Why Interstate Disputes Should Not Delay the Modernisation of the Great Lakes Region.

The last two decades marked a significant number of interstate conflicts in the great lakes region including complex liberation wars of Rwanda, DRC, and crush of allied forces (Uganda & Rwandan troops) on a foreign territory in Eastern Congo in 1999 & the current stalemate over Migingo Island between Kenya-Uganda.

The Migingo Island dispute recently raised the prospects of war between Kenya & Uganda to significant levels. Apparently Uganda deployed military police, hoisted its flag on the island, prompting Kenyan Parliament to pass a bill authorizing President Kibaki to use every resource at his disposal to defend its territorial integrity & ethnically charged rhetoric capable of triggering a wave of ethnic & tribal violence ensued disturbingly at high political levels.

Migingo dispute like all conflicts that have plagued Africa is characteristically centered on resource control & exploitation, precisely, the fishing industry on Lake Victoria (Apparently, Uganda indicated that it will not permit Luo Kenyans to fish in Ugandan waters surrounding Migingo after the joint survey results establishing the boundaries are published).

My opinion is, there shouldn’t be any form of dispute in the EAC to fundamentally undermine the strategic vision of the common people & modernization of the region.

First, because we are entering a new era of world history, where interdependence & interconnectedness defines the modern world therefore tensions, conflict & war between neighboring states should be deligitimized.

Rapidly modernizing regions of East Asia have learned the ills of interstate war & conflict on their quest for modernization & the region has the fastest rates of interconnectedness, via free trade & economic integration. EAC with its unique regional integration model is at an opportune moment for leading the rest of Africa & cannot once again afford to squander this opportunity to lead Africa into new era of increasing importance of regional economic blocks as centers of modernization & power.

In his book “The New Asian Hemisphere, Irresistible Shift of Global Power to the East” a leading Asian thinker Kishore Mahbubani has asserted that the East Asian powers are on the match to modernity because they have learned the pillars of modernization from the West.

Key of these pillars is the culture of peace in which East Asia’s new world is a world close to zero prospects of interstate war. Guns are silent & its factory engines that are buzzing & movement of goods & services, investments and labor are making inroads in the region with China, Japan, India, and Korea leading the rest in extending the frontiers of economic integration.

Largely Africa has been independent for more than half a century now, why do other states & regions modernize faster than itself? Why does Africa future remain the past of other regions characterized by shallow in-depth of trade & economic integration, regional & interstate tensions, and civil conflicts that no longer existed in modern Europe, North America & recently East Asia? Can African leaders learn from the rest?

Second, any form of conflict or interstate tensions suffocates the emergence of the middle class, the society’s agents of modernization. Africa remains the region with the lowest numbers of the middle class in the world explaining its limited pace of modernization (the higher the numbers of the middle class the faster the pace of modernization in any country or region).

The mammoth of middle class in China & India (close to 650 million people) are behind the rapid rise of these powers and the region as a centre of gravity of the global economy & future political power. The region provides great lessons for EAC people & their leaders that size matters along with numbers of middle class created & neighboring state tensions only serve to delay the matching forward of close to 130 million in the region to modernity

Third, middle class numbers, size of market, & absence of regional tensions (business environment ratings) determine the quality of region’s foreign investment. Even in absence of actual war, tensions, uprooting of regional infrastructure (railway lines in Kenya) over Migingo Island are bad for the region’s reputation in attracting sustainable large scale market seeking foreign industrial investments & bad for native investments too. Africa’s reputation as high risk for business is often cited as the reason why it receives only a portion of Global FDI flows ($ 61 billion (4.2%) of $ 1.5 trillion of FDI flows in 2008)

Fourth, the recent boom in trade between Uganda & Southern Sudan demonstrates how intra-regional disputes can limit a trade potential of the region. After stabilization of Southern Sudan, trade between the two neighbors grew by 80 percent in favor of Uganda suddenly Sudan is one of the important trading partners of Uganda in COMESA region. Intra-regional wars, conflicts & tensions do hurt intra-regional trade volume.

President Museveni, in his timely speech recently in Lusaka Zambia laid down his African single market vision & infrastructure that connects it, a noble vision but only if not overshadowed by short term national pride at the expense of regional, political and economic competitiveness.

Fifth, because the region has the highest propensity for destructive ethnic group competition in the world, the vision of EAC federation provides a farsighted platform through taking advantage to create regional robust institutions that could mitigate the adverse effects of destructive ethnic group competition & lock in ethnic fractionalization that has deterred the region from extending it frontiers of modernization.

