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Uganda’s liberal yet unfair economy – Joseph Burite, East Africa correspondent

By Joseph Burite
Posted on Tuesday, 29 May 2018 15:52

A few constants characterise holidays like Easter in Uganda. The typical urban dweller troops off to his or her countryside ancestral home for festivities, dressed up in fashionable fabrics, perhaps to show off the fruits of life in the city. Normally in tow is luggage packed with gifts for folks in the village, often clothes along with loaves of fresh bread, as if to give them a taste of town. Then there is the bus company, always determined to ruin such a festive mood with fare hikes as much as three times the regular price for no reason other than ‘It’s Easter’. On such days, even the best bargaining skills are rendered useless.

You would think any government would be powerful enough to rein in such price distortions. The Ugandan one, though – not a chance, even if it wanted to. In this example the existing legal regime, under which the transport licensing board operates, does not provide for consumer protections beyond matters of safety.

Such omissions are not limited to transport. In fact, such an alarming lack of safeguards in Uganda’s statutes looks suspicious – especially those governing sectors like finance, telecoms and construction, which also happen to have witnessed the highest levels of growth in recent years. In a country where business and politics mix freely with no regard for conflicts, policy-makers often use ambiguity in the law to foster perverse behaviour amongst cronies.

Putting a lot of control in a few hands is common in Uganda. In late 2016, the central bank placed Crane Bank, a systematically significant lender, under statutory management. Crane Bank was owned by Sudhir Ruparelia, a politically connected businessman with interests in real estate and other sectors. The central bank later sued Ruparelia, saying he had misappropriated funds from the bank. Ruparelia denies wrongdoing, and the case continues.

In January 2017, the central bank then merged Crane Bank with another top-tier lender, DFCU Bank, which is controlled by the Norfund- and Rabobank-led investment consortium, Arise. While the move was totally legal and within Bank of Uganda’s powers, it was not lost on observers this was the second such action that went in DFCU’s favour, with no consideration as to whether it distorts the market. Finance is already a very highly concentrated sector. “Four major commercial banks, DFCU now among them, account for about 60% of the market,” says forex trading firm Alpha Capital’s Stephen Kaboyo.

Competition tsar

In the telecoms sector, 91% of Uganda’s market is controlled by South Africa’s MTN and India’s Bharti Airtel, according to Uganda Communications Commission (UCC) figures. In a recent report, the UCC found that MTN engaged in discriminatory behaviour towards interconnection seekers.

For a mobile-phone user like myself, of major concern is the virtual absence of tariff variations despite differences in scale among players, which suggests an element of price control. At the same time, Uganda’s tariffs remain higher than those of regional peers, a phenomenon the regulator blames on the country being landlocked. But aren’t Rwanda and Burundi landlocked too? In the telecoms field, a statutory tribunal meant to investigate such concerns remains unconstituted and, besides, it would have no powers to penalise.

The case involving paint multinationals AkzoNobel and Kansai Plascon last year highlights problems caused by a lacuna in competition law. In 2017, Kansai Plascon acquired the AkzoNobel’s decades-­old franchise holder in the region, Nairobi-based Sadolin Paints East Africa. Plascon was to maintain AkzoNobel’s Sadolin paint brand in all East Africa markets, including Uganda, where it had about 60% market share. But Kansai rebranded the entire operation as Plascon. Court battles continue, with consumers barely differentiating either brand.

If only Uganda had a competition tsar, the terms of the merger could have been assessed and clarified at the outset. And while the Plascon transaction is under assessment by a Common Market for Eastern and Southern Africa (COMESA) competition commission its decision will have no bearing on the local market as member countries are required to have national institutions to implement COMESA decisions. The East African Community, which passed a competition act in 2006, also awaits Uganda to meet its obligations. This has resulted in the delayed realisation of the East African Competition Authority, which is meant to regulate the regional common market.

Even though Uganda’s 2014 ministerial policy statement prioritised the creation of the National Competition and Consumer Protection Commission, efforts to develop enabling legislation have been slow. Last year, President Yoweri Museveni ordered a review and cutting back on agency creation.

But evidently, a case for antitrust structures exists. And as Museveni’s own methods suggest, he is well aware of this. In 2012, he forced Tullow to sell shares in oil fields to Total and China National Offshore Oil Corporation, deliberately preventing the British-based producer from assuming a dominant position in the nascent industry.

The high number of mergers shows that the need for a watchful eye on competition is urgent. In the 19-member COMESA region, Uganda has also seen the fifth-highest number of mergers in the five years since 2013, only behind Kenya, Zambia, Mauritius and Zimbabwe. Mergers have been most frequent in construction, banking and agriculture, according to COMESA statistics.

A bill to create the competition commission is being drafted for tabling before parliament this year, according to Julius Onen, permanent secretary in Uganda’s ministry of trade and industry. “The cabinet has cleared it, so now it’s being drafted,” Onen tells The Africa Report. “We are hoping that by June or July we should be able to table it in parliament.”

Such technical bills take an average of three years to go through parliamentary processes. But considering the political distraction of a referendum on extending presidential term limits from five to seven years, and the general election to follow in 2021, we may be looking at five years before the bill passes.

For the $29bn Ugandan economy, that means a likely five more years of investors like AkzoNobel and Kansai Plascon navigating a maze of ambiguous rules, which could ultimately hurt business confidence. It also means more mergers taking place without scrutiny, to the likely disadvantage of consumers. It means an unchecked reign of trade dominance, price maintenance, and enduring oddity in an increasingly integrated regional economy, and – more personally – expensive Easter travel.

This article first appeared in our May 2018 print edition of The Africa Report magazine

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