the Uganda Breweries are privatized, with majority shares going to a South African brewing company. In fact, South Africa is playing a growing role in Uganda's development becoming one its top sources of foreign investment. Other areas of South African investment include the airlines (via both Uganda Airlines and the newly formed Alliance Airlines which is a joint venture between South Africa, Uganda and Tanzania) and new supermarket chain.
Another key component of Museveni's economic reforms calls for the diversification of exports. The traditional exports of coffee, tea, cotton and tobacco are being revived, but additional agricultural exports are being promoted. These include vanilla, flowers, beans, maize, simsim, fish products, and animal hides and skins. Manufacturing is Uganda's fastest growing sector, with growth reported at up to 35% annually. This represents a positive shift away from an agriculture based economy and into an industrialized economy.
An African success story?
By all major economic indicators, Museveni's Structural Adjustment Programs have performed remarkably well. Growth has averaged 7% over the last 10 years, reaching as high as 11.2% in the 1996. Meanwhile inflation has been brought into the single digits, presently standing at 5 to 7%, down from more than 200% just 10 years ago. Per capita gross domestic product is approaching an all-time high at $290, regaining ground lost during the 70s.
Diversification of production has gained some ground, though coffee, which accounted for 95% of exports in 1987, still accounted for more than 65% of export earnings in 1995. Tea, sugar, cotton and tobacco production is also being re-established as important foreign income earners. From 1994 to 1995 cotton exports increased by 45%, with earnings nearly tripling from $3.5 m to $9.7m. Investment in modern technologies and the growing popularity of cooperatives will help Ugandan farmers to become even more competitive in the years to come.
Non-traditional production, gold, maize, fish, beans and other exports are gaining in importance. Income from these non-traditional exports more than quadrupled from $12.28 m in 1989 to over $56 m in 1993 and this sector continue to grow. Flowers are a fast growing export market for Ugandan farmers. Growing from zero to $10 m in just the first three years, the rose industry is expected to bring in $60 m annually by the year 2000. All of this positive growth comes from increased investment in non-traditional production, reducing barriers for small to medium scale agro-enterprises and cutting investment and trade transaction costs. As a whole, non-traditional exports are expected to double between 1994 and 1998. Much of this growth is supported by the instability of neighboring countries, where these basic food crops and resources are in high demand.
Uganda's industrial sector has not had quite the level of success as agriculture. However, it has maintained growth of 16% annually between 1988 and 1995. Still it accounts for only 6% of the gross domestic product, and most of it is based on agricultural production. Outdated machinery, spare part shortages and limited capital have impeded growth in this sector, which is still heavily protected by tariffs and quotas on competing imports.
Much of the growth experienced by the industrial sector has come from foreign direct investments. This has resulted in part due to enticing incentives for foreign investment. However, 50% of this investment has come from the return of some 7,000 Asians, reclaiming their once confiscated property and businesses, worth $600 million alone. The primary sources of foreign direct investment are the United States, Britain, Kenya and India. Investments from Ugandans living abroad accounted for $400 million in 1996, an encouraging sign that many who fled Uganda during the years of civil war are ready to return to help rebuild their country.
Structural adjustment: "The Bitter Pill"
Based on the above statistics, it would be hard to imagine that structural adjustment programs could ever be considered to be a "bitter pill" for developing economies to swallow. But indeed, there is a darker side to these reform measures. The most apparent of these are some of the measures themselves. Cutting government expenditures amounts to much more than cutting excess staff. Massive cuts in payrolls are often required. These include the military and civil servants. This is always an unpopular move for a government struggling to foster growth and democracy in the same breath. But aside from the harm it does to the careers of the politicians who enact these measures, countries are left with a sudden deluge of unemployed workers, frequently in the urban centers, where even their old subsistence lifestyles are untenable. This is then further exacerbated by privatization of industries, which must further cut back their payrolls in order to become solvent and competitive in the local, regional and global markets. One spin-off of this in Uganda was the increase in renegade ex-soldiers, who would set-up phony check-points and hold up unsuspecting travelers as they stopped. This because the soldiers were not trained for civilian life and so were unprepared when the government cut them from the military ranks.