Sixth, EAC is at vantage point in a strategic security sphere of influence for the next 21st century world. The balance of power is shifting in the world, the West is no longer capable of protecting its allies, visa vie the emerging new centers of power & patterns of international security. The increasing penetration of the Arab World in Sub Saharan Africa (through state enterprises massively acquiring land resources), the Darfur Crisis, possible conflicts over water, River Nile, Arms Race in the Middle East (a possible Nuclear Armed Iran), a strategic joint regional security agenda will guarantee EAC`s influence on the continent & must be of interest to its leaders to pursue jointly & strategically.

Mahmood Mamdani, in his book “Good Muslim Bad Muslim-An African Perspective” has asserted that “civilization & therefore modernization is a constant creation whereby we gradually expand the boundaries of community, the boundaries of those with whom we share the world” hence the charges over Migingo is not helpful for the process of integrating & modernizing the EAC, no matter the reasons the people of two countries have in mind.

Can Africa Unite under Col. Gaddafi?

One of the greatest optimists of all times JFK, 46 years ago speaking on World Peace at American University, said “….let us examine our attitude toward peace itself. Too many of us think it is impossible. Too many of us think it is unreal. But that is dangerous, defeatist belief. It leads to the conclusion that war is inevitable--- that mankind is doomed--- that we are gripped by forces we cannot control".

He went on to say that “.......... Our problems are manmade - - therefore, they can be solved by man. And man can be as big as he wants. No problem of human destiny is beyond human beings. Man's reason and spirit have often solved the seemingly unsolvable - - and we believe they can do it again".

With the same optimism I wish to give Col. Gaddafi`s grand dream of a United States of Africa the merit it deserves but also spell out the real challenges such a grand vision is bound to encounter both within and beyond Africa.

First, fear a continental monarch, his recent posture, utterances, have fuelled this fear. He is reported to have assembled traditional leaders from the continent, & declared himself their “king”, save to the other fellow, elected leaders on the continent.

He is also reported to have said that revolutionaries do not retire from power and possibly they handover power to their next of kin, leading into a ruling family dynasty. And there is reason to believe he means business.

He has stayed on power (he seized by force from King Idris,) for 4 decades now and never been elected! (Many analysts have posed a similar question) what if he refuses to relinquish power as the president of US of Africa? I bet this fear among leaders and ordinary people of a continental monarch will determine meaningful progress toward a sensible United States of Africa.

Second, within and outside Africa, suspicion roams that Gaddafi at the helm would push to spread of Islam on the continent. Any signs for this speculation?, he is reported to have said the bible is a forgery, outraging hundreds of millions of the Christian folk.,He is renowned for using his financial chest to support and erect mosques across the continent and his posture on a typical religious conflict between Arabs and black Africans in Darfur has not been encouraging.

This could potentially turn the continent into a battle ground for religious conflicts from within and outside (western powers) the continent further alienating Africans amongst themselves and defer their integration with the rest of the world for another generation.

Third, proponents of step by step approach (gradualists) toward continent unity perceive and rightly so, that focus should be on building new institutions, strengthening the existing ones to be effective and wining the confidence of the African people (the masses) as the key "building blocks of a gradual economic and consequent political union.

This holds more promise than a summit communiqué of an instantaneous supranational government in Addis Ababa or Tripoli. Additionally, his words may come back to haunt his on this project. How many revolutionaries on the continent are willing to cede power & sovereignty of their states to him?

Fourth, political, economic and cultural realities on the continent, Africa is the most diverse region in the world, via culture, region, ethnicity, language, political systems and wide gaps within levels of economic development and vast oddities of life still exist. It trades less with itself compared to the rest of the world. Its regional integration efforts are sporadic and in tatters etc.

As matter of priority Gaddafi should instead use his financial chest focus on more practical, more attainable goals like strengthening the AU and its organs, help it resolve its financial problems, make it an effective instrument of peace and development on the continent through building new institutions and organs, generate new ideas, that will guarantee a smooth, coherent and viable integration of the continent through all the perquisite stages i.e. establishing the sustainable building blocks for African Unity. This is more practical and would guarantee him a historical place and lasting legacy on the continental than theatrics he has come to be known of.

Fifth, his scheme, his reputation and track record are likely to be seen as several steps backwards on progress of a democratisation process on the continent and nations that consider themselves to have made considerable gains on this front and their people exercise their rights to choose their leaders in regular free and fair elections are likely to disdain his scheme with contempt.

