Thatcherism Challenged in Uganda

by Ruth Peluse

The doctrine of ‘TINA’ is being powerfully challenged in Uganda, one of the world’s fastest-growing economies

First published: 09 October, 2013 | Category: International

The Iron Lady lives on in Uganda. “In the words of former British Prime Minister Margaret Thatcher”, Uganda’s Minister of Finance Maria Kiwanuka declared in this year’s budget speech, “‘young people ought not to be idle’”. Not the most controversial of Thatcher’s statements, true, particularly in Uganda where youth unemployment is estimated at over 60%. But the rest of Kiwanuka’s speech left little doubt about her ideological allegiances, calling for regressive tax hikes, cuts in social spending, and a push for increased labour market flexibility.

These measures are necessary, Kiwanuka explained, in a “global economic context where governments (including Uganda) are rationalizing their operations [and] shifting to a market-based economy”. This characterisation of global economic trends certainly captures the pattern of austerity politics and “structural adjustment” in advanced OECD (Organization for Economic Cooperation and Development) economies.[1] Yet it is worth considering why policy remedies alleged necessary to counter sluggish growth and persistent budget deficits in the world’s wealthiest states should also be thought appropriate for some of its most rapidly expanding economies.

Some history

Africa is no stranger to neoliberalism. Indeed, the more draconian economic reforms now being imposed on struggling Eurozone states are reminiscent of the Structural Adjustment Programs (SAPs) previously administered by the IMF and World Bank there and in Latin America.   

Uganda has plenty of experience with SAPs. The current National Resistance Movement (NRM) government came to power in 1986, at the close of a civil war. Having abandoned its “Marxist” principles, the NRM was by 1992 fully committed to IMF- and World Bank-backed reform. This shift resulted from a desire to bring down run-away inflation coupled with an urgent need for foreign financial assistance.

The 1990s saw the rapid privatization of state owned enterprises along with trade liberalization and macroeconomic stabilization measures. The latter involved a tight monetary policy (i.e. high interest rates, making borrowing expensive) and the introduction of strict limits on government spending, enforced by the Ministry of Finance over opposition from sector ministries and politicians.[2]

The legacy of these reforms, which continued through the 2000s, is controversial. Proponents point to the country’s “remarkable” recovery, with growth rates topping 6% in the nineties before climbing to a 7.6% average between 2007 and 2012.[3] Advocates of liberal reform also credit it with halving the number of Ugandans living in extreme poverty, calculated at a quarter of the total population in 2012.

Critics question these figures,[4] and emphasise the contribution of post-conflict reconstruction to economic growth. They also highlight Uganda’s increased inequality, and link privatization and the reform effort more generally to increased corruption and the centralisation of power in the hands of President Yoweri Museveni. Supporters of the liberalization effort inadvertently concede this latter point when they praise “government ownership” of reforms that “could not have proceeded without presidential support.”[5]

A close examination of this year’s budget proposal sheds light on some of the key trends at issue in this broader debate over liberalisation.  It also helps explain why Thatcher remains a favourite of Uganda’s governing elite, and what this means for the majority of Ugandans.

An austerity budget

The budget makes for painful reading, in both style and substance. Infrastructure is the clear priority, with 18.9% of the budget allocated for roads, bridges, electricity, and other projects. The second highest priority is investment in Uganda’s nascent petroleum sector, projected to start pumping oil within the next few years.

This year’s budget losers include health, allocated roughly 7.6%, education at 13.3% and agriculture at approximately 3%.

While the health budget represents a marginal increase over last year, it is still only half of the 15% called for in the international Abuja declaration signed by Uganda, and far below what observers see as necessary to meet the country’s health needs. Education’s share of the budget is smaller than last year’s, despite rising enrolment in primary education.[6] To give some indication of what this means in practice, pupil-to-teacher ratios in government-aided primary schools are projected to reach 174 to 1 in the coming year.[7]

Government spending is also on the decline for agriculture, bread and butter for a large majority of the population. Much needed improvements in the public extension system and irrigation schemes do not appear forthcoming, despite the increased incidence of droughts and farmers’ inability to afford quality seedlings and other inputs.

