The President of Uganda Speaks out on the Falling Uganda Shilling
Yoweri Kaguta Museveni , President of the Republic of Uganda
Friday July 8, 2011
Museveni's full statement
‘Whatever a man sows is what he will reap’ Galatians 6: 7-9.’
There have been stories in some of the local newspapers about the “collapse of the shilling.”
The shilling will never collapse because the economy is well managed, the indiscipline of the various actors and their lack of foresight notwithstanding.
It will simply become more expensive for those who import goods and services to buy the dollar.
Therefore, there should be no talk of the collapse of the shilling. There should be talk of a more expensive dollar for those who import.
On the other hand, provided the economy is well managed internally, especially the monetary policy (supply of money within Uganda), a more expensive dollar is good for Uganda’s exporters. The reason is simple. If I was exporting a pineapple to Juba and getting $4 per piece when the dollar is selling at sh2,450, I would earn sh9,800.
When the dollar becomes more expensive and it sells at sh2,600, my pineapple earnings will bring me sh10,400.
Of course, some of the exporters import inputs. Those inputs will become more costly. That rise in the input costs will not affect the profitability of the export business if the major portion of the inputs is local for instance labour.
Even the tourists who are coming into Uganda will be happier because their dollar will give them more shillings.
This is provided the inflation is brought under control on items that are not imported, which is already happening.
The monthly food inflation for March was 17.4% and the annual food inflation for the same month was 29.1%, while the monthly food inflation for June was negative 7.8%.
Nevertheless, we must think of our traders, such as the Kampala City Traders Association, who make a livelihood by importing.
They will, definitely, have a hard life. It is, therefore, good that the profitability of exporters in Uganda should not only depend on the weakening of the shilling (or a more expensive dollar), but on more permanent factors such as cheaper electricity and cheaper transport costs.
Security is now guaranteed, therefore, losses associated with insecurity are now eliminated.
We must, therefore, bring more dollars into the country by exporting more. The more we export, the more dollars we shall bring into the country.
The more dollars we bring into the country, the cheaper the dollar will become compared to the shilling.
This will be good for our importers and will not affect the exporters if the costs of electricity and transport have been brought down.
That is exactly what the National Resistance Movement (NRM) government has been fighting for all these years in spite of so many obstructions.
To promote sustainable growth and development, we must take hard choices targeted at improving the investment climate for both domestic and foreign investors.
We should avoid cosmetic options that provide short-term relief and sustain distortions.
Bujagali dam will soon start generating electricity (in November 2011). Other mini-hydro dams are also being completed. They include Ishasha mini-hydro (6.5MW), Buseruka mini-hydro (10MW), Nyagak mini-hydro (3.5MW), Maziba mini-hydro (1MW).We will soon start on Karuma.
We are, therefore, going to have an exporting sector not based on the opportunistic elements of an expensive dollar and a weak shilling, but on low costs of doing business in Uganda on account of cheaper electricity and lower transport costs. That is why we are working on tarmacking so many roads.
Right from the bush days, the NRM has been clear on all these points. That is why point five of the NRM 10-point programme talked of ‘building an independent, integrated and self-sustaining economy.’
In other words, an economy that imports less and exports more.
Ever since we took over the Government, I have always pushed for this cause in spite of being opposed by different elements even within the NRM.
I will quote the following cases:
Leasing the Dairy Corporation at Bugolobi to a Thai investor to make it more efficient. The Thai got fed up and went away. Fortunately, I got Sameer from India.
Instead of processing 25,000 litres per day as was in the past, the Bugolobi dairy facility is now processing 280,000 litres per day. They process one million litres per day.
I have already directed the Government on how to generate this amount of milk. We are, therefore, no longer importing milk.
Instead, we are exporting and bringing in $5m per annum because of the dairy sector. This, however, came after one failure (the Thai).
Even when I brought in Sameer, I was ridiculed in the papers as an idiot who ‘sold’ the Dairy Corporation for one dollar. Rent for that facility was not the issue. The issues were to process our milk, create jobs, save on imports of milk and to export.
