For a long time I had wished to meet Mr. Emmanuel Tumusiime Mutebile, the famed Permanent Secretary/ Secretary to Treasurer, Uganda’s Ministry of Finance Planning and Economic Development (MoFPED). Seeing where Uganda was headed which I regretted and despaired I had taken a keen interest in her political economy ending up writing a critical book, “Things Fall Apart in Uganda” (2013). The opportunity finally came following the death of Uganda’s fifth President, Godfrey Binaisa, QC, and I found myself deeply involved in his funeral arrangement. Somewhere along a kinder and gentler face emerged eager to assist in any way. This was none other than the famous Mutebile, much respected as the architect of Uganda’s Economic Reforms.
In 1979 after Mr. Binaisa became President he recruited a number of brilliant much younger men from all over Uganda to assist him as personal assistants. One of those was Emmanuel Mutebile, an Oxo-educated economist, formerly a lecturer at the University of Dar es Salaam. When Mutebile heard of the death of his former boss, he suspended everything and rushed to assist the grief-stricken family.
He found us trying to figure out a matter of interest where we needed a well-connected person to link us to State House. About 1956 when Mr. Binaisa returned from England armed with a law degree he had teamed up with the veteran nationalist, Ignatius Musazi who had earlier in 1952 founded the Uganda National Congress (UNC)to picket for African self-rule. When Musaazi passed on in 1990 and was buried at city square in Kololo as a national hero, he too felt he deserved as much.
To realize this request we turned to Governor Mutebile who enthusiastically took up the matter. As we waited for State House clearance, suddenly I saw an opportunity to start engaging the Governor on some matter dear to my heart.
“How do you see all this disorganization in our city,” I asked, looking for a way to draw his attention to how the public sector had fallen apart leading to urban decay in spite of the much-vaunted Economic reforms. The Governor looked at me disarmingly and then said, “you mean these beautiful slums!” He explained that the concrete propping up everywhere was a progressive sign of Uganda’s economic miracle. “Martin, why should you be concerned about order when people can now afford to build this much!”
“But what about rural areas?” I pressed him, unconvinced and casting doubts on his reforms. “This is where 70 percent of our population resides and the poverty there is crushing!”
“We see progress,” he held his ground. “There are now more tin-roofed houses in all the villages across the country than ever before!”
For almost an hour we gently spurred but it was getting dark. This was not a good time to fight out an ideological debate when still anxious about where the deceased would be laid to rest. We drew; neither having given in to the other. Eventually, after repeated calls by him on behalf of the Binaisa family to State House, the request was not honored. We decided to lay QC besides Canon Ananasia Binaisa at Alexander Memorial McKay Church in Natete.
After the funeral, we would bump into each other frequently especially as he was a regular visitor to my Rotary Club. Meanwhile, I found no reason to revise my views about Uganda’s fragile economy normally lauded as one of the best performings in Africa. With his passing, I have come across many deserved tributes in his memory, but there are certain aspects about the reforms he spearheaded that I strongly feel necessitate further reflection.
There is no doubt that Governor Mutebile played a herculean role in reviving Uganda’s sagging economy in the early 1990s, together with his able team. In 1986 Uganda’s economy can best be described as on a drip. After fifteen years of civil war and mismanagement, Uganda which in 1970 had the fifth highest GDP per capita in Eastern and Southern Africa, with inflation never above 5 percent, was paralyzed with poverty soaring at 56% and inflation galloping away at 120 percent. For foreign exchange the country heavily depended on coffee exports accounting for 70- 80 percent of total exports. Tax revenues averaged just 5.8 percent of GDP and foreign aid financed 50 percent of public expenditure. Uganda was listed as highly indebted nation.
There tends to be a misunderstanding that the Economic reforms that followed were pioneered by the Museveni government, which couldn’t be any further from the truth. In the 1980s the Obote 2 government was the first to embrace IMF/ World Bank Structural Adjustment Policies (SAP), but only with limited success largely due to the ongoing Luwero Triangle war. After the Museveni government came to power, with Dr. Crispus Kyonga as Minister of Finance, the country suspended these reforms and imposed strict controls on prices and foreign exchange, which only worsened the economic malaise.