The budget’s priorities are indicative of what economist Ha-Joon Chang has elsewhere referred to as a “productionist” vision of development, “centred around a process of transformation in the productive sphere.”[8] Indeed, President Museveni has promised that government investment in infrastructure, electricity, and oil sector development will enable just such a “transformation”, shifting the motors of the economy towards manufacturing and trade.

There is no doubt that Uganda, with its growing population and limited stock of arable land, needs economic diversification alongside agricultural development. Yet whereas Chang calls for “productionist” policies to be combined with a “humanistic” emphasis on welfare concerns like health, education and poverty reduction, the Ugandan government’s budget will, a prominent advocacy organisation affirms, lead to “greater inequality (including gender) and social and economic exclusion of the majority of Ugandans.” It will also add to “welfare losses [and] exacerbate food insecurity and environmental degradation.”[9]

The government’s proposals for tax reform offer no respite. The budget introduces a raft of regressive taxes, including a new Value Added Tax (VAT) on water, wheat and flour and increases in excise duties on petrol, diesel, and kerosene.  Proposed revenue reform also includes a new 10% duty on “mobile money”, a service credited with, among other things, plugging gaps in public service provision by enabling money transfers via mobile phones to family members and others in poor and often rural communities.

Meanwhile there is no mention of Uganda’s much criticized use of tax holidays for foreign investors, which in 2009/2010 resulted in a loss of revenue equivalent to the entirety of this year’s allocation to primary education.

The budget, one commentator summed up, will not “bring any joy to the economic dwarfs in the country.”  Instead, new taxes will “worsen the already poor standard of living in rural areas and slums.”

One might assume the budget’s austerity measures to reflect, and represent a response to, wider economic troubles. Uganda certainly faces fiscal constraints, not least thanks to several bilateral donors’ recent decision to suspend direct aid to the government following a corruption scandal. Yet the total funds available for spending are greater this year than last while the overall economic mood remains optimistic. President Museveni used his June State of the Nation Address to celebrate the country’s 5.1% (and climbing) GDP growth, its 3.6% inflation rate, and its comfortable cushion of foreign exchange reserves.  With the president proclaiming that Uganda will be a middle-income country by 2017, why the painfully restrictive fiscal policy?

Policing from a distance

The government’s priorities as reflected in this year’s budget have their precedent. Museveni’s 1997 autobiography, for one, gives a blunt summation of government’s role, namely “to ensure peace and build infrastructure.” There is more to the government’s policy stance, though, than the president’s minimalist idea of the state (and particularly his oft-noted love of road building).  On this count, it is especially revealing to consider the influence of voices coming from abroad.

As noted above, Museveni’s NRM embraced the agenda of the IMF and World Bank, which along with other outside actors continue to guide Uganda’s liberalizing reforms. In 2005 the IMF launched its Policy Support Instrument (PSI), ostensibly geared towards providing low-income countries no longer in need of direct financial assistance with continued “monitoring and support.” The IMF PSI Factsheet states outright that PSI,

“helps countries design effective economic programs that, once approved by the IMF Executive Board, deliver clear signals to donors, multilateral development banks, and markets of the Fund’s endorsement of the strength of a member’s policies.”

The image here is of the IMF as self-appointed gatekeeper, flashing a red or green flag to direct much-needed aid and investment.

The PSI diverges little from the strict policy “conditionalities” that were attached to an earlier generation of direct financial assistance. The recently renewed Ugandan PSI clearly lays out, as per the Letter of Intent signed by Finance Minister Kiwanuka, the country’s intention to maintain macroeconomic stability, improve the business climate, and raise revenue, among other goals. A Memorandum of Understanding gives more details on exactly what “conditions” Uganda will observe.