Converting the Bugolobi coffee facility to export textiles. This also came under criticism. The Sri Lankans that were involved also had problems. I will soon, however, get a more capable investor to use our cotton to produce fabrics and textiles so as to earn more dollars for our economy.
I had succeeded in bringing South African Airlines to manage the Uganda Airlines.
Parliament opposed this and Uganda Airlines had to close. Some of the well managed airlines bring in dollars for their countries.
Ethiopian Airlines, which was, initially managed by the Trans World Airlines, is one such example.
We wanted (and had an opportunity to do so) to expand Mehta’s sugar production at Lugazi and to build a new sugar plant by Madhivan in Amuru in Acholi.
Both projects were opposed by some elements in our system. Some people organised demonstrations. Three people died. What crime had I committed? I wanted to produce more sugar for Uganda.
In 1986, there was no sugar produced in Uganda; all the sugar that was consumed was imported. Sugar production is now 350,570 metric tonnes per annum from Kakira, Lugazi and Kinyara sugar works.
We, however, need more sugar. Hence, the importance of expanding Lugazi sugar factory, building the one in Amuru and even the one of Sango Bay.
The population is now complaining about the price of sugar. We reduced the tax on sugar in the budget. If the price is still high, whose fault is it? Who have been obstructing the building of sugar factories in Uganda?
One politician from Acholi said: “Acholi land is sweeter than sugar.” I may ask one question: “Don’t Acholis drink sugar?”
On account of this indiscipline and betrayal, Ugandans are deprived of an additional 400,000 tonnes of sugar per annum, some of which could bring in dollars that the traders are now crying for.
The building of Garden City was opposed. I, however, insisted and it is now a glittering success. Shoprite at Lugogo was also opposed. They are now buying and exporting our oranges.
The towering Hilton on Nakasero hill was opposed. I insisted and it has now improved the skyline of Kampala and will accommodate tourists when it is finished.
The Bujagali power project was opposed and, as a consequence, delayed for more than 10 years. We suffered power shortages. It will only start producing electricity in November 2011.
When clean power is available, more investors will come in, including exporters. We shall export more and earn more dollars so as to enable KACITA to import less expensively in terms of the shillings they need to spend to buy the foreign exchange.
The opposition to our development plans is, mainly, responsible for preserving the bottlenecks – inadequate electricity and high transport costs – that make Uganda import more than it exports.
In the end, this makes the dollar expensive for the importers. This obstruction is always from the opposition groups, but also sometimes from within the NRM.
The President of Uganda Speaks out on Falling Uganda Shilling CONT..
Friday July 8, 2011
Inadequate funding has also been a problem. Now that we are beginning to have our own money, let this unprincipled opposition stop.
Dollars or foreign exchange (external earnings) are in two categories. There are the durable earnings that you are sure to get as long as you export. They include coffee earnings, earnings from fish, processed milk, oil exports among others.
These earnings are sure and are not erratic. They may expand or contract according to the prices, but are always available as long as the market is there.
There are, however, other external earnings that are sensitive and particularly affected by bad publicity. In this category of earnings and foreign exchange inflows is the money from tourists and Foreign Direct Investment.
The fracas caused by Dr. Kizza Besigye in May and the irresponsible media reports by some of the local newspapers, certainly, scared away some of the tourists who were planning to come here.
Investors from outside can also be affected in the same way. When the tourists stay away because of the perceived risks associated with civil disorders (illegal demonstrations), there will be less dollar inflows and, therefore, the dollar for the importers will be expensive.
The shilling will not collapse. The importers will need more shillings to buy the dollar, which may ruin some of the weaker businesses.
The newspapers which have been cheering indiscipline are the ones suffering on account of higher costs for printing paper and other inputs.
However, other economic activities will go on and, actually, thrive. My cattle business, for example, will not be significantly affected by this indiscipline.
The cattle drugs may go up because of the more expensive dollar. However, as long as people are consuming beef, I will continue to thrive.
The economies of Angola and Sudan were thriving even in war because of oil.