The Museveni government was in a quandary. According to its Ten-point program, it was opposed to foreign interests interfering in Uganda’s economic development and advocated for state control of key sectors of the economy. These leftist policies quickly failed to revive the economy exacerbating inflation which simply soared to 240 percent in 1987. After flirting with barter trade, the advice offered by technocrats based at the Ministry of Finance, led by a one Mutebile, won the day. They argued that the economy should be liberalized and embrace once again the World Bank/ SAP policies.
From what we gather Tumusiime Mutebeli was born into a deeply religious family that has roots in the East African revival Born again movement. This explains his “Tumusiime” name -given to thank God for life. His education journey saw him attend Butobero High School and later Makerere College School before joining Makerere University to study economics and politics.
In 1972, as guild President at Makerere University, he risked his life by openly opposing the Amin government’s decision to expel Asians. Pursued by soldiers he fled and ended up at the University of Durham in UK for a degree in politics and economics, and then on to Oxford University for a Master’s degree. A first-class honors student he had started work on a doctorate in economics when he joined the war that led to Idi Amin’s fall in 1979.
After the fall of President Binaisa, he served briefly under his successor, Mr. Paulo Muwanga, who had overthrown him. During the 1980 General elections, Mutebile sided with Uganda Patriotic Movement (UPM) and once survived an assassination attempt on his life. A skilled networker not only did he remain behind unlike many of his old party comrades who fled either to take up arms against Obote 2 government or take up jobs in the diaspora, he moved to Ministry of Finance where he gradually rose to become Chief Economist. In 1985 he was appointed Permanent Secretary by President Obote and when his old comrades took over the government a year later, was confirmed by President Museveni.
Although once a socialist radical, by then he had apparently become a proponent of free markets. There is a story to that. At Oxford University he was tutored by development economists like Professor Frances Stewart who preferred redistributive economic policies to fight inequality. But at Dar es Salaam University it is possible that his firsthand impression of the failure of President Nyerere’s socialist Ujaama policies made him embrace neoliberalism, a philosophy that advocates free markets and limited control of the state in economic management.
In the 1970s virtually all African economies were near total bankruptcy reeling from the effects of the collapse of the commodity market and oil prices that rose throughout that period. Yet most of these governments, like Uganda, had initiated vast public sector enterprises which were hardly productive but sucking the treasury and leaving nations heavily indebted. Something had to be done. The consensus was starting to emerge to cut unstainable public expenditure.
Founded in 1944 World Bank and IMF were Bretton Woods institutions whose primary goal was to preserve US supremacy by promoting the dollar as the currency of the last resort. Shortly after Uganda secured her independence in 1962, World Bank advanced credit to help her build or renovate major schools and hospitals. The early loans were not conditional but now with many developing nations desperately out of funds for her, under the influence of supply-side economists, to write a cheque it became a condition that beneficiary countries restructure their economies and embrace fiscal discipline by limiting public expenditure. The term “home-grown solutions” was a plague to their ears.
Initially, not everyone within the Museveni government was convinced and there was a stubborn element which opposed opening key sectors of the economy to foreign control through privatization. But the once socialist Museveni finally yielded to the neo liberals led by Mutebile, especially as inflation soared, with Uganda constantly devaluing her currency and becoming even more indebted.
Almost immediately once Uganda adopted a programme of fiscal discipline, macro stability to tame inflation and liberalized the foreign exchange and commodity markets Uganda’s faltering economy was finally revived. Some time later, while visiting a cousin who had taken up a job with World Bank up in Washington DC, she confessed to me, “I am so happy everyone here is talking of how successful Uganda reforms are!” However, all this was coming at great cost to average Ugandans.
One of the requirements of these reforms, as way to cut back public expenditure and balance the budget Uganda was tasked to half the size of public service, which was dismissed as too expensive payroll. So, Uganda, from 320,000 staff in 1990 she rushed to cut down staff to 156,803, by 1995. Long serving civil servants were given little choice through a process that was colorfully termed as retrenchment. In far off more developed nations with booming economies such forced terminations could easily be absorbed as there were other jobs. But in Uganda, for most of these traditional public servants, left to contest in courts for their full terminal benefits, this was traumatic.