These include monetary policy reforms to ensure independent central bank inflation targeting, which will require routinely raising the bank’s interest rates as part of a broader disinflationary strategy. This has problematic implications in Uganda (and elsewhere). While inflation is a serious concern, raising the central bank interest rate leads to a situation in which commercial banks cautiously keep interest rates high long after the central bank again lowers its official rate. These high commercial interest rates subsequently exclude most small entrepreneurs from access to credit, a problem not shared by a wealthy business elite able to resort to foreign currency loans.[10] Interest rate manipulation thereby ends up exacerbating inequality. Critics also point out that monetary policy cannot address root causes of inflation like periodic droughts, which require more agricultural investment, and – one factor behind the most recent price surge – the NRM’s heavily inflationary campaign spending.[11]

Another policy endorsed by the IMF and incorporated in Uganda’s PSI is the already-noted hike in VAT. An IMF consultant explains the rationale behind the focus on VAT as follows: “because it is a tax on consumption, the VAT is an ideal candidate for increasing revenue while maintaining competitiveness and promoting growth through savings and investment.”[12] Increasing the less regressive corporate income tax is not judged half so appealing. Indeed, the possibility is not even mentioned.

During policy discussions with Ugandan officials, the IMF pushed for “realism in budgetary allocations”, which meant, among other things, “keeping salaries [for civil servants] constant in real terms.”[13] While Ugandan authorities initially balked, citing likely parliamentary opposition, they ultimately capitulated (more on this later). Uganda’s PSI is, in short, a rigid set of conditions, ostensibly aimed at increasing growth and competitiveness but paying little attention to distributive outcomes and showing scant concern for Uganda’s growing inequality.

The World Bank, and its Doing Business Report, is another key enforcer of liberal orthodoxy. The report, which ranks the business climate in different countries from 1 to 185, is currently under review. This follows widespread criticism of its methodology and basic assumptions (including on labour flexibility and corporate taxation).[14] Regardless, its rankings are highly influential, shaping the perceptions of donors and investors alike. Countries like Zambia and Rwanda have responded by focusing policy efforts on easily manipulated evaluative criteria, with Rwanda consequently leaping from 158th place in 2005 to a respectable 52nd last year.

The findings of the Doing Business Report for Uganda are characteristically dubious. Uganda is ranked a lowly 120 overall, but places 40 for “ease of getting credit”. The report reaches this conclusion by ignoring issues like interest rates, which, as mentioned above, represent a significant obstacle for small-scale entrepreneurs. The report also encourages lower tax rates for businesses and more flexibility in employment, specifically for hiring, redundancy and working hours. Finance Minister Kiwanuka’s indirect references to Doing Business in her budget speech indicate that, despite its many problems, the report is an important reference point for Ugandan policymakers.

The big three credit ratings agencies are a third component of the external economic police force shaping Ugandan policy. Uganda’s recent upgrade by Fitch from B “stable” to B “positive” was a big victory for the government, expected to ease borrowing on international markets and attract investors. But critics question the underlying ratings criteria, which reflexively reward interest rate hikes (“improved monetary policy management”) and reduced public spending (“prudent fiscal policy”).[15]

Together the IMF, World Bank, and credit ratings agencies mould Uganda’s policy-making to fit the requirements of “credible” economic management. They define the benchmarks for measuring success and provide much of the vocabulary with which Ugandan policymakers articulate and defend their proposals. This makes divergence from the orthodoxy unlikely, not only because of the potential economic cost of donors and investors turning their backs, but also because heterodox voices have effectively been drowned out. Uganda’s policymaking elite is thoroughly integrated into an epistemic community of liberal economic expertise. It thinks how the IMF thinks.

That isn’t to say there aren’t people with an alternative outlook. There are, and they’re speaking up.

Fighting back

In the African context, “TINA” has two dimensions. In addition to the familiar claim that liberal economic policy management is the only viable option, there is also the stereotype of African regimes as inherently corrupt and authoritarian, destined to mismanage state funds while ignoring or actively suppressing public outcry. On the face of it, Uganda conforms to the cliché. The long reign of Musaveni’s NRM, 27 years and counting, is increasingly associated with corruption and political intolerance.

