Why the shilling will not recover soon

Stanbic bank, Uganda’s largest bank owned by a South African company Standard bank posted a profit of 135 billion shillings. Of course compared to MTN, there is no story to write home about. For the Ugandan economy, there is something to worry about. Another dip for the shilling. By the time Stanbic bank, Barclays bank, Standard Chartered and many others finish the process of reporting and expatriating profits, the shilling will still be in deep trouble. 

The exchange rate as I have remarked elsewhere is a rate at which one currency exchanges for another and this is determined by what these countries exchange with one another. In this case we are talking about the imports and exports of the respective countries. Of course this is solved worldwide by pegging small currencies to one major international currency in this case the dollar. For most of the countries in the world as you conduct your international trade activities, the medium is the dollar. Besides this, the policies of a country do influence the exchange rate. Uganda’s economic policy has evolved around liberalization of the economy including the capital account, our currency is traded freely. You can bring in and take out as much dollars as you can. On the trade, Uganda has nothing much to trade because it does not produce much for export, therefore its exchange rate can never be favourable. If you have nothing to trade, at least you should be able to attract tourists, these will bring in dollars. Our tourist operators do not have the efficiency required to handle tourists well and besides it’s not easy to attract tourists into our countries courtesy of the developed countries. Any small activity in Africa is taken out of proportion. We therefore can’t earn as would be expected. You can blame it on lack of adverts or strategy but it can’t beat the developed world in blocking the visitors coming to Africa. It’s a place with wars, diseases and corruption. On the actual trade, the position is even worse, the lead article in the current Economist talks about how China will continue to dominate the world markets as a world factory, they also indicate that Africa has been blocked by Europe in trade. 

Africa cannot send goods to Europe because of a host of variables even where it has a comparative and or competitive advantage like coffee, tea. It still cannot export them to Europe for good value. Africa is therefore doomed to poverty. Museveni has been on record asking the developed countries to allow Africa export to them. Europe has never heeded this request. The same countries are telling Africa, it must develop, this is your century, something must happen in Africa. All this is rhetoric. But are there no solutions to Africa’s dilemma. I see four things 

One: more trade with one another

Two: increasing competitiveness in this regional trade

Three: more research in science especially in areas where we trade

And finally an Africa that can say no to policies that are anti-Africa especially asking Africa to liberalize its markets while its rich trading partners have closed out African products from their markets.