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Deals and DevelopmentThe Political Dynamics of Growth Episodes$

Lant Pritchett, Kunal Sen, and Eric Werker

Print publication date: 2017

Print ISBN-13: 9780198801641

Published to Oxford Scholarship Online: December 2017

DOI: 10.1093/oso/9780198801641.001.0001

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Dominance and Deals in Africa

Dominance and Deals in Africa

How Politics Shapes Uganda’s Transition from Growth to Transformation

Chapter:
(p.183) 7 Dominance and Deals in Africa
Source:
Deals and Development
Author(s):

Badru Bukenya

Sam Hickey

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198801641.003.0007

Abstract and Keywords

Uganda has experienced four growth episodes since the 1960s. In the most recent episode, 1988–2010, average growth rates have exceeded 3.5 per cent, with average growth rates of 7 per cent between 2001 and 2010. Yet this history of recent strong growth has failed to lead to structural transformation within the economy. This chapter highlights how each of the deals spaces remains closely embedded within, and informed by, the broader political settlement. This is due to the fact that Uganda is still reliant on a limited range of agricultural commodities, while recent discoveries of oil raise the spectre of Dutch Disease. It argues that greater support for agricultural processing, manufacturing, and increasing the state’s capacity, particularly through protecting the economic and regulatory technocracy for patronage politics, will help achieve this. A power shift to more market-based rents will help produce more productive dialogue between the state and business.

Keywords:   economic growth, political settlements, deals environment, Uganda, rent space

7.1 Introduction

Uganda is generally seen as one of Africa’s leading success stories when it comes to economic growth. Since emerging from a prolonged period of instability in 1986, Uganda’s economic growth has been impressive, averaging 7.7 per cent between 1997 and 2007 (Ssewanyana et al., 2011). Moreover, much of this growth has been pro-poor, with the country’s poverty headcount falling dramatically during the 1990s from 56 per cent to 35 per cent, and now to 19.7 per cent (Republic of Uganda, 2014). However, serious questions remain concerning the extent to which Uganda is positioned to achieve the structural transformation of its economy that is required to sustain this growth trajectory into the future. This is in part because the country remains dependent on a limited range of agricultural commodities, while the advent of oil also raises concerns regarding the possibility of incurring Dutch Disease.1 This chapter argues that both the roots of this challenge and the means of addressing it are closely shaped by deeper forms of politics and power relations within the country, which we refer to as the ‘political settlement’ (Khan, 2010). New theoretical work (see Chapter 1) has shown how the political settlement directly shapes the capacity and commitment of government and political elites to invest in the kinds of institution-building and relationships that can (p.184) underpin shifts towards growth and structural transformation, particularly in terms of whether states generate the capacity to maintain macroeconomic stability, regulate and discipline capital, and build relationships with productive capitalists that are based on performance rather than collusion (Evans, 1995; Gore, 2000; Khan, 2005). Going further, Sen (2012) shows that the politics of achieving and then sustaining growth are likely to involve different drivers. He hypothesizes that what matters is the character of the ‘deals space’ within which political and economic elites and regulatory institutions interact to produce deals that are either relatively ordered or disordered (i.e. whether deals will be honoured), and open or closed (i.e. whether economic opportunities are open to all investors or restricted to those with political connections). The nature of this space is in turn shaped by the type of capitalists present within a given economy, their relative economic and organizational power vis-à-vis the ruling coalition, and the types of demands this leads them to make on public institutions (Pritchett and Werker, 2012).

Building on other recent research into the politics of growth and development in Uganda (Hickey et al., 2015; Kjær, 2014), we argue that the country’s record of economic growth and prospects for achieving structural transformation both have been and are being closely shaped by the dynamics of the political settlement and the deals space. Moving forward with the policy directions identified by Hausmann et al. (2014) as being critical for structural transformation in Uganda, including support for agricultural processing and manufacturing, we draw attention to the politics and political economy of enacting and implementing such policy solutions. We argue that this is likely to include closer attention to state capacity, particularly through protecting the economic and regulatory technocracy from patronage politics; shifting the balance of power between different types of capitalists (including by building the associational power of what we term the ‘magicians’ and ‘workhorses’ vis-à-vis more monopolistic and rentier forms of capital); and supporting high-level dialogical spaces within which more productive forms of state–business relations can be nurtured.

The substantive part of this chapter (Section 7.2) is structured in accordance with the four main growth episodes that characterize Uganda’s growth story since independence (Kar et al., 2013), each of which reflects the outworkings of the country’s shifting political settlement dynamics in general and of the deals space involving state–business relations in particular. Section 7.3 uses primary research to set out the nature of the ‘deals environment’ in contemporary Uganda. This helps establish the basis for a discussion of the country’s prospects for achieving structural transformation (Section 7.4) and of the policy, political, and political economy shifts this is likely to require (Section 7.5). (p.185)

7.2 Shifting Political Settlement in Uganda: From Colonial Origins to the Present

Uganda’s contemporary political economy, and the nature and level of its economic development, have been closely shaped by both its colonial legacy and the shifting nature of its political settlement in the post-independence period. The main economic legacy of colonial rule in Uganda flowed from Britain’s divide-and-rule approach to governing its then trusteeship (Kabwegyere, 1974; Kiwanuka, 1970). This politicized several important dimensions of difference, including ethnicity, region, and religion, in ways that created structural challenges for the country to form a united approach to state-building and development. In economic and social terms, the treatment of northern Uganda as a labour reserve in relation to the plantation economy of the southern areas left a legacy of uneven development and regional inequalities, which would also undermine the possibility of stable governance and inclusive development.

A further legacy of relevance here was that of weak bureaucratic capacity, exacerbated by the belated incorporation of natives into the country’s top administrative ranks. By 1961, just a year before independence, the bureaucratic apex of Uganda was still exclusively occupied by the departing colonial officers, with mid-level management also under their control. It was only in the lower ranks that Africans and Asians had some presence, with a combined composition of 50 per cent vis-à-vis Europeans (Kabwegyere, 1974). This imbalance was also reflected in the economy. By the late 1940s, all banks were British- or Indian-based and Africans were largely excluded from wholesale trade (Brett, 2006). This failure to build a productive indigenous capitalist class, which Whitfield et al. (2015) argue has been the critical failure of postcolonial political settlements in Africa, would have both economic and political implications with regards to the developmental nature of the political settlement that emerged in Uganda over the postcolonial period. The remainder of this section discusses the four main periods that Uganda has experienced since independence, as defined both in terms of its growth trajectory and the closely related character of its changing political settlement over this period.

The first episode stretches from independence in 1962 until 1970, whereby an initially stable and inclusive political settlement helped enable a steady growth in GDP per capita of around 3.3 per cent per annum. The second episode, from 1972 to 1980, coincided with the high degree of political and economic instability heralded by the rule of President Amin, during which time the growth rate per capita averaged −3.8 per cent. Between 1971 and 1979, Uganda experienced a loss in growth cumulatively estimated at 38 per cent (Bigsten and Kayizzi-Mugerwa, 2001: 18). In the third period, there was an initial but also uneven recovery from 1980 to 1988 (the growth (p.186) rate per capita in this period was −0.1 per cent), during which time the second regime of President Obote initially involved the return of more stable governance, before becoming mired in disorder through guerrilla warfare and revenge attacks, which in turn undermined the settlement. The final growth period started within two years of the National Resistance Movement (NRM) coming into power and establishing both stability and an inclusive ruling coalition in 1986: from 1988, economic growth accelerated, to an average rate of 3.5 per cent per annum for the period 1988–2001, and of over 7 per cent on average between 2001 and 2010. As discussed below, the key factors that shaped this highly uneven pattern of growth from a political settlements perspective concerned the ability of successive political leaders to maintain stability and credibility through building ruling coalitions that were ‘inclusive’ enough.

