SPECIAL REPORTS
 
10th May, 2006
Caught between donors and Museveni

Ugandans starve as President threatens to reject help

We live in two worlds: the rich north and the desperately poor south. Millennium Development Goal 8 aims at creating a global north-south partnership to help poor countries like Uganda improve their lot. In the last of our eight-part series on MDGs, RICHARD M. KAVUMA writes on limited progress amidst the rope pulling between donors and President Museveni’s government

It is a Wednesday in May in a Kampala diplomatic meeting and no one realises the impending attack. Only yesterday, President Museveni was in radiant mood as he addressed this third donor group consultative meeting. These meetings are important because donors, who fund more than half of the national budget, critique the country’s performance on indicators like good governance, corruption and budget discipline.

But now the President must appraise the donors.

"This business of ' we will not give you money because you don’t dance this way; we will not give you money if you don't dance that way' is squandering the partnership [between the donors and myself]," Museveni said.

According to The Monitor newspaper of May 17, 2001, Museveni quarrelled on: "I don’t know why you want to recreate all this tension all the time. So much of this arrogance, I find very annoying. It should not be there. I advise you against it. You [donors] are talking about a country as if it is a province of another… This issue [of do this] here, [do] this there, is nonsense. We will not listen to that.

“If you don't convince me [to do something], don't expect to [force me to do it]. Does partnership mean compliance, or does it mean dialogue?"

Eight months before that stinging attack from Museveni, world leaders had met in New York and agreed on the Millennium Development Goals poor countries must achieve by 2015. Goal 8 envisaged a global partnership for development, a vehicle for achieving the other goals. Under this partnership, poor countries like Uganda would get trade access to protected Western markets; increased development aid; cancellation of external debts; technology transfer and increased, effective access to essential medicines. On their part, the developing countries would be expected to show commitment to democratic governance, fight corruption and reduce poverty.

Five years after that Museveni tirade, the language may have changed, but the quarrel remains. Just a year ago, Museveni moved to reduce reliance on “paternalist" donors, after they slapped aid cuts on him over governance issues. So has anything come of the deal struck under Goal 8 in New York?

Development aid

Giant strides have been made to increase Official Development Assistance (ODA). For instance, ODA from the European Union rose by 50 percent between 2000 and 2005, the bulk of it going to Sub-Saharan Africa. However, there remains doubt whether rich countries will meet the 2015 target of giving at least 0.7 percent of their annual Gross National Income as ODA to poor countries. Only Denmark, Luxembourg, Holland, Norway and Sweden have reached that target.

According to Tom Vens, the First Secretary at the EU Delegation in Kampala, by 2010, the EU hopes that each member state will be giving at least 0.51 percent of GNI as ODA annually, while the average for the group should be at least 0.56 percent.

“This means that from 2010, we will increase ODA by 20 billion Euro per year,” said Vens, also head of the Economic, Trade and Social Sectors Section.

In Uganda, foreign aid has increased from Shs 533 billion in 1993 to over 1,750 billion this year. But Uganda has had a turbulent relationship with donors, with many cutting aid as Uganda fails to meet its commitments.

Although the EU’s aid budget has risen significantly over the last five years, Uganda’s own share of the aid has not increased as much. In fact, it has reduced relative to the share of other developing countries. And the problem, Vens says, is the governance question, where Uganda has been repeatedly found wanting on issues of democratic governance, human rights and corruption.

Last year, several European countries withdrew aid because of governance issues. One of the reasons behind the aid cuts was the creation of 20 new districts, which will only serve to increase public expenditure. According to a 2001 analysis by the United States Agency for International Development (USAID), each new district cost government over Shs 1billion a year.

The donors are also unhappy with the government’s budget discipline, whereby money approved for certain sectors is either overshot or diverted to other areas.

“Corruption is very critical and we have now heard that there is commitment to do something about it,” Vens said, referring to President Museveni’s recent vow to fight corruption. “To be practical, we are eager to see the recommendations of the [Global Fund] Commission of Inquiry acted upon and that money which changed hands is returned.”

Justice James Ogoola recently led a probe into the Global Fund to fight HIV/AIDS, Malaria and Tuberculosis after the fund was suspended over corruption.

The commission unearthed chilling corruption shame, even implicating ministers and their aides. During the hearings, it was clear that unscrupulous government and NGO officials had stolen or squandered money meant to help the fight against HIV/AIDS and mitigate its impact. With Justice Ogoola breathing down their necks, the culprits repeatedly forged receipts and accountability documents, angering some commissioners.

“The receipts are forged and the trips did not take place,” Commissioner Tumusiime Mutebile told witness Samuel Baraza, an aide to former junior Health minister Mike Mukula.

In one incident, Baraza signed for Shs 5.312 million for his boss to inspect Tuberculosis centres in Mbale, Kotido, Moroto and Nakapiripirit districts. Although the minister only went to two districts, Baraza presented accountability for all the money to the cent.

Such corruption scandals – and Uganda has plenty – seem to vindicate the adage that “foreign aid is what the poor in rich countries donate to the rich in poor countries.”