Such states like Botswana, Cape Verde, Ghana, Nigeria, Tanzania, South Africa etc could find it difficult to join his bandwagon of despotism at continental level.

Sixth, where are the voices of ordinary Africans? many African people possibly share with Gaddafi the impatience of lack of economic and political integration of African, but his instantaneous enthronement will deny them the right to participate and shape the future unity of the continent and more importantly its sustainability, because it deprives them of collective choice and responsibility , the key ingredients of any sustainable political effort if it has to outlast itself and post Gaddafi era and ambition.

Seventh, Gaddafi and Africa have had bad publicity from the western media, his reputation and track record generates mistrust from western powers: One would ask, how important is the trust of the west in this project?

It does not help but hurts the project because almost all the 53 continents countries have 50 percent of their budgets externally supported and it will continue to be so even if a United States of Africa is formed under Col. Gaddafi.

Finally, marginalisation of the African continent in the 21st century at an international stage is a real challenge for every African leader. But its not a single government in Addis Ababa or Tripoli, with a single command post and a bunch of bureaucrats at a supranational structure that will lessen it.

The challenge is not a political one but largely an economic one coupled with the effective market size of the continent. It’s a challenge that transcends every ego and every personal ambition. It’s a challenge that will need new and good ideas, commitment for every man and woman on the continent, if the slip of the continent behind the rest of the regions is to be halted in the near future. And there is no single formula to overcome this challenge. It has to be viewed as a dynamic but not a static process that cannot happen instantaneously as the good old revolutionary colonel suggests.

Once again as JFK said "....our hopes must be tempered with the caution of history—but our hopes go the hopes of all mankind" lets hope Africa will unite soon whether with Gaddafi or someone else.

Is There A Case For Government Action To Stabilize Energy Prices?

Yes. There are 4 possible channels through which retail fuel prices can unnecessarily be so high in the country:

First, through market forces of demand and supply, as the Ugandan economy has grown at an average rate of 6 percent per annum for the last two decades could lead to increased demand for more fuel/energy and if unmatched by increased supply would result in high prices at the pump.

However, this is an unlikely channel for the current fuel crisis, Uganda consumes a small percentage of oil produced in the world, and therefore it cannot influence world demand, supply and price forces. Its internal fuel prices should follow world oil price trends.

Second, high government taxes on fuel companies can lead to price hikes at the pump passed on to the consumers by the oil companies.

Third, through transport costs, road transport makes oil transported from Mombassa to Kampala inevitably expensive. A big portion of retail pump prices can reflect high transport costs especially with the new axle road requirements that limit amount of fuel a truck can carry at ago.

Fourth, the higher prices could reflect market manipulation/speculative behaviour by oil companies to earn windfall profits to oil companies.

Uganda is landlocked, with limited sources of fuel; oil companies can take advantage of this by hoarding/stockpiling oil and create a supply deficit in order to charge exorbitant prices of what they supply.

Discontent among Ugandans indicates that this is the likely channel for the current fuel price crisis.

What are the effects of fuel price hikes to the economy overall and the ordinary individuals?

Fluctuating/volatile fuel prices can have significant negative effects on the performance of the economy and macroeconomic stability in various ways. I will attempt to explain some here:

First, the immediate effect of high fuel/energy prices is an increase in production costs for goods and services because energy is a major input in the industrial production process.

These are passed on to consumers as high product prices curtailing consumer demand for these products.

Fluctuating, high energy prices lead to high production costs, which lead to high product prices that depress individual demand leading to overall reduced private consumption and thus overall reduced economic activity in the country.

Second, rising energy prices, consumer products prices, capital goods prices and exports prices lead to the economy to experience a general rise in prices of all goods, because energy prices feed into all aspects of the economy. The result is inflation. Core inflation has been rising since last year to the current double digit of 12.6 percent.

Inflation is bad for everyone, it reduces real disposal income (income available for individuals to spend on goods and services falls in value), depresses aggregate demand, hence national economic output level falls.

Third, reduced national economic activity leads to loss of employment, plants, and agro-processing sectors, operate below capacity because of fuel shortages and in order to cut energy costs, could employ few people. This will lead to income loss and further reduced private consumption of goods and services.

Fourth, increased costs of production make it hard to export. The regional and international export competitiveness of Uganda weakens because of higher export prices. This leads to reduced demand for national exports and loss of national income.

Firth, fall in business investment and construction services because they are adversely affected by the high energy prices, reduced output and lower real disposable income.