Nevertheless, there is much to be learned from Ugandan popular opposition to neoliberal pieties and authoritarian repression alike. Unions, advocacy organizations, opposition parties, university guilds, and frustrated citizens are among those opposition forces making headlines, joining in street protests and the occasional riot. Their demands are wide-ranging, from improved state services and a clampdown on corruption to democratic political reform.

The most powerful opposition to this year’s budget proposals has come from Uganda’s teachers. With education already underfunded, teachers were dealt a further blow when the government indicated it would renege on a promised 20% salary increase. Negotiations with the Uganda National Teachers’ Union (UNATU) culminated in a nationwide strike, ongoing at the time of writing.

The strike’s defenders have been bold. “Empty promises and intimidation of teachers is a fallacy,” said the director of an education advocacy network, adding, “an untaught society is a doomed society.” UNATU’s Secretary General, for his part, challenged government priorities, insisting, “[if the] government was willing, the money would be found.” Support has also come from further afield. Earlier this month, for instance, a cleric made headlines denouncing the government’s decision to “[raise] the axe” on teachers while awarding extra funds to the President and the army.[16]

The government has been unyielding in the face of this opposition. Apparently recalling her earlier incarnation as an army major, the Minister of Education commanded local executive officials to hunt down and monitor striking teachers. Museveni meanwhile has called for uncooperative teachers to be “[swept] aside” in favour of new recruits. 

The response in parliament betrays that institution’s many weaknesses. After legislators on the education committee unanimously agreed to block the education budget until teachers’ demands were met, Museveni threatened to halt infrastructure developments in rebelling MPs’ constituencies should they persist in their defiance. Ultimately, despite opposition parties’ support for increasing teachers’ pay, the overwhelming majority of NRM legislators voted down the measure in the House.[17]

With pressure on teachers growing daily, this description of events may make failure sound like a foregone conclusion. Faced with a similar situation last year, however, legislators managed to extract additional funds for health workers’ wages despite executive stonewalling. This time round, key actors within parliament have proved less flexible, with the Budget Committee chairman, Tim Lwanga, now demanding that teachers accept the “fact” that “there is no money”.

While supporting the official government line, Lwanga’s position gains added legitimacy from the imperatives laid down by outside actors. As noted above, the recently renewed IMF PSI agreement commits to “keeping salaries constant in real terms” to ensure fiscal “realism”. In this vein, legislators have also embraced a government-backed decision to pursue a comprehensive pay review for all civil servants, thereby indicating they will no longer respond to demands from particular sectors for ad hoc increments. While such a review is not a bad idea per se, the emphasis on wage “harmonization” and “consolidation” promises little more than the IMF-sanctioned fiscal conservatism characteristic of past government efforts regarding across-the-board wage increases.[18]

The struggle over teachers’ salaries shows popular forces challenging the assumption that there is no alternative. Uganda’s teachers and their many supporters reject both the liberal economic argument for poverty wages and the apathy-inducing belief that an authoritarian bottom line will inevitably prevail. While there are rational arguments to support the strikers, in this instance the balance of political power will likely render them irrelevant. This is not the power of an authoritarian regime alone, however. The legitimacy of the Ugandan regime and its often highly unpopular policies is crucially augmented by organisations like the World Bank and the IMF, who in so doing help undermine struggles for democratic accountability.

Uganda’s budget priorities show how a one-size-fits-all neoliberal package is promoted internationally by powerful actors working in concert with national elites. Many policy-makers genuinely believe this package to be the best recipe for economic success, as they define it. But interests are also at play. Both external and internal elites benefit from its imposition: the former from the profitable markets it opens up for exploitation, the latter from the centralisation of power it encourages. Why, then, has an austerity politics deemed necessary in flagging OECD economies re-emerged, little changed, in the radically different context of Uganda? Because in important respects the context is, in fact, all too similar.

