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Friday, June 23, 2017

Letter to #Uganda's president #Museveni - economy is sick and weak

You can guess that the author of this letter wrote it before Uganda experienced a country wide blackout on June 22, 2017 starting around 5:30PM Uganda time and lasting for minimum 5 hours. At the time of writing this, there are many parts of Uganda which still have no electricity and the power company UMEME has switched off all its customer service lines.  So much for ECONOMY HEALTH BECAUSE YOU HAVE EXCESSIVE ELECTRICITY! ..... Martha Leah Nangalama
This is to inform all our customers about a technical problem causing outages in most parts of the country.
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Mr President, you may need to summon whoever gave you the dossier on the health status of the economy based on a single variable ('surplus' electricity) for breach of professionalism and possible obstruction of steady progress.
True, the "economy is not in recession" but just because that is a technical term akin to proving whether the person was killed by the bullet, shock or excessive bleeding. Technicalities aside, the health of the economy can be assessed using several parameters, which can also be subjected to various opinions and interpretation.
The excess electricity can, for now, be categorised as an inventory, which refers to finished products like food, bicycles and clothes that firms have produced, but not sold either due to lack of a market or as a technical strategy to have a surplus - just like a spare tyre on a car.
Inventories also include stocks of inputs for future use. Suffice to say, how much inventory to keep, is informed by the nature of production and the cost of holding such a surplus.
I am yet to see cars with five spare tyres! Uganda is already having excess inventories in many sectors - housing (empty commercial and residential), trading (shops and supermarkets with unsold goods), transport and education facilities.
It is worth noting that excess investment/production is not the problem, but the imposed cost of doing so if one does not balance the other requirements given the constraint of resources/money. Building a massive house in anticipation of a big family in the future should not be done at the expense of current food and medical requirements.
Surplus electricity is not actually an inventory, but largely a result of lack of demand and is a cost to the country since some contracts force are based on capacity and hence force government to pay for it even when it is not consumed. This is partly why the market forces have failed to lower the electricity tariff despite the excess production.
The nature of electricity production may require excess capacity - produce less than what the plant can deliver - but not generate and technically 'throw' away the power. Since we cannot store bulk electricity, the excess ceases to be an inventory and becomes a waste.
While it is good to have the excess capacity (potential to generate more than we need), the opportunity cost or alternative usage and cost of the resources used should be considered professionally.
Uganda is projected to continue having surplus electricity for a decade and more, partly due to inadequate demand arising from a weak and sick economy.
The prevailing poverty and inequality means low demand for power by both households and firms that cannot produce for a weak market.
Poor agricultural production has also undermined industrial processing in the sugar, oilseed and fish sub-sectors, among others. There is excess capacity in steel rolling, textile factories, etc, which cannot be resolved by mere increases in power distribution.
I foresee no new factories coming up because of availability of power, but due to lack of effective markets for inputs and outputs.
Surplus electricity in Uganda is largely a symptom of a weak and sick economy. Food left on a plate by a child due to sickness is not a sign of wellness. We need an economic stimulus and restructuring to resolve symptoms like weak demand, trade and budget deficits, and currency depreciation.
For example, government should pay Shs2.7 trillion arrears to private firms, boost salaries of its lower cadre and downsize itself. The dossier was certainly faulty.
Dr Muhumuza is a development policy analyst committed to inclusive growth.
DAILY MONITOR

Letter to President: The economy is actually weak and quite sick

Friday June 23 2017 Surplus electricity in Uganda is largely a symptom of a weak and sick economy. Food left on a plate by a child due to sickness is not a sign of wellness. We need an economic stimulus and restructuring to resolve symptoms like weak demand, trade and budget deficits, and currency depreciation.

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