When I came to understand what exchange rate meant, the shilling was 7 shillings a dollar. This was in the late 1970’s. At the same time the Kenyan shillings was the same at 7 shillings a dollar. And the Indian rupee was also about the same 7 rupees per dollar.
The exchange rate is the seen as the ability of the country to exchange goods with another country. This is determined primarily by the productive capacity of that country. If you don’t produce anything, you wouldn’t have the capacity to exchange it with other people in other countries. The other piece of it is that what you are producing should not only be demanded by other people but should be produced better by yourself and others. At one stage Uganda was exchanging cotton, coffee, copper, tea among other small items. Unfortunately these are no longer exported in large amounts. Thanks to some of the anti-business polices especially in the Idi Amin period. The exchange rate in Uganda moved from 7 shillings a dollar to 1400 in 1986. This was the official rate. The unofficial rate was 600 shillings to a dollar. I remember my colleague Justine Zaake working with the then Minister of Finance Dr. Kiyonga introduced a currency reform. This involved cutting off two zeros. Before this was done, the currency was devalued from 1400 shillings to a dollar to 6000 and then two zeros were cut off. So around 1987 the exchange rate was shillings 60 to a dollar. 20 years later, it is 2500 shillings to a dollar!!! What is the problem? I can only attempt at a local sense, we do not produce what we used to produce then. Our supply has no cotton, not enough coffee, no copper probably not enough tea. We have added a few new things but that doesn’t help much our revenue in real time are dismal. On the other hand international prices of what we export have gone down so while we even produce, it is not attractive enough to produce many peasants to produce coffee and cotton.
Kyeyos…these are brothers and sisters abroad who have become substitute for export earnings. Having these people is what is helping the economy to stabilize the exchange rate and give us something to use to buy our imports. Is that really the way to go? Of course not. It means that a small group of people are supporting the bulk of the population to meet its foreign needs. That will not get rid of poverty. We must have actual production of goods and services that we can market to other countries either. The excess of what we produce and consume or those we can produce cheaply and sell to other people. Producing cabbage in small quantities for consumption is not good enough. Even the seed we produce is imported, can our farmers produce so much cabbage that is available for export? That is a good job. That will create growth in the economy. Somebody sent me an inbox on face book asking me about the impact of donors withdrawing their financial support, in my response I told him it will definitely affect the economy in three major ways;
1. Those who steal the money will have nothing to steal. We shall miss the growth from that perspective
2. It will put pressure on the shilling. Access to dollars which come in as the exchange rate is affected. Our currency will lose value. The shilling will continue to depreciate.
3. Some of us and our peasants who benefit from these grants in form of consultancies, research, health, and education will be affected. That is not good for the economy.
I further told him that the individual or organization or a country, it’s good to plan your life without grants and when they come use them to create a lasting wealth that give you capacity to do better and live better. Continuous begging of donors lowers your dignity and makes you dependent and compromises principles.
So we thank our Kyeyo brothers and sisters. They keep the economy going, we know the difficulty of getting visas but those who succeed go out there send us the money we will keep the country for you and you will give us the capacity to import our old new cars. What would we do without you. I wish those coming back for the X-mas season, a good X-mas break.