Ruth Peluse is a PhD candidate researching Ugandan parliamentary politics.

[1] Politics in the Age of Austerity, edited by Armin Schafer and Wolfgang Streeck, is good on this.

[2] For a sympathetic view of the 1990s reform process, see Whitworth, Alan, and Tim Williamson. "Overview of Ugandan Economic Reform since 1986." Uganda's Economic Reforms: Insider Account. Ed. Florence Kuteesa, Emmanuel Tumusiime-Mutebile, Alan Whitworth, and Tim Williamson. Oxford: Oxford UP, 2010. 1-34

[3] Reinikka, Ritva, and Paul Collier. "Reconstruction and Liberalization: An Overview." Uganda's Recovery: The Role of Farms, Firms, and Government. Ed. Ritva Reinikka and Paul Collier. Washington, D.C.: World Bank, 2001a. 15-48

[4] One concern is that much flaunted poverty figures, such as Uganda’s 25%, refer only to people living in “abject poverty”, i.e. under the official poverty line of $1.20 a day. According to a recent report, a much higher proportion of the population, 67%, is “vulnerable” to poverty, that is to say living at or below twice the official poverty line ($2.40 a day).

[5] Whitworth and Williamson, 2010, 34. The tendency for foreign-backed structural adjustment reform to rely on and thus bolster executive power is a well-acknowledged phenomenon, observed by analysts both supportive and critical of the liberalization effort itself.

[6] See comments on the education sector in “Citizen’s Budget: the civil society alternative budget proposals FY 2013/14-FY2017/18”. Produced by CSBAG, 2013

[8] Chang, Ha-Joon, “Hamlet without the Prince of Denmark: How Development Has Disappeared from Today’s ‘Development Discourse.’” Towards a New Developmentalism: Market as Means Rather than Master. Ed Shahrukh Rafi Khan and Jens Christiansen. Routledge, 2010. 47-58

[9] Civil Society Budget Advocacy Group (CSBAG), “Assessing Uganda’s Journey Towards Socio-economic Transformation in 2013/2014.” Presentation delivered at the Fairway Hotel, Kampala, 20th June, 2013.

[10] The IMF acknowledges this problem (p. 11), but offers no remedy beyond a reassurance that banks, at least, are in a stable position.

[11] Civil Society Alternative Proposals on the National Budget Framework FY 2011/12-2015/16. Position Paper. Kampala: Forum for Women in Democracy (FOWODE), 2011, 7.

[12] PSI, p 48.

[13] PSI, p 16.

[14] The effort to reform Doing Business has provoked a counterattack, including from the right-wing Cato Institute, which has called on World Bank president Jim Yong Kim to stand firm in the face of “Chinese pressure” and preserve the report intact as “one of the few uniform, objective metrics” for comparing different countries’ policy commitments.

[15] Fitch press release.

[16] This is indeed a huge problem. “Supplementary budgets” accorded to State House, the President’s residence, last year (illegally, as it so happens) far outstrip teachers’ current demands. These extra funds do not appear to trouble Fitch, which has praised Uganda’s fiscal “prudence”.

[17] In a minor victory, Parliament did succeed in blocking the proposed VAT on kerosene, “overwhelmingly” supporting an amendment tabled by an opposition MP.

[18] Museveni already promised a “comprehensive review” two years ago with no follow up. The MP for workers has meanwhile criticized government for “ignor[ing]” a council set up just last year to mediate negotiations between government and public service unions. Museveni has taken a particularly hard line, dismissing the council’s work while threatening to “fire” not only striking teachers but also university lecturers, whom he advised to “herd goats” if they were not satisfied. More recently still, Education Minister Alupo told teachers to stop seeking special treatment, indicating that this year’s budget includes a 4% pay hike for all public servants. This modest raise, justified in terms of IMF-style fiscal “realism”, is not sufficient even to counter the effects of recent inflation, which has declined from 18% this time last year after peaking at 30% in 2011.

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