Sixth, there will be a rise in interest rates to match rising inflation thus increasing cost of credit as well as cost of doing business.

Seventh, loss of value of Uganda shilling relative to other currencies, rising inflation which peaked at 15.8 percent in August 2008, leads to the shilling losing its value. In the last one year the shilling has lost almost 15 percent of its value i.e. from 1700 in December 2007 to current 1960 per dollar.

Eighth, overall, there will be loss of national income, i.e. real GDP will decline with a slow down in economic activity. Fuel prices have increased to a 30-40 percent since last year, 2007.This could lead to 1-3 percent loss of GDP, and at the current estimates of national income at approx. USD 10 billion, 3 percent income loss is equivalent to USD 300 million. This is a staggering loss for government inaction (bigger than annual revenue from coffee exports or foreign aid to Uganda)! (Possibly that’s why the ministry of finance is forecasting a growth rate of 7.2 percent from the previous 8.9 percent achieved last financial year.

So is there a rational for government intervention in the current crisis?
Government can act to stop speculative, monopolistic behaviour of oil companies, who may be manipulating the fuel markets, by artificially supplying less than the efficient level of fuel to influence its price and take home windfall profits.

Through regulation government, can demand commercial transparency and predictability of oil companies` transactions because they control a vital part of national economy and because of need to protect Ugandan citizens from such predatory behaviour.
It should not fix prices; price fixing would worsen the situation by creating magendo (black markets) for fuel, which further destabilise the economy.
So what are the available Policy Choices for the government?

First, it should act as a priority to ensure adequate logistical infrastructure for adequate spare capacity to smoothen supply of fuel at anytime of the year and reduce fuel price volatility/fluctuations and ensuring macroeconomic stability.
This will deter speculative behaviour intended to benefit a few individuals at the expense of average Ugandans.

Second point of action and of strategic importance is the investment in improved railway transport. Railway lines would guarantee a relatively cheaper way of transporting fuel both nationally and across our neighbours at least cost and in large quantities.

Third, investment in search for other alternative reliable sources of energy, including renewable besides the prospective oil exploration in western Uganda, build a scientific infrastructure to champion energy related research in the region.

What should an ordinary African expect from President Obama come Jan 20th, 2009?

Not much in his first term at least! The last 26 days can give a clue on what he is likely to focus on as his priorities.

Jumpstarting the American economy, restoring its dynamism as the most competitive economy in the world and central to this will be averting the shrinking industrial jobs and creating new ones, funding for innovative technologies, managing the federal budget deficit, tax cuts for middle class families, reducing foreign energy dependency, re-innovating the education system.

On foreign policy front as a priority, he will be charged with rebalancing the war act in Iraq, Afghanistan and containing Iranian nuclear ambitions, save the long standing US-Middle East overall foreign policy agenda.

He will also be charged with offering leadership to the rest of the world from the global economic crisis that was caused by recent failure of international financial system.

Like he is a historical president, he is possibly at the end of a historical era, the likely end of “free-market absolutism” on to the “post-free market era” that has picked up momentum since the financial crisis struck recently.

It’s now wide spread and accepted that markets especially financial markets should be regulated.

This is a full plate agenda for president Obama and it needs pragmatic and non-idealistic and well thought out solutions.

Is it all bleak for the African continent in the first term?

No. Not at all, the first generation African-American, first American black president, Obama has already delivered a “down payment” to the ordinary folks on the African continent’s expectation.

On 4th November 2008 he delivered- that with hope, discipline and persistent hard work, against any extraordinary oddity, we can change our world. We can overcome any challenge and prejudice.

He delivered a psychological boost for all downtrodden people and those perceived or truly oppressed around the world, that they can stop being hostages of their fears, stereotypes and oppressors and marginalizers. That- yes they can!

African leaders and African people, have no further excuses of continuing to blame their lack of progress on colonialism and slavery and external forces, Obama has demonstrated that it’s possible to break these chains of the past and stop being hostages to them.

In this piece, I argue and propose a 6 point programme for President Obama come 20th January 2009 as his opportunities but also challenges to bring change to what Leonard De Caprio calls the “God forsaken Continent”-Africa.

His first African foreign policy priority should be using American diplomatic machinery and might to reverse the trend of conflict on the continent. From Congo, Zimbabwe, Somalia, Ethiopia-Eritrea etc, coupled with nurturing and enhancing African own diplomatic power, he will have to use his “fierce urgency of now”.

First he should abandon the old fashioned “carrot and stick” foreign policy approach by lifting the ineffective economic sanctions that only hurt ordinary people and leave the oppressive regimes thriving and oppressing their own people further.