Between 1992- 1998, as part of these conditions there was also a recruitment freeze. Almost everyone would agree why a developing nation like Uganda trains her people is to create employment, so that those armed with skills can develop the nation. In 1997 after a decade away of studying and helping the US develop as a teacher of public schools and manager of a major enterprise; I returned home and went straight to Makerere University where I applied for a job as a Lecturer. Though well qualified I was turned away because government of Uganda was under a recruitment freeze.
I could have immediately packed my bags except for Prof Akiki Mujaju (RIP), my former teacher, who once he got to know I was back, immediately contacted a colleague, Prof Joy Kwesigwa, (current Vice Chancellor of Kabale University) then head of the new Department of Gender Studies, to find a way of engaging me. The Government of Uganda had paid for my full university education but a foreign organization had decreed educated Ugandans like me should be locked of the job market!
Another condition of these reforms was privatization of state enterprise. This was a standard prescription that never took into concern the socio economic reasons behind the formation of some of these state enterprises, albeit their failures, especially in supporting indigenous founded enterprises. In some nations like Malysai, when it became absolutely necessary, the nationals would be given first options to buy shares in privatized companies. Uganda, for some reason, took a wholesale nondiscriminatory approach quickly disposing off over 105 state enterprise, which incidentally had been set up from national savings. A number of these state enterprise were sold under dubious circumstances due to internal wheel dealing.
Perhaps we need to digress to explain why so many state enterprises had become crippled. These enterprises, most which were founded by Uganda Development Corporation, had been successfully run through the1960s under the leadership of Semei Nyanzi, becoming a source of employment to thousands. Like other sectors of the economy they had suffered from the disastrous Amin Economic war. This worsened under Obote 2 when they became victims of patronage which denied them of able managers. What was needed was thorough restructuring. As William Pike note in his memoirs, “Combatants”, one of the few survivors of that massacre was the New Vision Printing Company. As Chief Executive given free latitude he turned it around into a profitable company now listed on the Uganda Stock Exchange and employing hundreds. The other case is that of National Water & Sewerage Corporation, which, under the able management of Dr. William Muhairwe as later narrated in “Making Public Enterprises Work” was also turned around and now employs hundreds of Ugandans.
The most controversial sale turned out to be Uganda Commercial Bank (UCB), which had been founded in 1964 to deepen financial literacy and extend credit in the largely rural population, a market hardly of interest to foreign-owned banks. Although at one stage UCB was on the verge of illiquidity (there are stories where customers could not access their money until someone later deposited an equivalent figure), even after she was restored to profitability under the leadership of Prof Ezra Seruma, the reformers insisted she is put on the market. After some drama, it was sold to a South African bank. It was later reported that within the first year of trading, this once national jewel having sold off the famous UCB tower to a savvy tycoon, the investors recovered all their purchases and have never made a loss since.
In 2001 Mutebile moved to the Central Bank as Governor, a position he would hold for over 21 years. Again as part of the economic reforms Bank of Uganda was empowered to close banks that failed the liquid test. Over the course starting in 1993 largely indigenously founded banks without the financial depth of foreign-owned banks would suffer most. In 1993, Teffe Bank, founded by Baganda elites, was closed due to insolvency. In 1998 International Credit Bank, founded by an indigenous entrepreneurial family, was closed due to insolvency. In 1999 Greenland Bank, founded by Muslim elites was closed due to insolvency. In 1999 Cooperative Bank, founded by national cooperative societies, was closed due to insolvency. In 2012, the National Bank of Commerce, founded by Kigezi elites to help with the development of Mutebile’s mother district by mobilizing savings, was closed due to insolvency.
Free marketers argued that a bank should only be retained on technical reasons revolving around her financial viability. This means raising capital inaccessible to most nationals in a small economy like Uganda. At the end out of 26 commercial banks, four would survive where either Uganda or local investors had majority shareholding. The rest ended with foreign shareholders as the majority, meaning Ugandans as well explained elsewhere by Prof Seruma are left at the mercy of foreign capital. This partly explains the exorbitant 15-20% bank interest rates, compared to the 0.5- 2% interests charged in the developed countries, hindering ironically the very development of the private sector.
