MPs Get Solution For Uganda’s Failing Economy
By John V Sserwaniko
It’s all in Local Content Bill
MPs have agreed on what they consider a comprehensive solution to our failing economy characterized by collapsing individual local tycoons.
The MPs’ solution is reflected in Kasanda North MP Patrick Nsamba Oshabe’s Local Content Bill aimed at compelling government MDAs to give a legally defined percentage or fraction of lucrative government contracts to local contractors and firms so that they also access juicy tenders.
The idea is that every contract a big agency like UNRA will be giving out, steps must be taken to ensure Ugandan firms participate either as sub contractors or specific raw material suppliers.
“In the last 5 years, Uganda government has spent over Shs15, 970bn in road infrastructure projects but all this money has been monopolized by foreign firms. Ugandans haven’t supplied goods or services worth even 1% and to me this is the reason all our local firms are collapsing. They have been denied participation. We have exposed them to international competition without any deliberate effort to help them build capacity to face that competition. This local content legislation is in force elsewhere and it’s the only way the local firms can grow and survive competition,” says Nsamba who previously worked as development consultant in Kampala.
He did for 10 years before becoming MP. “I know these things first hand because I know how the likes of Zzimwe, Sembule, Wavamunno, Mukalazi and others collapsed. The time is now and this local content bill is the solution to even the stories you Red Pepper guys are writing daily about tycoons collapsing.”
Nsamba is sponsoring a private member’s Bill to have MPs legislate a law that will make it mandatory for MDAs to observe local content provisions on every lucrative job they give out to foreign firms. The Bill also seeks to preserve “small contracts” exclusively for local firms.
“We could for instance say any construction job at UNRA below Shs15bn is prohibited for foreign firms. That is how our local firms will also access opportunities to do these jobs and build their capacity. It’s also about job creation. It’s true the President has been directing on local content but without enabling law, nothing can be achieved.
How do you prevent a Chinese firm from giving all the management jobs to Chinese nationals if you don’t have an enabling law to punish non compliance? How do you compel them to use locally produced raw material and casual laborers if you don’t have a relevant law?” rhetorically argued one of the MPs closely working with Nsamba to promote the Local Content Bill.
The process began last Thursday when Deputy Speaker Jacob Oulanyah allowed Nsamba to move a motion seeking MPs’ no objection to proceed with his Bill.
In an unprecedented move, MPs unanimously agreed this legislation was long overdue. Prime Minister Rugunda was in the House with many Cabinet Ministers and none of them objected to Nsamba’s well articulated proposal. Nobody had guts to raise objections on grounds of financial implications. “We are all relieved.
The President has always directed us on local content but honestly we become frustrated in absence of enabling laws. During negotiations nobody listens or takes what you are saying,” said a Minister on condition of anonymity.
During the Thursday plenary, MPs across the political divide saw this law as necessary and unanimously endorsed Nsamba’s justifications for it. That stage, ideally, is when MPs raise all manner of objections including pointing out duplication in case any of the already existing laws can serve the same purpose.
There was none of that on Thursday as Nsamba made his submission. This Parliamentary unanimity doesn’t mean there are no actors hostile to Nsamba’s proposed Bill. There are those who have been earning big on kick backs from foreign firms taking a lion’s share.
These act like commission agents connecting foreign firms to technocrats in Finance Ministry where some of these contracts or agreements are negotiated and supervised from. These could gang up and fund Nsamba’s political downfall in 2021 by funding his opponents.
“I know the consequences because when this legislation succeeds, commission agents are going to lose billions in kick backs and they won’t just sit without a fight. But that is immaterial. What is critical is to redeem our economy as a country. I can lose my MP Seat but this law will help the whole country and my constituents will be better off in future. If it means paying the price by losing my seat so be it,” says Nsamba.
He is working with Bukoto South MP Mohammed Mbabali as co-sponsor and, to emphasize the bi-partisan nature of this proposed bill, Soroti Municipality MP Herbert Edmund Ariko (FDC) has agreed to be the other co-sponsor of the bill besides Mbabali.
Having successfully shared his draft Bill, Nsamba will now spearhead consultations with other stakeholders leading to a more comprehensive bill that MPs will debate clause by clause-pass and later send it to the President for his signature to become law.
Nsamba says because, bill sponsors are as well targeting the over $20bn to be spent on petroleum pipeline and refinery infrastructure in the next 4 years, the proposed local content bill must be expedited for Ugandan firms to cash in.
In marketing his bill, Nsamba is benchmarking on countries where similar interventions have previously succeeded. He refers to Kenya whose 2016 local content legislation imposes penalties on MDAs that fail to ensure 40% of the work on every major contract they award is done by local firms.
The law requires 40% of every contract to reflect local content by way of procurement, labor requirements, raw material inputs and consultancy services etc. In Ethiopia, the local content legal provisions have ring-fenced some sectors for local firms 100% and it’s prohibited for foreign firms to do even 1% of the work in such sectors namely roads, power generation and banking services.
“Ethiopian engineers design and build all the roads and dam infrastructure and they have produced better work than international contractors would,” Nsamba explained to MPs on Thursday in his justification statement. He says Nigeria, Angola and Ghana have done equally well.
He says where local firms lack capacity to do a good job, as finance Ministry technocrats will soon be arguing, government is partly to blame because it never pays them on time in rare cases when they are contracted at all.