The sectors that are threatened by the indiscipline of some of the actors must stand resolutely with us, the patriots, who always oppose this type of sabotage.
That is why we are proposing serious legislation and even constitutional amendment on rioters and other economic saboteurs, not to forget murderers, rapists and traitors.
Social stability and discipline will be good for the economy, especially for the sensitive sectors such as tourism and the import sector.
In the medium-term, the dollars from oil exports or the mere stopping of oil imports that will save so many dollars will tremendously strengthen the shilling.
I do not worry for our exporters because lower electricity and transport costs will lower their production costs and, therefore, improve their profitability whether the dollars fetch more or less shillings.
The healthier source of dollars will, however, come from exporting value added products such as processed coffee, textiles from our cotton, processed fish and processed fruits, among others.
With more electricity, our investors will process these products cheaply.
That value-addition will not only bring in more dollars, but will create more jobs for our youth.
More electricity supply will also benefit our youth who are engaged in self-employment activities like welding, selling juices that need refrigeration.
Our dollar-hungry importers also need to take heart. Even in the short-run, provided social discipline is ensured, we can easily generate dollars from tourism, investor inflows and remittances from Ugandans working abroad.
Parliament needs to pass the necessary constitutional amendments and legislations that will stop political indiscipline. My proposals on this are already with the NRM caucus. This is easy and quick money.
UPDF has already guaranteed peace in the whole country. It is not acceptable that politicians should be the ones to sabotage our economy by failing to appropriately legislate against indiscipline.
The national parks are now safe. The tourists can flow in quickly. These are easy dollars for our importers.
The other quick dollars can come from fish exporters. In 1986, there was not a single fish factory in Uganda. There are now 21 fish factories in Uganda, but only 17 are operational.
They are, however, operating at 25% capacity because there is not enough fish. This is caused by over fishing – eating the mpuuta before it is three months old – (before it has started laying eggs).
Fish is now bringing in $80m per year. This can, within one year, go back to $150m or more. The factories and external markets are there. Hon. Ruth Nankabirwa is tasked with ensuring that this happens and it will happen.
Tea is now bringing in $92m. It can bring in more money if we plant more acreage on the bare hills of South Western Uganda.
Somebody told me recently that even Arabica coffee can be planted on those bare hills. Hon. Janet Museveni and I are going to experiment with this at Ntungamo. We have already planted timber trees. Coffee would be a God-send.
Starting December 2012, the Minister of Trade is going to ban the export of unprocessed maize.
This is in order to earn more dollars from maize, but also to use the maize residue to manufacture animal feeds instead of exporting it. This will bring in more money in dollars for the economy.
We are talking about dollars, all the time. There is, however, a hard currency that is found in the soil of Uganda and the neighbouring countries. This is gold, which is a hard currency.
We should use Uganda currency to buy this gold and put it in our reserves. In case we need dollars, we can always sell this gold and get the dollars.
The oil money is beginning to come in even before we have started pumping the oil out of the ground. The first oil money to come in are the dollars that were taxes – capital gains tax – following Heritage selling its shares to Tullow.
These dollars are kept on a separate account from the National Reserves. We are discussing the best way to use this money. Some are saying that we should put it in Bank of Uganda to boost our National Reserves, others are saying we just earmark the dollars for Karuma dam.
We shall resolve this debate in the near future. What is clear is that sustainable economic development and transformation are only possible if we remove the infrastructure bottlenecks that raise the cost of doing business in our economy.
These high costs of doing business discourage investments in the economy and, therefore, create other problems such as high unemployment, lower export earnings that cause the shilling to depreciate among others.
The oil money will, certainly, in future exclusively be used for ending these bottlenecks.
The completion of the building of our defence system has removed one bottleneck – the perennial insecurity caused by Kony and the cattle-rustlers in Karamoja. As already pointed out, this unlocks money-earners such as tourism and foreign direct investments provided there is social discipline.
Discipline will deliver the importers and other economic actors from problems.
I thank you
Yoweri K. Museveni