When Uganda became independent on 9 October 1962, Milton Obote’s Uganda People’s Congress (UPC) depended on an opportunistic alliance with the Buganda monarchy’s Kabaka Yekka party (Kabwegyere, 1974). Obote initially sought to build a fairly inclusive coalition, which comprised members from a cross-section of ethnic groups (Lindemann, 2010). However, a power struggle between the prime minister and the ceremonial president, the traditional ruler of Buganda, meant that the alliance ended bitterly in 1966. Obote’s government became exclusive, oppressed its political opponents, and constructed patronage networks within the military and bureaucracy (Nabuguzi, 1995; Gukiina, 1972; ICG, 2012). Uganda’s effective transition to a one-party state involved damaging strategies, which greatly extended the administrative budget of the state, while also undermining its operational capacity.

On the economic front, the independence government initially aimed to enhance the equitable distribution of wealth and access to opportunities, to address inequities from the colonial era, with government playing a significant role in the economy, largely through state controls and engagement in production activities. This strategy largely delivered: between 1961 and 1970, growth averaged 5.6 per cent, and 1963 and 1969 both witnessed spikes of 11.7 per cent (Figure 7.1). In addition, GDP per capita increased by 9 per cent during the same period.

Dominance and Deals in AfricaHow Politics Shapes Uganda’s Transition from Growth to Transformation

Figure 7.1. GDP growth and GDP per capita for Uganda

Source: Bigsten and Kayizzi-Mugerwa (2001) for 1960–98 data, and UBOS (2014) for later years.

The environment for business during this period can only be discussed in general terms, given the lack of literature on the topic. At the time of independence, a substantial portion of the economy comprised non-monetary subsistence agriculture. The monetary economy, which consisted of industrial goods manufacturing (powerbrokers), wholesaling and retailing (workhorses), and the import and export trade of both commodity and industrial products (magicians), was largely in private hands (Alibaruho, 1974; Leliveld, 2008).2 (p.187) The only sectors with strong government control were mining (rentiers), and copper and cement production (Ryan, 1973). Between 1961–2 and 1966–7, the government’s participation was limited to measures to promote domestic savings and private investment. These were most visible in the agricultural sector, with subsidies on essential agricultural equipment and fertilizers, the expansion of extension services and research, and export marketing of crops through the formation of statutory boards, such as the Coffee Marketing Board and the Lint Marketing Board (Leliveld, 2008). This policy remained in force until the 1966 crisis that shifted the incentives for the Obote administration from national development to political survival. By abrogating the independence constitution and harassing the opposition, the 1966 crisis dismantled the democratic political system upon which the free market enterprise economic development processes were premised. Deals became disordered as investors lost confidence in constitutionalism and the rule of law. Indeed, 1967 witnessed the first episode of capital flight in Uganda’s post-independence history (Ryan, 1973). Paradoxically, instead of looking critically at its own policies, the government blamed the business community for the capital flight, and low savings and investment rates (Leliveld, 2008).

In 1968, the business environment further shifted from open to a semi-open state, when Obote’s government instigated policies to regulate licensing provisions for traders, which were ‘intended slowly to squeeze Indians out of the (p.188) commercial sector, but [also] for punishing political enemies of the government’ (Kasfir, 1983: 89). The business environment was further stifled in 1969, when, in a bid to accelerate African control of the economy, Obote decreed, without prior consultation, that the government was to take a 60 per cent stake in over eighty leading firms, including private banks (Ryan, 1973). The government’s change from capitalist to socialist ideology, as seen in three Marxian-oriented policy documents (The Move to the Left (Obote, 1969); The Common Man’s Charter (Obote, 1970); and the Nakivubo Pronouncements of 1970), caused the second wave of capital flight from 1968 to 1970 (Hundle, 2013: 8). Because the criteria for nationalization were not made clear, there was great uncertainty as to whether the nationalization exercise was complete (with the eighty firms initially targeted), or whether more firms would subsequently be added to the list (Ryan, 1973). In 1970, Obote’s last year in office, private capital outflow exceeded the inflow by a multiple of sixteen (Ryan, 1973). Unsurprisingly, a ‘mini-exodus’ of Indians from Uganda was underway as early as 1969 (Hundle, 2013). While the behaviour of the state discouraged both local and foreign entrepreneurs from expanding their investment portfolios, new entrepreneurs, mainly UPC stalwarts (cabinet ministers and soldiers), grabbed the opportunity to participate in the joint ventures, thus deepening the role of public institutions and actors in the economy. Political connections became significant in making business deals—suggesting an uneven playing field, even for African entrepreneurs.

After the military coup in 1971, Idi Amin’s government embarked on an ‘economic war’ ostensibly aimed at empowering local Ugandans vis-à-vis non-indigenes. In 1972, approximately 80,000 Asians were expelled and their assets divided among the president’s loyalists, the majority of whom lacked business acumen. This expulsion of Uganda’s most autonomous and productive economic interest group helped further to collapse the boundaries between politics and the political economy, in ways that deepened the clientelist nature of the political settlement (ICG, 2012; Golooba-Mutebi and Hickey, 2013).3 Between 1970 and 1980, Uganda’s economy contracted at an annual rate of 5.5 per cent (Bigsten and Kayizzi-Mugerwa, 2001: 18). As shown in Figure 7.2, the level of investment declined by up to 10 per cent of GDP, and the country registered negative domestic savings.

Dominance and Deals in AfricaHow Politics Shapes Uganda’s Transition from Growth to Transformation

Figure 7.2. Investment and savings (% of GDP) for Uganda

Source: Bigsten and Kayizzi-Mugerwa (2001) for 1960–98 data, and UBOS (2014) for later years.

As with the later years of Obote’s independence government, Amin’s ruling coalition was underpinned by a high degree of exclusion, with the civil service and military exhibiting a ‘striking ethno-religious bias in favour of a Nubian-Kakwa core group and Muslims in general’ (Lindemann, 2010: 21). As economic (p.189) decline reduced the resources available for patronage, Amin’s government presided over a predatory state, where military and government officials looted citizens with impunity. Against this background—what Khan refers to as a high level of horizontal power, which tends to undermine the stability of a ruling coalition—there were many disgruntled groups, some of which eventually took up arms to overthrow him.

During Amin’s time, the environment for business was both closed and disordered. The cabinet played little role in making decisions on policy. Arbitrary decrees were frequently issued without consultation. Often these would be ignored by civil servants when they could be safely forgotten. As noted by one observer, during Amin’s time:

It became increasingly difficult to know what the rules were, whether to comply with them, and whether compliance would ensure personal safety. The predictability the state is expected to provide in a capitalist order, whether peripheral or not, was severely eroded.