Indigenous founded banks and locally founded strategic industries were abandoned in favor of foreign-owned banks and foreign investors, more keen at scooping profits for the benefit of their external shareholders. Ultimately the Economic reforms took something out of Ugandans, a certain sense of self-confidence, especially as some of these foreign-owned companies came with their own people, including askari- guards, leaving nationals out in the cold! In a liberalized market foreign shareholders could own 100% of the company. Where we lost UCB now we had Kenya Commercial Bank and no wonder there is a creeping talk you come across in town that “we Ugandans can’t manage!”
Here we must pause and point out that the 1990 Economic reforms were not a universal failure, altogether, and did some plausible good. Those of us who lived through the 1980s scarcity are forever grateful. Like one of my friends who for his wedding had to hide crates of soda underneath his bed, having secured the scarce soft drinks mysteriously. At our Kampala suburban home the taps were constantly out of water and load shedding was normal. I personally had to require a recommendation chit to secure foreign exchange when first traveling out, courtesy of a hand written note from my muko (in law), Professor Apollo Nsibambi (RIP). The liberalization of the commodity market invigorated our farmers who cut out expensive bureaucratic middlemen with better prices and production shot up.
These gains do not deny that there are areas of misgiving. In fact, going over some actions one wonders if in the mind of some the Republic of Uganda was about to shut down! Was it really inevitable, as happened, to “sell” public houses built from national savings to seating tenants as “pool houses”! This was a clear conflict of interest as in profiting from one being in a decision-making position. Look at Makerere University which retained that infrastructure and how the younger generation has lived to profit from the property she retained. By selling off “pool houses” senior public servants would later scamper around for places of abode, sometimes finding themselves locked in slums with impassable roads.
And, much as the public service numbers were halved, they would quickly jump back to over 300,000 anyway; but then without the promised pay reform to make public service more efficient. If anything the culture of “workshop allowances ” and “ghost payroll” these reforms had promised to eliminate soared. In the absence of state enterprises, the nation would return them back under the guise of government agencies, with bloated salaries for the beneficiaries, further weakening traditional public service.
In as much as the reforms saw Uganda’s economy grow ninefold, our GDP per capita only rose to $900, more due to inequality. For all the progress in thirty-plus years, Uganda is yet to attain a middle-class economy. The poverty rate has stagnated at 21%; and our tax revenue, at 14% of GDP remains one of the worst-performing in sub-Saharan Africa. Uganda ranks 159 out of 189 countries in the Human Development index. Even the NRM government manifesto points out “the majority of Ugandan youth aged 18-30 years are either unemployed or employed in the informal sector. Less than 15% had formal jobs.” Because there are no commensurate jobs created by a thriving industrial and agricultural sector, the country has turned to export them. Presently there are about 300,000 Ugandans working in the Middle East with over 120 labor exporting companies.
If imposing fiscal discipline was the heart of Economic reforms by cutting down public expenditure; Uganda has now perfected the pork and barrel politics of patronage with 84 cabinet ministers, a 529 Parliament and 131 districts. According to the Auditor General, Uganda’s national debt to GDP has galloped to 47 percent “which creates a risk of reaching unsustainable levels”. This must evoke back bitter memories when the country was listed as Highly indebted and gave foreign lenders leeway to enforce their harsh policies. And as for the weakened public sector, in the very week of Governor Mutebile’s death, a national daily paper reported “there is only one dialysis machine for 15 public regional hospitals”!
Hence my observation and conclusion that the Economic reforms Governor Mutebile led have a mixed legacy. Just before we parted, when I debated him over his economic policy, I also shared a wish that it would be good to honor his old boss, President Binaisa, with a memorial lecture, as the bank did for Governor Joseph Mubiru. His eyes lighted and he asked me to follow him up on that. I regret and apologize I never did. However, my simple request to Bank of Uganda is that the bank honors this great man with Memorial lectures, which would be a great avenue to critically discuss the reforms he inspired and their impact on Uganda’s future for the benefit of posterity. May he RIP.
Thanks Martin for the deep, objective and insightful reflections on Uganda’s Economic Reforms. Its indeed a mixed legacy and one that merits further debate. You have thrown the proverbial stone. I hope Public Policy and Economists will oblige with some responses.