The Museveni-Mutebile conundrum

BY ANDREW MWENDA

The memorial service of deceased central bank governor, Emmanuel Tumusiime-Mutebile, provided a rare glimpse into the ideological contests that shaped the nature of the economy of present-day Uganda. President Museveni said he had been misled by Mutebile to privatize Uganda Commercial Bank (UCB). Instead, he said, he should have listened to Ezra Suruma, then the bank’s Managing Director, who had argued passionately that the bank remains in the hands of the state of Uganda.

The two sides were in ideological contention over the destiny of Uganda. On one side were the free marketeers and on the other, the statists. Mutebile led the free market forces, Suruma the statists. At a personal level, the two men were friends and hailed from Kigezi. The two sides can be seen in another light – the globalists (Mutebile’s side) and the nationalists (Suruma’s). I write this article with a lot of humility because I was, at the time, a strong believer in the free market and stood shoulder to shoulder with Mutebile.

The Mutebile side argued for efficient allocation of resources, the Suruma side for national control and direction of economic resources. For the Mutebile side, it did not matter who owned the commanding heights of the economy – locals or foreigners. The critical issue was the quality of services and goods a business produced and the cost of these to the consumer. The Suruma side argued that development required the state or local capital to own and direct economic resources to sectors critical for national transformation.

Museveni was ideologically won over by the Mutebile side. The President has, at heart, remained a Mutebilist. He still believes in Foreign Direct Investment (FDI) as the vehicle for national transformation even though there is no country in the world that has been transformed by it. Whether it is USA, UK, Japan, South Korea or today’s China, all of them have been transformed by national champions owned by their own citizens or by the state. On the contrary the nations of Latin America and Africa have failed to transform in large part because of the early dominance of multinational capital in their economies.

I was a radio talk show host at the time and even invited Mutebile and Suruma to a thrilling debate on the sale of UCB. To give the free-market side greater voice, I would invite intellectuals like my own mentor and friend, Charles Onyango-Obbo, Keith Muhakanizi, Simon Rutega etc. to the show. I was so dismissive of the statist arguments, I even felt and argued that they were self-serving. Those in control of state enterprises did not want to relinquish their power and influence. Therefore, they had a vested interest in perpetuating corruption and patronage.

I was, in those days, so angry at the way powerful individuals had used their influence to get loans from UCB without following procedures. This corruption of the state and influence peddling led me to believe that privatisation was the best way to liberate the economy from state patronage. I was even convinced that the best way to limit corruption and patronage was to sell public enterprises to multi national firms. Liberated from local political wheeler dealing, these firms would build an economy based on merit.

Today I write as a reformed free marketeer, my views moderated by practical experience and a reading of the economic history of nations that have undergone structural transformation-development. From the USA and Germany (that had to industrialise after the United Kingdom) to the Nordic countries and then to Japan, South Korea and now China, one factor remains – development requires a high degree of national control and direction of resources to areas the state, not the market, has identified as top priority.

Looking back at those debates, I can now see where we went wrong. True, free markets can give you allocative efficiency but they do not address the problem of structural transformation that lies at the heart of development. Museveni is waking up to this reality when it is too late to turn the hands of the clock. More than 90% of the banking sector in Uganda today is in the hands of multinational capital. This makes it impossible for government to direct credit to priority areas which can stimulate transformation.

This reality was most manifest in 2016 when the central bank of Uganda (which would be better called the central bank of multinational capital in Uganda) closed Crane Bank. At the time, Crane Bank had 800,000 accounts, Centenary Bank 1.3 million. But the largest bank in Uganda, Stanbic Bank, which had bought UCB, had only 300,000. The second largest bank, Standard Chartered Bank, had about 200,000. Clearly the largest banks in Uganda had little interest in serving the citizens of this republic, most of whom remained (and still remain) unbanked.

These big multinational banks are not interested in mobilising local resources. They have huge portfolio deposits from fellow multinational corporations that dominate Uganda’s economy, and from international development agencies, NGOs and embassies. Why therefore would they seek the patronage of poor Ugandans? These banks make money by trading in government paper, they only lend to a few local businesses out of a desire to diversify their risk rather than out of a vested interest in growing this as a core market.

No country’s economy feeds foreign interests at the expense of its own citizens as Uganda. This has only been possible because of our ideological mindset. Ugandans harbor strong petty jealousies. It makes us angry to see a fellow Ugandan prosper. When a prosperous Ugandan makes a mistake, we use this as an excuse to call for their destruction – because here the culprit has a face. But when an institution like Stanbic or MTN commits a gross wrong, there is no individual owner who is also local against whom we can direct our anger. It passes with little or no notice.

The final straw is the legitimacy of the state. We are a very poor country but we demand that the state provides us a large basket of public goods and services – health, water, education, electricity, security, justice, etc. for free. This pressure leads to persistent fiscal deficits which are financed through domestic and external borrowing. Then comes in URA. For many years, it only allowed multinational banks to hold its accounts. So, most taxpayers would pay through Stanbic or Stanchat. These banks would then use this money to buy treasury bonds at 15%. Essentially, they were using government money to buy government paper, make windfall profits and ship it abroad. Yet this is never the debate we have in our politics.