(Kasfir, 1983: 90)

The disappearance of goods from the shelves that accompanied the destruction of Asians’ trading networks opened new possibilities for the underground economy locally known as magendo. By 1975, entrepreneurs bought consumer goods at retail prices from Uganda’s neighbours, smuggled them into the country, and sold them at exorbitant prices. Smuggling accelerated with the 1976 coffee boom, which greatly increased producer prices everywhere in East Africa except Uganda (Kasfir, 1983). Smuggling coffee out of Uganda became a source of foreign exchange that supported the return flow of (p.190) consumer imports. The operation of magendo in Uganda was significantly dependent on, and continued to be related to, the state—officials provided protection and capital. Bigger operators, assisted by the breakdown in state law and order, developed private ‘enforcement’ systems to organize this trade, but this was too fragile to constitute the order needed for long-term private investment. Therefore, as in the later years of the Obote regime, business profitability depended greatly on connections with state agencies.

The partial economic recovery that occurred during the period 1979–86 reflects the fact that Obote’s second regime was able to achieve at least a degree of political stability and also inclusivity within the ruling coalition, even if this did not arrive swiftly (Lindemann, 2010; Golooba-Mutebi, 2008). Obote then embarked on an Economic Recovery Programme (ERP) with the support of the IMF and World Bank, which yielded some positive results: growth resumed during the first three years of implementing the programme at an average of 5.7 per cent, albeit within an unstable macroeconomic environment, where inflation was 45 per cent on average per annum. However, the economic programme was undermined by the political failures of the government. Obote’s promise of a government of national unity was never fully realized: all ministries were allocated to UPC members, who were predominantly from Obote’s own Langi ethnic group and the neighbouring Acholi (Lindemann, 2010; Golooba-Mutebi, 2008). Those from Buganda, Ankole, and the ‘West Nile’ in particular perceived Obote II as ethnically partial with regard to sharing the national cake. Around five different rebel groups formed to fight against this perceived exclusion, including the National Resistance Army (NRA), which waged a guerrilla campaign within the Luwero Triangle area (Lindemann, 2010). The intensification of conflict in 1984 rendered the ERP untenable, as the bulk of spending was being allocated to defence. Increasingly unpopular and unstable, Obote’s government was deposed in the July 1985 coup d’état.

Within a few years of taking power in 1986, the NRA/NRM had established a set of power relations and policy ideas which would provide the basis for one of Africa’s most successful episodes of economic recovery and sustained growth. This involved not only a period of what we have termed ‘stable growth’, with the initial recovery rate between 0 and 5 per cent on average in the first part of this period, but also of ‘miracle growth’ (Kar et al., 2013), at an average of over 7 per cent between 2001 and 2010. The main underlying conditions for this impressive period of growth were the inclusive nature of the ruling coalition, and within this a more specific, and transnational, ‘pro-growth’ policy coalition, but also a shift of development ideology, and a related strategy of encouraging the Asian business community to return and restart their enterprises.

President Museveni moved quickly to form a broad-based ruling coalition. Most significant groups were represented at the higher levels of government, (p.191) with the notable exception of those from the north (Lindemann, 2010; Tripp, 2010). The general level of political stability helped create a more ordered deals environment capable of turning around the economy. Growth resumed to an average of around 5 per cent between 1986 and 1990 (Belshaw et al., 1999: 681). The president was also persuaded to allow the development of a highly capable economic technocracy, with clear and autonomous responsibility for setting and implementing policies for macroeconomic stability and growth, and with whom donors felt they could do business (Mosley, 2012; Mutebile, 2010). The Bank of Uganda and the Ministry of Finance were developed as bureaucratic ‘islands of excellence’, with high levels of donor funding, and given strong powers to enforce fiscal discipline across spending ministries.

Under pressure from the IMF and World Bank, the government embarked on an ERP in May 1987, which, after a slow start, was embraced enthusiastically by the government. This was partly as a means to secure international financial support, but there was a strong political logic to this policy turn, in that it offered the means required to distribute resources to the different groups or factions on whom the ruling coalition relied for support. For example, the liberalization of coffee markets helped to secure the ‘vertical’ support of the smallholders who formed the bedrock of the NRM’s rural support base, and who were now able to gain market prices at the farm gate (Dijkstra and Van Donge, 2001). In terms of securing elite buy-in (or what Khan terms ‘managing horizontal power relations’), the process of privatization that was unrolled aggressively in the mid-1990s was directly used to bind in powerful elites through the distribution of rents in the form of ownership of newly privatized entities (Mwenda and Tangri, 2005). Even the policy of encouraging Asian businesspeople to return to Uganda—and of returning their property to them, along with other incentives to help them get the economy moving again—had a political dimension: such concessions came with expectations of political loyalty and financial support for the NRM, thus further bolstering the capacity of the ruling coalition to remain in power. Importantly, and as eloquently described by Roger Tangri (2015: 17), President Museveni has sought to avoid ‘the rise of wealthy, autonomous, and assertive black entrepreneurs who emerge outside his ambit and who could challenge his authority. He has viewed them as a potential political threat.’

7.3 From Sustained Growth to Structural Transformation?

Uganda’s strong economic growth since 1992 has been driven mainly by the services, manufacturing, and construction sectors (Figure 7.3). In 2010, the share of value added contributed by the services sector was almost half of total GDP, from about 32 per cent in 1990, and that of agriculture diminished (p.192) steadily from 50.3 per cent to about 15.2 per cent in the same period. The recent decline in agriculture partly reflected the fall in productivity of the sector, a deterioration in farming methods synonymous with poor technologies, and the fact that resources, especially in form of labour, were being reallocated to services. The use of inferior inputs and the lack of value addition to raw materials have also limited the productivity and profitability of the sector. Recent numbers suggest that this trend has not changed.

Dominance and Deals in AfricaHow Politics Shapes Uganda’s Transition from Growth to Transformation

Figure 7.3. Sector composition of GDP (%) for Uganda

Source: UBOS, Statistical Appendix 2012.

With respect to exports, there has been a gradual diversification away from coffee to other agricultural exports, such as tea and raw tobacco, and also refined petroleum, fish fillets, and cement (Figure 7.4). Uganda has also witnessed some degree of structural transformation, improving from 1995, where its economic complexity measure was −1.14 and ranked 107th out of 125 countries, to an economic complexity measure of −0.48 and a rank of eighty-third out of 125 countries in 2012. Moreover, Hausmann et al. (2014) find that Uganda’s economic complexity was higher than might have been predicted by its level of income, suggesting a high potential for future growth. In contrast, research by the IMF, World Bank, and Bank of Uganda suggests that progress has been limited, with the pace of structural transformation actually slowing during the 2000s (Brownbridge and Bwire, 2016; Selassie, 2008). Alongside some arguably regressive shifts within Uganda’s political settlement over the 2000s, this has led some to question whether the country will be able to generate the capacity and commitment required to achieve the shift from sustained growth to structural transformation.

Dominance and Deals in AfricaHow Politics Shapes Uganda’s Transition from Growth to Transformation

Figure 7.4. Changing structure of Uganda’s exports, 1995 and 2012

Source: Atlas of Economic Complexity <http://atlas.cid.harvard.edu/>.