Fiscal deficit

This unstable relationship appears to be one of the reasons behind Kampala’s new policy of reducing reliance on donor money. Finance figures show that donor funding was projected to fall from 57 percent in 1993 to 39 percent this year. In an article published in the September 2005 edition of the Institute for Development Studies (IDS) magazine, Damoni Kitabire, a macro-economic advisor in the Ministry of Finance, argues that Uganda is right to reduce dependence on donor aid.

Too much aid, Kitabire argues, also makes the country vulnerable in case the donors move to cut aid and affects her sovereignty, both of which are not consistent with the desire for an “equal relationship” with donors.

The economic explanation is that reducing the fiscal deficit is in line with the Poverty Eradication Action Plan (PEAP) objectives to reduce aid dependence and promote export-led growth; scrutinise aid and increase its efficiency; as well as keeping the external debt sustainable. Kitabire also argues that at present levels, Uganda can’t absorb all the aid and ensure quality work.

With a lot of money needed to improve health and education services, this move to reduce aid-dependence looks nonsensical. In fact, in the same IDS magazine, White Howard argues that MDGs can (only) be achieved if aid is significantly increased.

“Concerns about the absorptive capacity of recipient governments are overstated. Capable specialists in fields like education and health are present in strength at intermediate levels across Africa, their skills untapped owing to inadequate funds,” Howard wrote in an article titled, ‘A case for doubling aid.’

But Tom Vens believes government will not reject good aid. Instead, it will scrutinise aid more closely to ensure it is in line with government priorities. Still, Vens believes that controlling public expenditure is a better way to reduce the fiscal deficit. 

Aid-delivery channels

Another point of contention for long was the channel for delivering aid. Most donors are said to prefer project support (funding specific projects directly) as opposed to budget support (giving a lump sum to government to allocate in accordance with its budget priorities) as the main channel for delivering aid. Kitabire said in his article that increased aid could lead to many misaligned and costly projects not in line with PEAP objectives or set spending priorities.

In summary, then, Kampala’s aid policy is to encourage donors to move to budget support instead of project support. On the other hand, donors feel that project support allows them to ensure that money does exactly what it is meant to do. In fact, last year, donors who cut aid meant for budget support re-channelled it to project support, particularly to northern Uganda.

Debt relief

In 1996, the World Bank and International Monetary Fund launched an initiative to write off debts of some of the Heavily Indebted Poor Countries (HIPC). This initiative was expanded two years later. Uganda became the first ever HIPC beneficiary, with $700 million debt relief over a repayment period of 30 years. In 2000, Uganda got another $1.3 billion in debt relief over 20 years.

The World Bank and IMF boards determine which country qualifies for debt relief upon achieving agreed terms.

Most of Uganda’s crippling debt has been with the International Development Association (World Bank, IMF and African Development Fund). But last month, Finance Minister Ezra Suruma announced that under the Multilateral Debt Relief Initiative (MDRI), the institutions had cut Uganda’s debt from $4.5 billion to only $0.5 billion.

Suruma said that having come out of the debt trap that had cost the country $200 million annually in debt service, Uganda would put more resources into education and infrastructure development, particularly electricity.

Such large debt-relief figures can be misleading, however. One would imagine, for instance, that suddenly Uganda will have $4 billion available to spend. But because debts are repaid in installments over many years, it is the annual repayment installments, which government no longer has to pay, that become available. In 1998, the year the $700 million debt relief was granted, Uganda got only $45 million. In fact, since 1998, the country has accumulated just $590 million from HIPC, according to Ministry of Finance figures.

Commenting on the MIDRI cancellations, the World Bank chief in Kampala, Grace Yabrudy, said Uganda was being rewarded for two decades of good macro-economic policies. She then urged more investment in critical sectors such as health, education, roads and energy.

“In this respect, continued good performance and tangible progress on Uganda’s anti-corruption programme will help to secure additional IDA resources in the future to support these critical investments,” Yabrudy said.

Yet again, Yabrudy’s statement contained that ‘paternalistic’ condition – that governance issues must be put right in order to get substantial or more aid. It is a condition that proud leaders of developing countries hate to hear. At an EU consultative workshop in Kampala last month, the EU Head of Delegation in Kampala, Sigurd Illing, lamented that most African states were suffering a crisis of legitimacy (lack a genuine contract with the people) and weakness (unable to deliver basic social services by themselves.) Illing said that the promotion of development had to go hand in hand with the promotion of democracy.

Basil Kandyomunda, Chief Executive Officer of the consultancy firm Development Options Team, says that it would be naïve for Uganda to expect development assistance without meeting the donors' minimum standards.

“If you are a head of a household and you fail to provide for your people, then you should be ready to meet some standards of those who help you,” says Kandyomunda, formerly with Uganda Debt Network. “You could be failing to provide for your people because you are a drunkard or because you are wasteful. So if your helpers say that you should not be wasteful, I think they have some right.”

And when donors say that let there be drugs in hospital, or that the roads should be done, they are pushing for facilities for ordinary Ugandans, not the leaders. Which raises the paradox, that donors show more concern about human rights abuses, poverty, and a sense of general deprivation than local governments do. In fact, it is not unusual for opposition parties and the civil society to appeal to donors whenever they feel oppressed by the government.