He wonders why foreign firms are always paid on time and vice versa for local ones. He asserts that efforts being undertaken to recapitalize UDB and Uganda Development Corporation will be harnessed once the local content law is in place.
He also indicts his own NRM government for not making use of Kyankwanzi retreats to deepen patriotism amongst Ugandan entrepreneurs so that they are ideologically oriented to shun shoddy work.
“Each time there is a retreat, it’s the political class we take there and never the business people,” he argues. Nsamba also refers to the PPDA Act in existence since 2003. Section 50(1) of this Act prioritizes Ugandan construction and consultancy firms in all procurement deals but the practice has been zero. “MDAs and concerned firms are supposed to be penalized for non compliance but nothing has been done,” he says.
Besides sharing shocking statistics, Nsamba challenges fellow MPs to stop lamenting and use their power and leverage to make the necessary legislation to supplement on the President’s relentless efforts calling for local content.
“We are the people who pass the budget and approve loans. This is the leverage we must use to insist on local firms’ participation in each and every contract and rescue our economy from the impending collapse.”
Nsamba’s figures expose the Chinese firms as taking a lion’s share of the projects. He reflects on the transport sector alone showing that in the last five years (2012-2017), the roads sector spent over Shs15,970bn! Of this, Shs12,324bn was from loans and Shs3,646bn was internally generated/raised by the GoU.
On the loan money (Shs12,324bn), the Chinese firms took contracts worth Shs11,175bn (or 91%); followed by Israel firms (Shs444bn or 4%), Asian/Japanese/South Korean firms (Shs447bn or 4%) and Portuguese firms (Shs258bn or 2%).
Ugandan firms shared zero! On the Shs3,646bn GoU locally generated (not loans, not grants), the Chinese firms still dominated chewing Shs2,193bn (or 60%). Next were Indian firms which took Shs491bn (13%), Israel firms’ Shs477bn (13%), Turkish firms’ Shs360bn (10%) and Serbian firms’ Shs123bn (3%).
Nsamba and other MPs are furious that even on projects which are 100% funded by the GoU, our firms are getting zero (0%) and can’t be permitted to participate at all. The Kasanda north MP notes that the Chinese firms, taking a lion’s share, have in the last 5 years relied 100% on Chinese managers for top management positions.
They have also relied 76% on Chinese engineers for all engineering posts and Ugandans only serve as casual laborers and machine operators attracting poorest remuneration. “Tell me why won’t Ugandan firms and their proprietors be collapsing everyday like Red Pepper has been reporting?” Nsamba rhetorically wonders.
Referring to the above shocking statics, Nsamba told MPs on Thursday: “If this trend is not regulated, I fear for the worst where the linkages will continue to accrue to Chinese firms.” He argues his bill seeks to provide for “affirmative action of sorts” to enable local firms participate in these multi-trillion projects.
“This is good for our Balance of Payment [BOP] position whereby we reduce the importation hemorrhage and volatility in our foreign exchange regime which the President has been complaining about each time he comes to us as MPs to deliver his State of the Nation address,” argues Nsamba who says private sector is where he will return the day he will cease being MP.
He reflects on his figures above arguing: “there is no way our shilling won’t keep weakening against the dollar if the Chinese firms are taking out so much money paid to them by our very government.” He commends the 9th Parliament for putting local content provisions in the petroleum laws enacted in 2013 resulting into increased local firms’ participation in oil sector contracts.
However, he says, there are gaps and what was done is clearly inadequate. “That [petroleum] law didn’t clarify the definition of local content, didn’t mention penalties for non compliance and besides, Petroleum is just one sector.
We need to legislate imposing local content obligations for all the other sectors of the economy,” he says faulting GoU “for donating dollars by engaging only foreign firms in all procurements.” He says even in the ongoing FY 2016/17, Chinese firms’ have continued having a lion’s share: galvanizing 84% of all major contracts leaving Israel, Turkish, Portuguese, Serbian and Indian firms to share the remaining 16%! Ugandan firms still have got zero contracts! “It’s really very disturbing because the situation is the same even in cases where a project is 100% funded by GoU money,” Nsamba noted in a Sunday interview.
He says absence of enabling law is the reason even efforts like the “Buy Uganda, Build Uganda” policy haven’t yielded the desired results because we have no mechanism to punish non compliance. Even where a project is 100% funded by a Chinese loan, Nsamba says a National Local Content Committee should be created under the proposed law to ensure local content obligations are integrated during loan negotiations.
“100% funding shouldn’t be a condition used by the Chinese actors to totally eliminate local firms’ participation in constructing these mega development projects because the Ugandan tax payer still has to repay the loan.”
The soft spoken MP also proposes that production of the “local content compliance certificate” could be used as basis for an investor or foreign construction firm to qualify for tax and fiscal incentives. He proposes establishment of an authority to regulate and oversee local content-related matters. If all goes well, he says this law should be in force in four months time.
Excitement for his motion manifested even outside Parliament if the views expressed by former Senior Minister Daudi Migereko are anything to go by. “That is a step in the right direction because mainstreaming local content is the solution to all our contemporary economic problems.It’s the only sure way we can build capacity for our local investors and they are entitled to that support from Parliament through the legislation Hon Nsamba is proposing. In fact that law is long overdue,” said Migereko who during his cabinet days colleagues had christened “Mr. Local Content.”