That the president is ideologically committed to structural transformation is not in doubt. The new political economy of development that emerged in the (p.193) (p.194) mid-2000s has led to a resurgent focus on this vision, with Uganda graduating from debt and reducing its reliance on aid as new financial flows became available from the discovery of commercial quantities of oil and rapidly increasing levels of investment from China (Hickey, 2013). However, the shifting dynamics of the political settlement since the early 2000s, and particularly since the return of multiparty politics in 2005 (Golooba-Mutebi and Hickey, 2013), suggest a deepening of clientelistic, rather than capitalist, tendencies. Three main tendencies are particularly relevant here. The first concerns the shifting patterns of inclusion and exclusion at the heart of power, which in turn shapes the stability and time horizons of the ruling elite. At its pinnacle, the ruling coalition has become more exclusionary, with the president’s ethnic group and the Baganda benefiting disproportionately compared with the ethnic groups from northern and eastern Uganda (Lindemann, 2010; Tripp, 2010; Tumushabe, 2009). Along with the president’s reluctance to appoint a successor, this also helps explain the defections of several high-level elites, some of whom went on to form political organizations that raised a credible threat to the NRM’s hold on power. This intensification of political competition has also led the president to adopt increasingly populist measures to secure the support of his rural base, with the 2011 elections a hugely expensive affair because of this dynamic. Importantly, the same election saw a marked relaxation of the normally strict approach to fiscal and monetary discipline, with the autonomy and capacity of the economic technocracy to maintain macroeconomic stability undermined by this political imperative (Mwenda, 2014). Growth levels dipped for two to three consecutive years, further exacerbated by rising levels of inflation requiring a strong monetary response from the Bank of Uganda once it regained control of the economic policy in the post-election period. Such dynamics within Uganda’s political settlement are largely inimical to the prospects of developing the kinds of relations and institutions associated with delivering either structural transformation or improved levels of service delivery (Golooba-Mutebi and Hickey, 2013; Kjær, 2014).

7.3.1 Evolution of Uganda’s Rents Space

As Figures 7.5–7.8 make clear, there has been an increase in the economic importance of powerbrokers over time, along with a decrease in the workhorses’ share in GDP. Magicians have not seen much growth in their importance in Uganda, even during the strong growth phase witnessed since the late 1980s. Rentiers have had almost no presence in Uganda’s rents space until recently, though this may change with the expected production of oil from 2019 onwards (see Section 7.4.3 on rentiers).

Dominance and Deals in AfricaHow Politics Shapes Uganda’s Transition from Growth to Transformation

Figure 7.5. Uganda’s rents space, 1969

Source: Based on Rujumba (1999).

Note: Sector contribution to GDP in %.

Dominance and Deals in AfricaHow Politics Shapes Uganda’s Transition from Growth to Transformation

Figure 7.6. Uganda’s rents space, 1979

Source: Based on Rujumba (1999).

Note: Sector contribution to GDP in %.

Dominance and Deals in AfricaHow Politics Shapes Uganda’s Transition from Growth to Transformation

Figure 7.7. Uganda’s rents space, 1988

Source: Based on Rujumba (1999).

Note: Sector contribution to GDP in %.

Dominance and Deals in AfricaHow Politics Shapes Uganda’s Transition from Growth to Transformation

Figure 7.8. Uganda’s rents space, 2013

Source: Authors’ calculations, from UBOS.

Note: Sector contribution to GDP in %.

(p.195) (p.196) (p.197)

7.4 Deals Environment in Uganda Today

This chapter so far has shown that the different growth episodes that Uganda has experienced since independence have been closely related to the changing nature of the political settlement, particularly in terms of the level of stability allowed by intra-elite conflicts and bargaining, and the extent to which political leaders were able to secure the buy-in of enough powerful groups to maintain and allow a longer-term vision to emerge. However, it is important to go further in identifying the more specific causal mechanisms through which these underlying sets of power relations and ideas shape the nature of growth within Uganda’s political economy, and what this means for the country’s prospects going forward. As noted at the outset, the more specific ways in which the political settlement interacts with the economy in developing countries is refracted through the ‘deals’ environment. Within clientelist political settlements, deals that involve largely informal institutions and arrangements tend to prevail over rules-based approaches. Deals can be relatively ordered or disordered, in terms of the likelihood of their being honoured and lasting, and also relatively open or closed, with reference to whether deals are widely available to all investors, large or small, as opposed to being captured by a smaller number of investors with strong political connections (Pritchett and Werker, 2012). Initial analysis suggests that as long as deals are ordered, they can be relatively closed and still enable growth to take off. However, to sustain growth over the long run and enable a shift towards structural transformation, it seems likely to require a shift from an ordered-closed deals environment to a deals space which maintains order, but also becomes more open to entry of new firms in ways that drive up competition (Pritchett and Werker, 2012).

Importantly, different kinds of deals environments may prevail within different economic domains. Pritchett and Werker (2012) divide domestic political economies into four different domains, according to the level of rent-seeking versus competition along one axis, and whether the sector is import- or export-oriented along the other axis. As indicated in Figure 7.9, this generates four groupings, each containing capitalists which are likely to make different kinds of demands on the state with regards to its regulatory activities and provision of public goods, and whose relative political power and productivity will have different implications for achieving structural transformation and (more broadly) inclusive development.4

Dominance and Deals in AfricaHow Politics Shapes Uganda’s Transition from Growth to Transformation

Figure 7.9. Structure of Uganda’s domestic economy

Source: Based on Pritchett and Werker (2012).

The shifting economic fortunes of each sector are explored in greater depth in Bukenya et al. (Forthcoming). Here we delve deeper into how the deals (p.198) environment plays out in each domain through key informant interviews that were conducted between January and April 2014 with a total of twenty owners, managers, and/or top representatives of firms and associations of business entities in each of the four domains.

7.4.1 Competitive Export: The Magicians

Within the competitive export sector, information was gathered from business entities that included a coffee export company and milk processing firm, as well as a review of the literature. The environment for doing business in this sector was described by traders to be laissez-faire, with free entry and exit of firms. Traders can access markets in the neighbouring countries, especially in the East African Community and the new state of South Sudan. Traders also alluded to the political stability that has been created by the NRM in most parts of the country as conducive for regional trade.

Aware of Uganda’s unfavourable trade balance, the government has sought to address this anomaly through several export promotion initiatives (Ssewanyana et al., 2011), an increased focus on agro-processing, and export base widening strategies. The government has also created numerous bodies and product-specific agencies to promote exports, such as the Uganda Coffee Development Authority, the Uganda Exports Promotions Board, and the East Africa Dairy Development project. The magicians are also affiliates of private membership associations that ideally ‘present a common position of the exporters’ to government,5 including the Uganda Manufacturers’ Association (UMA), which was (p.199) formed to further the needs of local manufacturers, irrespective of size. Robinson and Friedman (2007) describe the UMA as one of the most effective policy impact civil society organizations in Uganda. Another influential association is the Private Sector Foundation (PSF). Both UMA and PSF have specialized departments responsible for lobbying, advocacy, and networking. They have regular access to government officials and make submissions on draft legislations (Kangave and Katusiimeh, 2015; Robinson and Friedman, 2007).