Can we trade?

One of President Museveni’s most repeated pleas is that Uganda needs trade and not aid. Museveni says aid has never developed a country but argues that fair trade would help get Uganda out of poverty.

Europe and America have given developing countries like Uganda preferential access to their markets under the Cotonou Agreement and the Africa Growth and Opportunity Act (AGOA) respectively. Under these arrangements, selected developing countries can export all their products “except arms”.

But how much of this opportunity has Uganda taken? Experts argue that Uganda must address production bottlenecks if it is to become better integrated in global trade.

In the case of the EU, for instance, Uganda’s export revenues from fish, flowers and coffee have been increasing but only marginally. For AGOA, little countries like Lesotho are making much more money than Uganda.

According to Estella Aryada, the Operations Officer at the EU Delegation in Kampala, Uganda for instance, failed to fill its quota to sell sugar to the European Union. Instead, countries like Mauritius seized the opportunity. (Although Europe opened its markets, products like sugar, bananas, beef and rice have remained subject to quotas. These quotas are being reviewed after the World Trade Organisation rejected them).

Basil Kandyomunda believes that the West has tried to open up their markets but Uganda has failed to take advantage. He gives the example of Lesotho, a leading exporter of cotton textiles under AGOA. Lesotho does not grow cotton but is more organised than Uganda, whose farmers could have been organised to produce cotton for spinning. In 2004, Lesotho sold textiles worth $446.5 million under AGOA while Uganda could only earn $4 million. Last year, Lesotho reaped $388 million from AGOA textiles against Uganda’s $4.8 million.

For Kandyomunda, providing an enabling environment in a country like Uganda goes beyond ensuring that there are no rebels shooting at the city. The government must work towards providing policies, information and minimum infrastructure to ensure that Ugandans take advantage of trade opportunities.

Echoing the same view, Estella Aryada argues that from hundreds of items that qualify to be exported to Europe or under AGOA, the government should have selected commodities that Uganda can most profitably sell and actively promoted them.

The Ministry of Finance, in a statement prepared for The Weekly Observer, acknowledges that there are production and supply bottlenecks that come with mistakes: “These bottlenecks, along with other supply-side constraints (such as the high cost of finance, deficiencies in trade-related infrastructure, weak institutions and weak regulations), present the most intractable hurdle to export growth.”

Not competitive

Another hurdle is that these big markets are distant and therefore very expensive to reach, which is partly because Uganda is a landlocked country. The cost of transporting coffee or bananas, for instance, through Kenya up to Europe Canada makes them expensive and less competitive on the market.

Another limitation is that once Uganda’s items are on the market, they have to compete with more established brands with huge advertising budgets. As Aryada noted, it is not easy for Uganda’s Star Coffee to outmuscle Nescafe on the European market. And until we can sell substantial volumes, the trickle down effect to the farmer in Mubende remains marginal.

Aryada also notes that countries like Uganda must also meet prohibitive health standards for their products to be acceptable. And this is still a problem because many in the south feel the standards are unrealistic, even unnecessary. In fact, the Ministry of Finance cited the standards as one of the reasons for Uganda’s low export volumes.

“Non-tariff barriers have the effect of prohibiting the entry of Uganda’s products into overseas markets and thus, even where tariffs are low or zero, export volumes are still low because of these measures,” said the ministry statement.

Obviously, the rich countries still have many problems. For instance, each American cotton farmer is said to receive $35,000 (Shs 63.7 million) per year while Europe provides an annual average of $3,000 (Shs 5.4 million) per cow in subsidies. In stark contrast, nearly 40 percent of Ugandans live on less than $365 a day. With such support to western farmers, exports from Uganda, even if tax-free, can expect stiff competition.

Yet as President Museveni pointed that accusing finger at the donors in that consultative meeting five years ago, the other four fingers were pointing at him. A sign Uganda is simply not organised enough and has not done enough to deserve more from the rest of the world.

General African exports to USA ($million)

Country

Year 2003

2004

2005

Uganda

34.8

25.9

25.9

Kenya

249.3

352.2

348

Lesotho

393.1

466.9

403.6

Rwanda

2.6

5.4

6.3

Tanzania

24.2

24.2

33.7

Uganda’s exports to EU (million Euro)

Year/product

Fish

Cut flowers

Coffee

2001

64.4

12.9

101.8

2002

64

15.5

98.3

2003

53.5

17.6

91.8

2004

70

20.8

86.4

2005

102.5

22.4 

99.2

Uganda: various economic indicators

Item

2000/01($million)

2004/05

2005/06

Exports

677.3

1071

 

Imports

941

1576.9

 

Foreign Direct Investment

133.4

306.5

 

Foreign aid inflows

1,244

 

1,762

Domestic revenue

1,260

 

2, 274

External debt

3,575

4,875

 

Total debt service

164.7

192m

 

debt service after HIPC relief

90.3

96.6

 

Annual HIPC relief

74.4

80

74