Address Poverty, Address Agriculture

The commentaries after the budget was read were that agriculture is not funded adequately and yet 80% of the population live off it. The budget allocations over the years have never favored agriculture. As a percentage, this has been less than 5%. You could argue that if you want to transform society, you should target the principal producers. In this the farmers. Economic growth theories indicate that countries that become industrialized see a proportionate drop in the contribution of agriculture to GDP. It is about 3 percent for the most developed countries.The argument at the moment is, build infrastructure and agriculture will take care of itself. I don’t think this is entirely correct, though that has been the cry over the years. It is said that farmers produce and stock the products with them but the roads are too bad and that the market is not available. I cannot argue with this theory especially if I don’t have the relevant data, but do farmers produce enough? And if they do, do they have a high yield? I don’t think this is true. I was talking to an agricultural specialist who came to Uganda to do some research on cassava production, which is one of the country’s potential poverty buster. He said he was amazed by what Uganda can produce, literally everything. But amazed too, that we were not producing much; which is also true. Indeed a few of our farmers go out to produce large volumes but I guess more than 99% of them produce for self-consumption and sell off the small excess that they produce to buy sugar, soap and to some extent the school fees  for their children. According to him, the problem is not entirely roads, but the un-business like nature of farmers. The post-harvest loss and the comfort people have that they have property even if it is not being used. He recalled two important cases. In one case a farmer from whom he had hired and was interested him in doing what he was doing to make money. He urged him but the farmer declined instead the farmer offered to give him additional land for free to plant more. Another occasion was when a family in Uganda which has thousands of acres of land simply offered to them to use it in exchange for nothing. He thinks this is an un-business like behavior.

I have written and said if we are going to transform the nation, you need to increase agricultural production and agricultural productivity. But this is meaningless unless people understand that they are not growing products for self-consumption. They should understand this activity as a process of emerging out of poverty. They therefore need a motivation to produce beyond self-consumption. Africa has not yet experienced the industrial revolution. Even the few countries like Kenya, with some manufacturing sector, the revolution hasn’t taken place yet especially in the minds of the people. If the people don’t get the feeling of producing for sell, why should they produce? Why waste your energy to do something that is not required?

Today, Uganda feeds its neighboring countries but in an informal manner. The business men who know where the market is look for the agricultural products from wherever they are and export them especially to Kenya and Sudan. With some additional government support through sensitization and infrastructure, it’s possible that the production and indeed productivity of agricultural production in the country can change.

Post-harvest loss occurs at different levels, when crops are harvested and taken to dry, there is some loss that is incurred in the process.  Maize, beans, even coffee is dried in a very elementary manner. It’s possible that by the time this is dry, the loss may go up to 20%. An article in the local press talked of post-harvest loss of upto 90%. This is ridiculous. Drying these crops on the bare ground impacts on quality as they pick dust, stones and other undesirable materials. Storage in another challenge; rats feast on these food crops. Indeed during harvest periods, there is a large number of rats in people’s houses. There is need to sensitize people about all these. Not only do they lose the actual product, but the quality suffers. There is need to do more, especially I terms of research, actual experimentation, monitoring and evaluation to zero in on the best farming practices. It looks like the current research is focusing on improved seeds but not the actual farming practices. There is need to develop simple irrigation practices that will ensure availability of water even during the dry times. Several countries have had green revolutions, how do they do it? If the 80% of the population are farmers and are poor, there is still a lot to do to remove poverty.

Saving the shilling

Margaret Thatcher, one time said, “You can’t buck the market”, and indeed you can’t. The market knows best and it’s so powerful that no single individual can drive it. Yes, a few individuals can manipulate it in the short run, it can burn your fingers if you meddle with it. The current slide in the Uganda shilling will hit the Shs.4000 to the dollar soon. It is something I have mentioned in an earlier post and is attributed to low export volume, low productivity, the uncontrolled foreign exchange market, the high appetite for imports, the strength of the dollar and two other silly reasons: the fact that the ordinary person doesn’t know what is happening to him and is therefore helpless, while the shilling slides and secondly, a political reason, lack of nationalism, a very interesting reason. All these factors are working together to drive the shilling through the roof. These are the market conditions. Attacking the shilling is foolhardy. The causes are the factors to deal with. Exchange rates is what one currency exchanges for the other and is a function of what you export and import.