However, government agencies and associations are, at times, a source of unnecessary red tape and a barrier to the operation of the free market. For example, traders need a licence to qualify as exporters, but the process of obtaining this is cumbersome: a respondent observed that when one ‘wants to get a licence from the Exports Promotions Board, you will be directed to talk to a particular person, who will lead you to the next until when you get to the final person’.6 Moreover, this sort of gatekeeping is not limited to traders’ dealings with government—it extends to their own associations, which ideally exist to promote their interests:

if you want to obtain a certificate of origin from the National Chamber of Commerce and you want it immediately, you pay some money to the person in charge and you get the certificate in hours. If you do not pay, they tell you to leave your forms behind and then you always go back to check if the certificate was issued and you do not find it, or that the person who is to issue the certificate is out of office, which delays you.7

Deals in the magicians sector are stuck in a semi-open setting, since all our respondents suggested that one needs connections to obtain incentives or gain access to lucrative deals. One informant recounts:

In the coffee exports business, you have to maintain good relations with particular people, so as to be able to access certain markets. If you are to take coffee to the European Union, there is a certain group of people you have to supply your coffee through. These people allow you to supply a quota of your products to the market.8

However, the sector is also not fully closed, in that all our key informants indicated that a majority of competitors can access the key powerbrokers in the sector. Most traders suggested that they are confident engaging in long-term capital investment—something that suggests confidence in government, and a pointer that the environment is at least semi-ordered: ‘We are confident in investing in machinery and technology, because the demand for coffee is always increasing, which implies that we too have to increase our supply.’9 (p.200) Traders were not worried that a change in personalities would hurt their business, ‘because you learn to work with new personalities’,10 suggesting that even informal processes can be relatively ordered.

Large exporters are expected to make political contributions, mostly to the ruling party: ‘We make donations to political parties, though only to the NRM, you cannot fund the opposition in Uganda and remain in business. Most businesspeople in Uganda have learnt a simple principle of support Any Government in Power (AGIP).11 However, traders indicated that they did not think that ‘the donations would lessen the risk of our investment activities in anyway’.12

Our informant from the coffee-exporting company expressed concern about the government’s policy of banning the cooperatives through which they operated in the 1980s. This observation is significant, as most traders in the competitive export sector are small, with over 50 per cent of Uganda’s exports in 2008 coming from small or informal traders (Ssewanyana et al., 2011). Such traders have less bargaining power when they transact business in their individual capacities, rather than as a collective. A case study of the export trade between Uganda and South Sudan illustrates the significance of collective action—and, in its absence, the role of political connectedness—in the export sector.

When security improved in Sudan, following the signing of the Comprehensive Peace Agreement that provided for the creation of the Government of South Sudan in January 2005, a large number of Ugandans flocked into southern Sudan, trading a wide variety of goods for consumption and construction (International Alert, 2014). In 2008, Ugandan exports to South Sudan accounted for 68.9 per cent of total exports (UBOS, 2009). However, from around 2009, trading relations between the two countries developed tensions, which left several Ugandan exporters aggrieved. Stories abounded of how Ugandan traders were being arrested, intimidated, raped, receiving non-payment for goods supplied, and even being killed at the hands of South Sudanese security personnel, with impunity (International Alert, 2014). The situation was aggravated by a civil war that erupted following internal wrangles within the top Sudan People’s Liberation Army (SPLA) leadership in December 2013.

According to International Alert (2014), only a few traders were organized into associations, which were also organizationally weak and unable to engage in effective advocacy. When Ugandan traders petitioned their government to intervene on their behalf, as Schomerus and Titeca (2012: 18) report, the (p.201) government acted ‘primarily to protect the interests of large-scale traders, who often work closely with SPLA officials and Ugandan government officials’. These researchers point to the existence of a ‘military–commercial nexus’, comprising the high-level SPLA officials who determine access to the South Sudanese market, Ugandan officials (mostly from the military circles), and the large-scale Ugandan traders. This implies that the playing field in this nascent market is not balanced, since large-scale traders are better positioned than their small-scale counterparts to trade their goods across the borders.

Besides the example of the South Sudan trade, a closer look at the manner in which government administers incentives to exports also shows favouritism towards some firms and distortion of the playing field. SEATINI-Uganda (2012) estimates that Uganda spends an average of 5 per cent of its current revenue on tax incentives and exemptions, especially on those firms producing for export. However, there have been several cases of the government offering subsidies, loan guarantees, and other incentives to foreign companies, which have subsequently failed to deliver.

7.4.2 Uganda’s Workhorses

The workhorses are firms in competitive industries that serve the domestic market. The competitive domestic industry of Uganda comprises a variety of business entities that vary immensely according to size and product specialization. They are mostly wholesale and retail traders of consumer goods (which on average contribute 14–17 per cent of GDP); agricultural businesses (averaging 22 per cent of GDP in the last ten years); and accommodation and food services (4–5 per cent of GDP in the last five years). Although their overall contribution to GDP is significant, the recent Uganda Bureau of Statistics business census revealed that many of these are micro-businesses, with 70 per cent having an annual turnover of less than UGX 5 million (US$2,000) and employing an average of two people (UBOS, 2011). This creates problems, both for collective action and for the state to make systematic interventions to develop the sector as a whole. Currently, SMEs are registered with a variety of government ministries, with no overall body coordinating them. Several analysts observe that, in return, government policies towards the private/business sector have been either non-existent or ad hoc, with variations discernible within sub-sectors aimed at particular enterprises whose political support is deemed important (Kjær and Katusiimeh, 2012; Kjær et al., 2012a).

The environment for business in the competitive domestic sector is best described as semi-ordered and largely open. Although government regulation and interference is not so onerous as to stop firms from entering the market or conducting their business, government–small business communication (p.202) channels are not particularly effective, and the government seems to lack the will to make the kinds of investment in state capacity that would help the sector reach its potential. Over 90 per cent of the workhorse firms are not members of any association (UBOS, 2011). However, some traders, especially in major towns, are organized in relatively influential associations that are able to engage government to improve the business environment. The Kampala City Traders Association (KACITA) was formed as a pressure group against high taxes, and has achieved a degree of influence over government.

Generally, the process of setting up a business in Uganda is complicated and extremely costly. One needs to interact with at least five government agencies, namely: the Uganda Investment Authority (UIA); the Uganda Revenue Authority (URA); local councils; the National Environmental Management Authority; and the Uganda National Bureau of Standards. The majority of our key informants indicated that, apart from the UIA (which issues investment certificates which are crucial for accessing other agencies), the rest of the agencies are not supportive. In the words of one respondent, other agencies ‘are actually a bigger part of your cost’,13 since government officials that occupy them are more interested in ‘filling their stomachs’ than rendering a public service to the businesses.

All government agencies mentioned above require one to undergo rigorous documentation procedures. Interviews with a businessman who is in the advanced stages of establishing a plumbing factory revealed that, whereas building permits for his 3,000 m2 factory would officially cost UGX 2.5 million, he paid UGX 1 million extra, while the environmental impact assessment certificate, which officially goes for UGX 2 million, in reality cost him UGX 9 million. He claimed that extra costs went to ‘consultants’ and bribes to various officials to ‘facilitate’ the process.14 These observations are corroborated by a recent World Bank (2016) Doing Business report, which showed that the ease of obtaining a construction permit has worsened in Uganda, currently standing at 161, down from 143 in 2013, in the ranking of 189 economies.

