In December 2012 I had the opportunity to write a provocation on behalf of Kigo Thinkers, a think tank of which I am among the four founding thinkers. The provocation had the purpose to stimulate discussion for Kigo Thinkers’ first policy dialogue thinking session. In light of the current proposed national budget 2014/2015 my thoughts are still valid and I reproduced them once more, here on my blog for continued and wider discussion. I wrote as follows:
Starvation is the characteristic of some people not having enough food to eat. It is not the characteristic of there being not enough food to eat.
Words of wisdom from the Nobel Laureate and Indian Economist Amartya Sen, which ring so true for Uganda. Research has found that the majority of Ugandan households are significant net buyers of food – they spend more to purchase food than they receive in sales of the food that they produce, over a given period. Studies have found that farmers in Uganda are more likely to sell food crops despite low prices after a harvest and pay much higher prices to re-buy its equivalent in times of scarcity, effectively putting them in the same boat as Uganda’s low wage earners.
The most appropriate policies for Uganda, it would follow, would be those that ensure that food prices in Uganda are controlled so that Ugandans are able to buy food at any given time. What happened in 2011 when Uganda’s food crops inflation rose 262 percent in a period of only four months from 1.5 percent in January 2011 to 39.3 percent in April 2011? A kilogram of sugar which was at UGX 1,500 at the beginning of 2011 cost UGX 5,000 in May 2011and UGX 8,000 in August 2011. Assuming an average Ugandan household of five persons consumes four kilograms of sugar per month. At the beginning of 2011 a household spent UGX 6,000 of its food budget on sugar, UGX 20,000 in May 2011 and UGX 32,000 in August 2011.
The Uganda Bureau of Statistics estimates that in 2011 Uganda’s median monthly wages from 18 occupations ranged from UGX 55,000 to UGX 350,000 and that food, drink and tobacco took up an average of 42 percent of household monthly expenditures – meaning that in 2011 households of low wage earners fed on budgets ranging from UGX 23,100 to UGX 147,000 per month. At the beginning of 2011 it is not likely that a low income Ugandan household spent 26 percent of its food budget on sugar alone; nor is it likely that in May 2011 it spent 86 percent of its food budget on sugar alone. Sugar is just but one example, pick any food crop and it is likely that the analysis of the inflation trends in 2011 will be similar. In the case of matooke, the major staple for the largest Ugandan ethnic group, the Baganda, a bunch of matooke was at UGX 10,000 at beginning of 2011, UGX 15,000 during the 2nd half of 2011 and it is now at UGX 25,000.
The rapid rise in food crop inflation in 2011, indeed, pushed millions of Ugandans into a food insecurity crisis. Fast forward to 2013, “Uganda is winning the battle against inflation” says Bank of Uganda (BoU). The optimism of BoU held true to the extent that overall inflation did come down, food prices had since lowered and the BoU had consequently lowered its policy rates. Nevertheless, the price of sugar did not go back to UGX 1,500; it reduced from UGX 8,000 to UGX 2,500. The prevailing economic environment in 2013, moreover, differed greatly from the pre-2011 environment. A closer analysis of the BoU’s victory against inflation reveals that other processes that were triggered by the BoU’s decision to raise its policy rates continue to erode the positive impact of the victory as it is experienced in the day-to-day lives of the majority of Ugandans.
An example is the justification that BoU’s raising of its policy rates gave to commercial banks to increase their lending rates without any restrictions. The commercial banks delivered to their clients increases in their lending interest rates in a poisoned chalice laced with the fact that they would apply them retroactively. Clients who had taken a rational decision to take a loan pre-2011 and had judged their ability to pay it back with interest in installments of UGX 100,000 per month, their decisions to borrow were rendered suicidal when their bankers told them that their interest amounts had increased their repayment to installments of UGX 200,000 – a 100 percent increase.
While, in 2013, commercial banks had since reduced their lending rates, it seems that none have reduced them back to the original rates pre-2011. This status quo does not facilitate improvement in the food security situation of Ugandans. The purchasing power of Ugandans continues diminished – one is still unable to purchase sugar for even though the price has lowered, one has to put more money in paying back loans. Food stalls are laden with food, but many cannot afford it. We have moved full circle and we are back to the same point when food inflation rates soared!
Questioning of BoU’s policy framework is thus valid. Did the BoU, in taking its decision to raise rates, factor in the possible negative consequences that may occur from its decisions? Did it stipulate possible antidotes to such consequences? Now that the ‘unintended’ consequences are with us, does the BoU have a role to play in ameliorating them? These and many more questions are begging answers, and it is the obligation of the genuine citizens of Uganda to ask them and to get answers for them.
Sadly, the proposed national budget 2014/2015 seems blind to these questions and is most definitely going to make the food security situation of Ugandans more insecure. Especially the proposed taxes on agriculture which will undoubtedly increase the cost of production of food and consequently the price of food.