[allAfrica.com] [allAfrica.com_Sports] Rwanda's Army Offers Lesson for Africa Growth The Monitor (Kampala) OPINION September 2, 2004 Posted to the web September 2, 2004 By Andrew M. Mwenda Kampala During my visit to Rwanda last week, I observed the economic policy thrust of the government there and felt Uganda should take important lessons from that country. Our leadership may dislike this proposition but the truth of the matter is that Rwanda has the appropriate approach to its development challenges although it is chronically short of the necessary human resource to carry out the task. First is the Rwanda Patriotic Front (RPF) party. It has a holding company - Tri Star - a highly profitable enterprise with several subsidiaries. Tri Star owns 47 percent shares in MTN Rwanda Cell, 15 percent shares in MTN Uganda, and is doing brisk business in beverages (soft drinks and mineral water), construction of housing estates etc. This compares badly with Danze, which was formed to make money for the National Resistance Movement (NRM) but was so badly mismanaged that it went under. President Kagame: The UPDF will be happier if their leaders run the institution in a manner similar to that of the forces of his country (File photo) While Tri Star is among the 20 leading taxpayers in Rwanda, Danze was the leading tax evader in Uganda, and by the time of its closure, it had evaded taxes worth $25 million (Shs 45 billion). Yet in spite of tax evasion, Danze did not make any money and thus could not even finance President Yoweri Museveni's election campaigns in 1996. Instead, Danze enriched a few private profiteers. Second, is the outstanding example of the Rwanda army - the Rwanda Defence Forces (RDF). In 1996, the army leadership in Rwanda created a credit and savings scheme for its officers, men and women. By 2003, the financial resources from soldiers' savings had grown so huge that the central bank of Rwanda decided to recommend to the army that the scheme be transformed into a fully-fledged bank. On the other hand, the Rwanda army has a construction arm, which has, on top of building beautiful barracks been building wonderful houses for its soldiers. Any soldier, from a private to a general can apply for a loan from the army savings and credit bank and buy a house on a 25-year mortgage at an interest rate of 4 to 5 percent. The houses cost 14m to 17m Rwanda Francs (Shs 42 million to Shs 51 million in Uganda). I must add that the quality of housing I saw would cost between Shs 120 million and Shs 150 million in a similar residential area in Kampala. The army construction firm has developed an entire suburb in Kigali for Rwandan army officers where they own beautiful private homes, and live a true middle- class life on their meagre salaries. If we compare this to our Uganda People's Defence Forces (UPDF), then you really feel sorry for our officers. First, they do not have a savings and credit scheme. Instead, the UPDF has money-sharks running robbery schemes called 'Barodas' in which army officers lend money to their subordinates at 30 to 50 percent interest rate per month. These officers many times collude with headquarters to delay soldiers' salaries and then lend their starving juniors at exorbitant interest rates. When the salaries finally come, the officers pay themselves by deducting their money and interest due at source. Also, 18 years later, except for the corrupt, UPDF officers live in dilapidated quarters known as mama ingia pole. UPDF's institutional crisis is deeper than that: in 1986, the UPDF (then called National Resistance Army) entered Kampala arguing that while previous armies in Uganda had been parasitic on the taxpayer, they would be a productive army. The National Enterprises Corporation (NEC) was created as the productive arm of the army, and a number of subsidiaries: NEC Pharmaceuticals, Luwero Industries, NEC Ranches etc were established. These enterprises were plundered by army officers and other regime functionaries so much so that, NEC has virtually collapsed while its surviving empty shell is being privatised and its assets are being liquidated. From the promise of a productive army, UPDF was instead transformed into a springboard for private profiteers who buy expired food rations, under size uniforms, substandard military equipment, place ghost soldiers on the army register and rob their juniors. In this dense traffic of private profiteering, creating an army credit and saving scheme would tantamount to putting Dracula in charge of the blood banks. These are the lessons for Uganda (and more so the NRM and UPDF) to learn from Rwanda, especially from RPF and RDF, much as we may resent it. A more important lesson, though, is that there are many leaders who are as good as, and even better than Museveni in the NRM and UPDF, hence no need for a third term because Rwanda's President Paul Kagame was just a director in our military intelligence. Another lesson is the importance of financial instruments to act as vehicles for mobilising long term household savings in a poor country to finance long- term investments. Even if Ugandan soldiers were paid three times better than Rwandan soldiers, their counterparts in Kigali would save more and live better because of access to cheap, long term credit. There is no more effective vehicle for forced household savings than home ownership through a mortgage market. Uganda's savings ratio to its Gross National Product (GDP) is 5.6 percent; actually below the Sub Sahara Africa average. Why? Pedestrian analysts claim; "there is a poor savings culture in Africa." Yet the crux of the matter is that there are simply limited and/or underdeveloped vehicles for mobilising household savings like a well-developed capital and mortgage markets, robust pension funds etc. These institutions and markets need to be created, and this can only be done by a strong and effective state. Yet the current debate on economic policy in Africa, especially so Uganda has centred on demonising the state (which is correct given our historical experience) and claiming that the market will be the solution (which is wrong given our context). Thus, the World Bank and the International Monetary Fund (IMF) with the support of key economists in our Ministry of Finance have sustained the policy mantra of "private sector-led growth." This is a dubious argument because it assumes, wrongly, the existence of a sizeable and robust private sector in the country. Africa's problem is actually the absence of a viable private sector to be the engine of economic growth. That is why in spite of claims of "private sector-led growth" by the ministry of finance and the World Bank in Uganda, the truth is that this country has been going through "foreign aid-driven growth." Even Uganda's hopelessly underdeveloped private sector depends on foreign aid not just for its growth, but its survival. An appropriate economic policy strategy for Uganda (and all these African economies generally) would therefore be to "grow" the private sector - not to assume it can lead the growth effort. This is a recognition of an important reality: that Africa's major challenge is not so much the absence of capital in form of a surplus for investment, but rather lack of entrepreneurship in the Schumpterian sense of the word. The policy dilemma therefore is: how can we trigger entrepreneurship? First, we recognise that private capitalists are always afraid of taking risks especially in these poor countries. The role of the state would therefore be to lower the risk in order to entice them to make the necessary investment decisions. The experience of successful countries shows the use of various inducements - cheap credits, shared risks, tax rebates, different types of subsidies etc. Second, we note that transformative projects require capital investments far in excess of what private capitalists in a poor country can marshal. The challenge is for the state to mobilise long-term savings to finance long-term investments cheaply, especially so in these countries with missing capital markets. Already, an issue of Fortune magazine early this year did highlight the high levels of entrepreneurial activity in Uganda, a critical beginning point for policy makers. What did I observe in Rwanda that has important elements of these arguments? I will answer this question in the Sunday Monitor.   =============================================================================   Copyright © 2004 The Monitor. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). =============================================================================