As in the competitive export sector, political connections matter a great deal with regard to the profitability of businesses within the workhorse sector. In this sector, influential businessmen have particularistic relationships with the ruling elite and therefore receive preferential treatment from government as individuals, rather than as a sector. Whereas some businesspeople are usually helped by government, the same government has turned a blind eye to independent companies that require its support. One key informant noted that ‘[while those] close to people in government easily receive money to bail them out of their troubles, a company like Nkima has been begging the (p.203) government for years to bail it out of its financial troubles, and government is taking forever to respond’.15

Even among importers, key informants agreed unanimously that profitability depends on one’s connections to URA officials, who assess and declare the nature of goods being imported and therefore how much tax is to be paid. It was observed, however, that not all traders have easy access to these officials. The new entrants in the sector rely on the brokerage services of the clearing and forward agents, who are private business firms certified by the URA to process imports. Those who are senior in the business usually have superior contacts, in the form of links with the supervisors of URA assessors. And, with such contacts, they can ensure that they are designated their preferred official to process their consignments:

Sometimes I call directly, other times I go through the clearing and forwarding agents to mention my preferred assessor to the supervisor. So this means that when I pay money informally to URA to influence my tax assessment, even the supervisors get their share.16

This sector also has a host of politicians-turned-businessmen. Key informants claimed that such politicians are well connected in the URA, because they influence the recruitment process to have their relatives within the tax agency. It is these officials who then facilitate the processing of goods for their ‘patrons’ (Robinson, 2006). It is alleged that this explains why goods of politicians usually receive priority at customs over those of ordinary traders.17 For instance, a senior NRM officer and cabinet minister imported a lot of sugar from Kenya during 2011, when there were shortages in Uganda’s domestic supply chain. When his sugar reached customs at Malaba, ‘everyone else who had sugar was put on hold until his consignment was cleared’.18 People who know powerful people in the government are also at an advantage. One respondent gave examples of how connections have helped him through troubles, such as when his small fishing nets were confiscated. He claimed that his in-laws contacted a powerful member of the first family, who exerted influence and had the fishing nets ‘released unconditionally’.19

These observations are corroborated by independent analyses on the workings of the URA. As stated by Robinson (2006), one of the main expected benefits of the URA’s semi-autonomous status was that the agency would be (p.204) insulated from political interests. However, after a honeymoon period, it became clear that:

There is evidence of systematic political involvement in URA affairs, especially in the form of influence over the recruitment, promotion, and transfer of staff. Ministers, family members with political connections, and political advisers in State House (Office of the President) have all sought to exert influence in this manner.

(Robinson, 2006: 23)

Robinson cites one anonymous source who alleged that the majority of URA appointments were more strategic. In particular, the customs and excise department was favoured in view of its critical role in determining levies on imports: ‘Politically appointed staff would be in a position to waive or reduce duty requirements or undervalue shipping consignments for patrons with influence and leverage’ (Robinson, 2006: 24).

Due to the above, there was a feeling among key informants that the playing field in the workhorse sector is not level. One key informant claimed that: ‘lots of other enterprises of a magnitude similar to mine get some incentives from government, e.g. tax holidays from corporate tax, but for us we were not given’.20 The government is accused of not establishing clear procedures for firms to know what they are entitled to and the processes to follow to access the incentives. Such grey areas create opportunities for corruption. Indeed, our key informants noted that the current situation is that for one to get the incentives, ‘you need to know key people in the Ministry of Finance’.

Government capacity to regulate and support this sector is mixed. For example, recent research into economic productivity in Uganda shows how political dynamics have resulted in different sub-sectors within the same ministry (in this case agriculture) being governed in very different ways (Kjær, 2015). Despite the fact that the fisheries sector was an important foreign exchange earner in the 1990s, the ruling elite was generally not keen on strengthening it, because powerful actors within the ruling coalition, particularly ex-NRA militants and fishermen, were opposed to reforms for improving this sub-sector, with subsequent declines in productivity (Kjær et al., 2012a: 18). In contrast, reforms aimed at improving productivity in the dairy sector have been implemented much more effectively, Kjær argues, because the most important part of the ruling elite and NRM’s main support base comes from the south-western part of the country, which is Uganda’s leading milk-producing region. The dairy sector appears to have achieved a significant degree of orderliness and is generally an open sector, at least within the western part of the country, where farmers’ organizations representing dairy farmers and traders, such as cooperatives, are functional and strong (Kjær et al., 2012b). (p.205)

7.4.3 Rentiers

According to Pritchett and Werker (2012: 53), ‘Rentiers are the high-rent firms that sell their products abroad’. An influential body of research suggests that the availability of revenues from this sector may be the most damaging in governance terms, as it can offer political elites rents in return for little effort, and therefore reduces levels of accountability and the incentive to invest in more developmental sectors. In Uganda, the high-rent export sector is mainly comprised of mineral concessionaires dealing in gold and oil, both of which are relatively new to the country. The mining sector’s contribution to GDP has until recently been insignificant; between 2008 and 2013 it averaged 0.3 per cent of GDP (UBOS, 2014) and it had 0.2 per cent of the total number of businesses in 2011 (UBOS, 2011). Moreover, these statistics are inclusive of quarrying stone, and the mining of sand and clay, which are mostly consumed in the domestic market. However, the sector’s prospects are bright following the 2006 discovery of commercially viable quantities of oil and gas. Although production is not expected before 2019, the current estimated petroleum reserve capacity for Uganda is approximately 6.5 billion barrels, with the projected recoverable standing at c.1.7 billion barrels (see Hickey et al., 2015).

The two sub-sectors, gold and oil, have contrasting business environments. On the one hand, the business environment in the gold sub-sector is visibly closed, disordered, and lacks a level playing field. This is for historical reasons, stemming from Uganda’s unregulated trade links with its war-prone neighbour, the Democratic Republic of the Congo. In 2007, the UN Security Council imposed sanctions on Uganda’s major gold exporters following accusations that they were dealing in so-called ‘blood gold’ (Mthembu-Salter, 2015). Since then, the country’s official gold trade has declined. Dealing in gold in Uganda is, therefore, mainly an underground business, save for the few companies involved in small-scale mining in the Busia and Moroto districts.

Less surprising, the sole key informant interview obtained in the gold trade opined that firms/businesspeople dealing in gold have to be connected with officials, ‘both in the Congolese army and the Uganda security services, mostly the Uganda People’s Defence Force and the police’.21 Deals in such an environment are very fragile, as actors are unable to guarantee that officials will deliver on their sides of the bargain. ‘These relations are very sensitive, any slight mishap can lead to the collapse of the entire business’, the key informant reported.22

(p.206) On the other hand, the oil sub-sector is now best described as closed, moderately ordered, and with some degree of fairness in the playing field. The capacity of the state to regulate Uganda’s oil industry, in which investments have been somewhat sporadic since 1986, when the NRM came into government, is now touted as representing a further pocket of effectiveness within Uganda’s bureaucracy (Hickey et al., 2015). In 2006, when commercially viable quantities of oil and gas were announced in Uganda, the government suspended the deal-making process with oil companies, in order to put in place the National Oil and Gas Policy. This provided the basis from which more comprehensive legislation would be prepared and passed in 2012, namely the Petroleum Exploration, Development, and Production Bill, and the Petroleum Refining, Gas Processing and Conversion, Transportation, and Storage Bill. The Public Finance Bill, to consolidate existing public finance management laws and address the management of oil revenues, was passed in November 2014. Acknowledging the need to establish this legal and institutional basis before moving to production, the government has delayed the production process and foregone the short-term benefits of securing quick deals. There is a significantly informal element to the current governance of oil in Uganda, with the president taking a strong personal interest in the negotiations with oil companies and, as with gold, the military also playing a key role. Despite this, the ‘closed ordered’ deals delivered so far around oil seem to be in the national interest, not least because the president has proved capable of controlling (or at least centralizing) rent-seeking activities in the sector, and willing to enable high-capacity oil technocrats to operate with significant levels of autonomy. However, the prevailing dynamics within the political settlement suggest that it may be difficult to sustain this level of commitment and capacity once oil starts to flow (Hickey and Izama, 2017).

