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Uganda and Foreign Aid
Although the Group of 7’s promise this year to make Africa its pet cause looks good on paper — cutting debt, increasing aid and alleviating suffering from disease — the issue of foreign aid is stirring intense debate in at least one country.
Uganda is already wrestling with the sheer volume of foreign money pouring in to fund programs such as those combating AIDS and other diseases — and the subsequent negative impact on its currency, the private sector and future economic growth.
It is a situation that raises questions about British Prime Minister Tony Blair’s much-touted Commission for Africa, which was set up last year to bring prosperity to the continent, and the long-term effect of foreign aid on developing countries.
The problem that has evolved in Uganda is that some donors give money directly to non-governmental organizations (N.G.O.s) through commercial banks, not the central bank, and the government is unable to control it. They also channel money through government coffers.
Although the ministry of finance is unsure of the exact amount of foreign aid entering the country to run H.I.V./AIDS programs, it estimates that it may reach $100 million each year. Total foreign aid levels for the fiscal year 2005-06 will reach about $989 million, according to ministry figures.
Although it was unnecessary in the past to monitor foreign aid levels, now it has “distorted the macroeconomic environment,” says Keith Muhakanizi, acting deputy secretary to the treasury for the Ministry of Finance Planning and Economic Development.
This is because foreign aid has spurred the Ugandan shilling’s appreciation. A few years ago the shilling traded at 2000 against the dollar, but now it is hovering at about 1780, he says.
The huge volume of foreign money entering the country has bolstered demand for goods and services, and as a result increased the risk of inflation in Uganda. So the Ugandan government has raised interest rates on treasury bills that it issues to third parties to decrease this demand, or ease inflation.
Normal interest rates average about 10 percent to 12 percent, but over the last few years businesses have had to contend with rates of 20 percent. “They’re affected — there’s no question about it,” says Muhakanizi, noting that he has heard complaints from umbrella groups for business like the Private Sector Foundation and the Uganda Manufacturers Association.
“So the impact of the strengthened shilling on small exporters who are trying to build up is deadly because people are now making losses,” explains Robert Kabushenga, corporate secretary and columnist for The New Vision newspaper in Kampala, who has written about the dilemma.
“But if we can’t build our export base, then the productivity of the country has been undermined. And once our productivity is undermined, then we’ll never get out of debt.”
So this is why Uganda has decided to cut the portion of its government budget deficit that is financed by aid. Aid levels have grown from 6 percent of G.D.P. in 1998-99 to current levels of 11.5 percent. Although it will not consider stopping foreign aid altogether, Muhakanizi says, the country plans to return foreign aid levels to the days of 6 percent of G.D.P., and it will do this by reducing aid by 0.5 percent to 1 percent each year.
So how did the country find itself in this mess?
Aid money began to flock here as Uganda became a “good country” in the eyes of donors, he explains. Uganda has long been a darling of the African continent, cutting its H.I.V./AIDS rate from 24 percent in the 1980’s to six percent, while its neighbors infection rates are out of control. It also privatized its economy, achieved high economic growth of 6 percent, and slashed poverty from 56 percent to 38 percent over 10 years.
Although Uganda cannot accept higher aid levels, Muhakanizi believes the aim of the Commission for Africa to boost aid is a good idea that must be considered “country by country, case by case.”
Yet others discount altogether the benefit of Western altruism embodied in the Commission for Africa. “People like Tony Blair are mainly interested in what kind of foreign policy legacy they’ll leave and how they’ll go down in history,” argues Kabushenga. “He wants to be remembered like Bob Geldof in 1985,” not as an international leader who sparked a war in Iraq, he explains.
“It’s not new,” he says. “It has failed before.” He says the commission’s mandate fails to address the fundamental problem of generating wealth on a sustainable basis, and instead sees aid as a way to deal with short-term relief issues like providing drugs for disease, improving roads and funding education.
The notion of foreign aid is problematic because Western countries do not agree on the mechanics, Kabushenga argues. For instance, he says, 20 years following Band Aid’s relief efforts, a famine of exactly the same magnitude has occurred in Ethiopia. “Something fundamental wasn’t addressed — something structural — about the way aid is distributed to Africa.”
He is referring to a situation in which more than 11 million Ethiopians face serious food shortages and possible starvation, according to international aid agency World Vision. This despite efforts by Irish singer Bob Geldof in the 1980’s to raise millions of dollars for the country, and other African famine relief efforts, through international concerts and record sales of “Do they know it’s Christmas?”, a collaborative effort by musicians and singers in the United Kingdom.
Africa was not always the basket case of the world. Peter Mulira, a lawyer who owns his own Kampala-based legal practice, Mulira & Co. Advocates, points to pre-independence Uganda in which no aid came from Britain or anywhere else.
“Africa developed on its own steam. There’s been a problem between independence and present time. If development stopped because of instability, the first thing to do is remove the cause of instability.”
Mulira questions the usefulness of aid in the case of Uganda where rebels in the north have carried out a brutal insurgency for nearly two decades. “Foreign aid has gone there but where are the results?”
He says international donors have failed to pay attention to enough important issues in Uganda. “According to the West, good governance means holding elections at regular times, giving people the right to freedom of speech, [multiparty politics], removal of corruption.”
But this is not enough. The north is wracked by fighting because tribes believe the government is too far removed from them, Mulira says. He adds the key to boosting the morale of northerners is making them feel they are part of the system, and this can be done only by delegating greater responsibilities through their own regional government and ending the concentration of power in the capital of Kampala. Foreign aid can then be channeled through these regional governments.
But he argues the Commission for Africa is a roadblock to achieving this vision. Its flaw is that it asks federal governments in Africa to engineer their own development programs, a directive Mulira says will only cause problems between the federal government and its regions in a country like Uganda — specifically in northern Acholiland where tension runs high. He argues regions in each African country should be responsible for improving their economic prospects because they have a better understanding of their needs and can better monitor the use of funds.
“Where we miss out in Africa is we overemphasize the role of the state. Let us start from the bottom. Let the peasants initiate projects. Aid without involving the people is a problem.”
Despite the Ugandan government’s blessing of the Commission for Africa, meanwhile, the finance ministry’s Muhakanizi recognizes the pitfalls: “Africa cannot continue forever depending on aid.”
He says countries must nurture their economies by increasing revenue from domestic sources such as banking, private schools, hospitals, insurance and tourism.
Tourism was in fact once Uganda’s highest earner of foreign money during its peak in the 1960’s and 70’s — even following former dictator Idi Amin’s massacre of many animals in the country’s game parks for financial gain, says A.R. Khan, director of operations for tourism at the Madhvani Group of Companies in Kampala.
Although he has no figures stemming back to the heyday of tourism in the country, today Uganda attracts about 435,858 visitors, an increase from 192,754 in 2000, according to the Uganda Tourist Board.
“Tourism can live on its own in Uganda,” Khan says, noting a wealth of activities including viewing animals in game parks, mountain climbing, white-water rafting and gorilla watching. “Uganda is untouched, unexplored.”
Yet one of the problems, he says, is that Ugandans fail to take an active part in promoting tourism and travel. For example, although Europeans, Ugandans and Asians each own about 30 percent of the game parks, Khan says, Ugandans should build cheaper lodges for people who cannot afford the higher rates at other game reserves.
“It’s the Ugandans who need to do more because it’s their country. That will bring more foreign investment” — and cut the post-colonial dependence on foreign hand-outs.