In his state-of-the-nation address on Thursday, President Museveni decried the high cost of borrowing and made lowering it one of the priorities for the coming financial years.
As we reported on Friday, the president wondered why the privatization of Uganda Commercial bank (now Stanbic) 14 years ago did not solve that problem. Mr Museveni lamented that while Ugandans borrow at an average interest rate of 21 per cent annually, in other countries like Korea, rates can be as low as 3.4 per cent.
To correct this anomaly, Museveni said, the government would recapitalize Uganda Development Bank with Shs 500 billion. This should be lent to strategically-important sectors such as manufacturing and agriculture at favourable interest rates.
First, it is commendable that government wants to do something substantial to increase the availability of development financing for strategic, productive sectors with proven multiplier effects for the economy. As we have argued here before, agriculture is one such sector.
By coincidence, on Friday, we also carried an interview with aBi group CEO Andre Dellevoet, in which he listed lack of credit as one of the bottlenecks to transforming Uganda’s agriculture.
As Mr Dellevoet pointed out, the interest rates of commercial banks are very high for most – if not all – agricultural enterprises that would create an impact among rural farmers.
His view, therefore, was that Uganda would do well to have a bank specifically and exclusively for lending to agriculture. The meeting point between President Museveni and Mr Dellevoet, a Dutch national, is that we need a financing vehicle that is sensitive to the peculiarities of the agricultural sector – and other key sectors such as manufacturing.
Indeed, other analysts argued on Friday that instead of putting the Shs 500bn in Uganda Development Bank, the government should create an agricultural bank.
Ultimately, Ugandan farmers may care less where the money is, as long as it is availed to them to support farming enterprise, rather than simply maximizing profits.
So, whether in UDB or in some other vehicle, let the government seriously follow up the promised billions with proper systems to ensure the money gets to the most deserving, development-minded farmers and industrialists.