7.4.4 Powerbrokers

Powerbrokers are ‘the high-rent firms that serve the domestic market’ (Pritchett and Werker, 2012: 53). In Uganda this sector comprises the big firms dealing in transport and communication (whose contribution to GDP has averaged around 5 per cent over the last five years), financial intermediation operators such as banks and insurance companies (3–4 per cent of GDP), and construction companies (12–13 per cent of GDP).23 To this list, we can add beer and soft beverage manufacturers, cement producers, power-generating companies, and water supply enterprises, among others.

(p.207) The business environment in the high-rent domestic sector is largely semi-ordered and semi-open: it is mainly those with political connections who get to make deals, and they are only assured that government officers will deliver as long as these officers know they are still in office and are happy with the commission (kickback) provided by businesspeople. Interviewees dealing in building and construction and hotel operation confessed that a lot of people must be ‘fed’ for one to get ‘juicy contracts’ from government. Before and after winning government contracts, several people have to be ‘fed’ (given commissions) on the awarded contracts. According to the manager of a medium-sized hotel in the suburbs of Kampala, ‘we currently host most of the KCCA [Kampala Capital City Authority] workshops, but to get such a business, we had to feed a lot of people’. Although a change in personality within government agencies can significantly affect the businesspeople in this sector, there are opportunities for existing firms to connect easily with new officials. This is captured by the CEO of a major building and construction company with connections to the Ministry of Education:

Yes, in my line of business, a change in personalities can affect my business. For instance, if there is a new permanent secretary, new commissioner in charge of planning, or minister, it can hurt my business, especially if I do not get to establish a good working relationship with the new people [fast enough]. Because this would imply that instead of awarding contracts to my company, the contract would go to some other company.24

A similar message was conveyed by the hotel manager.25 Alternatively, Booth et al. (2014) argue that powerbrokers have had to enlist politicians and other high-ranking government officials into joint ventures to secure their businesses, while the latter are assured of enjoying dividends in case the businesses break even.

The playing field in the powerbroker rents space is visibly uneven. Among the many cases of favouritism we uncovered is that of a Ugandan businessman who previously held an important position in the NRM’s Entrepreneurs’ League. He is said to fund the party and helps it to forge links with the business and Muslim communities. In return, his companies receive government favours in the form of loans, bailouts, and tax waivers (Golooba-Mutebi and Hickey, 2013; Kiiza, 2011). However, despite the closed nature of deal-making, business actors expressed confidence about investing in machinery and costly technologies, as long as their ‘scope of work continues growing’, mainly through getting contracts from government agencies. Building and construction firms and hotels make donations to political parties, especially to the (p.208) ruling NRM. They indicate that ‘we do this to avoid being frustrated now and in the future. For instance, if they send someone asking for your contribution and you do not pay, the next day you will receive visitors from URA, who will start asking for so many unnecessary receipts.’26 Donations to political parties are perceived to lessen the risk of their investment activities. Similarly, firms cannot be seen with members of the opposition: ‘If you want to stay in business, you cannot be seen to oppose the ruling government; the moment you start opposing the government then your troubles will begin immediately.’27

The other sub-sector that we investigated within high-rent production for the domestic market was telecommunications, specifically the mobile phone network operators (MPNOs). In comparison with building and construction, the business environment for MPNOs is slightly more ordered and also more open. Actors in this rents space consider the policies that guide the sector to be largely neutral,28 as opposed to within building and construction, where government regulation and interference were onerous enough to stop firms from entering the market or conducting their business. However, it is important to understand certain trends here. From 1993 up to the mid-2000s, the telecommunications sector was closed and semi-ordered. In an interview with one of the newest telecommunications companies in Uganda, it was revealed that each of the three pioneering telecoms companies in Uganda (Celtel, 1994; MTN, 1998; and UTL, 2001) ‘enjoyed protected telephony services and tax holidays for five years’.29 At one point, these three collectively lobbied government to restrict new entrants to the market, without success. Since 2007, however, Uganda has opened up the sector to competition, and hence companies currently operate on a free entry and exit principle. At the time of our fieldwork there were seven MPNOs, namely, MTN, Airtel, Uganda Telecom, Orange, Smile, K2, and Smart.

In this liberalized market, the Uganda Communication Commission enhances competition by preventing the misuse of market power, ensuring non-discriminatory access to essential facilities, and providing for interconnection. For instance, since July 2010, all network operators in Uganda are obliged to interconnect with other operators at a uniform interconnection fee of UGX 131.30 However, and despite the introduction of competition, fixed line penetration in Uganda remains very low, with two operators—MTN Uganda Limited and United Telecoms Limited (UTL)—providing the fixed lines services. UTL is the dominant operator in this area.

(p.209) In general terms, most of the actors we interviewed in this sub-sector claimed that there is a level playing field, ‘because all the rules and regulations cut across all mobile network providers’, although the three pioneering telecoms companies ‘enjoyed tax exemptions and protection for five years’, a privilege denied to new entrants.31 A change in personalities in this sector does not significantly affect the fortunes of players.

However, there are some issues that are still keeping the sector partially closed. For instance, new entrants have to part with some informal ‘facilitation’ fees for government officials to issue them with a licence. As one key informant put it, in this sort of business,

you cannot do away with informal payments/facilitation, because you have to keep the people you work with happy to ease your business…if one needs a licence, he/she will have to speak to people in the Uganda Investment Authority or the Ministry of ICT, it is very normal to put in our application with a small envelope, so that the licence comes out fast.32

In addition, MPNOs are expected to make donations to political parties, but mostly to the government in power. Some confessed to donating to the opposition, but ‘this is much concealed, because we do not want to be known as supporters of the opposition’. However, it is important to note that, whereas in a fully disordered setting payments are central to the survival of the firm, in a semi-ordered one they are not. According to one key informant, facilitations and donations ‘do not lessen the risk of our investment activities, but we [give them] to prove our good will [to the ruling regime]’.33

7.5 Politics of Growth Maintenance

The different kinds of deals space that exist within and across different economic domains in Uganda reflect the interaction of several factors, most notably the economic and organizational capacity of capitalists in each sector, their relationships with the ruling coalition, the rent-seeking opportunities that each domain offers to political actors, and the state’s regulatory capacity. The ‘magicians’ are able to operate within a fairly open space, within which political connections are not as significant as other sectors—although party donations are expected from large exporters—and where deals are at least semi-ordered. This is perhaps because the government is committed to export promotion, as reflected in its establishment of a greater number of strategies (p.210) and agencies dedicated to this end compared with other domains, but also because magicians have managed to forge relatively influential associations (e.g. UMA, KACITA, and PSF), which has enabled them to secure some policy reforms from government (especially those in line with taxation). In contrast, the much broader range of ‘workhorse’ businesses lack the collective capacity to protect and promote their interests (as reflected in persistent policy failures to deal with problems highlighted in the Doing Business surveys), and are subject to a higher degree of political manipulation, leaving the sector both more closed and disordered than is productive. The sector is also subject to low-level, but still persistent and damaging, rent-seeking behaviour from the regulatory bodies involved, most notably the URA. Within the less-competitive sectors, the level of rent-seeking behaviour is predictably higher, although with an interesting variation. On the one hand, the ‘monopolist’ sector seems to be running true to form, with high-level political connections a critical factor, leading to a semi-ordered and only semi-open scenario, within which even making significant payments to political parties cannot offer security of contracts. Moreover, there is growing evidence that those gaining huge wealth within this sector (particularly telecommunications) are using this to gain political leverage. However, we find a somewhat surprising and alternative story in the rentier export sector. Leaving aside the highly disordered area of gold mining concessions, it is noticeable that the deals made within the emerging oil sector, while closed, have been both ordered and seemingly aligned with national economic interest. This seems to reflect the higher degree of state capacity and elite (presidential) commitment in this domain (Hickey et al., 2015), which in turn may have a transnational element to it, in that dealing with global oil companies requires the development of much higher levels of technical expertise and bargaining power than is required in most other sectors.

