Even with rising inflation, government priority should be on paying local suppliers

#OutToLunch Even with rising inflation, government priority should be on paying local suppliers

By Denis Jjuuko

Somebody who had spent half the year planning for an event with many visitors expected in the country told me that most of his delegates had decided not to come for health reasons. They feared the outbreak of Ebola in the country and decided that they would attend by Zoom. I couldn’t blame them!

My thoughts ran back to the lockdowns of the past years due to Covid-19. But imagined how many people were going to lose money over this. The airline, the airport, the taxi guys, the hotel and the entire hospitality value chain. Imagine if you had pegged your business performance on this conference and perhaps many others. It could end up in tears or what we call “going back to the village,” euphemism for a business that has burst. Living in Kampala or urban areas is expensive so for the majority of people, once business fails, they return to their villages.

If you are a regular reader of Ugandan newspapers, you would have come across many properties on sale. That wouldn’t be a problem if the properties on sale were not being auctioned for failure to pay back loans. In just six months (January to June 2022), Daily Monitor reported that 2,076 properties were advertised for forced sale in its newspaper alone. There are a few other newspapers which could be having similar numbers.

The properties advertised in newspapers are those largely by formal lenders such as commercial banks. Many people borrow informally and their properties are sold without the necessity to advertise first.

There are many reasons why people fail to pay bank loans. Sometimes money comes in too late and too little to do the business (banks take their time to disburse business loans) while some borrowers misuse the money spending it on luxury than the intended purpose. Others invest in get rich schemes, like we saw last week, that promise unrealistic returns.

Many others invest the money in the business they aren’t yet familiar with leading to losses. Sometimes money is invested in new businesses that need a lot of time to break even and be able to pay back the debt. Businesses take time to grow and there are always unexpected eventualities. For example, if you borrow money and buy machinery to make some products, it may take you months before the actual installation is done. The testing of the machinery and then so many other stuff you need in place. The lender won’t be waiting for your business to turn a profit. They will need their money. The interest rates are very high as well even when the business is profitable.

The economy hasn’t fully recovered from the effects of Covid-19 and today we have another crisis—Ebola on our hands. Like the guy who was organizing the conference, investors and even international NGOs will wait and see before they make decisions to bring in the money. In the meantime, more people will continue to struggle to pay back their loan obligations.

So government should prioritize paying its public debt especially to local suppliers. Many Ugandan companies are in debt because they supplied government with goods and/or services and they have resorted to begging bureaucrats to pay them. Either invoices are deliberately misplaced or the people responsible for making payments have zero interest in settling invoices. Accounting officers of government ministries, departments and agencies or MDAs must see to it that people are paid on time once they have fulfilled all the contractual terms. There shouldn’t be a reason why MDAs procure goods and services and then make suppliers and providers “dance on a needle” before they are paid.

The concept of “kiwato” which means that you pay half the money you are demanding to those officers who are supposed to be doing their job must be completely dealt with. Corruption must be nipped in the bud if businesses are to survive. There should be no reason why anyone should pay half the money they are demanding so that an invoice that had been deliberately misplaced is all of the sudden available and moving through the payment processes.

The Uganda Development Bank should also further slash on the interest rates they charge and make it easier for small businesses to borrow. Bank of Uganda should also come up with more innovative ways of taming inflation than always raising the central bank rate (CBR), which always means hikes in commercial bank interest rates. The CBR may work in Europe, but is it the only solution for developing countries like Uganda?

The writer is a communication and visibility consultant. djjuuko@gmail.com

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