Why Ugandan shilling is falling in value

Posted on July 9, 2015 12:33 am

There are plenty of explanations experts have peddled on why Ugandan currency is on a free fall and at the close of business on 8th July 2015 it was exchanging slightly over 3,500. A purview of many studies regarding Ugandan politics and economy is dominated by foreign organizations, consulting companies and NGOs. Simply too many chefs tend to spoil the soup. The amount of studies and reports on Uganda is enormously redundant at times and can lead to paralysis by analysis, not action.To consider a few recent major reports about Uganda, I can quote Africa Development Bank, East African Development Bank, Uganda Development Bank,World Economic Forum Competitiveness Report, World Bank, International Monetary Fund,McKinsey among many others.Some discuss different things, such as poverty alleviation, energy exports, or agricultural potential, but all mention the stifling effect of Uganda’s overwhelming bureaucracy on innovation, foreign investment, decentralization or centralization necessity, wealth disparity and jobs creation. Others quote the old tired argument of export and imports while amateurs blame the upcoming national elections.These are entrenched impediments toward building Ugandan economic capacity and development.

Yet, perhaps a most telling story in all these studies is the lack of any robust sub-national data or sub-national direction (from the local council, districts and regions). That is, Uganda sub-nationally is actually a dual economy, whereby that data is not clearly separated from the rest of rich, progressive Kampala.This is problematic as improving Uganda at the national level is very well understood, and agreed upon, yet, individualized region, district and municipality competitiveness may be said to be lacking or at various speeds. For example,Albertine region, due to its nexus for oil and mining is expected to be ahead of most of Uganda economically via wealth, yet its road and infrastructure overall are lacking. Conversely, Kampala is the recipient of vast amounts of funding but its development in metropolis suburbs is lacking but improving slowly.All the studies do acknowledge that Uganda rules and regulations and a lack of harmonization of them with the national government (i.e. Kampala) is hindering overall economic and political progress. The economy of mega-city Kampala has a significant distortion effect on all of Uganda. All wealth flows to Kampala, jobs in Kampala pay much higher than anywhere else in Uganda.

Mapeera house that acts as head office of Centenary bank, one of the leading commercial bank in Uganda
Mapeera house along Kampala road serves as the headquarter of Centenary bank,a commercial bank in Uganda.

Infrastructure is better in Kampala, on par with many developed countries even, and quality of life is also higher.Economic activity and competitiveness in Kampala outpaces all other cities.Any study to form a baseline of most of Uganda must separate out Kampala, and perhaps also any Entebbe, Jinja, Mbarara or Tororo results in the aggregate. If this is not done, a skewed picture of Ugandan development to the upside results.This phenomena is not in Uganda only, Kenya has mega-city Nairobi, United Republic of Tanzania has Dar Es Salaam, Ethiopia has Addis Ababa. In short,Kampala represents a developed country inside Uganda. Therefore any base-line and economic dynamic planning is difficult due to this dichotomy. However, a true baseline that separates Uganda in and among its provinces exclusive of not only Kampala, but also Gulu, Arua, Mbale among others should be considered. Of course all this development and economic opportunity in Greater Kampala has downsides. It increases pressure on road usage and electrification. It contributes to housing bubbles and property prices, making them unaffordable to most, pushing out urban sprawl like Makindye and creating longer gridlocks on roads in Wandegeya, Kawempe, Jinja, Bukoto, and Entebbe roads.

It increases air and water pollution from cars, increased sewage, and waste disposal. It also increases the physical weight on the land in Kampala which, by way of some of Kampala now being above lake Victoria water level, adds to flooding and drainage problems, possibly being exacerbated with building of wetlands.With the above said, spatial sectoring in Uganda requires some attention outside Kampala. Those who don’t know, spatial sectoring is increasing the wealth, competitiveness, and living standards in areas that are further askance. Spreading out the wealth and development. It requires policies to identify these areas and business friendly enablers and opportunities that will encourage investment in these areas. The main alignment issues then to get to more effective spatial sectoring are policy issues of harmonization of local and subnational laws with Kampala, and then implementation of that harmonization.However, mere implementation alone does not allow any evaluation. A feedback mechanism must be created to see if these policies actually did what they were intended to do. If not the policies need to be reviewed and changed to focus on the issues as hand and save the Ugandan currency.

Contador Harrison