Uganda: Army is scaling up businesses, despite NEC losing money

By Musinguzi Blanshe
Posted on Friday, 9 September 2022 11:19

Ugandan army soldiers deploy, after the election result was announced, in downtown Kampala, Uganda, Saturday, Feb. 20, 2016. (AP Photo/Ben Curtis)

Uganda’s military has been tightening its grip on multiple business sectors following in the footsteps of other African armies.

Assembly of buses and bullet-proof vehicles, as well as road construction are among the business areas where the National Enterprise Corporation (NEC), the commercial arm of the Ugandan army, is undertaking projects. 

Only recently did the Ugandan military body, which is more than three decades old, aspire to emulate the business involvement of the likes of the Egyptian army. 

The NEC was formed in 1989, three years after Yoweri Museveni came to power. Even though the government has injected billions of taxpayers money into the corporation, the latter has perennially been a loss-making entity. 

…the auditor general reports are clear, since NEC was established, it has been making losses … NEC isn’t a venture worth investing in.

Government auditors in 2015 reported that the NEC had incurred losses of USh31bn ($8.1m) accumulated over decades. Updated figures of the funds that the government has been allocating for the corporation are unavailable, but auditors in 2019 said it had received almost $2m from the coffers. 

Abdallah Kiwanuka, an opposition legislator who sits on the parliament’s defence committees that scrutinise the corporation, tells The Africa Report that “the auditor general reports are clear, since NEC was established, it has been making losses … NEC isn’t a venture worth investing in.”

Sidelined for years

The NEC was blighted by corruption that was widespread in the army during the 1990s and 2000s. And it was never given opportunities to do businesses on behalf of the military such as procurement, an academic who has worked with the army tells The Africa Report, speaking on condition of anonymity.

Since the late 1990s when Uganda started acquiring more and larger military hardware, mainly through third parties, buying of armies became seriously tainted with corruption.

At the time when Uganda went into privatisation overdrive in the 1990s, the government never bothered to allow the NEC to take over some of the entities that were put up for sale, despite the market void back then.

Corruption in the army during the 1990s is vividly captured by journalist Andrew Mwenda and researcher Roger Tangri in their book, The Politics of Elite Corruption in Africa: Uganda in comparative African perspective

“Since the late 1990s when Uganda started acquiring more and larger military hardware, mainly through third parties, buying of armies became seriously tainted with corruption,” the authors wrote.

“A number of major tenders were entered into for aircrafts, guns and tanks as well as items such as food rations and uniform. These deals invariably involved bribes and kickbacks as well as massive overpayment from which army officers, top government officers and middle men profited.”

Out of slumber mode

The NEC has five subsidiaries focusing on manufacturing, agro-processing, farming and construction. The corporation has for years been known for Uzima Water, one of its flagship products. The water is sold to the public and supplied to the army as part of a ration system. The NEC also tapped into manufacturing condoms in 2018.

In 2019, the corporation’s construction subsidiary was contracted by Kiira Motors Corporation to construct a vehicle plant, a deal whose value was never disclosed. Kiira Motors is a government enterprise that is positioning itself to grab a piece of the pie in Uganda’s automotive industry through car assembly and manufacturing.

Kiira Motors buses are currently being assembled at Luwero Industries, one of the NEC’s subsidiaries. 

At the end of July, President Museveni launched several projects undertaken by Luwero Industries, including a surgical medical masks production facility, a nitrogen-oxygen station, and a joint venture with STREIT, a United Arabs Emirates company that specialises in production of armoured cars. Through the joint venture, armoured vehicles will now be assembled in Uganda.

Museveni described the armoured vehicle joint venture as a game changer. “If you see how much Africa is spending on importing weapons, it’s a lot of money,” he says. “By manufacturing them here, we are going to save a lot of money.”

The NEC’s construction subsidiary recently entered a joint venture with a Chinese company to construct a 62 kilometre road. It was the first time that the corporation was taking on a road construction project through as a joint venture. 

Even though the government spends roughly $1bn on road construction, the sector is dominated by Chinese companies. Meanwhile, Museveni has been keen to ensure that the NEC is awarded government contracts.

Museveni had also ordered that school construction projects be given to the army. However, he faced some pushback from donors and international financial institutions, such as the World Bank that funds most of the school projects in Uganda.

Mugira leading NEC expansions

With NEC’s rising profile, its facilities have become places where the government would take high-ranking dignitaries for a tour. In the second week of August, Somalia President Hassan Sheikh Mohamud paid a visit to Luwero Industries.

However, the NEC started engaging in high profile joint ventures and businesses only after the 2015 appointment of Let. Gen. James Mugira as NEC managing director. 

Some officials who spoke to The Africa Report wonder whether the corporation will regress to its morbid status should its incumbent leader step down.

Common pattern 

Uganda’s army has long wanted the NEC to be as successful as the Egyptian military in doing business. 

In Egypt, the army is present in multiple sectors and produces a wide range of goods and services, profoundly impacting the economy. It builds and runs hotels, sea resorts, apartment buildings, lavish villas, gas stations, and toll roads. It also owns factories of cement, steel, jeep, fertiliser, home appliances, and pasta, among other products. 

Notably, the Egyptian army has a majority stake in the company owning and managing the ongoing $40bn new capital city project, located 45km east of Cairo.

Other armies in the region with a foot in the economy include Sudan, Ethiopia and Rwanda, whose army is a product of Uganda’s army.

 

Its leaders participated in the 1981-1986 war that brought Museveni to power and left to liberate their own country in 1991, seizing power in 1994. Crystal Ventures, one of the wealthiest companies in Rwanda, is owned by the ruling party.

Last institution standing?

Murindwa Rutanga, who teaches at the National Defence College, an Ugandan army institution, is a strong proponent of the deep entrenchment of the military in businesses. He refers to countries such as China, Russia, and Germany, among others, as examples of countries that have strong business entities. The state, he says, is not as strong as its army.

You know those countries can’t survive without a strong army given their location…

“The state comes to formation through military wars. And when it’s formed like that, it goes without saying if the state is to disintegrate, the last institution to disintegrate is the fighting institution, the army,” he says.

In countries such as Egypt and Sudan where armies have scuttled democratisation, Rutanga says those arguing in favour of democracy should first ask themselves what kind of countries they would be without a capable army. 

“You know those countries can’t survive without a strong army given their location,” he says. It’s the same story for Uganda where the army brings economic and financial discipline, adds Rutanga, without touching on the NEC’s heavy losses.

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