As our maize crop and other products dry, and there is something for us to sell to Sudan and Kenya, the slide will slow down. But that is a short run reaction. In the long run, without productivity increases, the right attitude to work, and an export drive, we cannot achieve much. The market is also punishing us for putting peanuts in agriculture. The Minister of Finance was on the on record other day talking about exports as one of the factors driving the shilling to slide. The market is rewarding his budget allocation to this important activity. Uganda’s economics guru, Tumusiime Mutebile, has given a lengthy explanation about the shilling woes and even according to him, exports is among the key factors. Indeed he also talks about repatriation of profits by foreign companies enabled by the liberal forex market. Am not sure where the country’s economic think tanks are, but we need to seriously examine our economic chess board to be able to fix the economy. A slide in the shilling coupled with the season we are in which is prior to a harvest before an impending elections, we are likely to see inflation return to the economy sooner rather than later. Am writing without looking at the figures, but the last time I checked, a large percentage of our export earnings is “kyeyo” money. These are remittances by Ugandans abroad. This means the economy itself is not producing much and yet it has this massive imports. What is the problem?

While I have given the causes, I think the causes and the problem are the same. The problem is that Ugandans have appetite for imported goods and yet, neither do they produce enough for export, nor do they produce even for local consumption. Besides, there is not sufficient thinking and resultant policies to guide production both for local consumption and export. The thinking and policy should have a holistic approach on the economy. Where should the economy go and how should it get there. We are looking for, I guess, improvements in the standards of living of the people. That’s our objective. And how do we achieve it? We have resources and constraints. We are an agro based economy but we are constrained by the interactive environment. We operate in an international environment that is highly competitive and where the best competitors win. If we don’t produce much and we are not competitive, we cannot achieve the transformation we desire. The best who win are those who have high levels of productivity, employing modern technologies in their production processes. Transformation can only be achieved with that kind of competitive effort. To achieve high levels of production and indeed productivity, we must engage the ordinary people to produce more and better, especially mass consumption of products and export products. We must delicately balance numerous policies to achieve this.

Another measure is to foster entrepreneurship post agricultural production. The entrepreneurs can bring in value additions to what the farmer is producing. There are numerous small items that can be produced in Uganda, that are currently imported. This includes confectionaries, drinks, all of which can be produced locally giving value to the farmer, creating wealth for the country while creating jobs during processing. It is important to get the farmer to understand that without doing this, they will forever remain poor this is the role of political leaders. Those who are unable to produce, especially in outside countries, will export to those who don’t produce and the poor will remain poor simply because they have nothing to exchange. They will actually borrow to buy what is produced by others. .  If we cannot produce, we can only sustain our appetite for imports though foreign borrowing. Greece is in trouble for borrowing too much and producing little. Many of the African countries are not different from Greece, if anything, it is even worse.

There are numerous policies in the country that need to be articulated and fixed to address the shilling.. These include, the agricultural policy, an export policy, import policy, among others. If well done, they should provide a basis for economic activity in the country. I must admit as I write, that am not sure what these policies are, but there are bits of actions like NAADS, Export Promotion Board which are a manifestation of these policies. If these policies are in place, it means they are not working or they are not correct. The current trade deficit means the policies are not working. But we as a country know the challenges? At one stage, there was an effort to create a national vision, get people to rally around it, and be proud of their country. They will then stop begging and be able to produce and support themselves. Unfortunately, we are a begging country. We want to be given free things, by government, by foreigners, by friends, by relatives. It is also unfortunate that all the government effort to support and promote business has been construed by beneficiaries as free handouts.