Second, he should bring the protagonist including other global powers with interest in these regional conflicts (for example China in case of Darfur) to the talking table using his and American moral authority, failure of protagonists to agree should be followed with what America did in Kosovo, stop the suffering of ordinary people by intervening militarily with American and allied forces but keen to avoid the Iraq style mess i.e. he has to engineer carefull interventions strategies.

Third, the HIV/AIDS, TB and Malaria crisis on the continent- he will urgently have to reverse Bush’s aid conditionality regarding HIV/AIDs which has previously focussed on ABC (Abstinence, Be faithful and Use Condoms).

Largely driven by socially conservative republicans this aid conditionality approach on human lives has proved ineffective especially in Uganda where the prevalence rate of HIV/AIDs has been reversed in recent years from declining to increasing.

The approach of ABC is out of touch with 21 century reality and should be abandoned by Obama presidency as a conditionality for funding HIV/AIDS programmes in Africa. He should further boost up the PAPFER and TB and Malaria support beyond Bush’s accomplishments if he is to make a difference.

Fourth, fighting poverty on the continent, President Obama intends to double foreign assistance to Africa from $25 billion to $50 billion, cancel debts of heavily indebted African countries etc.

This is will not change things at all. Foreign assistance with American interests at the heart as U.S. congress determines or its competitors like China shape aid priorities and programmes or for that case from any other country has proved ineffective than trade.

Africa now after sixty years of foreign aid and debt cancellation needs something else. It needs to trade and capacity to trade with the rest of the world. Take for instance, today American farm subsidies are in the range of $ 25 billion per year.

Sadly these huge subsidies go to huge commercial farmers and agribusiness companies with annual incomes above $ 200,000! Coupled with export subsidies these have kept small holders producers in Africa outside the world markets and their own home markets.

This is an acceptable for a man who came in the presidency with credentials of change, especially in this case in the eyes of poor and struggling African farmers trying to make ends meet.

This is his opportunity to change this global trade injustice perpetuated by big agro industrial interest groups in the OECD countries especially against poor farmers in the developing world and Africa in particular.

Take for instance the huge subsidies that go to the U.S. cotton industry to produce inefficiently hurts thousands and thousands of poor small cotton farmers in Benin, Burkina Faso, and Chad, Mali and Uganda and other African countries.

He has also to change American policy of providing food aid in kind if his agenda is to reduce poverty on the continent. Shipping corn, or other grain, cooking oil etc across the Atlantic Ocean to feed Africans in displaced camps when in the neighbouring villages, small holder producers are having grain rotting in their granaries because of lack of remunerating market prices as a result of these cheap shipments should not make economic sense to a man on a mission to eradicate poverty on this continent .

Obama presidency should change this to monetizing food aid so as to encourage local purchases of food aid which would change the economic plight of many African small holder producers as sources of income. America is the largest food aid provider in the world but sadly in kind. This should stop on African continent with Obama presidency.

He will need to continue and strengthen African Growth and Opportunities Act (AGOA), extend it beyond the current deadline of 2015, make it more predictable and permanent to be able to attract meaningful and lasting investment on the continent.

Firth, I strongly believe President Obama should strengthen AFRICOM the new pentagon African Command despite the hullabaloo it generated on the continent.

Its mandate can be restricted to the pentagon providing technical assistance to African forces for humanitarian aid, disaster and counter terrorism strategy including drug trafficking control.

Africa is still vulnerable to these vices and its forces need the pentagon’s technology and capacity to contain them as well as enhancing their peace keeping mission’s capabilities. AFRICOM should not be viewed as militarization of Africa-America relationship but an essential strategic partnership for peace and development on the continent.

Sixth, president Obama proposes a global fund for education, together with his Add Value to Agriculture Initiative and Global Energy and Environment Initiative (GEE) in Africa, this should primarily focus on overhauling the higher education system on the continent, emphasise strengthening research and development, delivering 21st technology and innovation at higher institutions of learning on the continent with intent to generate tailor made continent solutions rather that utilising foreign expertise.

There is no doubt; President Obama will be constrained on delivery of this change to the continent. The ongoing financial crisis, the enormous pressure to focus on domestic problems all will have a possible impact on aspects of his foreign policy agenda and foreign assistance in Africa.

Consequently his African cousins should be ready for disappointments and mistakes from President Obama, but his presidency is a remarkable historical moment for the continent.

Will the Global Financial Crisis hit Ordinary Ugandans?