A second part of the bitter pill comes from the need to increase spending on infrastructure, health services, and education, which means increased taxes. In Uganda the constant cry is against the value-added tax imposed by the government. But every year it is passed again in the budget. At the same time, attempts to implement universal primary education comes up against stiff resistance, when there are no schools or teachers and administrators corrupt the system by pocketing their schools allotments. Even a national vaccination program is not immune to the bitter pill. In Uganda detractors of government spread rumors that the shots actually contained the AIDS virus. Meanwhile doctors and nurses go on strike on a regular basis demanding greater remuneration for their over-extended services.
Perhaps the most stark of the negative side effects are those social statistics that tell the rest of the story of the above problems. In Uganda, average life expectancy has fallen from 48 years in 1985 to 39 years in 1997. From 1985 to 1994, infant mortality rose from 116 to 122 per 1000 births and the maternal death rate rose from 300 to 550 per 100,000. This is presumed to be a result of reduced government expenditure on social services which has lead to a cost sharing scheme whereby patients pay half of the costs of their care. For many this simply means no care, and ultimately death. Admittedly, AIDS is contributing to a large portion of these deaths. However, while new cases of HIV infection are declining in Uganda, the life expectancy continues to drop. So something more is happening.
The urban-rural gap
Another criticism which is often included in the above list of bitter pill realities is a growing gap between urban and rural incomes. However, there seems to be considerable room for debate in this area. On the surface it would seem apparent that all the money and benefits go to the urban centers, where the politicians live, where the foreign dignitaries and investors are sure to visit. Therefore, the urban dwellers must be gaining disproportionately more than the rural farmers. But this is truly a very shallow perspective.
Another way of looking at this argument is that most of the new industries are built in or around the urban areas where infrastructure is best developed. More jobs, more money, right? But, again this is short-sighted. Cost of living in urban areas is higher, while rural residents often have very minimal living costs. Urban dwellers generally pay rent for their housing, while the farmers live on land owned by their family for perhaps a hundred years or more. Urbanites must purchase their food, for they have no space for planting farms. The ruralites can survive off subsistence plots in even the worst of economies.
Part of the reality is that urban incomes have fallen in much of sub-Saharan Africa, including Uganda. This results from government cutbacks in salaries, as well as the reduction in civil service jobs. The urban areas are where the unemployed poor amass for access to the little bits of prosperity that might come their way. In hopes of better lives away from the rigors of agricultural competition, people flock to the cities and towns. Meanwhile life in the rural sector continues along as always, perhaps even benefiting from certain agricultural benefits of structural adjustment, such as the deregulation of coffee marketing in Uganda. The rehabilitation of old plantations and processing plants may provide rural jobs which would also reduce the problems of competition in the agricultural sector. However, even this perceived closing of the gap is artificial as a positive outcome of structural adjustment, as it comes mostly by bringing down the top instead of bringing up the bottom.
The net result is that it is difficult to claim a widening gap or to praise a narrowing of the gap. Perhaps a better approach is to stop thinking in terms of the urban-rural gap and rather focus on bringing up society in both areas. Infrastructure, especially in rural areas is a key component. But so are education and health services. And this is the real dilemma of structural adjustment. To increase spending in each of these areas while at the same time decreasing public expenditure.
Uganda has shown some signs of success in solving this dilemma. Through the introduction of universal primary education, the country is finding ways to educate the half of the national population which is below the age of 15 years. Thus, building the work force that will take the hard earned benefits of structural adjustment to the next level. Through a massive public education campaign, Uganda has reversed statistics which once made it the focus of AIDS research by bringing down the rate of HIV transmission. This program of the government has been so successful as to attract the attention of the World Health Organization who is using it as an example for other countries around the world. Finally, increased foreign investment is assisting with the development of infrastructure, including the Africa bill currently before the US Senate.
Conclusion
Overall, it is clear that Uganda's economy is improving. Some might argue that these improvements are real, or that structural adjustment is the real cause. Much of Uganda's growth may simply be recovery from years of mismanagement and civil war. The fact remains that Uganda is still not to where it was in 1970, pre-Amin and pre-civil war. One study (Jamal and Weeks 1993) failed to find differences in growth between SAP and non-SAP countries. Only the future will provide the answers. But until then, Uganda continues to shine as a rising star on the African continent.