From the thinking at the highest levels of politicians and think tanks, detailed policies and actions in specific areas will emerge.  An export policy for instance, should be able to encourage production for exports. Many foreign business people and a few local ones have started export related business. The objectives are personal, not national. Many of them want to make money. But despite this, is there a deliberate effort to export? As a country, we are blessed with good soils, two rainy seasons and we have the capacity to feed our neighboring countries. What measures are in place to encourage farmers to produce for the market? Storage facilities, processing facilities, of course, roads. What do we have on the ground? There has been some effort on roads, but the effort in export appears to be dismal. This touches the essence of the Uganda economy. It is the peasant producing for export. But the peasant has neither the incentive to produce, nor sufficient return on the investment. The policy must be backed up by resources not the peanuts agriculture gets annually from the National budget. It is not surprising therefore that our peasant farmers spend two three hours or less in the field and for a formal worker, it’s an eight hour day and for those who really make the money, they do up to 16 hours a day. Vietnam was not a coffee processing countries, they planned to diversify export earnings and they introduced coffee. Today, Vietnam exports more coffee than Uganda does. This is a result of the policy and thinking of a nation; also a result of an export drive to increase earnings.

Another policy that needs to be addressed is foreign exchange. Uganda is a small country and if you have nothing to export, it is not very wise to have a free for all foreign exchange market. I firmly believe that market forces are efficient in allocating resources but there is need to have some controls. People bring in and take out as much as they can. Recently, MTN declared a profit of 240 billion shillings. This money had to be repatriated. Hardly a month after, Stanbic declared a net profit of 135 billion shillings. They line is endless. Hundreds of companies including the host of Indians and Chinese on the streets are expropriating profits and believe you me, this is a country where you can make lots of money even by selling sweets. There is need to impose some limits on how much a company or an individual can take out of the country, without this, money will continue to flow out of the country and since the demand exceeds the supply, the shilling can only depreciate.

Imports is another thing that we need to deal with. Import substitution policies of the 60s to 70s failed but what lessons did developing countries pick from them. Does Uganda have to import confectionaries? Look at the imports and you will be amazed. Slippers, strings, wooden brooms, baloney!

We have lots of government imports that are lying in wastes including fish processing plants in different locations on Lake Victoria. They are idle because of possibly wrong project conception, the fact government cannot do business and possibly due to the begging mentality among the population that prevents us from working. In a song “Do they know it’s Christmas” world artists came together to collect funds for the starving Africans. This was in 1984 following the famine in Ethiopia. The song had an amazing title; did these poor Africans even know it was Christmas? Do our people know they are poor? Will they be concerned about the declining value of the shilling? Do they know what it means? This is a major issue in many African countries. I have suggested that to a large number of Africans, business is a foreign idea. They are used to production for self-consumption and they are happy with that. The small surplus from that consumption is what puts them into the mainstream economics of the country as they buy manufactured consumer products and possibly pay fees for their children.

It is these people that will aid the country in the transformation process. They are the players and the beneficiaries. They need to be harnessed and this is the role of political leaders. They should be harnessed to produce and to change their life patterns to support economic change. Many African countries have never experienced the industrial revolution that ushers in the business culture. They are happy to live the way they live as subsistence farmers. Leaders therefore have the major role of determining where the country wants to go and evolving the strategies to get it there.

While you cannot buck the market, nothing beats affirm production in a country. Japanese resilience despite its disputes with the United States is due to its strong production capacity. The late Akio Maurita founder of Sony Corporation warned the Japanese against indulging in speculative activities on stock markets. He said, the power of japan lay in manufacturing. This is true and so is the power of Germany. Despite the challenges these countries have gone through, it is high productivity in manufacturing that has kept them going.

“The importance of exports is demonstrated in the stability of the Arab countries currency despite the turmoil there. I have known the United Arab Emirates’ currencies to be but 3.5 dirhams to a dollar from the time I first went to Dubai to date. That’s more than 20 years. Not only do they export oil, but the Dubai leadership has created another source of export earnings; tourism. With the turmoil in the Middle East, who would dream of having such large numbers of visitors as those that visit Dubai?”

The first time I understood the shilling as a currency to trade against a dollar, one dollar fetched 7 shillings. If you put the two zeros back, today the dollar fetches 40 thousand shillings. That development is a result largely of Uganda’s uncompetitive business, lack of export products and most probably, the lack of the policy and thinking for the country. The challenge is within the people in the sector to do the right things to the economy. Otherwise, we brace ourselves for a further escalation in loss of value of the shilling and the attendant inflation it carries with it.