Recently, a financial crisis has sent shock waves across the globe especially amongst the rich world from the United States to United Kingdom and the rest of Continental Europe.
The nature of the crisis is extremely incomprehensible even to the experts. It begun with the busting of the housing bubble in the U.S. that led to large losses for assets backed mortgage payments.
The resulting losses have left many financial institutions around the rich world with too much debt and too little cash to provide the credit needed by companies, private enterprises and individual consumers.
Banks are short of cash (liquidity) to pay for their resulting bad debts as well as to lend to each other and their clients.
There is wide spread panic that the global financial system may collapse and it seems to only be getting worse day by day.

Will this crisis spread to reach poor nations like Uganda and hurt ordinary Ugandans?
Yes, most probable. There are seven channels through which this crisis could spread to hit Ugandan economy and hence an ordinary Ugandan:

First, Uganda has been earning a lot of foreign exchange in form of remittances from Ugandans working abroad including the famous “Nkuba Kyeyos”.

These earnings reached a record level of USD $ 1.4 billion in 2007/08 financial year, making remittances the major source of foreign exchange for the government, private investment capital and macroeconomic stability instrument in Uganda.
Remittances also have been sole source of survival for some families, from school fees, to supporting household food and medical expenses.

Steady flow of this cash from Ugandans abroad has also supported the property boom, from land to housing and construction industry in Uganda which is at its peak now.

Much of this money comes from countries that are currently experiencing the financial meltdown i.e. U.S., UK, and continental Europe. Companies struggling to survive in these countries are likely cut jobs to reduce their costs, and others are collapsing and losing business.

In such circumstances it’s the immigrant workers that get affected first, and this will lead to reduced cash inflow in Uganda in form of remittances.

Reduced foreign exchange inflows will hurt government on macroeconomic stability, reduced private investment will lead to slow down in the property boom and families that depended on remittances from their kin abroad for incomes will be hurt, if this crisis turns into a global economic recession.

Second, Uganda’s exports will be hurt. Uganda is a primary commodities exporter i.e. coffee, tea, fish, flowers. Whenever, there is an economic slow down-recession, commodity prices are the first to Plunge. Recent oil prices are an example.

Depressed commodity prices together with reduced global demand because of reduced cash for rich consumer’s pockets will squarely be felt by the ordinary Ugandans who are directly participating in producing these commodities for exports through their reduced incomes.

Thirdly, like in the 1930s when the world entered into an economic recession, rich nations responded by shutting their markets from other nations exports-protectionism will rise. Triggered by industrial activity slow down, loss of jobs and massive unemployment, protectionism against Uganda’s exports could lead to reduced foreign exchange earnings, reduced household incomes depending on these exports.

Fourthly, reduced aid to support government budget, out of Ugshs: 6.1429 trillion budgeted in the current financial year, Ugshs: 1.8786 trillion is external money, probably in form of grants, loans or foreign aid. This is 30 percent budget support.
A recession as a result of financial crisis could trigger disruptions in the aid flows that can severely hurt government development budget and scale down the poverty eradication programmes undermining the progress to achieve the UN millennium development goals (MDGs) by 2015.

Also a probable recession will hurt NGOs budgets working in service delivery and development work. Because these NGOs usually depend on charity foundations in the north which depend on stock markets to raise their finances, agencies like World Food Programme which specialises in delivery of food aid to people in displaced camps could see their budgets shrink and operations hurt severely.

Firth, tourism, with the likely holiday makers in Europe, U.S. cash trapped, hotels and travel agencies may see fall in bookings and cash inflows, and likely will cut their costs by shedding jobs.

With fall in tourist arrivals, there will be fall in foreign exchange earnings and fall in activity of travel agencies and hotels leading to fall in jobs and family incomes.

Sixth, foreign investment in Uganda is also likely to slow down and thus slow down economic activity.

With commodity prices plunging, foreign extractive industry investment faces uncertain future if the recession continues, that will affect the viability and feasibility of certain companies investing in Uganda in short term, which could lead to loss of job creation opportunities with this missed investments.

Seventh, reduced cash inflows of any form will gravitate the problems families and households are already experiencing from high food and energy prices.

Household budgets have expanded of recent because of high food and energy prices, and with liquidity squeeze will make this worse for these families.

Overall, despite the rapid economic growth Uganda has achieved in the last years, it’s still vulnerable to external shocks like the current global financial crisis.

The above are still very serious potential avenues in which this crisis can hurt Ugandan economy and ordinary Ugandans in particular. The government and policy makers in Kampala should stay on the watch rather than dismissing the crisis!