7.6 Conclusion and Recommendations

These findings highlight the importance of undertaking a differentiated analysis of the political economy of development in Uganda, not least as it provides a stronger, more relevant, and more nuanced basis for generating policy recommendations. However, there are also some cross-cutting findings that should be noted. First, each of the deals spaces discussed in this chapter remains closely embedded within, and informed by, the broader political settlement, which establishes not only the generalized patterns of rent-seeking behaviour that we identify in all four sectors, but also the level at which, and ways in which, this plays out vis-à-vis the overall priorities of the regime. This becomes clear when we compare the much higher levels of (p.211) attention given to ensuring that oil is governed relatively well, as compared with the reluctance to develop regulatory state capacity and promote performance-related pressures in other domains. Second, the organizational strength of Uganda’s capitalists remains generally weak, which severely reduces their collective bargaining power and the incentives to transcend state–business relations based on collusive rent-seeking, as opposed to a more generalized and productive basis. This helps to maintain the significance of politicized connections. The government is complicit in this, not least as it offers a means through which it can secure both the finances and promises of political loyalty that it needs to remain in power under multiparty politics. Despite some initially promising efforts, including the Presidential Investors Roundtable and now the Presidential Economic Council, there are few influential spaces within which political elites and leading capitalists can interact and make progress on matters of national economic interest. This situation does not bode well for generating the collective capacity and commitment required for a move towards structural transformation.

The policy implications that flow from this analysis, each of which will need to be nuanced for the four domains, fall into four main categories. The first concerns the need for a rebalancing of Uganda’s current political economy of development, which is overly skewed towards services (which has over-strengthened the hand of monopolists in ways that are deepening the clientelistic tendencies of the political settlement) and fairly unproductive forms of agriculture, towards a stronger focus on agricultural modernization and manufacturing. To the extent to which oil wealth does start to emerge, this will clearly have to be well governed in line with current legislation (e.g. through a sovereign wealth fund) and reinvested in these sectors to avoid Dutch Disease effects. This strongly echoes the earlier policy advice of Hausmann et al. (2014), while going further in showing how this supports the kind of capitalists who have been associated not only with economic transformation in the periphery (Henley, 2015; Booth et al., 2015), but also with social and political transformation in terms of developing economic interest groups with sufficient autonomy from political elites to start making wider demands for public goods with progressive spillover effects (Khan, 2010; Sandbrook et al., 2007). Importantly, our analysis here also suggests the need to go further than suggesting policy shifts around economic strategy, towards building the relational and organizational forms of capacity among both producers and the state required to achieve this (Vom Hau, 2012).

Second, then, there is a need not just to invest heavily in these other areas of the economy, but also to build the organizational power of the capitalists operating therein. This has implications for donor strategies around ‘private-sector development’, which need to be much more attuned to the relative power of different groups of capitalists and directed towards those that have (p.212) the most pay-offs in political as well as productive terms. The obvious targets for such interventions are the magicians and workhorses.34 Third, more muscular spaces are required within which to develop more productive forms of relationship between government and business, as appeared to be occurring to some extent within the Presidential Investors Round Table until World Bank funding was withdrawn. Finally, there is a pressing need to maintain and build the regulatory and disciplinary power of the state, in terms of its capacity to govern economic activities effectively within and across the four domains discussed in Section 7.4. This will not be easy, but the history of development successes in Uganda suggests it is essential, particularly in terms of the role played by bureaucratic islands of effectiveness within key sectors. This chapter has drawn particular attention to the need to protect and maintain high levels of autonomy and performance within the technocracies for the macroeconomy (Ministry of Finance, Planning and Economic Development, Bank of Uganda), revenue collection (URA), and oil (Ministry of Energy and Mineral Development), and to start developing it as a matter of urgency in the sectors identified here (e.g. agriculture and manufacturing).

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Notes:

(1) For more discussions on this, see Bategeka and Matovu (2011).

(2) Rentiers are the natural resource firms exporting to world commodity markets; magicians are the exporters that operate in competitive industries; powerbrokers are the firms catering to the domestic sector that operate in high-rent industries; workhorses are those firms operating in competitive markets that serve the domestic economy. See Chapter 1 of for a fuller elaboration of these types, and Section 7.4 for a discussion of each type within Uganda.

(3) As Khan (2010) explains, the developmental character of political settlements is closely shaped by the productive nature of capitalists and the relationships that they have with the ruling coalition.

(4) See Chapter 1 for a fuller elaboration of these types.

(5) General manager of a coffee-exporting company, 13 February 2014.

(6) General manager of a coffee-exporting company, 13 February 2014.

(7) General manager of a coffee-exporting company, 13 February 2014.

(8) General manager of a coffee-exporting company, 13 February 2014.

(9) General manager of a milk-processing firm, 19 February 2014.

(10) General manager of a coffee-exporting company, 13 February 2014.

(11) General manager of a coffee-exporting company, 13 February 2014.

(12) General manager of a milk-processing firm, 19 February, 2014.

(13) Interview with the director of a manufacturing company, 3 March 2014.

(14) Interview with the director of a manufacturing company, 3 March 2014.

(15) Interview with a traders’ association representative, 12 February 2014; Nkima is a pseudonym.

(16) Interview with stationery importers, 18 February 2014.

(17) Interview with merchandise importer, 21 February 2014; interview with stationery importers, 18 February 2014.

(18) Interview with merchandise importer, 21 February 2014.

(19) Interview with merchandise importer, 21 February 2014.

(20) Interview with director of a manufacturing company, 3 March 2014.

(21) Interview with former employee at Drito Global Cooperation, 4 March 2014.

(22) Interview with former employee at Drito Global Cooperation, 4 March 2014.

(23) UBOS statistical abstracts.

(24) Interview with the CEO of a construction company, 10 February 2014.

(25) Interview with hotel manager, 17 February 2014.

(26) Interview with hotel manager, 17 February 2014.

(27) Interview with hotel manager, 17 February 2014.

(28) Interview with hotel manager, 17 February 2014.

(29) Interview with telecom shareholder, 11 February 2014; interview with telecom legal advisor Uganda, 10 February 2014.

(30) Kigambo and Talemwa, 2010.

(31) Interview with telecom shareholder, 11 February 2014.

(32) Interview with telecom legal advisor, 10 February 2014.

(33) Interview with telecom legal advisor, 10 February 2014.

(34) See King and Hickey (2016) for evidence that supporting the associational capacity of smallholder producer groups in Uganda can have real pay-offs, both in terms of empowering subordinate groups and ensuring more accountable forms of governance.