Andrew Mwenda on the Impact of Foreign Aid on Uganda
July 8, 2005 19 Comments
I recently watched a documentary on the BBC by Andrew Mwenda, a Ugandan radio journalist and Museveni opponent, which analysed Uganda’s relationship with aid. Uganda has been presented as an aid success story by donors and its government, and has even had its debt cancelled in the past. Half of its budget comes from foreign aid and President Museveni was famously announced by Thabo Mbeki and Bill Clinton to be part of an African renaissance in good governance. Read on for the reality…
“I was excited when I heard that British Prime Minister Tony Blair had set up a commission to research solutions to the problems afflicting Africa – I felt it was an opportunity to breathe new ideas into the debate on Africa’s backwardness.
However I was disappointed.
After months of work they came up with the same old mantras: doubling aid, cancelling debt and reducing trade tariffs and subsidies.
They’re ignoring reality. For the last 40 years, Africa’s been getting more, not less, aid – we’ve received more than $500bn. But we are getting poorer not richer.
Let me show you, through the experience of my homeland Uganda how these recommendations don’t – and won’t – work.
Uganda is considered one of Africa’s economic success stories. Yet we rely on foreign aid for nearly half the country’s budget.
You would assume that Uganda cannot fund its own development. But that’s not the case.
The government has got money, but chooses to spend it on political patronage and its army. It doesn’t even collect the taxes it is owed.
Allen Kagina, the Commissioner General of Uganda’s tax authority, acknowledges that Uganda collects only a fraction of the tax it could.
Uganda was forgiven its debts… as a consequence, government indulged itself in very luxurious expenditure… and invaded Congo and Sudan
She does believe the URA could fund the national budget – it would be “difficult but it is achievable.” And she also said that Uganda should aim to reduce donor support.
But Tony Blair is talking of doubling aid to Africa. Yet some African economies are so small that the amount of aid they’re getting is already skewing the economy.
Foreign aid enriches politicians, bureaucrats and aid workers, whose consumption fuels inflation.
The Ugandan government is receiving so much foreign aid that the economy is unable to absorb it. Treasury bills have to be used to suck the money out of the system. As a result, the Central Bank is holding $700m in treasury bills, and the interest on that per annum is $120m – which is incurred by the tax payer.
All in all, a very expensive exercise.
Uganda’s Finance Minister Dr Ezra Suruma said the country does consider finding better ways of managing aid to be “very important”.
“The problem is what we do with it – whether we invest or consume it,” she added.
“We need to invest more in equipment, technology, infrastructure and so on. Aid must be properly used to increase our capacity to produce more income.”
And what of Blair’s other proposal, fair trade?
Changing tariffs and subsidies in Europe and the USA will not lift Africa’s business out of the doldrums.
Again, why don’t we learn our lesson? This has been tried already and hasn’t worked.
Under the Cotounou Agreement for preferential trade with Europe, for example, Uganda has a quota to export 50,000 metric tons of sugar to the European Union – duty free.
But it’s never been fulfilled. In fact, not even one kilogram of Ugandan sugar has been exported to the EU. We can’t even grow enough sugar in Uganda to satisfy the domestic market.
It’s the domestic environment that holds trade expansion back.
At Ugachick – which produces 400,000 chicks each month and produces meat which it sells both in Uganda and surrounding countries – managing director Aga Sekalala wants to expand – but he needs affordable credit, and with interest rates up to 18% this is not available.
Then there’s the physical infrastructure.
Last week someone stole the electric cable linking Ugachick to the grid. It took five days to fix it, and it only happened then because Ugachick provided the manpower to carry the poles.
“The infrastructure, the roads, power – all of this is our headache, when it should be the government’s,” he said.
Entrepreneurs like Aga should be the engines for creating wealth in Uganda.
If he expanded, so would his contributions to the revenue. He’s energetic and ready to move forward.
But there is no imperative for the government to help him. Any financial gap in the budget, and they only need to turn to the international donors to fill it.
If only foreign aid could be shifted from lining corrupt politicians’ and bureaucrats’ pockets to developing private enterprise, then Africa would have hope.
And what of the third of the Blair Commission proposals – debt cancellation? Many people think that debt cancellation is a clear cut solution to Africa’s indebtedness.
But think again. Common sense tells you it’s wrong to reward bad economic behaviour.
My friend Ben Kavuya, a money lender here in Kampala, deals with bad debtors by taking their property, their collateral.
He believes if you forgive bad debts it teaches bad lessons, creating a culture of defaulting. That’s certainly exactly what happened with Uganda.
In 1998 Uganda was forgiven its debts through the Highly Indebted Poor Countries Initiative.
As a consequence, government indulged itself in very luxurious expenditure – increasing the size of Parliament – and invaded Congo and Sudan.
And not only that, it went on a renewed borrowing spree and today, seven years later, Uganda’s debt has more than doubled and now it is unsustainable.
Parliament is so foreign aid-dependent that even the chairs and desks are funded by Denmark.
And worse, with so much of our country’s budget in the hands of the foreign aid donors, the power of Ugandan voters to hold our government to account has been usurped by international creditors – precisely because he who pays the piper calls the tune.
In this way, foreign aid undermines democracy.
Foreign aid does not help the poor out of their misery – it exacerbates their problems and prolongs their agony.
Taxpayers in the west should not be asked to pay to keep corrupt and incompetent governments in power.”
Story from BBC NEWS