Economic growth is more than cash in people`s Pockets!!

I read with interest Dr. Augustus Nuwagaba’s opinion titled “Why Economic Growth Is Not Felt In People’s Pockets” which was published in the New Vision of September 15. Nuwagaba gave an inaccurate analysis.

First, he wrongly characterises economic growth as construction of roads, buildings, airports, and other public facilities! What he characterises as economic growth is physical infrastructure development, which is only an indirect productive capital that facilitates the production of goods and services in a country.

Economic growth is the increase in a country’s output of goods and services in a given period. The total value (in dollars or shillings) of these goods and services is called gross domestic product (GDP). It constitutes national income over that period and includes what everyone in the country earned including, the two kilogramme of cassava per household dried by women along Iganga-Tirinyi-Mbale road that Nuwagaba mentioned.

Secondly, Nuwagaba failed to link economic growth and development. The UNDP human development report of 1990 defined “human development” as a process of enlarging peoples choices and opportunities — being educated, enabling individuals to develop their full potential and lead productive and creative lives, having access and command of resources to live decent, healthy and longer lives.

Development reflects improvements in welfare and expansion of choices and opportunities. So why has Uganda’s 8.9% economic growth rate not translated into cash in people’s pockets? This question can be misleading!

The reported growth rates often reflect both monetary and non-monetary GDP growth. When women along Iganga-Tirinyi-Mbale road produce cassava and feed their families (many households in Uganda are net food producers and rare goats, chicken and pigs), this enhances welfare more than cash in the pockets.

producing food for family consumption is the non-monetary GDP. If each household sells the surplus cassava and receives cash, this household income is reflected in the total national income as monetary GDP. So an economic growth rate like 8.9% of this financial year reflects goods and services that were produced and consumed at home to produce family welfare and those goods that went to the market to be exchanged for cash into the pockets.

So apart from what is felt in the people’s pockets, can we find other indicators of economic growth in Uganda? Yes, in the last 10 years, primary health care has improved while illiteracy rates, infant mortality rates and maternal mortality rates have gone down. More Ugandans go to school, more Ugandans can read and write, and an average Ugandan owns more now and lives longer than he did 10-years-ago.

Uganda is one of the countries in Sub Saharan Africa that has gained seven years of life expectancy (at 50.4 now). These are changes that have occurred because of sustained rapid economic growth that broadens people’s choices than cash in the pocket.

Until recently (2005), Uganda was one of the Sub Saharan countries on the path likely to attain the UN Millennium Development Goals (MDGs) by 2015, but the recent global economic changes and probably changes in Uganda’s priorities that have derailed it from this path. So it is not correct to focus on economic growth analysis in terms of only income-poverty aspect.

There are reasons why Uganda’s high economic growth rate may not translate into accelerated poverty reduction and economic inclusiveness. For example, Uganda has one of the highest population growth rates in the world (3.24% annually) and the highest proportion of the young in its population (49.4 % under the age of 14).

These statistics have a negative impact on the income of individuals even if the economy is growing at impressive levels of above 8.9%. Furthermore, productivity in the agricultural sector, which is the largest employer, has lagged behind the high population growth rate. This brings about low incomes in the sector and employment opportunities are not being generated quickly enough to meet the growing demand of non-agricultural work by graduating Ugandans.

Uganda’s rate of growth has been largely driven by concentrated enclave of exports especially coffee, fish, tea, limited manufacturing and construction, transport and communications. These sectors have few linkages with the informal economy that defines an average Ugandan.

This leads to income inequality that is hindering poverty reduction in Uganda, as Nuwagaba rightly observed.

How can income poverty be reduced? Through the increased rate of economic growth, and increasing the share that goes to the poor. The more of this income increment is captured by the majority poor, the more efficient the country will be in converting growth into poverty reduction.

The Government must prioritise creation of an enabling environment for small scale agriculture, micro enterprises and informal sector — the sectors that the poor depend on for their livelihood. This is possible if the steps being taken under “Prosperity-for-All” are effectively implemented and the Government continues focus on infrastructure development, especially transport and energy — contrary to Nuwagaba’s view of “public goods model”.

The writer is a Trade and Development Specialist
based in Geneva

Trade Power and Geopolitics Undermining the WTO?

In the last 60 years the United States has dominated the world scene. It has dominated commerce, pushed nations to open their markets, championed liberal democracy and achieved military supremacy over other nations.

It helped craft the international system, for instance, the General Agreement on Tariffs and Trade (GATT).

The U.S. has led industrial innovation, world industrial output (its economy has been 3 times larger than the 2nd largest economy-Japan and almost larger than the first 10 biggest economies in the world combined).

It has been the world’s largest exporter, housed the largest number of billionaires, biggest enterprises (7 out of 10 world biggest corporations are American), tallest skyscrapers and is still the most competitive economy in the world.

Every thing biggest, largest, tallest, and cutest and many other –ests came from America. After the fall of the Soviet Empire, American might has gone an unchallenged in the last two decades, but now the tide is changing.

Four months ago Zakaria Fareed, editor of Foreign Affairs and Newsweek, magazines published a book titled “The Post-American World-The Rise of the Rest” in which he asserted that America was not declining in global influence but everyone else was rising.

Probably there is no where else this assertion has been demonstrated recently more conspicuously than in the global trading system at the World Trade Organisation (WTO).

Late July, 2008 the Doha Round of trade negotiations failed for the fourth time in a row (every end of summer, every year in the last 4 years, the Doha Round collapses) since its launch in November 2001 in Doha Qatar. It was originally scheduled to end Dec. 31, 2004; this end is not in sight even in the near future according to some analysts.

Political and economic commentaries point to a range of issues as causing failure: that Doha Development Agenda (DDA) was an ambitious, broad agenda; that the “single undertaking” principle of WTO is problematic (which states-nothing is agreed until everything is agreed) in which all 153 politically and economically diverse member nations must agree on everything on the negotiating table to achieve consensus.

Agriculture reform in the rich world is the most fundamental of these! The club of rich nations liberalised their industrial tariffs (U.S., EU and Canada and Japan, average industrial tariffs are below 5 percent amongst themselves) and they do not perceive that the benefits to reforming their agricultural trade largely in favour of the developing world is worth the political costs in their domestic constituencies to bring convergence in DDA.

The July failure was blamed on U.S, China and India. The three disagreed over the Special Safeguard Measures (SSM). SSM are mechanisms intended to shield developing countries from having their economies unexpectedly flooded with subsidized agricultural imports. They allow a developing country to temporarily increase customs tariff in response to a surge in import volumes or a sharp decline in prices.

The U.S. favoured use of SSM only when agricultural imports surged above 40 percent in volume. India and China wanted the mechanism be triggered when imports rose by 10 percent to protect small poor farmers. The impasse between the three giants led the 10 days ministerial negotiations to collapse.

Analysts have pointed to a new reality and changing global economic equation to put the persistent DDA failure in perspective:

First, is that “the rich nations club” (U.S., EU, Japan, and Canada) are no longer able to “buy up” a few developing countries with special sops as has been the practice in the previous Rounds. The developing world led by India, China, Brazil and South Africa has remained united and refused to yield ground to powerful nations!

Second, since the launch of DDA, three things happened reinforcing the changing global economic equation: American global economic and political leadership has stumbled; China joined WTO (in 2001) and is on the match to becoming the world’s biggest exporter; and economic expansion in China (annual average of 10 %GDP growth), India (within 8%) Brazil (above 3 %) has been faster than any of the “traditional industrial powers”, many of which are now at the brink of recessions.

Thus the rise of the rest, is trimming economic and political influence of until recently a loner global hegemony and its allies.

Mr. Zakaria has put this in perspective, that America’s power is being confronted by the rapid economic rise of the giants:-China, India, Brazil and South Africa, given their size (total population of above 3 billion), “they will have a large footprint on the map of the future from industrial to financial (American financial system is in turmoil now) to social and to cultural”. And this is already visible in the global trading system. They are the new shakers and movers of the world economy and not the old club of G7!

WTO is also being hurt by bilateral and regional trade deals. These are largely anti-small economies like Africa economies and their development objectives. Many analysts believe this is what is happening with EPAs between EU and the ACP states. Regional pacts are pushing ahead at breathtaking speed; more than 100 deals came into force during DDA’s seven frustrating years.

The bigger economies will be able to achieve their ambitious mercantilist objectives of opening developing countries markets under PTA and RTAs without paying the liberalisation costs in agricultural sector than at WTO.

If the multilateral trading system is to remain relevant, at least three things must happen! (i) The rich nations must accept sharing leadership of the system with the emerging south. (ii) The global trade rules must be reformed and rebalanced and improved to serve all member states of the WTO, (iii) WTO must use its power to protect weak members against the might of the powerful in the regional and bilateral trade rules to promote development.